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-Source,Date,Text,Token_count
-fomc-corpus,1980,How about the aggregate?,5
-fomc-corpus,1980,"What about the aggregate, yes?",7
-fomc-corpus,1980,"I suppose we'd have to put that at $1-1/2 billion, say.",18
-fomc-corpus,1980,Make that $1-1/2 billion?,10
-fomc-corpus,1980,That would leave us where we are except [to allow] another $500 million on the D-mark.,21
-fomc-corpus,1980,You're making a very modest proposal.,7
-fomc-corpus,1980,"This is just a holding action to give us a little flexibility at the moment, that's all.",19
-fomc-corpus,1980,Is it likely to be enough to last us until next month?,13
-fomc-corpus,1980,"Well, it might not be. I'm perfectly happy to go higher if the Committee wants to. And if it's not high enough and we run into a problem, we can come back [to the Committee].",41
-fomc-corpus,1980,"Maybe we can get some understanding from the Treasury on warehousing. It would be to our advantage to encourage the Germans to continue to follow a more relaxed policy, as Tony has been talking about. Given the developments in the world economy, we can't afford to have Germany go back to a very tough monetary policy.",62
-fomc-corpus,1980,I only suggest $500 million to give us a little maneuvering room; I would come back if I thought that created a great problem. The basic philosophy that is being expressed I agree with. I just don't think it's necessary to make it a very high limit right at the moment. It probably isn't necessary operationally.,64
-fomc-corpus,1980,"Well, it gives the impression that $500 million is a lot of money in this particular game, whereas actually if the market should be weak for the D-mark we could use up a good part of that in a day.",45
-fomc-corpus,1980,"Could we authorize now on an interim basis a move up to, say, $1-1/2 billion in D-marks?",27
-fomc-corpus,1980,We can if you want to.,7
-fomc-corpus,1980,It seems to me that the--,7
-fomc-corpus,1980,"I do think we'll try to work something out with the Treasury so that they are, in effect, taking the first $2 billion. So I think we have more room. But if that isn't easy to work out, that's when we will run into the problem.",53
-fomc-corpus,1980,"It is possible that one of the options that could finally prove most satisfactory to the Treasury and ourselves in regard to their cash problem [would] also involve charging this against our own balances. It would be useful to have a higher limit on DM holdings because [that is] one of the options, although it is not likely [to be needed]. Warehousing doesn't require it. It seems to me that if there's no opposition within the Committee it just makes sense to put ourselves in a position where we do have some extra margin. And an interim authorization to hold up to $1-1/2 billion in DM seems to make some sense.",128
-fomc-corpus,1980,I'd be more comfortable with $1 billion myself; I feel uncertain about it.,16
-fomc-corpus,1980,I have no problem going up to $1-1/2 billion. I personally have no problem with going higher in a long-run context. But I think that raises other questions.,37
-fomc-corpus,1980,"What about an arrangement whereby we grant up to $1-1/2 billion, but the extra $1 billion is not used unless we feel fairly certain that arrangements can be worked out with the Treasury, however we work it up. That would give us the additional freedom and still meet Governor Partee's concerns.",63
-fomc-corpus,1980,"Well, I just don't know. I suggest $500 million in the knowledge that we can always come back to the Committee if we need more. The way you worded it makes it sound a little more restrictive--that the presumption is we won't come back. But I guess we're [talking] nuances here. I'm perfectly happy to add $1-1/2 billion, if that's the way you want to go. I'm perfectly happy to go with $1 billion with a footnote that if the Treasury for some reason can't [finance more marks] very readily and we run into the kind of problem you're talking about, we may well want to come back and indicate that we want more than the $1 billion.",145
-fomc-corpus,1980,What has been the size of your D-mark purchases recently?,12
-fomc-corpus,1980,Yesterday we bought $200 million equivalent of marks. On other days we've bought $10 million. The amount varies depending on the pressure. Today we've already done some $85 million.,36
-fomc-corpus,1980,"You bought $200 [million] for our own account yesterday, Scott?",15
-fomc-corpus,1980,"To be split between the Federal Reserve and the Treasury. We're splitting it down the middle all the way, except there are certain transactions that the Bundesbank insists the Federal Reserve take rather than the Treasury. But basically we're splitting it.",46
-fomc-corpus,1980,"I don't think it's important whether it's $1 billion or $1-1/2 billion. Since Chuck feels so strongly about it, let's keep it at $1 billion.",35
-fomc-corpus,1980,"Well, I don't feel too badly as long as it's on a consolidated basis, so to speak, and we're not holding a significant cash balance. But I always get concerned because of the parallel, let's say, with buying [unintelligible].",50
-fomc-corpus,1980,"Why don't we go to $500 million more now but with the understanding that if we run into a problem, we'll be back to the Committee.",29
-fomc-corpus,1980,We can go up to $1 billion.,9
-fomc-corpus,1980,We can go up and ask the Germans--,9
-fomc-corpus,1980,I take it the overall limit is $1-1/2 billion.,15
-fomc-corpus,1980,It's $1 billion in any one currency and $1-1/2 billion overall excluding the yen.,21
-fomc-corpus,1980,"Well, $1 billion just in the mark is all we're talking about at the moment.",18
-fomc-corpus,1980,I don't want to buy $1 billion in Swiss francs.,12
-fomc-corpus,1980,"If we run into a problem, we'll just be back [to the Committee] with a written communication. I think that's all on the international side. We can consider at some point the more general issue of whether these limits are too restraining or not. Do we have an overall limit? We're left with a limit, I discover, [in the formal authorization] of $8 billion, which seems a little inconsistent with our open position. We can only have $1 billion on the up side but we can apparently have $7 or $8 billion on the down side. But we may--",119
-fomc-corpus,1980,I think there's something asymmetrical about this.,9
-fomc-corpus,1980,"We may want to look at that, but I think we can do it when we review the whole authorization early next year.",25
-fomc-corpus,1980,The notion is that we defend the dollar harder than we defend the mark.,15
-fomc-corpus,1980,The psychology of this [unintelligible].,10
-fomc-corpus,1980,Okay. Mr. Sternlight.,7
-fomc-corpus,1980,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1980,Questions or comments?,4
-fomc-corpus,1980,"What is your estimate of the reserve release that we are facing in early November, Peter? How big is it?",23
-fomc-corpus,1980,"The drop in required reserves is on the order of $3 to $3-1/2 [billion]. There's also, depending on what we do with definitions, a large increase in excess reserves. Of course, we don't expect to offset that raw figure for excess reserves. In fact we are still having staff discussions on that.",67
-fomc-corpus,1980,My point was simply that your request for expanded authority is roughly related to the size of the release that you may have to be doing.,27
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,Is that from member banks or from nonmember banks coming in or is it net?,17
-fomc-corpus,1980,The $3 to $3-1/2 [billion] would be a net of the phase down [in required reserves] for member banks and the first phasing in for nonmembers.,40
-fomc-corpus,1980,"Peter, I'm a little confused. Page 2 of the Bluebook shows a dramatic increase in August and September both in total reserves and in the monetary base. Both skyrocketed, in effect, which should normally signal a massive increase in growth of the aggregates. When you at the Desk see this type of thing happening, do you take steps to compensate for that? In other words, first of all, what caused the 16 and 22.9 percent monthly increases in total reserves and the 15 and 10 percent increases in the base? What [unintelligible] the Desk operation, or couldn't you take steps to drain--",129
-fomc-corpus,1980,"We were following our nonborrowed path during those periods. For the most recent period, as I mentioned, we will be coming out very close to the path on the nonborrowed reserves. Total reserves are running above path essentially because of the strong growth in the aggregates. We have not accommodated that increase. The banks have been obliged to get those additional reserves from the discount window. And in the course of seeking those reserves, they've had to bid up the funds rate; and we have had the interest rate increases that I mentioned. We did take some further [tightening] action during the period, as I mentioned. As we saw the total reserve path running at $400 or $500 million above the path, we acted to reduce the nonborrowed path by $200 million midway through the period. That had a reinforcing effect on bolstering the need for borrowings and stepping up the pressure on the banking system.",186
-fomc-corpus,1980,"When you observe a significant increase in bank lending, which obviously requires the availability of reserves, do you accommodate that? In other words, do you make those reserves available to the banks? Or sometimes if a bank decides to increase its lending and knows it is going to have to pay the piper two weeks later or a week later on this lagged reserve accounting, do the banks just assume that they can make these loans and price them because the good old Fed will come along and provide the reserves to enable them to meet their reserve requirements at a later date? Or do we sometimes say: Look, you guys can't have it both ways. You're increasing your loans and it's going to cost you more money in the federal funds market.",146
-fomc-corpus,1980,"I think it's essentially the latter, President Roos, because by sticking with our nonborrowed reserve path for the period we are saying we are going to provide nonborrowed reserves in line with the path and the additional reserves will have to be obtained at the discount window. And banks are subject to those pressures that emerge when there has been a persistent sizable borrowing.",73
-fomc-corpus,1980,"What is the relationship between the nonborrowed reserve path and total reserves? We obviously agree that total reserves and the monetary base grew too quickly in August and September, right?",35
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"So, couldn't you have done something to avoid that explosive growth?",13
-fomc-corpus,1980,"Well, as I said, by sticking with the nonborrowed path, pressure emerges on the banking system; and we did accelerate that pressure somewhat by reducing the nonborrowed path. We could have gone still further with that. We conformed with what has been about the norm in such behavior, which is to reduce the nonborrowed path by roughly half of the overrun on total reserves.",80
-fomc-corpus,1980,"So it's a matter of degree, really?",9
-fomc-corpus,1980,I think so.,4
-fomc-corpus,1980,But we don't really stick to them.,8
-fomc-corpus,1980,"The pressure could have been increased a little further, with of course an impact on interest rates.",19
-fomc-corpus,1980,"That's the bottom line, right.",7
-fomc-corpus,1980,"But without necessarily any impact on total reserves in the period you are talking about. That is, the impact on total reserves and the base might well have come later. And it might have been considered, conceivably, to be a lot greater than you would have wanted later. It's really very difficult to judge. I doubt that the banks would respond instantly to an increase in the funds rate of another 1/2 point or 1 point. They will respond, but perhaps not instantly. The response may come later when the money supply might otherwise have been being reduced, so we have to judge that also.",123
-fomc-corpus,1980,"Well, if you have developed a convention that you only offset half of the overshoot in total reserves by a reduction in the nonborrowed path, what is the rationale for that convention?",38
-fomc-corpus,1980,"I don't know [that it's a] convention. There's always an option of adjusting the discount rate or the nonborrowed path. I don't remember exactly when the discount rate went up, but I think it was in this period. So that's an additional factor; that is, I viewed that as an alternative to further downward adjustment in the nonborrowed path. That's [equivalent to] taking another $200 to $300 million off the nonborrowed path. So I would say [the adjustment] went pretty far. Otherwise, you're left with a rule--I don't know what the rule would be--that every time total reserves are above where the original path was, we lower nonborrowed. The amount of lowering in the nonborrowed path we have to do really isn't equal to the [drop in] total reserves. It would have to be one heck of a lot more--billions more--because banks are going to borrow more. So we'd have to lower nonborrowed even more to offset the increase in borrowing to get any drop in total. And to do it within a month is very difficult; it would require very substantial drops in nonborrowed reserves. So, inevitably, we get into the question of either letting nature take its course or trying to figure how much speed we can give to the process given the lags.",271
-fomc-corpus,1980,So you come out with 50/50 [as your rule].,14
-fomc-corpus,1980,"When Governor Partee was head of research, in all uncertain things he laid down the dictum 50/50.",23
-fomc-corpus,1980,It's all Chuck's fault!,6
-fomc-corpus,1980,"Well, we don't know. This gets into some very serious problems, as Steve suggested. If we had pressed down very hard and pushed, I don't know where the federal funds rate would have gone but the evidence seems to be that we get very little impact on the money supply in the short run. But we might get a helluva big impact two months from now and then you would say: My word the money supply is declining 8 percent and we have to push way the other way. So if we let the federal funds rate go to zero--I'm exaggerating a bit--we still won't get much impact [in the very short run]; we'd get that impact two months later. Now, if one wanted to be nasty and critical of the Federal Reserve, one would say we reacted or pressed too hard in February and March when money supply growth was high. The result was a very [weak] money supply in April and May. And we pressed much too hard against the decline in the money supply in April and May with the result that it went up [rapidly] in August and September. Now, I think there are other things operating, but to the extent that these lags are operating that's the dilemma we get into.",248
-fomc-corpus,1980,"Yes, we get whipsawed. As long as we assume there's a lag--",17
-fomc-corpus,1980,"If there's a lag of that sort, we can get whipsawed. That's very easily--",19
-fomc-corpus,1980,"I know there's no exact answer, but what are the best estimates of the length of the lag?",20
-fomc-corpus,1980,"Well, we are working on that again. It's probably premature to say anything, and we probably won't get a good answer when we get it. So, what do you say?",36
-fomc-corpus,1980,The lags are shorter than they used to be.,11
-fomc-corpus,1980,"They have gotten shorter. On both our quarterly model and monthly model the lags are quite a lot shorter than they were a few years ago when we first started [looking into] this. On the monthly model, to the degree there's a response in money demand to interest rates, the elasticity is a little over 10 percent. On our current estimates of the model, fifty percent of the impact comes in about two months. It's pretty fast.",89
-fomc-corpus,1980,That isn't Chuck's 50 percent.,8
-fomc-corpus,1980,"No, no.",4
-fomc-corpus,1980,It used to be five months--50 percent in five months.,13
-fomc-corpus,1980,"It's down at least to three months. Our quarterly model, which has been re-estimated very recently but only with data through '74 because using data after '74 we couldn't get a fit that was worth talking about, the elasticities are variable. There is one for the bill rate and one for the [unintelligible] savings rate. If you add them up--pretend they're additive--it's something like 10 percent again. It says that within a quarter we get 60 percent of the response, depending on how things go. And after one quarter we get three-fourths of the response. That's much faster than we had when we started estimating these things. That means that if we have done a little here, we will begin to get some movement shortly thereafter. I don't think this is too inconsistent with the kind of behavior we have had this year, but we are working on [an analysis of] it. But our latest view is that the lags are a lot shorter than they used to be.",206
-fomc-corpus,1980,But that's based on pre-1974 data?,10
-fomc-corpus,1980,For the quarterly model. But for the monthly model that's estimated with more up-to-date data.,19
-fomc-corpus,1980,We ought to recognize that we could still have this whipsawing with a lot of two-month cycles.,22
-fomc-corpus,1980,"It only takes a 2- to 3-month lag. We don't assume a very long lag, but we have to assume there isn't much instantaneous [effect].",33
-fomc-corpus,1980,"It isn't just a matter of lags. It's also a matter of the size of the elasticities and what's happening to transactions demand for money as a consequence of changes in GNP. The worst possible implication of thinking through this lag business is that if we have both significant lags and a very low interest elasticity of demand for money, when we try to push the money stock in the direction that's counter to the direction in which transactions demand is going, we don't get a response right away. It may push interest rates to a point where the response comes through the effect on the economy later on, in which case we could end up chasing our tail more or less perpetually. And that's a possibility I think we have to look at very carefully. I've asked the staff to begin looking at this, but it's much more [than lags]; it's a complicated process.",173
-fomc-corpus,1980,You change demand [for money] by changing the spending that it's related to.,16
-fomc-corpus,1980,Right.,2
-fomc-corpus,1980,"If one carries that to the extreme, the amplitudes of the swings get higher.",17
-fomc-corpus,1980,"They could get worse, yes.",7
-fomc-corpus,1980,"Doesn't even the short-term adjustment we are talking about have to come through interest rates? That is, banks individually presumably are not responding to what we are doing in terms of total reserves or total nonborrowed reserves. I'll put it as a question. Shouldn't we assume that whatever adjustment we get from our actions that impact on money stock growth has to come through the interest rate circuit? It doesn't come directly through the manipulation of reserves.",88
-fomc-corpus,1980,I'll ask you the question back again. You don't have to resolve what mechanism it goes through; [the question is] how can you get the restraint on the money supply and on bank activity without having an impact on interest rates?,46
-fomc-corpus,1980,"I don't think you can; therefore, I don't think we are talking about two separate things. In other words, the effects on the economy are through the interest rate and the effects on money stock are through the manipulation of reserves. It seems to me that they are both through the interest rate and that should be recognized. To me the lag aspect of the reserve part of the mechanism is not too important; if we focus on it, it seems to me that we are exaggerating its importance.",99
-fomc-corpus,1980,We are not talking about the lag in the reserve requirement. This is the lag between interest rates or whatever other mechanism and the change in the money supply.,31
-fomc-corpus,1980,"That's where the focus needs to be. And that brings to the surface again this idea that if one is going to focus pretty closely on the aggregates and accepts the desirability of stability in the movement of the aggregates, then one just has to accept a lot of flexibility in interest rates in the short term.",61
-fomc-corpus,1980,But that doesn't follow; that's the problem.,9
-fomc-corpus,1980,"And if we don't go that route, then it seems to me we come back to the old problem we had--which we apparently didn't handle too well--namely, our ability to project what level of interest rates will give us what we want in some other measure.",54
-fomc-corpus,1980,"That problem we surely have had. But I don't think one can simply say that the answer is that we ought to be less concerned about interest rates. Indeed, it may be--I just present this as an hypothesis--that our lack of concern over interest rates is what produced the fluctuations in the money supply this year. Now, I think many other things are going on, but one cannot reject the hypothesis.",82
-fomc-corpus,1980,Did you say project or reject?,7
-fomc-corpus,1980,I cannot reject that proposition on the basis of what I know now.,14
-fomc-corpus,1980,It might have been a factor.,7
-fomc-corpus,1980,"I don't think it's the whole thing--I'm speaking somewhat theoretically--but it may have entered into it to some degree. By letting interest rates fluctuate so much, we may have helped to generate the fluctuations in the money supply.",45
-fomc-corpus,1980,"In one sense I think that is almost certain because we helped to change income. That's Lyle's case. We have changed income by letting interest rates fall so sharply; we probably contributed to the recovery. It changed income again. So that mechanism has been in play. Now on your mechanism, the lag in money demand to interest rates, I just don't know about the evidence. We used to say it was six months to get the full effect, wasn't it?",93
-fomc-corpus,1980,Yes; it's a lot shorter now.,8
-fomc-corpus,1980,And you've shortened it now considerably.,7
-fomc-corpus,1980,It used to be that in five months we'd get half of it.,14
-fomc-corpus,1980,This is a subject that is part of the overall study?,12
-fomc-corpus,1980,Indeed it is.,4
-fomc-corpus,1980,"We have another problem. The communications problem is terrible. There are enormous numbers of people out there who believe that the money supply is controlled by some magic wand. And there are an awful lot of people who say: Look, if you guys would just hold down the money supply, then interest rates wouldn't go so high. I just sort of look at them and my eyeballs twirl a bit, because it's very difficult to figure out how they intend for us to do that. So, we really have a serious communications problem we are going to have to address.",113
-fomc-corpus,1980,"And we're left--there's no escape at the moment--with having to rely on some judgment as to how to express this formula for how far to put down the nonborrowed reserves when the aggregates begin running high. The mechanism isn't a perfect one, that's for sure. But I don't know of any statistical formula that resolves it at this point.",70
-fomc-corpus,1980,"Following up on what Fred said, I think we're in a major quandary because I think the way the country interpreted our October 6th announcement was that we were going to pay a price in terms of volatility of interest rates but the implication was that there would be much more stability in the growth of the money supply. We have seen at least in a year like this--and possibly, although I hope not, even in a year when the underlying economy is not quite as volatile--that we don't have that kind of control for the reasons we were talking about. So I think we built up expectations that we can't meet now. And there's also an impression increasingly getting around that it's not so much a lack of political will or resolution by the Fed but that the Fed basically doesn't have the ability to control the money supply, which is your point. But, Fred, if we stress too much that we can't control the money supply in the short run, it can give a very undesirable impression of the Federal Reserve's [impotence] among those in the public and in the business and even the financial community who are naive about [the extent of] our ability to control the money supply.",238
-fomc-corpus,1980,"Tony, in defense in those of us who believe that we do have the ability to do it, in the study we are undertaking I would hate to close our minds to that possibility and reach the conclusion that the money supply cannot be controlled better than it has been. It's only fair to stay open-minded on this. Hopefully, the research that Steve and his people are doing might indicate that perhaps the way we went about controlling the growth of the money supply was not the most effective means of doing it. In other words, I wouldn't buy the fact that it can't be done. I'm not sure that we did it in the most effective way. But we could argue this issue endlessly. This is what is being studied, correct?",145
-fomc-corpus,1980,"Yes, it's one of the things for sure. There are several, but that is certainly a key issue.",22
-fomc-corpus,1980,"There are a lot of people in the markets who feel that we announced we were going to do this and then we reestablished our practice of flirting with [controlling] interest rates, so we really only [went part way] in this process, not the whole way.",56
-fomc-corpus,1980,"That's the whole point, Larry. There has been a supposition that if we are willing to let interest rates go without any limit whatsoever, we can achieve more control over the money supply. I think the results--plus the analytical discussion we have had in miniature this morning, with our discussion of the lags and other things--have shown that one can't draw that conclusion.",75
-fomc-corpus,1980,"Well, one can't draw it right now. But it is obviously on the agenda. I don't mean to exaggerate this but I think the main reason the money supply has been fluctuating is that the real economy has been fluctuating. That may be partly due to our policies but I--",58
-fomc-corpus,1980,"I think one has to have time periods in mind, What we are talking about is a relatively short interval of a few months and we are having great difficulty controlling the money supply in a short interval. But I think the record is pretty good on the longer run.",53
-fomc-corpus,1980,"That's just what I was going to say, too, Chuck. Let's turn it around the other way. Yes, it can be done--it has been done--if one is willing to look through the second quarter and the third quarter and at the broader record. The subject of our study is, can it be done better? And if so, we want to find out how. But we still have to stress the successful side of this if only to keep up our credibility and our confidence. Credibility has two sides.",105
-fomc-corpus,1980,John Balles.,4
-fomc-corpus,1980,"In listening to this discussion, Mr. Chairman, a question did occur to me that I wanted to ask Steve. As you recall, a year ago when we got into this new plan, we all anticipated a need to adjust the discount rate with great frequency. To our considerable surprise, at least to most of us, that turned out not to be true for quite some time. In looking back on the experience since June, when we had this big surge [in money growth]--actually now June through October--do you have any feeling, Steve, that had we been more flexible on the discount rate we might have headed off some of the net overshoot in total reserves? I gather that what has really gone on is that the multiplier has worked out pretty well but we've come in with more reserves after the fact than had been planned before the fact; and most of that was accounted for by a higher level of borrowing than was in the plan at the start when we projected the nonborrowed reserve path. What good would it have done, if you have a view, to have manipulated the discount rate more in this period?",226
-fomc-corpus,1980,"Well, I'll just give a tentative response, because we are doing research in that area and the results of that research, particularly with the relation of the lags to what happened to money, would be critical in one's appraisal. I don't view it myself, President Balles, as a discount rate question. I see it more as a question [relating to the level] of the federal funds rate or the constellation of short-term rates. So I would transpose your question to be: If the discount rate had been raised earlier, would it have put more pressure on the funds rate earlier and, therefore, damped money growth in January and February of this year? I don't think it's a question of discouraging borrowing but of discouraging bank [lending] activity and the public's demand for money. And that's not a question of the discount rate per se, but a question of the level of short-term rates. My tentative view is that one would have raised the discount rate to higher levels only if one came to the judgment that other short rates ought to have been higher. If one were content with the level of short rates that emerged, I don't see any need to have adjusted the discount rate from what was done. On a more technical basis, there is some validity [to that concept], and I think the surcharge is a step in that direction. There is somewhat of a slippage in that; one can't be sure, as we saw this time. We might get a lot of borrowings early on when we're expecting [only] a little, and we might get little when we are expecting a lot. There are uncertainties in the relationship between market rates and nonborrowed reserves as a result. Those are rather short-run slippages and probably a more structured discount rate system, which the surcharge was, might help to give a little more certainty in the relationship between borrowing and the funds rate. So we may get more certainty in the response. But that's a technical thing and not a question of the overall level of the discount rate. I think the question is what overall level of short rates the Committee is willing to see and tolerate.",430
-fomc-corpus,1980,"Let me just remind you that we had a perfect practical example this time of raising the discount rate between meetings, which did not affect the margin between the discount rate and market rates at all. It just raised the level of market rates. So we were left with an even larger discrepancy, so to speak, between market rates and the discount rate by the time [the adjustment] was finished. That is what one would expect to happen if the level of borrowings, which we control, remains the same or goes up.",104
-fomc-corpus,1980,"I was going to make this remark later, but it may fit better now in view of the discussion. It seems to me that another thing that falls out of this recent experience is the possibility that we need to move in the direction of relatively more weight on, or attention to, the broader concepts of money. There are institutional changes taking place and, I gather, an increased amount of speculative activity flowing from the rising concern about inflation in the economy and an increasing tendency to shorten commitments. I thought that was captured very well in the paragraph in part I of the Greenbook that begins at the bottom of page 14 and concludes on the top of page 15 on how funds are flowing between the categories we include in M-1A, M-1B, and M2. It seems to me that we are seeing relatively more stability in the broader [M2] measure, and that measure is one which is more and more becoming a closer approximation of what people view as money or something they can use as money. We may be exaggerating the importance of achieving targets in a fairly stable way on [the basis of] an unduly narrow concept of money or what people are looking at when they behave in a way that we think has a relationship to money.",254
-fomc-corpus,1980,"Well, I'll just make one more comment in connection with what you said [and then I think we ought to move on.] My impression is--it has to be confirmed by a little more statistical analysis--that basically all countries have much more instability in M1 than in M3 or M2 or whatever [broader measure] they look at. And some of this stability we hear reported in foreign countries is because they concentrate on the broader aggregates. If one looks at their M1, it doesn't look a lot better than ours, although ours looks pretty bad this year relative to any experience [unintelligible].",124
-fomc-corpus,1980,This has the further link in terms of what items we attach reserve requirements to. It seems to me that book needs to be kept open to the extent we can keep it open.,36
-fomc-corpus,1980,We have to ratify the transactions.,8
-fomc-corpus,1980,And his [leeway] recommendation.,8
-fomc-corpus,1980,"Oh, yes.",4
-fomc-corpus,1980,I'm not confident that I need the added leeway--,11
-fomc-corpus,1980,"Let's take up the ratification first. Without objection the transactions are ratified. Now we'll take up the $4 billion [leeway], which seems reasonable under the circumstances. Would somebody like to move that?",42
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Second.,2
-fomc-corpus,1980,"Without objection, you have a $4 billion [intermeeting] limit. Mr. Zeisel.",20
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"You're overjoyous. Let me ask a question on the short run, the very short run. We had a pretty good increase [in economic activity] apparently in August and September. If we had a monthly GNP number, it would probably be going up--I don't know--at maybe a 5 percent rate or more in those two months. And July was the low point. So September must have been substantially higher than July. To get only a 1 percent increase in GNP in the fourth quarter, are you assuming a decline if you plotted this monthly in November and December?",119
-fomc-corpus,1980,"We haven't plotted it monthly, Mr. Chairman, but it does imply some contraction in activity toward the end of the year, in November and December, seasonally adjusted.",34
-fomc-corpus,1980,"Your housing starts alone would do that, wouldn't they? Aren't your housing starts trending downward?",19
-fomc-corpus,1980,We assume that housing starts will drop off rather sharply.,11
-fomc-corpus,1980,"Well, starts will drop off, but the [drop in] activity lags.",17
-fomc-corpus,1980,"Activity and spending continue for a while, and that's why we get as much increase as we do in GNP. We are assuming very little growth in personal consumption expenditures--actually none --for the fourth quarter. We don't assume any substantial increase in employment or income during that period. The saving rate has already dropped in the third quarter; we don't expect any further decline in that, or nothing major. So that's the major element. We also won't be getting the kind of help from the foreign trade sector that we have had.",105
-fomc-corpus,1980,"Let me put it this way: If your forecast for GNP is right, does it imply a decline in industrial production in November and December?",29
-fomc-corpus,1980,"It probably would by December because we come into the fourth quarter at a rising slope, so I think we have to get some [decline].",29
-fomc-corpus,1980,"But, Jerry, your industrial production was a lot weaker in the third quarter than GNP. And, therefore, there could be a rise in industrial production compared to GNP in the fourth quarter.",40
-fomc-corpus,1980,"I would think industrial production would not be as weak. That's right. Industrial production was down about 2-1/2 percent in the third quarter--about 10 percent at an annual rate. And I would think we'd begin to get some pickup from that toward the end of this quarter and so we'd come into the fourth quarter at a higher level and that would hold pretty well. We are not anticipating the continued strength in spending for automobiles and other consumer durable goods that we were getting. Basically, that's the sector showing weakness.",106
-fomc-corpus,1980,"Maybe we will go on to you, Steve, and then have a general [discussion].",18
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Why don't we deal with any immediate questions that arise and then have a coffee break.,17
-fomc-corpus,1980,"Steve, we may have made an error at midyear in not changing the M-1B target ranges. Do you think it makes any sense at this time to consider the possibility of making a downward change in the target range for M-1A and an upward change for M-1B for this year? Or are we already too far through the year so that we are unlikely to get any positive effects from that kind of action and might get considerable negative effects?",94
-fomc-corpus,1980,"I would say the effects of that probably would be negative because I perceive difficulty already in the public's understanding of the increase in the M-1B range [described] in the appendix to the Chairman's letter in February, having to do with the 1981 targets. I've heard people interpret that as an increase in monetary growth and an easier policy when it was explained that that meant a tighter policy. So I think an effort at this point to do that for 1980 would probably be nonproductive.",103
-fomc-corpus,1980,You mean because of the misestimation of NOW accounts?,12
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"I would caution, Mr. Chairman, against our believing that we can move in an admirable fashion from M-1B, which certainly has been the primary focus for our attention in recent months, to M-1A just because we are running into trouble with M-1B. I don't think we can fool the financial markets. At Frank Morris's recent conference, which was attended by a lot of individuals from the financial markets, there was pretty strong allusion to the fact that the Fed has several different definitions for the aggregates just so it can conveniently use the one that seems to be working best for the moment. I don't think we can get away with it. I was a little concerned, actually, about what I sensed as a primary emphasis on M-1A in the Bluebook this time whereas [previously] we have talked about M-1B. I don't think we can switch the tiller, or whatever we are using as the directing mechanism, at will and not confuse this Committee as well as the financial markets generally.",210
-fomc-corpus,1980,"I'm not sure that we have been using M-1B primarily and not M-1A, but I do think there are weighty reasons why we should downgrade M-1A. There are substantial shifts into NOW and ATS accounts. The indications that we get from M-1A are clearly biased. So I would say that in the future we should look more at M-1B. There are some [financial flows] coming into M-1B that are not coming out of M-1A.",104
-fomc-corpus,1980,The same thing that distorts M-1A distorts M-1B. I don't see how we can escape that.,26
-fomc-corpus,1980,"I think the reason we said they should have equal weight, which I believe is what we have said in recent months, Larry, is precisely because we recognize a downward bias in M-1A and an upward bias in M-1B. And so we said we'd give them equal weight.",59
-fomc-corpus,1980,"I don't think we have ever to my knowledge made a decision to deemphasize M2. Operationally, when the staff make up the paths and so forth, they are looking at M1 because that's what [depository institutions] hold reserves against. And that tends to color the conversation. But in an analytic sense, in setting the targets for the year I wasn't that conscious of downgrading M2.",83
-fomc-corpus,1980,"Mr. Chairman, I hope we will keep this in mind when we set guidelines for next year. Because if you think we have problems with the gap between M-1A and M-1B this year, next year--",46
-fomc-corpus,1980,Next year we may face the possibility that neither M-1A nor M-1B makes sense for the first six months of the year.,29
-fomc-corpus,1980,That's correct.,3
-fomc-corpus,1980,"That may be healthy. It's not just a question of looking at one or the other. We know they are both biased, but by some unknown amount.",31
-fomc-corpus,1980,"Steve, in the Bluebook you gave us the interest rates associated with alternative A. Do you have the ones that are associated with alternative B?",29
-fomc-corpus,1980,"For alternative B, through this year we would expect a funds rate roughly around the recent level of 12-1/2 percent, virtually no change. Over the course of next year we still expect rates to rise. Maybe Mike has those figures with him.",52
-fomc-corpus,1980,"We haven't put down a set of numbers. Because of this very short time period, the differences in money stock expansion are minimal and we'd end up the latter part of next year presumably at roughly the same rate.",42
-fomc-corpus,1980,"But the near-term rates would be lower, is that right?",13
-fomc-corpus,1980,That's the presumption we have with more generous monetary expansion.,12
-fomc-corpus,1980,Next year it gets to be a question of the feedback of that on GNP and inflation.,19
-fomc-corpus,1980,"If there are no more questions or clarifications, let's have a coffee break.",16
-fomc-corpus,1980,"Could I make one comment, Paul, before the break? We pay a lot of attention to the shortcomings of our quantity measures. Are we paying enough attention to the shortcomings of some of the national aggregate measures that we are trying to [deal] with? I don't have a feel as to whether the underground economy is more or less than it used to be. But I'm becoming more and more skeptical of some of these national figures that we are using in some of these other areas.",96
-fomc-corpus,1980,"I have an uneasy feeling that our national economic statistics in general are not getting any better. They're probably worse, but I don't know what to do about it.",32
-fomc-corpus,1980,"That's my feeling. So I'm wondering, in terms of what we are trying to do to the national figures, if we are really keying [our actions] to the real changes that are taking place.",41
-fomc-corpus,1980,Any other clarification questions? Let's have our coffee break.,11
-fomc-corpus,1980,Presumably the clarifications have been taken care of. We can go around the table and see what you think about the business picture. And perhaps you can give some general comments on our own posture and then we'll look at the decision more carefully. But let's be a little general right now.,58
-fomc-corpus,1980,"I looked back over the numbers and I'm impressed with several things. Practically every indicator of real output is below last year. We talk about the increases in housing starts in the past two months, but housing starts are 25 percent below last year. Industrial production is down a large amount. Employment is flat because the labor force didn't grow very much. New orders are down and consumption is down. Every indicator is below what it was last year. If one looks at [developments in] a little longer context instead of just what happened in the last two months, we've created a rather severe recession at this point. The numbers that are up, unfortunately, are prices. Both producer prices and consumer prices are up 11 percent. And within [those measures] are energy prices, which in the producer price index are up something like 36 percent and in consumer price index somewhat over 20 percent. If one looks at the money numbers, they have been quite reasonable over the past year. They're just about where we would want them to be and I think it makes one wonder. I don't think this is a surprising outcome. If you tighten monetary policy, the first impact is on real output. We have had very little impact on prices. We've had relatively well behaved monetary aggregates, but it does raise in my mind the question of where we go from here. I'm quite worried that we'll put too much emphasis on trying to get [monetary growth from] the fourth quarter 1979 to the fourth quarter 1980 at some predetermined level. Those are pretty arbitrary dates to pick to say that we're going to hit the midpoints [of our target ranges]. What also strikes me is that we're not very good in [estimating the] relationships. From the fourth quarter of '79 to September '80, we're off the midpoint on M-1A by .35, on M-1B by 1.65, and on M2 by 2.2 percentage points, all plus. We're off M3 by minus 1.2 and bank credit by minus 1 percentage point. No way are we going to get all of them on the midpoint by the fourth quarter of this year. So it seems to me that we should pick which one we're going to try to keep within bounds. I don't think we have any hope of getting M2 within [its range.] We can come close on M-1B, but not completely within. And when we come down to the fourth-quarter-over-fourth-quarter projections, there's not a lot of difference where we end up if we choose ""A"" or ""B."" The rate for [alternative A] is 4-1/2 percent and alternative B gets us maybe two-tenths of a percentage point above that. But alternative A does produce an extra 1 percentage point on the federal funds rate. What we obtain by running the funds rate up by 1 point isn't a great deal in terms of obtaining our objectives for the year, fourth quarter over fourth quarter. I would caution against focusing too sharply on trying to hit something exactly in the fourth quarter of calendar year 1980. We may not have a double-dip [recession], but I think there's a great danger that we will have a totally flat economy if we pursue our [monetary growth] objectives too strongly.",676
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, looking over the economy sector by sector, I don't see much fundamental strength in the short run. So I wouldn't be surprised to see one quarter between now and the spring that might come in with negative growth. What happens beyond then I think depends on whether or not we have any discernible success in dealing with inflation. We [in Richmond] have been expecting less inflation and more real growth than the Board staff over most of this recent period because we thought it likely that the aggregates would come in significantly lower than they have. Since they've come in higher than we thought, and in view of the deteriorating budgetary prospects, we've come closer and closer to what the Board staff has been projecting in the way of inflation and less on real economic growth. But my feeling still is that we're probably going to have a little less inflation and a little more real economic growth than the staff has projected. So far as the overall policy posture is concerned, I think it's imperative that we do what we can to hit these long-run targets on M-1A and M-1B, although I think we can tolerate some overshoot on M2. But if only M-1A comes in within the target ranges, then I doubt --no matter how much we justify it by the rapid growth in other kinds of transaction balances--that we'll stand much chance of maintaining any credibility. Also, I would say that the recent rise in interest rates we've had might be due largely to the public's perception of a deteriorating budgetary situation, more than just an expanded demand for money. There's also a feeling, given the rapid growth in the aggregates, that we will have to react to that.",339
-fomc-corpus,1980,Mr. Corrigan.,5
-fomc-corpus,1980,"Mr. Chairman, I'm inclined to the view that the real economy may be a tad or so stronger over the next quarter or two but nothing dramatic. Beyond that, it's very hard to see with any clarity. I think where we are on inflation will have a lot to do with the longer-run performance of the economy. There are big uncertainties about fiscal and other economic policies as they will be enunciated by the new Administration. The question of consumer resistance to these high car prices is an area of uncertainty and it's one that could work against us. I am not as sanguine as many people seem to be about the oil price situation either. I don't claim any particular expertise but the more I look at the information coming out of the Middle East, the more I think it could turn into a very negative factor by sometime in 1981. On the financial side, I don't know to what extent the Ninth District is representative; it probably isn't. But I can say this: There is intense advertising and pushing by commercial banks on ATS types of business to try to get a leg up on the thrifts, which is compatible with what Steve was saying about this departure between M-1B and M-1A. I think it is very real. It's moving a lot faster than we thought it would, and I think we can have some impact in terms of trying to explain it in a coherent way, particularly if we start to do it sooner rather than later. Broadly speaking, on policy I lean toward ""A."" But in the current situation I think a more important consideration than ""A"" or ""B"" is the point that Steve made on how we might want to shape the language in the directive so that whatever we come out with is couched in terms of an upper limit. Therefore, if we continue to get the overruns that we've had in the last eight or ten weeks, we can respond to that more quickly.",389
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"Well, as I look at the state of the economy, it seems to me that we have a lot of unpaid bills accumulated. We've been through five years of expansion with a lot of inflation and other distortions and hardly any of that has been paid off--corrected or expiated, if you will. We've had no reduction in inflation. We've had no significant restoration of consumer demand. The consumer has been overbought because of inflation and is coming around slowly. We've had no restructuring of balance sheets. It's hard to believe that after five years of expansion the distortions could be corrected, so to speak, in one quarter of recession. Now, we didn't expect that kind of short recession. We may have it. The forecast that we have--and it has changed quite significantly from last time--seems to say that we have more GNP now and we'll get less GNP next year. At the end of next year we'll have about the same level of unemployment and GNP as we would have had if we had traced an alternative path with the recession continuing through 1980 and then a more rapid recovery. I'm not sure whether this new path is as adequate in terms of corrections as the previous one because we seem to be treating as a gain the rise in the [third] quarter and maybe in the fourth quarter as something to be defended by our monetary policies. We can't latch onto that. I think we have a bigger correction, unfortunately, to go through. We may be dragging it through 1981 with an almost zero rate of growth. That is why I conclude that we have to accept a degree of financial discipline. There just is no interest rate level that is both noninflationary and pleasant to live with in terms of the demand effects that it has. If we're going to go to interest rate levels--and I always think of interest rates as being established of course by money supply targets--so if we go to money supply targets to produce interest rates that will make the present situation livable and pleasant and make for expansion, I think we're building in more inflation for the future. We're moving from an uncorrected base. My inclination, therefore, continues to be to lean on the hard side of the aggregates.",451
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"Mr. Chairman, I can't quarrel with the staff's projection. I suppose I still lean, if at all, toward the view that the economy may be a little weaker rather than stronger and that we may have a little more unemployment and a little more inflation than the staff forecasts. Even with that, although I have never been a great advocate of monetary targets, I find I am thankful that we have several targets and ranges rather than spot targets for one or two aggregates. The latter assumed a performance measurement device that is far more risky than any of the FREPS measures that we fiddle with in the Federal Reserve System in terms of the individual bank performances. I find that we do have a public credibility problem when the heads of the two [Congressional] banking committees plus quite a few other people have embraced the idea, simplistically, that target setting and target achievement are the be all and end all on inflation control by the Federal Reserve System. Even though I don't believe that that's the way to measure our performance, I acknowledge the fact that [such a view] is there. And I still feel that we will have a better chance of [achieving] credibility through the end of this year by leaning toward ""A"" rather than ""B"" to give a little better insurance that we will remain within the aggregate targets. Despite my agreement with Nancy on the interpretation of many of these things, I must respectfully disagree on the emphasis I think we have to place to keep the balance of factors in proper perspective. I would lean toward the more restraining position even though the differences may be slight. We're being measured. From a purely theoretical approach, I think we're being measured unfairly by any of these things. But I'm just old fashioned on that particular subject. I recognize that we are being measured in many different ways, not just by the Administration or the Congress but by the market.",377
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"Mr. Chairman, in looking back over this past year, it seems to me that the real product of our new operating procedure has been pretty good. I think we turned the economy around much sooner than we would have under the old system. If we had been managing interest rates, the expansion probably would have gone until July and we would now be in a recession of the magnitude of the one in 1974-75. And the unemployment rate at the end of the year would be substantially higher than it's going to be. I think the resilience of the economy that we're seeing now reflects two things. One is the fact that we did turn interest rate policy around so sharply. But secondly, I think the economy shows signs of being able to live with higher interest rates than was the case in the past. Nonetheless, I don't think any of us can have much confidence in the forecasts for the next couple of quarters because we've never been in a situation where we have come out of recession with interest rates at current levels. So, I don't think there's anything our econometric models can tell us, based on history, as to how the economy is likely to perform in the next few quarters. I find that there's tremendous skepticism about the Federal Reserve in the financial community. They are watching us like hawks. We clearly need, not only for the financial community but the business community, to get expectations working for us instead of against us. And that's why I am supporting alternative A today. Having made the commitments we have made, I don't think we can end the year and tell the public that everything else was higher, but M-1A was within the bounds and we declare that a victory. I don't think that kind of victory is going to fly. And since we don't know much about how the economy will behave coming out of a recession with high interest rates--and I talked to Lyle about this at the coffee break--we may find that in order to stay within our guidelines that we would have to produce absurdly high short-term money rates. If that's the case, then it seems to me that we've got to change the guidelines. But as long as we don't change the guidelines, I think our credibility requires that we stay within them. That's all I have to say.",456
-fomc-corpus,1980,I'm not sure I fully understand what you mean by guidelines.,12
-fomc-corpus,1980,I'm talking about monetary growth guidelines.,7
-fomc-corpus,1980,Do you mean for the longer run?,8
-fomc-corpus,1980,"Yes. If we find in the fourth quarter, to take an extreme case, that we need a federal funds rate of 20 percent to get the money supply growth within our ranges, then we will either have to change the ranges, which I think is the only way that we can handle it without losing credibility in the marketplace--",66
-fomc-corpus,1980,For this year?,4
-fomc-corpus,1980,[Unintelligible] as they do. We either change the ranges or--though I don't think we have this option--say we can't stay within the guidelines that we've established.,37
-fomc-corpus,1980,That may be the fact. But I'm not sure we can do anything at this point to affect that.,21
-fomc-corpus,1980,"Well, if we were to decide that we can't stay within the M-1B targets--",19
-fomc-corpus,1980,We can decide that. I'm just saying that what happens in the next two months may be very little influenced by what we do [today]--whether it's up or down or on the target--because it's in the cake.,45
-fomc-corpus,1980,But that doesn't remove the need to make a decision.,11
-fomc-corpus,1980,"No, but that decision may influence more what happens beyond [that time horizon] than what happens within the next two months.",25
-fomc-corpus,1980,"But if we are going to try to stay within the guidelines, we would have to move monetary policy in a direction that is consistent with trying to get inside the guidelines. To me the adoption of alternative B would be [tantamount] to telling the public that we've given up on the guidelines.",59
-fomc-corpus,1980,Why?,2
-fomc-corpus,1980,Because we would be telling the Manager to follow a reserve course which is only going to show a prospect of bringing M-1A within the guidelines. And it seems to me that is equivalent to abandonment.,41
-fomc-corpus,1980,M-1A is well within the guidelines.,10
-fomc-corpus,1980,"I know, but that will be the only one.",11
-fomc-corpus,1980,And M-1B will be outside regardless of which alternative we take.,15
-fomc-corpus,1980,"M-1B [comes out] right at the top on ""A.""",16
-fomc-corpus,1980,"And right at the edge on ""B.""",9
-fomc-corpus,1980,"Well, look at the chart. In fact, on average ""A"" and ""B"" are within the guidelines.",24
-fomc-corpus,1980,I question how clearly the market can perceive that. Governor Gramley.,14
-fomc-corpus,1980,"You characterized the staff forecast as a gloomy one, Mr. Chairman, and I think that's right. Indeed, I think the outlook is probably even a little gloomier in the sense that the risks in the forecast are mainly on the down side. The staff's forecast assumes a shift in the money demand function, which may or may not happen. I have my doubts about it. It assumes that the saving rate is going to decline by half a percentage point; that may happen, but I have some doubts as to whether consumers are going to spend that aggressively. It assumes that businesses are going to want to increase the ratio of inventories to sales moderately in a period in which final sales growth is extremely weak--and in fact declining outside the personal consumption area--and interest rates are very very high indeed. I conclude from this that if interest rates go up significantly further from what the staff has forecast, that we're going to convert growth of 1/2 percent into a recession. I think 1/2 percent growth--to respond to Governor Wallich's comments--is appropriate; I don't find that an unacceptable outcome. In my view a recession is not going to give us any help in our fight against inflation. I don't think the first recession, the recession of '80, did any good. I doubt that another sharp recession would do any good. I think you are quite correct, Mr. Chairman, insofar as the fourth quarter of the year is concerned, that we're probably going to see more real growth this quarter than was forecast. That doesn't give me any comfort. On the contrary it gives me additional worries, because I think we may find that the demand for money is growing even more strongly than the staff has forecast and that interest rates will have to go up a long, long way to get [growth of the aggregates] within the ranges of either alternative A or B. And then we will set the stage for another downturn. What I want to do at this point is not to overreact because I believe there is a very real possibility that what you say is correct: That we may be caught in a cycle in which the very way we're trying to operate is producing these fluctuations in both money and interest rates and [thus] in the economy. I want to call to the Committee's attention, too, what has been happening to the components of M2 that are not in M-1A or M-1B. It's quite dramatic. We had an M2 growth rate in the third quarter overall of 15-1/2 percent; that's the quarterly average. But during the course of the quarter, these deposits have shown an annual growth rate of 22-1/2 percent in July, 13 percent in August, and 7 percent in September and October. There has been a dramatic deceleration; and those deposits are four times the size of the deposits that are in M-1A and M-1B. And that's something we ought to take into account in thinking about how hard we try to achieve those targets for M-1A and M-1B in the near future. So, I'm leaning toward the easier alternative.",637
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"Mr. Chairman, I have several comments. First, with respect to the forecast, it seems to me that it's based on the internalities of our economy rather than the externalities. I don't know how to recalculate it, but it seems to me we have oil problems and military problems. [If one is] just conscious of what we're shipping overseas at the moment, one can't miss the kinds of activities that are going on, and they are going to have a delayed effect. Second, if one looks at the figures and then takes a small sample--and I realize the danger of samples, but try to go to a shopping center some weekend. You can't find a place to park. If you go in, you can't believe the prices they're charging. And people are all saying: Well, the price is only going to get higher; we better buy it now. And when you add to that what I see in the agricultural area, with foreign demand springing from China and Russia and other places, the inflation pressure is very real to a whole host of people. So the saving rate decline wouldn't surprise me a lot, given what we see people doing. It seems to me that somehow that [inflation] expectation has to be halted. And if the externalities get out of hand on us, which we really haven't factored in [to the forecast], we will have an explosive situation on that side of the coin that we haven't thought about too much. Consequently, I lean rather strongly to the feeling that with all the publicity that has been given to our activities we at least have to do our best to perform because there are not many areas in which people have much confidence these days. Going back to my college days where A was a good mark, I guess I'd strive for an A+. I'd not be too aggressive, but it seems to me that we really have to lean against the [tide] this time.",387
-fomc-corpus,1980,Grading standards have been relaxed.,7
-fomc-corpus,1980,As a matter of fact they've been reversed.,9
-fomc-corpus,1980,I had heard that.,5
-fomc-corpus,1980,"Well, that's why we don't have a C alternative!",11
-fomc-corpus,1980,Governor Rice.,3
-fomc-corpus,1980,"Mr. Chairman, I agree in general with the staff projection. The only point on which I have some reservation--I wouldn't say disagreement--is that the staff does not attach much weight to the possibility that consumers may continue to try to defend their current living standards and spend at a level which continues to reduce the saving rate. We have misjudged the behavior of consumers before and we may do so again. I'm not saying this has a high probability of happening because I recognize that the saving rate is at a low historical level, but it could happen. And consumers have demonstrated a marked reluctance to accept lower real living standards. I agree with much of what Governor Gramley said [except] in this one respect--that is, a difference regarding the likelihood of continued high levels of consumer expenditures. Now, from a credibility standpoint, I think it's very important to end the year with the aggregates close to the target ranges that we've established. I emphasize ""close to"" because I think nothing we're likely to do today will bring all of the aggregates within the target ranges. I mean ""close to"" in the sense that M-1A will be well within and M2 may be near the upper end of its target range, with M3 and bank credit, of course, being within the ranges. I believe either of the alternatives presented to us will bring us very close to the target ranges at the end of the year. I don't think it makes a great deal of difference, so far as our credibility is concerned, whether we get the monetary outcome under alternative A or the monetary outcome under alternative B. The significant difference between alternatives A and B is the likely influence on interest rates. Following alternative A, we're almost certain to get upward pressure on interest rates in the months ahead. We will get upward pressure on interest rates in 1981 under either alternative. But under alternative B we're likely to get little, if any, upward pressure on interest rates for the remainder of the year and possibly the first month or two of 1981. Interest rates are already at high levels. As was pointed out by Frank Morris, compared to other recoveries they're at extremely high levels. And at this point they are also positive in real terms. We have positive real interest rates. I see Governor Wallich disagrees with me but--",466
-fomc-corpus,1980,After tax.,3
-fomc-corpus,1980,"So the danger is that by selecting alternative A we run the risk that interest rates will have the effect of eliminating even the possibility of that 1/2 percent growth that is projected for 1981. I don't think we ought to do that and, therefore, I lean toward alternative B.",59
-fomc-corpus,1980,Mr. Baughman.,6
-fomc-corpus,1980,"Mr. Chairman, briefly I'll make comments in three areas. One, on the local situation, we get reports of very high levels of activity across the border between the United States and Mexico. Apparently that's still strengthening in just about all aspects, and it's presumed that both the legal and illegal traffic is moving apace. Oil and gas activity, as you probably all know, is continuing to boom. And prices of both the rights to make holes in the earth and of the equipment to do so are up sharply and continuing to rise rapidly, reflecting the views of the people who engage in that activity. An illustration of the kinds of distortion which government programs can inject into an activity, with which we are all familiar, can be observed in the agricultural sector at the present time. We are having very low production on land which has [been subject to] bad weather this past summer; nevertheless, with the high prices, it would still be economic to harvest the crop in that the market price would cover more than the harvesting cost. But if the crop is declared a complete failure and not harvested at all, [farmers] will receive a bit more income than they would if they went through the harvesting operation. So we have some reduction in [potential farm] production because the government disaster payments exceed the market value of the product. With respect to the general economic projections, I am less comfortable with them this time than I usually am. If my recollection is correct, the current staff projections are about the same as those I reported when we had our round-up last July or August. And I can assure you that there is no basis for drawing any comfort in having an economic projection which is the same as the one that I may have made. With respect to progress on the economic and inflation fronts, as some of you know I have held the view for two, three years, that we're not going to handle this problem unless we develop some kind of machinery for direct interference, particularly in the wage market. And it was of interest to me that a locally domiciled airline, which is struggling with a problem currently, has under serious negotiations with its employees the possibility of a 10 percent pay cut. While I wouldn't expect to see that sort of thing spread generally through the economy, it seems to me that we've got to find some machinery for beginning to get those kinds of questions raised.",475
-fomc-corpus,1980,"That's the best news I've heard in a long time, Ernie. I didn't know that. The last wage settlement I heard of down in your part of the country was a 60 percent increase for three years front-loaded.",45
-fomc-corpus,1980,Was that Reserve Bank employees?,6
-fomc-corpus,1980,It was in the energy-related area.,8
-fomc-corpus,1980,"With respect to monetary policy, it seems to me that the Committee should go with alternative A. And bearing on the comments with respect to our communications with the public on monetary policy, it seems to me that we might buy a little in that area if we were to adopt the procedure of routinely moving the funds rate range at a meeting so that it centers on the current funds rate, as compared with leaving a specified range stand for a long period with market developments at times making it bump against the bottom of the range and at other times making it nudge against the top. And I would not see such a change in what we report as necessarily providing any restraint on what we actually decide with respect to shaping and implementing policy. That's all I have to say.",151
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"Well, Mr. Chairman, I don't know that I have anything to contribute on the economic outlook. I am not surprised at the projection. As I view it, we have more or less established a governor on the economy with our monetary aggregate ambitions and the credit and interest rate implications that fall out. And if we have a governor that limits the speed to 55 miles per hour for spending, well, we are not going to have more than 55 miles per hour spending. The question of how much head wind there is in the form of inflation is something that we all argue. I think wage costs, food costs, and energy costs are pretty intractable and we'll have as much or close to as much inflation as the staff projects. But one could be more optimistic on that, as Bob is. However, the fact of the matter is that if we get a little more housing, then we get a little less something else in the existing environment, assuming we hold to our assertions about monetary growth rates over the period. I do have a much stronger feeling about the shorter-run specification of policy. I asked Steve where alternative C was because it seemed to me that alternative A was totally out of the ball park so one really needs to choose between alternative B, which [calls for only 3-1/2 percent M-1A growth], and an alternative C which is easier. The reason I say that is that I just don't think that one can say to the economy at large--not the financial people or the monetarists but to the economy at large--that we are seeking, [as in alternative A], a 1-1/4 percent rate of growth in money supply over a 3-month period in which we expect to have some continuation of economic recovery. That just isn't the kind of number that one seeks, and it's way lower than anything I've seen. And 4 percent on M-1B is a very low rate, too, for the next three months. To get us down more comfortably within the ranges, as alternative A would do, really implies in the short run a policy which wouldn't be understood and which could very likely result in a second downturn, or at least increase its probability. I think it will occur anyhow, but that will increase its probability. We faced a situation similar to this a year ago. We were running high in our target ranges. In fact, it looked as if we weren't going to be within the target ranges. So what we did was to specify, as Steve suggested at the end of his briefing [today] I think, that we would accept a rather moderate number or ""somewhat less."" And I think that's the way we ought to specify our alternatives this time in terms of the 3-month [specifications]. Going off from alternative B I find tolerable: The notion of seeking a 4 percent rate of growth in M-1A or somewhat less, a 6 percent rate of growth in M-1B or somewhat less, and a 7-1/2 percent rate of growth in M2 or somewhat less. I think we can take a little chance on M2 because, as Lyle pointed out, we have been getting quite a lot of [slowing] in that rate of growth through the summer and early fall. I do think that we need to be even-handed about this and that we need to recognize that our mistakes always occur not because we are [slightly] off from modest numbers, but because we are way off from modest numbers. And, therefore, I think the funds rate range should be raised to 9 to 15 percent, which is in keeping with Ernie's thought that we should center our range around where the rate is, and the midpoint of 9 to 15 would be 12. And I think we need to recognize the possibility that if we have enough demand, we'll have to move against it and the funds rate could indeed need to move up considerably because monetary growth is above [our specification]. But I just can't accept the idea of saying to the public that we seek a monetary growth rate of 1 percent over the 3-month period.",843
-fomc-corpus,1980,Mr. Guffey.,6
-fomc-corpus,1980,"Thank you, Mr. Chairman. With respect to the staff's forecast of the outlook for economic activity, the only real divergence I have is that I would suggest that the fourth quarter might be a bit stronger than they are projecting. In turning to the financial side, it seems to me equally that the Bluebook's forecast of moderate demand for money in the fourth quarter may be a bit optimistic. Taking those two things together would suggest that we will find considerably higher interest rates necessary to hit either ""A"" or ""B."" And it comes to my mind that the Fed's credibility may be more suspect now than virtually any time in the future because we are the only one out there that the public is looking to for any comfort that prices will come down some time in the future. Thus, with the prospect of difficult times ahead, I don't think we should shirk the responsibility. It seems to me that the nation would be well served if we made a fairly strong public comment and commitment that inflation is the number one problem. And we can do that in my judgment only by adopting a policy at this meeting that is at least no more expansive than ""A."" Let me suggest that if we adopt ""B,"" for example, we would be saying to the markets and the public--maybe 30 days from now to be sure when they look at the record--that the Fed gave up in November the opportunity to come within the stated ranges. And I think that would be very unfortunate. I would focus on at least alternative A. I think we are going to have difficulty hitting either [unintelligible]; it does imply higher interest rates. There has been some comment about the 1980 recession and the fact that we got no price improvement as a result of that recession. I'd like to point out again that it was a very short recession. I don't think one could expect any price [improvement]. If we now shy away in monetary policy from the risk of having a recession or a double-dip, I think we are avoiding our responsibilities for the future. Lastly, if we adopt ""B"" or something to the right of ""B,"" I think we would be making our task for 1981 impossible in the sense of trying to hit the targets we have already announced. As a result, I would like to take the bite now rather than some time later.",475
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"I think that credibility is important not just because we like to use the word and like the ring of it, but because without credibility in what we have announced we are going to do, we are going to have high interest rates. In other words, inflationary expectations [might be rekindled] because of the loss of credibility in our October program and we'd have high interest rates and inflation. Now, let's go back just a second to October of last year. We adopted a policy at that time, based on a recognition that inflation was generally at a much higher than tolerable rate in the view of the American people as well as in the view of the Federal Reserve. We recognized then that in order ultimately to bring down inflation with the tools available to us we would try to reduce the rate of money growth gradually over a period of four or five years until it was brought down to maybe a 2 or 3 percent rate. And that, in turn, we felt--and we announced--would have an effect in reducing inflation. At that time in 1979 money was growing at about 7 percent per year. We announced that our target for this year was 4 to 6-1/2 percent, with some hope [that it would come in near the] midpoint at maybe 5 to 5-1/2 percent. That was accepted with satisfaction by the Congress as well as the public. We have not succeeded. Even with the most restrictive policy from now until the end of the year, we will not succeed in bringing that growth rate down much below the top of our range, or to approximately 6-1/2 percent. Actually, M-1B, which I think is a good aggregate to use, has grown in the third quarter of this year at about a 13-1/2 percent rate. According to the projections on page 6 of the Bluebook, under alternative A or B the staff expects something like a 9 to 10 percent rate of growth in M-1B for the fourth quarter. Now, I am assuming that we don't want to abandon totally what we said we were going to do, which was to bring down the rate of money growth gradually from 7 percent in 1979 to 6 percent, let's say, in 1980, which would in turn imply 5 percent money growth in 1981. But if we go from a 13-1/2 percent third-quarter rate to a 9 to 10 percent fourth-quarter rate and go to Congress and say we are going to shoot for a 5 percent rate of money growth in 1981, the only way we will be able to achieve that is by drastically reducing the rate of money expansion starting in 1981 from the rate of growth in the last six months of this year. That will most assuredly cause a serious recession. We've either got to bite this bullet now [or later]. I don't like to use the word ""politics"" but I would rather dish out the bad medicine after the elections this year when everybody--or at least half of the people--is in a euphoric mood for a couple of months than wait until 1981 and face up to this very difficult task, which will not be accepted by the general public too favorably. Therefore, I would [favor] neither alternative A nor alternative B--and I'm not a monetarist freak when I say this--because I think both of them imply [monetary] growth that is too fast. I would suggest that M-1B growth, and I'm only going to speak of M-1B, from September to December not exceed 2 percent. I would suggest that the growth from the third quarter to the fourth quarter in M-1B be 6-1/2 percent instead of the 9 to 10 percent figure that's shown here. I would suggest that the range for the federal funds be increased to have a top of 16 percent, because unquestionably this is going to drive up the federal funds rate for at least a short period of time. If we don't do this, we are going to have to face up to it next year when I think the facing up to it will be even more difficult. If we don't do this, we are going to have high interest rates as inflationary expectations continue. I think it's a very critical time for our credibility, and that's my recipe.",900
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"First, I have just a very brief comment on the business outlook. On the West Coast we have had little evidence of recession except for the housing industry and auto purchases and so on. Given that this is the year of really cruel dilemmas, I was particularly interested in the views of two of our branch chairmen who happen to run big lumber companies and another head office chairman who is a big operator in the construction business. Obviously, they have a direct interest in not seeing mortgage rates get so high that they cut off their own businesses. We had a pretty extensive discussion of what the alternatives and the problems are. Interestingly enough, all three of these guys came out expressing the view that we are really faced with a dreadful set of choices: Either we price people out of the housing market temporarily through higher interest rates or, even worse, price them out of the market for the longer run through inflation. And if their diagnosis is correct, they are willing to suffer the slings and arrows of outrageous fortune as it were by seeing mortgage rates go up at the present time, hopefully on a temporary basis, to get inflation under control. As far as the immediate economic outlook is concerned, our staff forecast doesn't differ too much from the Board staff's except that we expect somewhat more growth in the months immediately ahead. All of us were surprised by the bounceback in real GNP in the third quarter; we underestimated that, and I'm hoping we may see somewhat more GNP growth in the fourth quarter. But the differences between our staff views and those of the Board staff are not all that great. I am getting increasingly concerned that the economy has been subject to some exogenous shocks that have the effect of increasing inflation expectations--such things as the Middle East war and the talk coming from both parties about big tax cuts either before, or probably more likely, after the election. As people think about the implications of that in terms of bigger budget deficits, I think that has had the effect of increasing inflation expectations. My real fear is that if we should have a significant overshoot in our targets for this year, we ourselves will become a source of rising inflation expectations. Now, looking back over the year as a whole, I think we've had until recently at least a pretty credible record. That is to say the shortfall in money in the spring was one which we offset--in my view quite properly, and I was in favor of doing it--by efforts to catch up. And through August I felt pretty comfortable about that because by August we had caught up and were roughly back in the middle of our ranges for the various Ms. I'm quite concerned, though, about what has happened in September and October and whether we're building to an overshoot that we aren't planning on but which may occur in any event. At the last meeting I called attention to the fact that it is very troublesome, I'm sure, from the staff's point of view that for each of the months June, July, and August they initially had substantially underestimated how much monetary growth there was going to be. I have that same fear now about October. We have now had three estimates of October monetary growth, and each one has been higher than the preceding one. And I fear that before the month is over we may have another outcome like September, in which case there won't be any hope of our coming even close to the upper end of our ranges. So, given recent economic developments that portend some rebound from the recession, which is the good news, and given the persistence of the bad news that there has been almost no measurable progress on inflation, I'd be inclined to tilt more toward combatting the latter problem and would move toward alternative A. Indeed, I think there is some merit in the [unintelligible] inflation that some people have spoken of. So if there were an ""A plus,"" that would be my choice.",780
-fomc-corpus,1980,Mr. Smoot.,5
-fomc-corpus,1980,"Thank you. I'll be brief. Anecdotally, though I heard your story about the shopping centers, Willis, my barber assured me yesterday that people are getting fewer haircuts in reaction to inflation. I said it was just because I'm getting bald! I think as a group we have been somewhat surprised by the strength in the economy and that has been reflected in the unexpected strength in the aggregates. The Bluebook provides policy alternatives that are somewhat accommodative to those surprise events by proposing two alternatives, both being less restrictive than the path chosen by this Committee last month. I think that's correct; [if not], then I retract that. My impression looking at ""A"" is that we picked [a growth rate of] something less than the top of the M-1B range last month. I raise the point to question whether we are trying to lead or follow here. And I would certainly urge that we attempt to lead, although I bear in mind the problems with monetary policy attempting to do it all by itself. With regard to the forecast, the Greenbook is more pessimistic than we would be on the economy and somewhat more pessimistic than other forecasts we have seen. This would cause me to be somewhat concerned about our present view of the future and our reaction to it. Further, if we are entering some kind of recovery, I suspect that we have tended in the past to underestimate the growth of the economy in the early stages of recovery; and I throw that out as a reason for being somewhat concerned. Given that, I would urge at a minimum alternative A, accepting the risk of higher interest rates. On the issue of credibility, I think it's important that we do all we can to meet the M-1B target in the sense of staying within the range. I think changing the ranges because of technical factors, which was suggested today as an alternative, would be a mistake. We tend to accept what is given to us in the form of a lower M-1A but we're not happy with or [don't] tend to accept M-1B when it drifts out of its range. So I would urge alternative A at a minimum.",435
-fomc-corpus,1980,Mr. Ford.,4
-fomc-corpus,1980,"On the business outlook we don't have much to add. My staff is exuberant about the fact that they have done better for the last two or three quarters forecasting the aggregate economic variables, and they are saying that the quarter we are in now may be a little stronger than the Board staff's forecast. In the Southeast we are finding a very mixed economic picture and some of the same concerns that others around the table have expressed about what we might do to housing and whether or not new car sales will really go up and all that. But the new things that I would like to add to the discussion that has occurred around the table so far involve not just how our policy would be viewed by the public but how the public and the financial community will perceive the government's overall policy actions. And what is happening on the fiscal front concerns me as much as what we are doing. Irrespective of the outcome of the election, if I read it right, we are going to continue to see above range spending in the federal government; every revision of the level of the federal deficit has been sharply up in recent months. We are now looking at estimates for the deficit during this fiscal year of perhaps $50 to $80 billion, after closing out last year somewhere in the $60 to $70 billion range, without considering off-budget spending. So on the fiscal side, if we ask what we will be looking at six months from now, regardless of the outcome of the election, it appears to me that both sides are coming out with tax cuts. [So] that applies to the outlook of the Board [staff] for the fiscal deficit irrespective of the outcome of the forthcoming election. That has to be considered. Everyone has mentioned that the outlook for shocks is particularly scary right now, with a major war going on in the Middle East. So we are vulnerable there to inflationary pressures hitting us again. And that brings us down to what we should do against this background of vulnerability to shocks and the fiscal outlook. My feeling is that we have to be very concerned not to go through these wild gyrations of monetary aggregate growth. I wouldn't want to advocate that we sharply contract [such growth] in an effort to get it way down in the middle of the range because that will just encourage another round of [unintelligible] that we will settle up with monetary policy. Rather I do think we have to temper our approach at this time to try to hit--your commitment Paul, you were the one who said it last October--these targets. We can't ignore the fact that regardless of what we say and how we interpret the different variables to the public, they are going to make their own reading on it. What they are going to say is that either we did it or we didn't. In that connection, I feel somewhat like Mr. Mayo: Whether or not we are happy about these things, the fact is that we are going to be measured by them. So we may as well try to play to win, whether or not we like the rules of the game. The only element that I would add [relates to] the letter you sent to us concerning how the public would interpret hearing that we are reconsidering our operating procedures. If you throw that into the pot, I think you are very right to be worried about how it would be interpreted, especially if we miss the aggregates. So with all of that taken together, I come out on the ""A"" side, with a lot of concern that we are not going to win either way we go on this. But ""A"" seems to be the one that gives us a chance at least to maintain some element of our credibility on the October 6, 1979 plan you announced.",752
-fomc-corpus,1980,"Well, we have a couple of quarters that haven't been heard from. I don't know whether they want to be heard from or whether we should proceed.",30
-fomc-corpus,1980,"Well, I had hoped that the discussion was going to help me some, but so far it hasn't! We are in a terrible dilemma and I would like to vote for ""none of the above,"" but I don't have any good alternatives to offer you.",51
-fomc-corpus,1980,You are permitted to be silent at this stage.,10
-fomc-corpus,1980,You know that silence is not my nature!,9
-fomc-corpus,1980,"I'm not saying permanently. I said ""at this stage.""",12
-fomc-corpus,1980,"We have credibility problems on one side and on the other side we have interest rates that I think are beginning to bite. I'm not sure how much we can do about monetary growth over the next couple of months. As the Chairman says, [the outcome for this year] is probably already in the cake. And although I think the [economy's] momentum is rather strong and this fourth quarter might be a little better, [the economy] is very fragile; and if we run interest rates up too much, I see a real possibility that we will slip into another downturn. I don't think that would be very helpful nor is it the kind of policy we want to carry out. It seems to me that stability is pretty important but I hate to be slavishly chained to any kind of special numbers. So I really am having a very difficult time. I would like to talk in such a way as to keep our credibility, which leads me to ""A."" And I'd like to act in such a way that we don't let interest rates go up too high, which is equally problematical. So, we have a very difficult decision to make today and I don't have a very good answer at this point.",242
-fomc-corpus,1980,"Thank you, Governor. Does he speak for you, Mr. Solomon?",15
-fomc-corpus,1980,"Yes. But let me follow up on what Fred said at the end. It seems to me that we ought to go for the targets of alternative A but we ought to put the borrowing level close to that of alternative B. I would suggest $1.3 billion. That can always be reviewed later, but with a $1.3 billion [initial] borrowing assumption presumably we would not get any significant upward pressure on the fed funds rate if the other projections are correct. Now, both alternatives may be completely unrealistic and we may just be swept over by this situation. Taking these funds rate assumptions that are consistent with the aggregates, it seems to me that we may pay some enormous costs if a month from now when the minutes of this meeting are published they show we targeted alternative B [growth rates] for September to December, which clearly indicate mathematically that we have given up on M-1B. Its growth would come in at 7 percent fourth quarter-over-fourth quarter, with the upper end of our range being 6-1/2 percent. I think the public would not understand that. At the same time, we are in this dilemma, and any significant rise in interest rates right now would cause some proverbial problems to the economy. So my instinct is basically the same as Fred's, and I would reach toward a combination as I indicated.",273
-fomc-corpus,1980,"Well, let me make a few comments. We certainly have some difference of opinion, which may not be fully resolvable, but a certain number of truths keep repeating themselves to me. Some have been mentioned and some may not have been. These truths seem to me self evident. They may not seem self evident to everybody else around the table so I will repeat them. I think we have to recognize, first of all, that there is a certain artificiality in talking about these targets, however much the market is preoccupied with them and however much we are preoccupied with them. We talk about our credibility and that's important. But credibility over time has to bear some relation to what is possible and what is desirable. And these targets were not exactly written in heaven. They were written by fallible people. And there are a lot of uncertainties in the economy and a lot of changes occurring in it. I'd love to meet these targets, but it is not absolutely the be all and end all of existence. Tony speaks about the public not understanding if we have--by some complicated arithmetic, which I'm not sure they are capable of doing very well--[numbers that are] inconsistent by a half percent of meeting the target. My judgment is that they will understand one hell of a lot less if we broke our back to meet the target in the fourth quarter at the expense of a decline in the money supply by a rather sizable amount in the first quarter. We'd be sitting here with people saying: Why did we have interest rates so high in the fourth quarter and now we are running way below the target in the first quarter and interest rates are tumbling and we are in the midst of another recession. I wouldn't like [it] either. I'd like to meet the targets and not have the first-quarter experience. All I know, looking at the past year, is that it isn't quite so simple to meet a target in any particular quarter and that an undue effort to meet a target in a particular quarter, however important the target may be, isn't the only thing that's important. There are some substantive problems that I don't think we can completely solve by saying this is what we said, or more specifically, this is what I said 12 months ago. I think we have to recognize--whether it's good strategy or bad strategy to change the targets at this point and I would not at all suggest that we change the targets officially--Steve's point about the targets for M-1A and M-1B, which is that they are wrong. They are internally inconsistent. That is the fact of the matter, which cannot be evaded. And in any public explanation of monetary policy and how we have met these targets in the past year, I will say that because it happens to be true. The M-1B [range for the year] is too low relative to [that for] M-1A. We thought there was going to be a 1/2 percentage point difference; there's a 2 percentage point difference. What we don't know is how much of that should come out of M-1A and how much should be added on to M-1B. But we know roughly that the M-1A target is too high. If the central tendency of what we were aiming at a year ago is right, the M-1A target is too high and the M-1B target is too low. It's an arithmetic fact. We said they were going to be different by 1/2 point and they are different by 2 percentage points. As a number of people have said, forecasts are uncertain. And we have not had a good forecast of the money supply, and I say this with no criticism whatsoever. We haven't had an accurate forecast of the money supply on a monthly basis or a quarterly basis. We haven't had--really nobody has--an accurate forecast of the economy on a quarterly basis. When we sit here and guess about what will happen to the money supply, a great deal depends on the relative optimism of the staff regarding the business forecast, which I think does imply at least a slight downturn in November or December. That may or may not develop. A lot of people have suggested that there's a chance [GNP growth] is going to be a little higher than the staff estimate--that's my own instinct--just from momentum. I'm not talking about anything big. And if we look at the direction of the errors in the money supply estimates, well, maybe they are going to change. There's a good chance the money supply is going to come in higher than the staff estimate. But that's a gut instinct and not anything more than that because basically it's a very uncertain proposition. If you look at the forecast for next year, I have the instinct that it's improbable that the economy will be quite as stable as the staff suggests. But if I had to choose between whether it's going to be stronger or weaker, I would be very uncertain. I well understand why the staff ended up with a forecast of stability. Indeed, whether it's going to be stronger or weaker depends a lot upon what we are going to do this month, next month, or whenever. In that sense, the decision we make today is very important. Unfortunately, the hard fact of the matter is that the decision we make today isn't going to have much to do with what the money supply does between now and next month or between now and the end of the year. I don't think we have any experience that suggests the direction in which we try to move things is terribly significant in the very short run. But it may be very significant 2, 3, or 4 months from now. I just don't think we can change that. That's the way the economy is built. We face a situation, given the October estimate--which should have a little validity but which has been moving up, as John Balles says--in which October is already higher than either of these paths. And to get down to ""A"" we'd have to have [an actual] decline, in M-1A anyway, from here on out. Whether that's achievable or not, I don't know. It depends in part upon whether the economy turns around as the staff suggests it will. The next point I would make is that I think the instability in interest rates has become a problem. It has become a problem in terms of real economic activity--I'm trying to abstract a little from the level of interest rates over a period of time--because the mere instability of interest rates, to some considerable degree, I think, affects the housing industry and perhaps the car industry and other areas of planning. If we could manage things so that in general we both followed the targets and had less instability of interest rates we would be better off, obviously. How to do that is the question. I would repeat the point about lags that I made earlier. There are limits to the effort that has to be made, given the relative inelasticity of money supply in the short run, to change the trend over the next 2 months if the expense of that is changing the trend in months 3 and 4 by a much bigger amount in a direction we don't want to see it go. And we don't know. We don't know those relationships very well. I think we have to recognize that we're working in an area here involving some ignorance. The difference between ""A"" and ""B""--and here is where the artificiality of some of this comes into play--is almost negligible in terms of the actual reserve path exercise. We are talking about a 2 percent difference in the growth path over the period to the next meeting, when we will look at them again anyway. That amounts to $60 million worth of reserves, which in the first place is within our range of error and is much smaller than adjustments that we tend to make in the path between meetings in any event. So in that sense, if we just focus on those targets and we expected that what we are going to do here is the only thing that influences our actions, the difference between those targets we are talking about is trivial. I don't think our decisions are trivial because they affect more than next month; and we ought to bear in mind what the effect is likely to be not only next month or this quarter, but next quarter and make some judgment on those grounds. We are going to be controlled by what happens much more than by a difference between ""A"" and ""B."" Last month is a perfect example. What happened last month? We had a great argument about whether the money supply should be aligned, in terms of a target, 1 percent higher or lower. Within a week, as I remember, it was clear that the money supply figure was far above either of the targets. And we responded. I don't think the aggressiveness of that response would have been a $60 million difference--or I suppose in one sense $30 million--because there was only one difference in opinion. It was washed out in other factors. The fact is that the Committee in general recognized--there was no disagreement, for instance, on the discount rate decision--that [the money supply] was going too high. And within the limits of human judgment we responded. I think it's more than likely that we will face that kind of question again this time. Now, whether we choose ""A"" or ""B"" biases things a bit, but I don't think we ought to be overwhelmed by that particular difference. If I had to guess--and I suppose it's implicit in my remarks here on worrying about what's going to happen--I'd say the danger is that the money supply is going to be too big and the economy is going to be a little stronger. The growth in money is going to be too big regardless of which of those targets we pick or if we choose something in between. Now, we still have to make a judgment about what we are going to do and reach some kind of consensus. In a sense the more relevant issue substantively--not in terms of what somebody reads in the directive a month from now, which I think is highly colored by what happens between now and a month from now--is what our intentions are, or how we bias this in the future. That is only partially influenced by the choice of targets; it is more directly influenced by the level of borrowings we set now and the speed of reaction to what all experience shows is likely to be a change in the money supply estimate, not within a 2 percent range but within a 6 percent or an 8 percent range, either up or down. And that's where we have to make a decision. I would point out in just technically explaining what has happened to the money supply during this year that we may have had one of the biggest swings in the direction of economic activity in the shortest period of time that we have ever had. From March to July--I'm just guessing and not looking at the quarterly figures--I suppose the GNP was declining at an annual rate of something like 10 percent for four months. It meant nominal GNP was virtually zero, looking at it on a monthly basis. Since then--I don't know what you would guess, Jerry--but I'd say it was going up 7 or 8 percent if one just looked at August and September alone. So, getting into October we had a swing in the course of economic activity at an annual rate of 17 percent. And since that is the major factor that affects the money supply in the short run, with stable interest rates anyway, looked at in that light it isn't totally incomprehensible as to why the money supply went through a swing of 17 or 18 percentage points at an annual rate. Now, I'm abstracting from some very big changes in interest rates, [whose effects involve] some lags, which is the point I think we made to a considerable extent. That's why I think what happens to the money supply in the very short run is going to be largely governed by an uncertain business outlook as well as by all the random disturbances that enter in, as it always is. Let's look at where we come out. Right at this point do we want to put considerable additional pressures on the market in the absence of any further evidence that the money supply is off line or do we not? That's the first decision, from my point of view, that has to come out of this meeting. Secondly, I take it for granted that if the money supply is increasing more than, let's say, the ""B"" path--I'm not suggesting necessarily that we take ""B"" at this point--but just given the random fluctuations in the money supply, if we get some more upward revisions in the present estimates of the money supply, I would personally presume that we have to react. [The growth in money] is already high; we are already above ""B."" If [money growth] in the next few weeks comes in still higher than we expect, that is consistent with a reaction--from what most people have said, anyway. In general terms of direction, I assume that there is a consensus on that point. If it comes in low--in that happy circumstance--I'm not sure there is a consensus. But Steve first, and others subsequently, commented on not reacting too fast in an ""easing"" direction if the money supply comes in low. I don't know whether I can take that as a given of our decision or not. I would personally accept that. And just to pin down the first point I made, I'm not sure I would come out of this meeting with a strong conviction, based upon knowing nothing else about the money supply or the economy or anything else, that we should force a significant change in the money market--in other words force a significant change in the borrowing level. I'm not talking about fine-tuning here, but a really significant change. Now, I don't know whether there is a consensus on those points or not. Point one is that we don't force a really major change now and I'm not fine-tuning on that. [Point two is] that we certainly react if the money supply comes in above the current estimates that the staff has given us, which are already high compared to any of these [ranges] and that we don't react very fast if it comes in low. I'm speaking now in qualitative terms. If that's more or less an agreed framework--and I just raise that as a question--then we're left with what I see as the more trivial part of the decision, which has some cosmetic importance, more cosmetic importance to some of you than to others. I shouldn't downplay it as cosmetic. I realize it gets into the so-called credibility problem and all the rest. Precisely where we put the forecast for the money supply, which is a figure we're not going to affect very much in the next month anyway, is a question. Nonetheless, we have to put down a number at least in the directive. I suppose after listening to all of this, I'd be perfectly happy to put that number between ""A"" and ""B."" So, let me hear your reactions to all of that. And I suppose we need to make the borrowing number a little more concrete to give us some feeling of how fast we should react if the number comes in high--I don't know that it's so much a question of how fast, but how strongly--and the reverse if it comes in low, as to how passive we should be in relieving the borrowing pressure on the market as some have suggested.",3143
-fomc-corpus,1980,"Mr. Chairman, following those comments, I'm attracted to Tony Solomon's proposal that we adopt the A alternative with a borrowing level of about $1.3 billion. I would also suggest that we move the federal funds range to 9 to 15 percent, with some caution as we go above 14 percent if that is indicated.",67
-fomc-corpus,1980,"If we do that, aren't we saying ""A,"" but doing ""B"" in effect? It seems very close to that because--",27
-fomc-corpus,1980,It's just the opposite of what we did last time.,11
-fomc-corpus,1980,"It's the borrowing level that really influences market conditions and, therefore, eventually money.",16
-fomc-corpus,1980,I'm picking up on the Chairman's comment that we not move too quickly early in the period. I guess I've come to the conclusion that in this intermeeting period we are going to move upward with interest rates. It's a question how quickly we do it. And I think we control that through the level of borrowing.,63
-fomc-corpus,1980,"Well, you've come to that conclusion--just to clarify your view--because your instinct is that the money supply is going to come in high.",29
-fomc-corpus,1980,I think that's correct.,5
-fomc-corpus,1980,"It's already high relative to ""A."" Remember, M-1A is what has all the reserves on it. And we already have growth in October that looks to be above the number here. So, I think it just means that the borrowing level will move up from $1.3 billion to a significantly higher number. And the result will be that [the funds rate] will have to move up in its range. I agree with the 15 percent upper limit for that range; the question will soon be before us of whether 15 percent is too restrictive and whether the discount rate will need to be increased another couple of points and so forth. So it really biases [the outcome]--remember that we are going to be running a path against whatever aggregates we choose--to take ""A."" It means we are talking about a very tight policy consistent with a significant degree of recession and no recovery.",182
-fomc-corpus,1980,"I agree with Chuck. I don't think we can solve this problem by just picking the level of borrowing. If we pick aggregates targets that are likely to be exceeded and the borrowing begins to rise above the level [we chose], then interest rates are going to go way up. And then I think we will be in very great danger of precisely the circumstances Chuck is talking about--generating another recession.",80
-fomc-corpus,1980,"All I mean to say by the difference between ""A"" and ""B"" is that the money supply--my own feeling and maybe I'm wrong--is [likely] to come in high; it's unlikely to come in between ""A"" and ""B,"" just by the law of averages.",59
-fomc-corpus,1980,"Yes. But your guess is that it probably will come up to the level of ""B"" and maybe run over.",24
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,"That's what worries me, too. And I think what we ought to try to do is find a strategy. I don't mind if we don't react on the down side. If the money supply falls a bit short, that's all right. I wouldn't want to react in a downward direction on interest rates. But I certainly don't want to react strongly in the direction of much higher interest rates, if in fact the aggregates run over for a 2-month period. And I think they might.",97
-fomc-corpus,1980,"Isn't the point about lags relevant here? What we do with interest rates over these next couple of months will impact the first quarter. And certainly the forecast for real GNP in the first quarter is weak enough that if we raise interest rates in the next couple of months, we won't [reach] that forecast of real GNP; it will be much weaker than that. So instead of trying to figure out what the money supply is going to be for the next two months, I'd rather look at the first quarter. And I don't think we need a rise in interest rates with the impact going over into the first quarter.",126
-fomc-corpus,1980,"Mr. Chairman, I'd like to speak for the opposite position. In picking $1.3 billion [in borrowing] you're contemplating that we would start out with about a 12-1/2 percent funds rate. The rate has been there for a month, roughly, despite the fact that the early October money supply numbers have come in very strong, stronger than we expected. It seems to me that what has happened to the money supply in October calls for some response on our part. So I would advocate a level of borrowing compatible with a 13 percent funds rate as a minimum move. We don't have much time left in this year.",129
-fomc-corpus,1980,That's for sure.,4
-fomc-corpus,1980,"And, therefore, I don't think we should waste a week or two when we have so [few] weeks left to operate.",26
-fomc-corpus,1980,"In terms of quarterly averages, the year is almost over.",12
-fomc-corpus,1980,"If we look at the averages, we have to look not only at what is happening now but what has gone on before. When we look at a 6-month period, the third and fourth quarters, we will have had a very strong rise. I don't think one should say the third quarter is over, we're now looking at the fourth quarter only, and we can't accept a risk of near zero on M-1A. We have to merge the two periods. But I do share the view that we need not focus too closely on what happens between now and the end of the year on the aggregates. We really ought to look further ahead in order to get a reasonable period over which these things evolve. What matters to me mostly is the stance with respect to the real sector in that we have a very inflationary situation. Several people have pointed to possible shocks that we might get from oil and other sources. And we haven't run any of that out. I'm not arguing for a recession, but I think we have to restrain this economy a little longer.",213
-fomc-corpus,1980,"Steve, can you pinpoint a federal funds rate with a level of borrowing?",15
-fomc-corpus,1980,"Well, [the relationship] has been a bit shaky.",12
-fomc-corpus,1980,"""Pinpoint"" isn't exactly the word he would use!",12
-fomc-corpus,1980,But that's what we're talking about--how we do it in--,13
-fomc-corpus,1980,"We have had a level of borrowing in the last two weeks of $1.1 and $1.2 billion [respectively], with the funds rate right around 12-5/8 percent. So, I'd say it isn't unreasonable to think of $1-1/4 billion with a funds rate around 12-1/2 percent. In the previous two weeks we had a much higher level of borrowings and a much lower level of the funds rate. That was around quarter-end. But also in that period very large banks were much heavier borrowers than they have been recently. In the last two weeks of September, large banks borrowed 45 percent of the total borrowing and in the recent two weeks they have borrowed 25 percent of the total borrowing. And when there are large borrowers, I think it takes a little pressure off the funds rate; when they are not [in], it puts some pressure on the funds rate. That's my view in any event. So a lot depends on which banks decide it is their turn to borrow. I would say that a 12-1/2 percent funds rate and $1-1/4 billion in borrowing isn't unreasonable to think about, but I'm uneasy because I can't quite tell which banks are going to decide to borrow or not to borrow.",262
-fomc-corpus,1980,But our determining the level of borrowing doesn't automatically determine the funds rate.,14
-fomc-corpus,1980,"Well, that's right, not precisely; but there is certainly a reasonable band. In interpreting the demand for borrowing we certainly interpret the discussion of the Committee as well.",33
-fomc-corpus,1980,"Mr. Chairman, I'd like to repeat something I said earlier. I don't think it matters a great deal here in terms of either ""A"" or ""B."" When we talk about all the dangers and risks that are out there, what still bothers me is that the biggest danger is that if we get another month or two of money growth rates like the ones we've had over the past three or four months, then all those dangers we're talking about are going to materialize anyway. We're going to have higher interest rates. Indeed, I think we'll have the instabilities of interest rates that you spoke of. We'll go into 1981 on a growth plane in money that will give us a more difficult problem then. I could easily live with ""A"" or ""B,"" but I personally would like to see the directive couched in terms that forcefully get across the point that if we continue to get this cumulation of errors on the plus side, a [tightening] movement would be [warranted] because if that happens, we're going to have to do it anyway.",218
-fomc-corpus,1980,"Yes, I think that's quite clear.",8
-fomc-corpus,1980,I don't disagree with that.,6
-fomc-corpus,1980,"It's hard to disagree with that. If we get more indications of this excessive [money] growth, we're going to react.",25
-fomc-corpus,1980,"That approach seems totally illogical to me, Mr. Chairman, because we say that there's very little we can do to affect the rate of money growth right now and yet we say if something happens a few weeks from now, then we'll try to do something that will affect it, even though we can't affect it now. I don't think that makes much sense, if I understand what people are saying. If we really want to do something about controlling the rate of money growth in the long pull, I don't think it's as complex [an undertaking] as we're making it when we talk about borrowings and all of this. We are creating a terribly complex, complicated, and unworkable process of getting from here to there. We're never going to get the job done doing it that way.",158
-fomc-corpus,1980,It isn't a simple world.,6
-fomc-corpus,1980,"It seems to me, though, that the issue we're talking about on monetary control is not whether it can be done but over what time period. When one looks at what has been happening to the narrow money supply, it went up 19 percent in August, 12 percent in September, and is projected to rise 4 percent in October. And the two alternatives we have [in the Bluebook] range from growth of minus 1/4 of 1 percent to 3 percent. How dramatic a slowdown could you possibly want? Why do we want to try to force all of the adjustments to what has gone wrong over the whole year 1980 to date into these last two months? It seems to me that we would want to start a course of policy that will bring us moderate growth rates over the next year, the next 18 months, the next two years. I just can't see trying to make up for past mistakes in a two-month period.",194
-fomc-corpus,1980,"But, Lyle, hasn't that been where we've missed the boat for almost the last five years? As recovery has begun to occur, haven't we always said: Let's just look in the next 30 or 60 days and let's not rock the boat because we might abort the recovery? Haven't we procrastinated in taking any meaningful action so that in the aggregate what we've tolerated has led to this present recession? I've seen [that happen] ever since I've been on this Committee, whether we were trying to stabilize interest rates or were doing it this way. We always have some fear that something negative is going to happen to the economy. And almost inevitably we've had two [results]: We've been surprised at the resilience of the economy and we've also failed miserably to do anything about inflation.",157
-fomc-corpus,1980,"But, Larry, if you remember back just six months ago, the shoe was on the other foot. The money supply was dropping like a rock and you weren't saying let's not worry about it. We're always too much concerned about interest rates being too high and having negative effects on the economy. You were saying let's see how much reserves we can dump in to get money growth this quarter in the immediate future. I think that's one of the reasons we're paying for it now. We just let interest rates drop too far last spring. We got the economy turned around too fast. We should have thought then that we needed to play for the longer pull not for next month or the next quarter. And that's the advice we need now.",145
-fomc-corpus,1980,You're right; we made that error. In part we made that error not only because of ideology but because of the economic forecast. Nobody expected this early bottoming out of the recession. We may have had a causal impact on the earlier bottoming out of the recession by letting interest rates drop too quickly. I agree with you that we were letting them drop too fast.,74
-fomc-corpus,1980,Why was that an error if we mitigated the extent of the recession? I don't think it was an error at all.,25
-fomc-corpus,1980,We aborted the recession.,5
-fomc-corpus,1980,"We're going to abort the recovery, too.",9
-fomc-corpus,1980,"If your objective was a 9 percent unemployment rate, we made an error. But I don't see--",21
-fomc-corpus,1980,"We miscalculated, though. If we had known that the economy would turn up in the third quarter, I don't think we would have pumped in reserves as much as we did.",37
-fomc-corpus,1980,"But suppose you argue that that was just the right course. I think you can also argue that that's why the money supply is rising so fast now. So don't be so worried about it if that was the right course, because now you have to worry about what [the money supply] is going to be in the first quarter.",66
-fomc-corpus,1980,"Well, there's some logic to your [suggestion]; I'm not saying it's completely illogical. But you talked about reacting if the aggregates come in high. I'm saying they have come in high in early October and we have not reacted.",47
-fomc-corpus,1980,"Well, we haven't reacted in the last two weeks. We've had quite a lot of reaction since the last meeting. And I think the first question is: Do we want to react right now? That's a reasonable question. I would say no, but that is the first question to be decided, it seems to me. When I say no, I mean not react dramatically; I think $1.3 billion or something like that may mean a slightly higher federal funds rate.",95
-fomc-corpus,1980,"I think one thing we have to bear in mind is that none of us really has any confidence in the forecast. It could come in at that level or it could come in much higher or much lower. Al Wojnilower in New York is saying it's going to be a stronger recovery [than generally forecast]. Other people are talking about the double-dip. The forecasts are all over the lot. Under those circumstances, it seems to me that we have to start off fairly cautiously in terms of not wanting to see any major movement of interest rates. But I do think we have the credibility problem; Paul obviously feels that I may be exaggerating it. But I am concerned about a September-to-December intermediate target that would make us open to the charge that we actually targeted growth fourth quarter-over-fourth quarter that is higher than our target range. It seems to me that in this very unsatisfactory situation there is no good answer and we should compromise because I agree with Paul that the differences between ""A"" and ""B"" are not that significant. I think they have a public relations importance. The difference between $1-1/4 billion and $1-1/2 billion initial borrowing is not [much] more important than the $60 million reserve difference between the ""A"" and ""B"" [alternatives]. I think there has to be a mix, and I've made a specific suggestion. I don't know what alternative specific suggestions there are.",293
-fomc-corpus,1980,"Let me make a specific suggestion. I don't know if there is any argument about the funds rate; I don't think it's terribly critical. We can change that, but a range of 9 to 15 percent has been suggested by a couple of people. I'll pick up the borrowing at $1.3 billion--that's Tony's suggestion--which I think implies a tendency toward a tighter market. It is not a dramatic change, but it tends in that direction. And, just in the interest of achieving a compromise, I'd split [the difference between] ""A"" and ""B."" We have to get a majority vote for something. Have I left a variable out? I know the qualitative variable is [how quickly we react]. This wouldn't go in the directive, but the implication is that if we get surprised on the high side--I'll call it a surprise--of the current money supply projections, we're going to be reacting about as soon as we know that [the aberration is] significant.",201
-fomc-corpus,1980,By changing the nonborrowed reserve path or borrowings?,12
-fomc-corpus,1980,"We would permit the level of borrowings to go up automatically in the first instance and would begin thinking about changing the nonborrowed reserve path. If we change that, it's likely to be by an amount that is bigger than the difference between ""A"" and ""B."" It always is.",59
-fomc-corpus,1980,How much higher do you think $1.3 billion of borrowing would put the funds rate? Somewhere between 12-1/2 and 13 percent?,32
-fomc-corpus,1980,"Again, if large banks suddenly decided to borrow, I'd say it could be [higher]. Ordinarily--",21
-fomc-corpus,1980,"I think the best guess is between 12-1/2 and 13 percent, but it could conceivably go above 13 percent in some weeks depending upon the distribution.",37
-fomc-corpus,1980,"That $60 million figure you've been using, Paul, that's for one month?",16
-fomc-corpus,1980,"Yes, that's only for one month.",8
-fomc-corpus,1980,"Wouldn't it be a little more scientific, Paul, for the Committee instead of setting a borrowing level--we're not really concerned about the borrowing level per se--to establish an initial funds rate for the period? Why not express it that way?",50
-fomc-corpus,1980,It's not just the initial funds rate. It's the funds rate [unintelligible].,18
-fomc-corpus,1980,"Obviously, all this revolves around some concern, which some people have anyway, about interest rates. But I think we really are saying something different if we set a specific funds rate objective. We just said vaguely between 12-1/2 to 13 percent; it could be above 13 percent in some weeks. That's a little different in terms of the way Peter is going to react. If we say the funds rate should be 12-3/4 percent, he's going to be fiddling around in order to make it 12-3/4 percent or as close to it as he can, I suspect. I think that's a real difference in methods of operation.",137
-fomc-corpus,1980,I don't want to do that.,7
-fomc-corpus,1980,"If we split [the difference between] ""A"" and ""B,"" would that imply changing the stated targets?",23
-fomc-corpus,1980,What targets?,3
-fomc-corpus,1980,Monetary growth targets.,6
-fomc-corpus,1980,For the year?,4
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"No, I'm assuming we are not going to announce any change in the targets. But I've already said that I have to testify in three weeks and I assure you that I'm going to say in explanation--what else can I say?--that we had a target that assumed a difference of 1/2 percentage point between M-1A and M-1B and, in fact, it has been running 2 percentage points. After all, they can see that by looking at the chart. We got more inflows to NOW and ATS accounts than we had estimated. Part of that came out of savings or other instruments and part of it, presumably, came out of M-1A. We don't know how much came out of M-1A; we don't know how much came out of other instruments. But the M-1B range is obviously a little low and just on technical grounds--",182
-fomc-corpus,1980,You're going to say that all these banking structural reforms that I recommended have complicated--,16
-fomc-corpus,1980,"I've already told them that. Now we're giving them a specific example. It doesn't imply anything for policy but it does explain a bit why we're high on M-1A. What it's going to show is that we're high both in the M-1A range and in the M-1B range correctly interpreted. If the money supply comes in high, we're going to be outside the ranges.",79
-fomc-corpus,1980,There isn't any real likelihood that [M-1B] fourth quarter-to-fourth quarter is going to exceed the stated range.,26
-fomc-corpus,1980,"Well, he means adjusted.",6
-fomc-corpus,1980,"No, but if one correctly interpreted it, there's a possibility, I think.",16
-fomc-corpus,1980,It'll be high in the range. One way to look at it is that we'd be in the upper half of both the M-1A and the M-1B adjusted [ranges].,39
-fomc-corpus,1980,"Well, we'd be very close to--",8
-fomc-corpus,1980,We should really go back to an average of the two M1 measures.,15
-fomc-corpus,1980,"Well, I think we've always done that.",9
-fomc-corpus,1980,That's essentially what we are after.,7
-fomc-corpus,1980,"I can't understand what has happened to M-1A. I wasn't aware that Larry, for example, had shifted from M-1A to M-1B until right now. I can only conclude that it's because it's a higher number and that therefore he's really not a monetarist but a deflationist.",64
-fomc-corpus,1980,I just want you guys to know that the Chairman can't starve me into submission!,17
-fomc-corpus,1980,"I will rest on a simple statistical fact that while these targets may be the most wonderful, impregnable things in the world, they are mutually inconsistent.",30
-fomc-corpus,1980,"Yes, in your November testimony, if you are going to hammer that point--",16
-fomc-corpus,1980,"I didn't say ""hammer;"" I said ""say.""",11
-fomc-corpus,1980,I think you're going to have to hammer it in for defense if for no other reason. And maybe you ought to indicate to the [Congressional] Committee that the reformulation of the '81 targets will have to be much more explicit.,48
-fomc-corpus,1980,I will certainly indicate that. We already tried [not to be explicit] when we announced them preliminarily. But somebody reported to me that that was promptly interpreted as an easing of the M-1B target when we said in three different ways that it wasn't.,53
-fomc-corpus,1980,I hope you will also hammer in or fight against any move to narrow the target ranges. Heaven knows that we ought to have learned that we really don't know that much about the [relationships among the aggregates] at this time.,45
-fomc-corpus,1980,"The general impression that emerges to me is that [growth is] high in these target ranges. Whether we're a little over or just within them, the fact is that on a fourth quarter-to-fourth quarter basis, whatever we say, we're on the high side and not the low side. I also hope that these things don't go wild in the next couple of months and that we don't have to say we missed them all and that they are all out of the ranges.",94
-fomc-corpus,1980,"That's the danger of talking about adjustments. Then we might be in a position where we have missed them all, adjusted, whereas at least this way we have one--",33
-fomc-corpus,1980,[Unintelligible] M-1A.,11
-fomc-corpus,1980,We have M3.,5
-fomc-corpus,1980,And M2 has been showing some life lately.,10
-fomc-corpus,1980,We'll go to L!,5
-fomc-corpus,1980,Some people think we already have.,7
-fomc-corpus,1980,"If we take the midpoints of the two alternatives, just arithmetically we come out with a 1/8 for M2--[7-3/8 percent]. So, [rounding for M2] we're talking about 2-1/2, 5, and 7-1/2 percent; or we could make M2 7-1/4 percent if you want to compromise it that way. There isn't much difference between the two M2 figures.",101
-fomc-corpus,1980,"But we'd still have Tony's problem, Paul, that we would be describing a growth path for M-1B that would be outside the upper limits.",31
-fomc-corpus,1980,"Well, technically, people can't tell that because it depends upon the path within the quarter. If somebody assumes it's a straight line, that is right. The proposal that I made, [given] the present M-1B target, would [imply that as] we sat here in October and looked at November we'd be 1/4 percentage point above the range. I don't think there's quite as much importance to that as [there is to the likelihood] that the market is going to attach great importance to the fact that we chose a target that was 6 percent or whatever it is, 6-1/2 percent as opposed to 6-3/4 percent for the year as a whole. I don't think it's the easiest piece of arithmetic in the world, but if that cosmetic is--",163
-fomc-corpus,1980,"The difference may not be so important today. But as we move into the first quarter of 1981 if we stick with the targets already announced, we're making up not only the reduction that we're proposing for 1981, but the 1/4 or 1/2 percentage point that we missed before. And it just worsens the problem if we're focusing on M-1B, for example.",82
-fomc-corpus,1980,"I don't think that's technically true. It depends on the profile of the months. Now, if you're talking about a decline in the rate of increase so that we don't have that high of a quarterly average--",41
-fomc-corpus,1980,"The fact is that we know the market focuses on M-1B. I think that's unfortunate because M-1B is no better than M-1A. They're both bad. I suppose one answer would be just [for the sake] of debate that we have a target for M-1A that is below the midpoint. I think that's arithmetically right, isn't it?",79
-fomc-corpus,1980,[Unintelligible] that's right.,9
-fomc-corpus,1980,"The [M-1A] number in ""B"" is at the midpoint. So if it came in below ""B,"" it would be below the midpoint for M-1A.",38
-fomc-corpus,1980,These are tenths in all cases.,8
-fomc-corpus,1980,We're literally arguing over tenths. And that seems ridiculous when we have such a short period of time left.,22
-fomc-corpus,1980,"I agree; I won't argue. I wouldn't dissent from your proposal, Paul. It's sufficiently balanced and it meets the needs.",25
-fomc-corpus,1980,"I would buy it reluctantly, too.",8
-fomc-corpus,1980,"Well, let's [see whether we have a consensus]. Just to repeat: We have 9 to 15 percent for fed funds, a small increase in the borrowing level initially and we have 2-1/2, 5, and 7-1/4 percent, just rounding these numbers, for M-1A, M-1B, and M2.",77
-fomc-corpus,1980,"And ""about""?",4
-fomc-corpus,1980,"In the directive we'd pick up that language that we used a year ago of ""or somewhat less.""",20
-fomc-corpus,1980,And you'd move the fed funds range to 9 to 15 percent?,15
-fomc-corpus,1980,"Yes, 9 to 15 percent on the fed funds rate.",14
-fomc-corpus,1980,With borrowing of about $1.3 billion.,10
-fomc-corpus,1980,Initially.,2
-fomc-corpus,1980,How would the Desk react if in fact we get growth in the monetary aggregates a little above the alternative B path or clearly above the alternative A minus that we're talking about here?,35
-fomc-corpus,1980,"If the Committee votes for this, we will have a path that's based on these aggregates, and the nonborrowed path [will be constructed] using that borrowing assumption. If the aggregates come out at ""B"" or a little above, then presumably the demand for reserves is going to be a little higher than we're targeting and we will just stick with the nonborrowed path, so the implied borrowing level would come out somewhat higher than this.",89
-fomc-corpus,1980,"If it literally came out along the ""B"" path or a little higher, so long as that persisted the borrowing levels would be edging up. But I would describe it as an edging up rather than a dramatic change. If it came in way above [$1.3 billion], then we would have a different situation.",64
-fomc-corpus,1980,But you would not lower the nonborrowed target under that?,13
-fomc-corpus,1980,"We have not typically done that unless we're considerably above [the path]. When it was running $300 or $400 or $500 million above last month, yes, we did make adjustments then. But at $100 million above, we wouldn't be inclined to make such an adjustment.",56
-fomc-corpus,1980,"There are two other dimensions to what you're discussing on borrowed reserves. One is that on Friday, if the rates don't break this week, I suspect you're going to get a number of Reserve Banks recommending an increase in the discount rate, which would obviously affect the borrowings. The other thing is that we put out a revision in Regulation A.",68
-fomc-corpus,1980,It won't affect the borrowings.,7
-fomc-corpus,1980,The borrowings are set.,6
-fomc-corpus,1980,We'll discuss that later.,5
-fomc-corpus,1980,"We have a revision of Reg A which, if I've read it right--and depending on how the different discount officers interpret it--calls for a tighter policy in regulating borrowing by the big banks, the issue that Steve just talked about. So we have to [factor] into our thinking at least whether we're going to raise the discount rate.",68
-fomc-corpus,1980,"I'm not aware of that. But I would interpret a discount rate change as a rather forceful move, which I'm not talking about taking immediately. But we can't exclude it if this really comes in high over the course of the next couple of weeks.",50
-fomc-corpus,1980,So you don't think the Board is likely to move [the discount rate] on Friday?,18
-fomc-corpus,1980,"No, not based upon this decision, without a radically different money supply figure or something.",18
-fomc-corpus,1980,The Board would have to discuss it at its meeting.,11
-fomc-corpus,1980,"That's just a personal remark. Well, unless somebody has a--",13
-fomc-corpus,1980,Let's vote.,3
-fomc-corpus,1980,"--further brainstorm, let me just see tentatively whether, as I take it, this attracts some support given the difficulties. I'm sure it doesn't please anybody perfectly.",34
-fomc-corpus,1980,It's strictly a live-with kind of thing.,9
-fomc-corpus,1980,"That's right. Under the circumstances, I think ""live-with"" is about the best we can do until November 18th.",26
-fomc-corpus,1980,"What was your federal funds range, Paul?",9
-fomc-corpus,1980,"Nine to 15 percent, which just raises it a percentage point, doesn't it?",17
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,Shall we vote?,5
-fomc-corpus,1980,You wouldn't like to see a show of hands first?,11
-fomc-corpus,1980,We can see initially with a show of hands. How many of the Committee members find this broadly reasonable?,21
-fomc-corpus,1980,It's the only way we can do it.,9
-fomc-corpus,1980,I guess I'm forced to ask what else is broadly reasonable.,12
-fomc-corpus,1980,"Well, you have enough [votes]. Roger Guffey voted yes. He had a pencil up, but he did have [his hand] up.",31
-fomc-corpus,1980,"My sense is that I do not know of any other approach that's more broadly reasonable, so we might as well vote. I haven't heard any alternative that's likely to attract more support.",36
-fomc-corpus,1980,"No, I think under the circumstances you're probably lucky to get 8 votes for anything. It's all smelly; it's all tough. It's just a question of what one is willing to live with. I think that's absolutely right.",46
-fomc-corpus,1980,"Well, I'm less concerned about the money supply targets than about the borrowing level. I said previously that one can do one thing and say the other, and I'm perfectly willing to compromise along those lines. But in terms of the market, I think the interest rate is the crucial thing now.",58
-fomc-corpus,1980,"Well, $1.3 billion [in borrowing] is above what it has been running.",19
-fomc-corpus,1980,It's just that I don't believe the present situation is consistent with severely negative real rates after tax. We're going to have an inflationary--,27
-fomc-corpus,1980,You want higher interest rates. I see.,9
-fomc-corpus,1980,"To get [positive] real rates after tax, Governor Wallich, we'd need a 21 percent long-term bond rate.",25
-fomc-corpus,1980,"Some people don't pay taxes and some people take the standard deduction. So this doesn't go across the board, but there has to be some allowance for taxes.",31
-fomc-corpus,1980,"Governor Wallich, I would tell you that if you talk to people out in the business world, there are already some real screams of pain. We are already flagellating them, but I think you want to crucify them.",47
-fomc-corpus,1980,I think you're looking [at this situation] with an assumption that there is a painless solution.,19
-fomc-corpus,1980,"Oh no, no.",5
-fomc-corpus,1980,And the only painless solution is more inflation.,9
-fomc-corpus,1980,"No, I agree that there's no painless solution. But there's already some pain out there.",18
-fomc-corpus,1980,Henry would argue that they really don't know what pain is yet.,13
-fomc-corpus,1980,What are you talking about on the borrowing level?,10
-fomc-corpus,1980,"I'd go with alternative A, $1.5 billion.",12
-fomc-corpus,1980,That's $200 million [more]. I don't sense that that proposal is going to have more support than this one. And I think we better vote.,30
-fomc-corpus,1980,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey Yes President Morris No Governor Partee Yes Governor Rice Yes President Roos No Governor Schultz Yes Governor Teeters Yes Governor Wallich No President Winn No It's 8 for and 4 against.,55
-fomc-corpus,1980,Okay. Do we have a Board meeting now?,10
-fomc-corpus,1980,"Yes, we have lunch and then the Board meeting.",11
-fomc-corpus,1980,"I suppose we are on agenda item 1, which is approving the minutes. Mr. Altmann wants to make a comment.",26
-fomc-corpus,1980,"With respect to the minutes for the meeting of November 18, we've put in front of you today the revised minutes. I just wanted to call to your attention that there is an addition in the form of a Secretary's note. At the November meeting, if you recall, the Committee approved renewal of the swap arrangements subject to final approval of the specific terms by the Foreign Currency Subcommittee. The Secretary's note merely states that on December 1 and December 17 the Foreign Currency Subcommittee approved the provisions so that the swap agreements are, in effect, renewed. Scott may want to say something about that.",122
-fomc-corpus,1980,"Do you want to discuss your negotiations, Mr. Pardee?",13
-fomc-corpus,1980,"Yes, I'll discuss very quickly the agreement in principle on the two points we wanted to negotiate. One was the elimination of even sharing of risk, which applied to five of the different swap arrangements. The other was shifting to use of an interest rate in the foreign market as the basis for our drawings. That is, we would pay their interest rates rather than ours. Everyone agreed rather quickly, but it was rather complicated in view of the new procedures among the European Monetary System central banks. They all wanted to sit together and discuss it among themselves before they came back. Again, they agreed. The second problem was to find an appropriate instrument in the other countries that came as close as possible to the U.S. Treasury bill. There aren't many countries in the world that have a Treasury bill, but we found in most of them something that was as closely comparable as [possible]. The [major] negotiation on this, of course, was with the Bundesbank. We are now in an end game with them because they don't have a Treasury bill. Indeed, their Treasury tends to borrow at short-term interest rates that are higher than other short-term market rates. So we're coming down to a formula [that is] now based on the interbank rate, with some discount for us since we think that the Federal Reserve is a better risk than German banks are to one another. I'm reviewing this still, but the Treasury seems to think that that's an appropriate basis. And we're having an end game with the French as well, where all of a sudden they have found that they don't have a Treasury bill whereas everybody in the world thought they did. So these negotiations have become very complicated, but I think we can come out reasonably well on them.",347
-fomc-corpus,1980,"Are there any questions about that? If not, we can have a motion to approve the minutes.",20
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Second.,2
-fomc-corpus,1980,Without objection they are approved.,6
-fomc-corpus,1980,"We are talking about minutes for three meetings: November 26, December 5, and December 12.",22
-fomc-corpus,1980,They are not all approved in that motion?,9
-fomc-corpus,1980,That's fine; I'll take it as--,8
-fomc-corpus,1980,I will interpret that motion as including the minutes for all the meetings we've had.,16
-fomc-corpus,1980,Fine.,2
-fomc-corpus,1980,"[Next on the agenda is a] discussion of foreign currency operations. A memo was distributed that I believe you have seen. Do you want to give any introduction, Mr. Truman?",37
-fomc-corpus,1980,"Not necessarily, unless you want it, Mr. Chairman. Do you want to do this before we do the regular report?",25
-fomc-corpus,1980,"I am not looking at the agenda, I guess.",11
-fomc-corpus,1980,We have the report on operations first.,8
-fomc-corpus,1980,"Well, let's do that first.",7
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,I thought all these German marks we were buying were going to the Treasury.,15
-fomc-corpus,1980,"Yes, recently, since we have come close to the limit we have for the Federal Reserve. But at the time of the last FOMC meeting, we still had over $400 million worth of leeway.",43
-fomc-corpus,1980,"I thought we weren't using it. Well, is there any discussion about this?",16
-fomc-corpus,1980,"I have some questions. We have a limit on how many balances we can hold by type of currency, is that correct?",25
-fomc-corpus,1980,"Marks and yen, specifically, yes.",8
-fomc-corpus,1980,Does the Treasury have limits on how much they can hold?,12
-fomc-corpus,1980,"It doesn't work like that for the Treasury. Assuming that they have the resources in the Exchange Stabilization Fund, then the decision is made ad hoc. There is not a self imposed limit, assuming the resources are available. Now, the ESF has limited resources which they expand by warehousing with the Fed, up to the limits that we permit.",70
-fomc-corpus,1980,"If they warehouse currencies, against whose target does that go? Or does it go against anyone's?",20
-fomc-corpus,1980,"Well, they bear the exchange risk if they warehouse.",11
-fomc-corpus,1980,But there's no limit on how much they can warehouse?,11
-fomc-corpus,1980,We have the warehouse limit.,6
-fomc-corpus,1980,So it goes against our totals?,7
-fomc-corpus,1980,No.,2
-fomc-corpus,1980,"No, it goes against our limit on their credit lines with us.",14
-fomc-corpus,1980,So we have a limit on how much the Treasury can warehouse. Is that it?,17
-fomc-corpus,1980,"Yes, on how much we would lend the Treasury for warehousing purposes.",15
-fomc-corpus,1980,I think it's about $2-1/2 billion.,12
-fomc-corpus,1980,"No, the limit is $5 billion and they are up to $3 billion.",17
-fomc-corpus,1980,There's $2 billion left.,6
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"And these appear in our assets, do they?",10
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,These are our assets. But we have a forward contract?,12
-fomc-corpus,1980,"They appear on our balance sheet as our holdings, but there is an off-balance sheet item which is a forward sale of the foreign currencies back to the Treasury.",33
-fomc-corpus,1980,We get the yield on them?,7
-fomc-corpus,1980,We get the yield for whatever rate is in the swap agreement.,13
-fomc-corpus,1980,At the German rate rather than the U.S. rate?,12
-fomc-corpus,1980,"Yes, I suppose.",5
-fomc-corpus,1980,So we lose what--maybe 6 percent per annum on every one of those we have?,19
-fomc-corpus,1980,"Well, it depends on what [form] they are in. They are in a double-swap, double-forward so that they are earning about 7-1/2 percent now, or something like that, versus Treasury securities.",47
-fomc-corpus,1980,I certainly wish I could find a commercial bank that would let me warehouse like that!,17
-fomc-corpus,1980,"Well, it does affect our profits but as against the alternative of the Treasury holding them, it all washes out.",23
-fomc-corpus,1980,"But they can't, Tony said.",7
-fomc-corpus,1980,"Yes, [unintelligible] are up against the limit at present.",16
-fomc-corpus,1980,And this is a well-known device that the Congress knows about?,13
-fomc-corpus,1980,"Oh yes, they have said so every time.",10
-fomc-corpus,1980,I mean that we're not hiding anything. There is no subterfuge involved here.,18
-fomc-corpus,1980,"No, I've testified on it before.",8
-fomc-corpus,1980,"The policy record shows the change in the limits, and the System's annual statement at least indicates the amount that is warehoused as well as the sum of the holdings that are covered by these forward transactions.",42
-fomc-corpus,1980,"So the total volume of marks, say, that we can hold is the $1-1/2 billion limit we have plus the $5 billion that is the limit we have [on warehousing for] the Treasury?",45
-fomc-corpus,1980,That's $5 billion at the moment.,8
-fomc-corpus,1980,That's it then? The maximum we can hold is $6-1/2 billion?,18
-fomc-corpus,1980,"Well, plus what they could hold outright on their own.",12
-fomc-corpus,1980,"That's on DM, but it isn't our total limit on all balances of all kinds. MR. PARDEE(?). Plus whatever the Treasury has in the ESF, if you're looking at the government as a whole.",43
-fomc-corpus,1980,Yes. What is left is mostly SDRs.,10
-fomc-corpus,1980,That covers all my questions.,6
-fomc-corpus,1980,Are there any other questions or comments?,8
-fomc-corpus,1980,"Yes. Scott, I understood you to say that some corporate treasurers were expecting a decline in the value of the dollar early next year. What's the reasoning behind that expectation?",36
-fomc-corpus,1980,"I think there's also an expectation that interest rates will come down. In effect, these are people who would be bringing funds home at the end of December for repatriating, for earnings, or whatever purposes. Say they have their investments in Deutschemarks. Rather than disturb those investments by selling the marks and buying dollars, they have borrowed dollars, say, in the Euro-market--even for one month. They would bring them home and would repay in January when the borrowing matures. So it's an indication to me not so much of their interest rate sensitivity but of their expectation that the dollar will be weaker against the mark. It is interpreted that way in the market as well, where it was reported.",141
-fomc-corpus,1980,What is the dollar/mark exchange rate today?,10
-fomc-corpus,1980,It's just under 1.99. It got up over 2 again this morning.,18
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"Mr. Chairman, what sort of rules do we have with respect to moving the other way with this deck of cards in our hands? Is there a tendency as we pile up more reserves to want to peg rather than to smooth or whatever? I'm not quite sure what either of those terms means, but--",61
-fomc-corpus,1980,"Why don't you defer that question until we get on the general subject of holding currencies. Any other comments or questions on operations? If not, we need a motion.",33
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,"Without objection they are approved. Do you have any recommendations, Mr. Pardee?",17
-fomc-corpus,1980,"No. We're clear of the swap lines, and I've reported on our negotiations with respect to the renewals.",22
-fomc-corpus,1980,"We are then to the general questions. Why don't you tell us where the U.S. government stands on numbers anyway, Mr. Truman.",28
-fomc-corpus,1980,"We have provided to the Committee--it's in the pile in front of you--an update of Table 1 from the paper we had circulated. As Scott just said, the [Federal Reserve] System has $1.4 billion in German marks, as shown in the first line, and a total [of all currencies] of $2.1 billion. The Treasury has a total of $8.8 billion, of which $5.7 billion is in DM, which covers their Carter note issues [with an excess of] about $500 million. The grand total is almost $11 billion. One could in principle set off against the DM holdings or all the holdings the fact that some of these funds were raised, in addition to [sales of] Carter note issues, through sales of SDRs and drawings on the Fund. They gave up those assets in return for DM and we haven't reconstituted those holdings in either form. That would show, at least as far as marks are concerned, that the Treasury and the United States would be somewhat negative, by about $1 billion, as shown in the bottom line of the first column. And the net comes out approximately at zero on that basis. I'd be glad to answer any questions.",250
-fomc-corpus,1980,"Why shouldn't the Treasury take some of these currencies, buy back the SDRs, and repay the IMF drawings?",22
-fomc-corpus,1980,"Well, they can't repay the IMF because it was a reserve [tranche] drawing. And the way rules go, that is never repaid except in the form of further dollar drawings. Not only is there no obligation, there is no possibility of repaying to reduce your [unintelligible], increase your [unintelligible].",69
-fomc-corpus,1980,Except by other countries' drawings?,7
-fomc-corpus,1980,"[The reserve tranches] are set up that way. But on the SDR sales, they could do it, and it has been talked about from time to time. I'm sure President Solomon can tell you about taking some marks or some of these other currencies and buying SDRs from a country. We talked in the spring about buying back some of the SDRs we had sold to the Japanese, for example, when they were going through that phase.",90
-fomc-corpus,1980,"It would probably make more sense to do that later on, Paul, when the markets turn around. But, Ted, why does the Treasury carry in its formal balance sheet the IMF drawing of $2 billion as a negative? We still have $1-1/2 billion, roughly.",58
-fomc-corpus,1980,"That has to do with the relationship between the Treasury's general fund and the Exchange Stabilization Fund. The general fund drew from the IMF and sold the currencies to the Exchange Stabilization Fund; [the latter has incurred as] a counter-entry a liability to the general fund. And [to the extent] that gets repaid, that in fact marks up the balance sheet of the ESF. That's one of the reasons it's so big now.",89
-fomc-corpus,1980,So it's a negative item for the ESF but not to the Treasury as a whole.,18
-fomc-corpus,1980,"As other countries draw dollars out of the fund, that calls on the credit line of the Treasury [for] advances of funds. And on an annual basis, they settle up with the ESF. At that point, the Treasury has to provide dollars to the Exchange Stabilization Fund. So that's one of the contingent liabilities that the ESF still has.",71
-fomc-corpus,1980,Are we in the super-gold tranche?,9
-fomc-corpus,1980,"Oh yes, that is the point. Because we drew in super-gold tranches--or what used to be called super-gold tranches--that is why we don't have to repay.",39
-fomc-corpus,1980,We don't call it a super-gold tranche anymore?,11
-fomc-corpus,1980,"It's all called the reserve tranche now. Gold, as you know, was downgraded in the Articles.",22
-fomc-corpus,1980,Its price went up.,5
-fomc-corpus,1980,"When you're out of the super-gold tranche, is it still considered a tranche?",17
-fomc-corpus,1980,It's all called the reserve tranche now.,8
-fomc-corpus,1980,Up to 25 percent--a quarter?,9
-fomc-corpus,1980,"Well, what used to be called the gold tranche and the super-gold tranche are both called the reserve tranche.",23
-fomc-corpus,1980,There is no distinction between the two then?,9
-fomc-corpus,1980,Even for Chrysler?,4
-fomc-corpus,1980,"Well, we have a memorandum describing some considerations here. It has been a while since I read it. The United States government, in one interpretation, is in a balanced position. That's the way the U.S. Treasury looks at it, anyway. I suppose the only thing one could argue about is whether to include the IMF drawing in that or not. We are close to the top of the limit we set. We still have $2 billion [leeway], roughly, on the warehousing [facility]. I don't know if the Treasury feels too strongly about who holds the currency, but I think their view--just to put one view on the table--is that we ought to continue operating pretty much as we have been up until several billion more at least. The theory is that it doesn't hurt--or to put it more positively that it may be desirable --to have positive currency holdings against an uncertain future, which raises the question about our currency limit and conceivably the warehousing limit. But that is their feeling about it. The exchange market may be close to a turning point depending upon what happens on our interest rates. What happened last time [is that], as soon as interest rates turned, the dollar went down quite sharply for a while, just on the mere fact of a turn in interest rates even though all during that period, except maybe at the very end, there was a positive differential in favor of the dollar. By the time the positive differential disappeared, if it ever disappeared, the dollar had stabilized. The movement was mostly on the turn, reflecting the fact that there is some expectation that the dollar will get stronger so long as they see interest rates going up. And as soon as they see [the differential] going down, the expectation turns around almost regardless of where the level is. I don't know what is going to happen, obviously. But that is an operational issue posed for us. When I looked some time ago at the foreign currency directive, or wherever these instructions are, I thought perhaps it could stand some rewriting. But I don't think that would have to be done in any event, if it is done at all, before we look at this in terms of these general directives. And there is nothing in here that is inconsistent with what we are doing or have done. I'll open up the floor for comments.",470
-fomc-corpus,1980,"Mr. Chairman, what is the legal basis for our holding the balances? Are there any legal constraints? Do we have legal authority to do it or not?",32
-fomc-corpus,1980,"Well, we obviously think we have the legal authority to do it or we wouldn't be doing it. I think that issue was thrashed out and resolved in the early 1960s when these swaps first began. The specific legal authority is in the [Federal Reserve] Act, which says specifically that we can hold foreign currency balances. I don't think it says much about what purpose we can hold them for. As I remember it's silent on that. I don't know whether Mr. Peterson or Mr. Oltman or somebody else who was around at the time wants to comment on--",118
-fomc-corpus,1980,"Mr. Chairman, there is authority technically to acquire cable transfers in foreign currencies. As you say, in the early '60s [the issue] was thrashed out to reach the conclusion that we were authorized to acquire currency balances and essentially to set up the various swap arrangements.",57
-fomc-corpus,1980,"This was all done with the knowledge of the Congress, of course; it was developed at that time with the Treasury. The Treasury had pressed the Federal Reserve to do it in the first instance. But it was all agreed to by the Congress; they were fully aware of it.",56
-fomc-corpus,1980,It was also noted in the Board's Annual Report at the time that an opinion had been rendered to the Committee that the Federal Reserve could engage in those transactions. It is not any secret legal authority.,40
-fomc-corpus,1980,"Haven't we been doing it for 20 years? And our holdings now probably are as big as they have ever been, aren't they? We have had a bigger negative position on numerous occasions. This is as big as they have every been on the positive side. And there's no question about the Treasury's authority to be agents in these transactions either. There is a long record, too, in connection with all of this--I want to attempt to be precise about the words though it has been worded in different ways at different times--that it has always been pretty clear that these operations are done in conjunction with the Treasury. And The Treasury has a particular responsibility in the Gold Reserve Act of 1933, or whatever the name of the Act is, for international financial operations. It has never been pinned down as a precise legal matter, but there are various understandings that have gone on through the years.",184
-fomc-corpus,1980,"Mr. Chairman, there are formal limits, which I take it have their origin in the instruments that are mentioned in the authorization and the directive and so forth. And then there are informal limits that are discussed in the memorandum. What is the origin of the informal limits on the currency holdings?",58
-fomc-corpus,1980,"Well, I don't know where what you call the formal limits are [located]. They don't seem to be in this directive.",25
-fomc-corpus,1980,"No, they're in the authorization and the procedural instructions.",11
-fomc-corpus,1980,"They are in the annual authorization that we set down. It's primarily a procedural matter. The annual authorization sets down some general limitations, but there's a feeling that Mr. Pardee shouldn't go off on his own and operate within the general limits in the authorization but that he should be pinned down more closely as an operating matter. That accounts for the emergence of what you call the informal limits, with the Foreign Currency Subcommittee having certain authority in that respect.",90
-fomc-corpus,1980,So the informal limits are set by the Foreign Currency Subcommittee?,13
-fomc-corpus,1980,"No, no.",4
-fomc-corpus,1980,"Well, as you said, they are not exactly informal, they are procedural.",16
-fomc-corpus,1980,"Well, it's not my language; it's in the [memo].",13
-fomc-corpus,1980,"Let me try to explain it. In the authorization the limit on the open position in principle is symmetric, so we could be so much in debt or hold so much in the way of balances. That's what the authorization limits. And the procedural instructions govern how much that can change between meetings or certain time periods as we move up to that overall limit that is set in the authorization by the Committee.",79
-fomc-corpus,1980,The procedural limits are what you are calling the informal limit?,12
-fomc-corpus,1980,"No, I haven't gotten to the informal limit. What I referred to in the paper as informal limits are limits that have been established within the authorization, within this overall limit which is now $8 billion, to govern in particular our holdings of balances. But they have been updated and codified on the basis of understandings rather than votes because in some sense--",72
-fomc-corpus,1980,Who establishes the informal limits?,6
-fomc-corpus,1980,This Committee by consensus. The Committee did it at its last meeting and the meeting before that.,19
-fomc-corpus,1980,"When you say informal, are those recorded [votes] or not?",14
-fomc-corpus,1980,"No, they have not been formal votes and thus not recorded.",13
-fomc-corpus,1980,The logic is that you had a formal vote on the overall limit [specified in the authorization].,19
-fomc-corpus,1980,"We have three types of limits: We have the limit on the overall authorization, which is [voted on] annually; we have procedural limits, which are in the procedural document and cover occasional and particular problems; and we have had discussions where we have informally set limits within those other limits.",60
-fomc-corpus,1980,"And there is a fourth set. When Arthur Burns was here, he would sometimes give a daily limit to the New York Desk. He discontinued that after a while. But there is also some consensus between the Treasury and the Fed and the Desk as to some broad range of tactical day-to-day type limits.",61
-fomc-corpus,1980,"But those are tactical decisions, essentially. I believe we're clear now on the various types of limits that are in [place].",25
-fomc-corpus,1980,"But it is important to know that the limit on how much we can buy in Deutschemarks, which is $1.5 billion, has been set by the Committee. It's not a formal action of the Committee as is the $8 billion limit on the open position, but I feel it's equally binding to me as any other action of the Committee.",70
-fomc-corpus,1980,There's no question that it's binding; it's not going to be changed without another action.,17
-fomc-corpus,1980,It might be tipping our hand if we published that month by month.,14
-fomc-corpus,1980,"Mr. Chairman, do we have any notion as to what the right amount of foreign currency balances would be and at what point we would feel comfortable that we've accumulated enough?",34
-fomc-corpus,1980,"Well, that is one of the issues basically before us. And I'm not sure. I don't have any answer for all time. In approaching that question in a rather tentative way, the Treasury did some calculations and looked at the swings in interventions basically. I forget just how they did it; I think it was the gross swings in intervention over the period since 1973.",75
-fomc-corpus,1980,They are in the paper.,6
-fomc-corpus,1980,"If they're in the paper, you can look at them there. They show that the swings have ranged, on a couple of occasions, up to $8 billion.",33
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"We actually got $8 billion in debt, or very close to it, because we were starting from a zero balance--I was there--on only one occasion. It was up to $8 billion and another time it was not very far from it, I think.",54
-fomc-corpus,1980,"Well, it's on table 5; the peak was about $8-1/2 billion, and for--",23
-fomc-corpus,1980,It must have been 1978.,8
-fomc-corpus,1980,"Yes, '78 was one of the big ones. What page are you on?",17
-fomc-corpus,1980,"It's on table 5 in the paper. About two years ago in December, we were at $8-1/2 billion--that was cumulative intervention--and that was simply all debt, although some of it was financed by Carter notes.",49
-fomc-corpus,1980,"I'm looking at table 5, but I don't see an $8-1/2 billion total.",21
-fomc-corpus,1980,"It's U.S. totals, $8.411 billion.",12
-fomc-corpus,1980,It's [column] five.,6
-fomc-corpus,1980,When it's a plus that means we were buying them?,11
-fomc-corpus,1980,"No, minuses are buying and pluses are sales.",12
-fomc-corpus,1980,"Minuses are buying, okay. So that's $8.4 billion we sold. Then there's a previous period of $8.2 billion.",29
-fomc-corpus,1980,"No, I'm sorry, it's $5.8 billion. Excuse me, I was reading the wrong column. There is nothing like being helpful! The peak was $5.8 billion.",39
-fomc-corpus,1980,"That's the U.S. total column, right?",10
-fomc-corpus,1980,That's what I was looking at.,7
-fomc-corpus,1980,"Now, the $8.4 billion was last October. So it's $8.4 and $5.8--",24
-fomc-corpus,1980,"So, looking at these figures--there's nothing very scientific about this--they say we've run into fluctuations in both directions of [up to] $8 billion. And if you consider a normal position at zero, in some sense, it seems natural to be willing to hold at least $4 billion. I'm talking net now on the theory that if we ran into another $8 billion drain, it would take us from a plus $4 billion to a minus $4 billion. Therefore, $4 billion sounds like a nice figure not to worry about.",111
-fomc-corpus,1980,Is that over and above our holdings to cover the Carter funds?,13
-fomc-corpus,1980,"Yes, they are saying on a net basis--",10
-fomc-corpus,1980,"And to cover the swap, I take it.",10
-fomc-corpus,1980,"Yes, starting from this net position that they interpret as roughly zero. They are not saying to go to $4 billion necessarily. In this version we don't go out to acquire balances. We operate more or less the way we've been operating and deal with disorderly or erratic markets as it seems appropriate. We are willing to do that more or less the way we have been, within that kind of framework. That's one possible approach.",87
-fomc-corpus,1980,"Mr. Chairman, let me make what I think is the positive case for this. I arrived at this view pretty painfully at a time when I was handling this at the Treasury. As a practical matter, we are very reluctant as a government to sell large amounts of gold when the dollar is under attack. If we don't have substantial balances of foreign exchange, which we accumulate as market opportunities offer, as part of this leaning against the wind strategy--I'm not talking abut pegging the rates, obviously, and the record shows that we haven't pegged rates--then we have to go into debt immediately. There are various consequences of that. First of all, the markets are constantly aware that we don't have our own resources and that we are going into debt. It affects the credibility of our intervention. There are always speculations on whether we're going to run out of resources and whether the Germans will increase their swap debt [given] that we're dependant upon Germany's good will at that time. I am focusing on Germany because that's usually where the issues arise. Secondly, we would show a better profit position if we had our own balances because then if the dollar weakens, we sell balances and only go into debt when the dollar is much weaker--if we've used up our resources--rather than going into debt immediately. The same [is true] on the up side. So it tends to improve the profit-loss picture; we can't guarantee a profit, but it improves the prospects of one. [We have more] credibility in the markets because of the independence we have, in terms of not having to submit to any conditions from other central banks or other governments. The fact is that we have more of a say in the judgment as to whether the exchange rate is overshooting or undershooting by a very large amount--again, I'm not talking about pegging--rather than leaving that intervention position entirely to the foreign central bank. All these factors are very powerful reasons, in my view, why we should accumulate a very substantial position. Now, one can argue: Why not let the Treasury do that? First of all, the ESF has limited resources, even though it can be supplemented by warehousing. But there are limits to that. They can't warehouse more than they have the resources for. Secondly, we have less to say. If the Treasury is going to have the only resources, then the Treasury is going to call the tune on international monetary policy alone. Thirdly, it's very important in terms of the market impact and to the Congress that the Treasury and the Federal Reserve be in this jointly. This has been the view of every Administration that I can remember. Being in that kind of joint position, we both derive strength from the other. Finally, I must say that the previous Congressional objections to a more active policy disappeared at the time of the November 1, 1978 [program] with the overshooting on the down side, when the collapse of the dollar was so strong that Proxmire, Reuss, and the others strongly supported us when we put together the November 1st package. I told them at the time that the implications of that were that we would build balances as market opportunities permitted. They both said they recognized that and they thought that was appropriate. At the time I said that to Bill Miller who was Chairman of the Federal Reserve, and he was supportive. For a country our size, and with the dollar being the principal foreign currency for transactions and reserves, one can argue not that we need $8 billion but that we should have $30 or $40 billion if we are not prepared to sell gold in large quantities. Now, nobody is talking about [accumulating] that [much]. I think the chances of the market permitting us to accumulate those kinds of reserves [are remote]; it's just out of the question. But it might be feasible to accumulate $8 or $9 billion or something in that area. And I would hope that we would go along with the Treasury and would agree to increase the line substantially. The immediate operational question--we don't have to increase the limit too much if there is an understanding that from time to time the limit can be raised--is whether we can go ahead with, say, a $1 or $2 billion increase now. But it seems to me that the long-run strategy is what the FOMC ought to consider.",885
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"Mr. Chairman, Tony's statement has rather anticipated a question I was about to raise. Ted Truman's paper was useful and interesting as far as it went. But what I was hoping to find and didn't see--and I wanted some discussion around this table as a minimum if not a study paper--was something on the fundamental purposes of our intervention. In Ted's memo, on the top of page 2, he sets forth three types of reasons for intervening: The traditional aim, prior to 1978, of heading off disorderly conditions characterized by abrupt intra-day changes or wide spreads in bid and ask prices; a bit more than that--countering disorder, characterized by so-called cumulative exchange rate changes that tend to feed on themselves; or thirdly, the disorder characterized by substantial exchange rate movements that carry rates to levels that are judged to be unrealistic in light of fundamental economic factors. I gather, Tony, we have been more or less in that third mold since the crisis of November 1978 and the $30 billion support package that was put together at that time. I'm really skeptical about making judgments that are counter to what the market is telling us. Who makes those judgments and on what basis? I guess I'm being a devil's advocate here. I think there's an awful temptation to substitute judgments for market forces. The key question, since the dollar is in the very opposite position today from what it was on November 1, 1978 when it was very [weak], is whether this very broad intervention, which in my view is at least semi-pegging within a range, is still justified. Is it necessary? Is it doing something positive for the national interest? What are the costs related to the benefits?",349
-fomc-corpus,1980,"John, on that I'd say first of all that we simply lean against the wind and let the market pressures show up in terms of the direction. It's the magnitude of the [market] move that we try to lean against in the short run. The record shows that very clearly in the last two years since November 1, 1978. Now, when we get to a situation where we have something like the November 1st collapse, then of course we have to intervene massively. We have not done that. There have been substantial dips in the dollar in these two years during which we simply leaned against the direction. The traders themselves feel that there is a stabilizing influence if the central banks are in. It doesn't mean we have to be in every day. There have been many long periods of time when we haven't been in at all. It can reach a situation, though, where there is a very clear consensus within the government, and even in the markets, that by God this [market move] just has gotten momentum and is out of control, and it's not reflecting the fundamental factors. That still leaves an extremely broad range in which we would, if they were very large movements, simply lean against them. But we would let the movement go in the direction it's tending to go. It does not involve a conception of where the rates should be. It does involve a conception of how far [the markets should move] in either direction, when we begin to get into an area of extreme undershooting or overshooting. But as I say, the only really massive intervention we did was in a short period of time--a two-month period starting November 1st up to December of 1978 --and then [the markets] turned around beginning in January. It is just the facts of life. And the markets themselves like that kind of stabilizing force because there is just too much at stake. Now, in terms of more basic economic considerations, it is also true that if the dollar collapses too far, aside from any financial problems that can create, it really does feed inflation. If the dollar over-values too far--again I'm talking not about making narrow judgments but very broad judgments--it hurts our competitiveness and we end up with major balance of payments problems. So there is some kind of rough sense. Also, the markets really don't believe that central banks are completely indifferent to exchange rates over some broad area. They think we have a target. When we practiced what they call benign neglect, they thought we wanted a continuous weakening of the dollar. No matter what we said, they thought that was what we wanted, in effect.",532
-fomc-corpus,1980,"Well, first of all, I fully supported that November 1978 action, Tony. I'm not questioning the need and necessity of that. What I am somewhat skeptical about is whether we still need the same scale of resources today and ought to be [intervening as actively] in view of the strength of the dollar. I'd make one other comment, if I can get it in here. I have a suspicion, and that's about all it is at this point, that these foreign exchange operations may have more of an impact on domestic monetary policy than has been realized. I mean that in the following sense: I think we probably all view the exchange intervention operations as being in an aggregate sense, sterilized--that they aren't doing anything one way or another to affect the grand total of member bank reserves. What we do on one side, we offset on the other side. But by the same token, to the extent this intervention, this leaning against the wind to moderate the rise in the U.S. dollar without affecting current monetary policy--if that should be the aim--succeeds in keeping the dollar below the level it would otherwise reach, then it follows, based on a study we're now doing but haven't completed, that it must also keep the level of U.S. interest rates below what they otherwise would have been relative to interest rates abroad. I'm talking about the size of the gap. The size of the gap will be smaller either because U.S. interest rates in an absolute sense are somewhat lower than they would have been or foreign interest rates are higher than they would have been. And the reason I think that has to be the case is that the difference between the spot and the forward value of the dollar, based on our studies, tends to be very close to the U.S./ foreign interest rate differential. One can track this, and it has been tracked by different people around the System, including the Board's staff as well as our staff. And since that difference between the spot and the forward value follows very closely the two interest rate differentials, thus depressing the spot relative to the forward value, then our interest rates must be depressed relative to those abroad. That is, the interest rate gap will be smaller. The next point in this line of argument is that, as we've tried to study what has happened to the demand for bank credit and the growth of monetary aggregates this year, we're beginning to believe that the fluctuations in the demand for business loans in this period have had a pretty considerable effect on the monetary base, the multiplier, and ultimately the target aggregates. And if that view is correct--that the business community wants to stay out of the bond market when rates are exceedingly high as they are now--and turn to the banking system, as they've done massively, in demands for bank loans, they create the deposits and create a need for required reserves two weeks down the road. We have to move in and supply the required reserves. And to the extent that that business loan demand is based on the level of interest rates, and to the extent that intervention has, as we suspect, somewhat lowered the level of U.S. interest rates, then the demand for bank loans gets even stronger, if there is any interest elasticity there at all. In a word, we have a suspicion that intervention keeps rates lower than they otherwise would have been and increases loan demands to higher levels than they otherwise would have been and probably results in more demand for money than would have been the case in the absence of [the intervention]. In short, if this view is correct--and it still has to be confirmed by some more work--then intervention is not neutral in terms of its impact on domestic policy.",742
-fomc-corpus,1980,"Would you like to comment on that suspicion, Mr. Truman?",13
-fomc-corpus,1980,I'd welcome comments on that suspicion. It's not even a hypothesis yet.,14
-fomc-corpus,1980,"Well, that analysis is based on the assumption that the forward rate does not move; then anything can happen. As we've sketched out in the paper, depending on where the change comes from, if there's a shift in the market's sentiment in favor of the dollar, if anything that'll tend to push the exchange rate up and we would see, absent anything else, interest rates [come] down. If we intervene under those circumstances, [unintelligible] can sterilize intervention both here and abroad, and let the forward rate move around, if anything interest rates would be higher than they otherwise would be because some of the pressure that would come from that demand for dollar-denominated assets would be taken out of the market by supplying them.",149
-fomc-corpus,1980,"In addition to Ted's specific point, there is a more general statement that I think ought to be made. We'd be more independent of the external environment if we had our own resources in terms of [implementing] domestic monetary policy. If we have a very serious decline in the dollar, which goes too far, and we don't have the resources, then we've got to yank up interest rates. And we may not wish to do so. Lyle Gramley [can speak to this], for example; he was on the Council [of Economic Advisors] when this was a serious problem. So I think that is the larger truth, which swamps the technical effects. And even the technical effects, I think, are very easily manageable in an economy as big as ours--and I've talked with Peter Sternlight regarding this and his open market operations.",170
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"Well, I agree very much with what Tony has said. I would add that we are really in a very abnormal situation. We are no longer a unique country. We are not pegged to gold and have others pegged to us. We are one of a group of countries whose currencies float. We are the only one that has virtually no reserves; we are the only one dependent on borrowing the reserves whenever we need them. And we have seen that that borrowing can be denied or subjected to conditions. So simply in terms of normalizing our situation in a worldwide float [regime], I think we ought to move toward getting reserves. The immediate prospect may well be that we would be accumulating reserves. That's what we are talking about because the dollar is strong. If the dollar were weak, there would be little point in talking about accumulation. But here we do have the opportunity and perhaps the desirability of slowing down that movement. That depends on how the domestic economy goes. A very extreme case of a country that doesn't want to intervene is the United Kingdom where they are going to sky-high rates that are killing their export industries, because from a monetary policy point of view they can't afford to intervene.",241
-fomc-corpus,1980,The fact is that they don't intervene. That much [is true].,14
-fomc-corpus,1980,"Well, that's a situation that would not affect us. We certainly can sterilize the liquidity generated by intervention. I think it would be wise to avoid the situation that the British are in--a country with a high inflation rate being driven to very high exchange rates and then for the accumulated two reasons, losing competitiveness in exports. We can't, of course, control the rate. There is no question of that. But we can moderate the movement and moderate the extremes. A further point we have not noted is that we've gone to a monetary control system that produces wide interest rate fluctuations. That means it produces wide exchange rate fluctuations. It would be desirable to have the means of compensating for that in some degree if we are going to inflict this interest rate and exchange rate instability on ourselves and the rest of the world, which I think we have to. Intervention is a natural way of [reducing] the consequences marginally, obviously not totally. Now, we might have losses on a portfolio of accumulated balances. That is always a fear. If we buy as the dollar appreciates, that danger is less. We are buying foreign currency cheap. It may turn out not to have been cheap. So one must not ignore that risk. But I'd like to remind you that we have a risk on the domestic portfolio, too. A few years ago I believe we computed that the then-loss on the portfolio was on the order of $2 billion. I wonder what it is now; presumably it's no less than that. So we have lived with that situation without a great concern and I think the loss on the foreign exchange portfolio would be a great deal more moderate, given the kind of balances we are talking about.",342
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"I just wanted to say that I agree with John Balles about the effect, but I get there in a different way. I think intervention does add to the demand for money domestically because for any given level of economic activity when we intervene to keep the rate from going up, we add to the domestic rate of inflation. Therefore, there's more nominal GNP relative to real GNP than would otherwise be the case. We either have a larger demand for money or higher interest rates, one of the two. The result of an intervention on the up side is either to raise interest rates or inflation, or both, in the United States. And I think we ought to realize that that's one of the costs. Surprisingly enough, I agree with Tony and Henry to a degree, mercantilistic as their arguments are. I'm also a mercantilist and I wouldn't like to see our manufacturers excluded from world markets the way Britain's are being excluded when the pound gets to five dollars. When [the dollar] gets to a really high level, we certainly ought to do something about it. I also agree that we probably need a small amount of [foreign currency reserves]. We can't sell our gold holdings very readily; that's a very good point. So, although we have $150 billion in [gold] reserves, it's not available to us because we can't readily sell the gold because of public opinion and so forth. I do not like the idea of accumulating all these marks, as I think you must know. Number one, I don't know what the right exchange rate is. There's always the presumption that our exchange rate somehow has gotten very high. We have a staff forecast in the Greenbook this time that says the exchange rate will rise over the next two years. That doesn't suggest that the rate is all that high when our own professional staff expects a substantial appreciation over the next two years. More than that, though, I'm very concerned about a lack of diversification. We've put all [our foreign currency reserves] in marks. What if something terrible happens to Germany? We have this big stake. So it seems to me that if we were to accumulate--",430
-fomc-corpus,1980,We don't have any big stake at the moment.,10
-fomc-corpus,1980,"Well, you are talking about $4 billion. That means--",13
-fomc-corpus,1980,"Well, your comments are relevant looking toward the future.",11
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,But we don't have a net position.,8
-fomc-corpus,1980,Yes. I have always felt comfortable because we were covered by a Treasury exposure. Now I find there's no Treasury exposure and we are no longer covered. But my point is--,35
-fomc-corpus,1980,"No, wait a minute. The Treasury isn't covered. The United States is even. There is no extension there.",23
-fomc-corpus,1980,"Well, I didn't really want to comment on that [unintelligible]. I don't think it's proper to have that drawing there, which I didn't realize we couldn't pay back.",36
-fomc-corpus,1980,"One can argue about the drawing, but I--",10
-fomc-corpus,1980,"My point is simply that I wouldn't like to see us get a big stake. If we want to accumulate something that we can buy and sell in foreign exchange markets without the difficulty of dealing in gold, why in the world don't we buy SDRs, not marks?",53
-fomc-corpus,1980,Then we'd have to sell the SDRs to a government; we'd need to find one that would be willing to buy them.,25
-fomc-corpus,1980,Aren't they always sellable?,8
-fomc-corpus,1980,We'd have to sell them to a government in order to get the currencies to intervene in the foreign exchange markets. We can't intervene with SDRs.,30
-fomc-corpus,1980,I would have thought they would be rather quickly exchangeable.,12
-fomc-corpus,1980,"Oh, no. I had to negotiate pretty hard to get them to agree to the quantities of SDRs they would buy. Another disadvantage is that we have marks and yen, and if we had the SDRs, a good part of that would then have to be cashed into sterling and French francs, which we normally would not want to intervene in. Eventually, if the evolution of the international monetary system is such over the years that the SDR becomes more and more usable, then the time may come when that's a very practical suggestion. I think it's a rather attractive one in the long run to hold our foreign exchange reserves in SDRs. But there are very practical constraints in the short run. We wouldn't want to be at the mercy of other governments, particularly since they have a limited interest; they're not required in the Fund articles to buy whatever SDRs are offered them, whether we offer them directly or through the Fund. They only are required to have a certain minimum holding and both Germany and Japan are past that limit.",205
-fomc-corpus,1980,"Well, I guess there is no source of generalized purchasing power, then?",15
-fomc-corpus,1980,"Well, there are two dimensions of the SDR. Thinking of SDR in terms of diversification, one could invest, rather than just in DM, in SDR deposits denominated in marks. That is the diversified investment. We could run those up and run those down, and the effect would be a form of multicurrency intervention. We could buy DM or we could go to the market and convert those DM into a SDR denominated deposit and we would then cover some of our exchange risks. We may worry about the investment side of things after--",107
-fomc-corpus,1980,You are talking about a market that doesn't exist now.,11
-fomc-corpus,1980,True.,2
-fomc-corpus,1980,"Well, since I don't know much about SDRs, I would just make a few comments. One, there is a cost. The cost is more inflation in the United States, which we are committed to resisting, I thought. And we don't know how far these exchange rates are going to drift and how much they reflect differences in competitive shifts, structural shifts in these economies. Number two, I don't like to see a concentration of risk because I have confidence in no country. Perhaps, that's--",99
-fomc-corpus,1980,"Confidence in [none], Chuck?",7
-fomc-corpus,1980,Absolutely none.,3
-fomc-corpus,1980,Including your own?,4
-fomc-corpus,1980,"Well, we owe it to ourselves--",8
-fomc-corpus,1980,I'll strike that.,4
-fomc-corpus,1980,"We can diversify our own portfolio if we want to even in proportion to the SDR, although that's 40 percent dollar now so we have to focus on the non-dollar part of the SDR. But the SDR does contain currencies we are not likely to want to intervene in. So I would say we ought to diversify a portfolio in terms of yen, marks, and Swiss francs, which are the principal currencies we have intervened in, and we probably ought to broaden our scope of intervention to the smaller currencies to the extent that those markets can take it. And we would get some of the protection that you have in mind, Chuck.",126
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"Well, I would certainly like to support Tony's position and Henry's. One thing we haven't talked about very much and it wasn't discussed much in the memorandum is the fact that the foreign exchange markets are heavily influenced, as are all markets, by the psychology of the traders. And it seems to me that a large DM position owned by the Federal Reserve would be a very stabilizing force for the psychology of the markets. The only reference I recall in the memorandum is one I disagree with. It says that if the United States were to hold a substantial portion of its international reserves in the form of foreign currencies, this might encourage some smaller foreign central banks to shift the composition of their portfolio out of dollars. It seems to me the effect ought to be exactly the opposite. If I were a central banker for a banana republic and I saw the United States building up a big holding of Deutschemark deposits, that would lead me to be less likely to diversify out of dollars.",194
-fomc-corpus,1980,You've [unintelligible] yourself.,9
-fomc-corpus,1980,That was written in the old memo that was attached [to the current one]. That was in the period right after the Carter notes issue. There were stories in the market that the United States was building up foreign currency reserves and that was being seen as a signal at that time of weakness in the general movement to a multi-currency reserve system.,69
-fomc-corpus,1980,Even we were diversifying.,6
-fomc-corpus,1980,"Yes, even we were diversifying. We were getting that from the market. That was a reflection of that.",23
-fomc-corpus,1980,You should have had a footnote that you no longer believe that.,14
-fomc-corpus,1980,"Well, we've gone down that road and that [view] probably was going on. But it doesn't deny, once you go down that road, that the argument that building a war chest might add to [unintelligible] isn't valid. But the signal we were giving in that period is, I think, itself probably--",66
-fomc-corpus,1980,"Do you have any comments on these observations, Mr. Pardee?",14
-fomc-corpus,1980,"Well, I'm amazed that the discussion came close for the first time since I've known anything about the FOMC to a suggestion by somebody that we should buy sterling on an uncovered basis, given all the support we have given to the pound sterling over the years when it was weak. I'm very much in favor of building up balances, of course, from my own bias as Manager in needing resources when we go into the exchange market. I want to have enough in hand so that I can have an effect on market psychology and on the market. I think that's the important element: How credible the Desk is at the moment when it appears in the exchange market. As for the comments about the possibility of pegging, I'd like to reassure everyone, having gone through personally the periods of fixed rates and the unwinding of fixed rates, that I do not want to go back to pegging. I've avoided over recent years any drift in that direction and will continue to avoid a drifting in that direction. This year we have gone through a Deutschemark rate of 1.70 to 2.03. That's 30 points, over 15 percent. It's hard to say that that involves a pegging of the exchange rate even though we have [made] purchases and sales all the way through. So I would like to reassure you on that issue. But keep bugging me because then I can bug others who are likely to drift in the direction of pegging once again. I like Tony's argument that starting with balances gives us more flexibility, and then we can get into debt. We have lost money on our swap drawings in recent years largely because the first drawing on the swap line was at a very expensive rate and very early in the sequence of operations. And that drawing cost us money when we repaid it. So if we start with balances, on which we might quite frequently be making profits, then we can protect ourselves a little better. The flexibility that that gives us is important. One other argument that has not been raised comes out of the experience we had with the Iranian freeze. There are a lot of countries out there now that are substantial dollar holders who are not our friends, And they may use the weapon of a threat of large dollar sales in the exchange market. When that threat was posed to us last year, It's not that we necessarily need a war chest or big amounts of money in hand, but certainly having more than we have had [is desirable]. And to the extent that these dollar balances abroad continue to grow, we should think in terms of having larger amounts in hand to deal with these national interest threats on top of the nitty-gritty types of things we have in the exchange markets on a day-to-day basis.",550
-fomc-corpus,1980,Scott's comments are what scares me in the sense of the profit and loss being confused with the intervention issues. It seems to me that's the danger of large balances--that one starts to use them in the profit sense of the term rather than stabilization. I'd like to hear the pros and cons of establishing swap agreements when we're not under pressure as a way of doing this intervention versus the holding of large reserves.,81
-fomc-corpus,1980,I don't know what you mean.,7
-fomc-corpus,1980,"Well, we protect ourselves with swap agreements so we can get funds if we need them rather than--",20
-fomc-corpus,1980,"We have the swap agreements now. The question that is being raised is whether to rely entirely on them when we're going to be on the selling side of the market. When selling foreign currency, do we want to go immediately into debt, which is the implication of relying entirely on a swap?",58
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,"Well, it just comes back to the points that Tony was raising. I think the most important point is that [without foreign currency reserves] we do lose flexibility. No question. We've had a lot of arguments with the Germans over the years when we were dependent upon them and they were telling us how much of the swap we could use.",68
-fomc-corpus,1980,"The profit-loss factor, which I mentioned and Scott mentioned, is only an incidental one in the sense that--",22
-fomc-corpus,1980,I'm not even sure it's true.,7
-fomc-corpus,1980,"There's a view on the Hill, that if the intervention is accurate and reflects the fundamental factors, then we won't end up losing too much money; we'd probably make money. It's a political fact of life to try, and it's attractive as well not to be in a loss position where that's possible. But that doesn't influence or dictate in any way when we intervene or the scale of the intervention.",78
-fomc-corpus,1980,"In an area where one purpose blends into another at times, I think we ought to be as clear as we can be on what we have been doing. In particular, I think those three sentences [describing the purposes of intervention] at the top of page 2 are a good characterization. For a long time, we have presumably followed number 1, which might be quite episodic. I think irregularly on both the up and the down side, we have paid some attention to number 2. So far as number 3 is concerned, the only clear incident of that was on the down side in November '78. And one could raise the question whether it isn't appropriate now in the [other] direction, but nobody has argued that case. I almost would be inclined to argue it at times, but I don't think intervention is all that powerful in affecting some of these things in most instances. I'm not raising that issue, but I just want to be clear that [late 1978] is the only time I think it has been raised and has been followed as a matter of national policy. I don't think that was at all inappropriate. But I don't think there has been any question of pegging all during this period. I don't think that's at issue on anything we are talking about at the moment. Obviously, we don't have to set down a policy that is good for all time, and it's very hard to do so in this area because conditions change. Specifically, we are in a situation where the Treasury, unless we want to change our minds, has access to something like $2 billion through the warehousing facility. We are pretty close to the top of the so-called informal limit that we set for ourselves on marks. I think the diversification point that a number of people have wondered about is a reasonable one, but the market is basically a mark market. And we're stuck with it to a degree, although it's worth thinking about that a bit. I would guess, but I could easily be wrong, that we are nearer to the top of any dollar rate than the bottom of any dollar rate. I could be wrong--if the Russians march into Poland and our interest rates take another sizable increase or whatever. But I'm not sure how much more room we are going to need. I just did some arithmetic and, if I exclude the Fund drawing--if I don't calculate that the way the Treasury did--we are just over $1 billion long in marks.",497
-fomc-corpus,1980,That can disappear in 3 days.,8
-fomc-corpus,1980,"That's right; that's not terribly much. I would think if you're persuaded by the general arguments presented and [agree with] what is clearly the Treasury policy at this point, it probably would be wise to increase this limit, let's say, by a billion dollars. What's the limit we have in the other currencies now? There is a limit on yen, isn't there? Is it $500 million?",79
-fomc-corpus,1980,Yen has a $1 billion limit and we've only used some $400 million of that. And then there is a $500 million general limit [on all other currencies] of which we've used about $300 million. That's mainly in Swiss francs.,50
-fomc-corpus,1980,"Mr. Chairman, if you want a suggestion, it is a little hard on the Desk to have all these individual currency limits. One approach might be to do away with them and add things up a little differently. You could add $1 billion or whatever you wanted and deal with an overall limit as to what the understandings are about and what's available in diversification. That might simplify the accounting in New York. I don't know whether that's right or wrong.",91
-fomc-corpus,1980,"On these matters, I'm just as happy having the individual [currency] limits.",16
-fomc-corpus,1980,"I don't think it hurts right at the moment to have the individual limits. Now, as I understand it anyway, nobody is talking about buying currencies for the sake of building a war chest. It is all a by-product of what we're doing for other purposes; and it does govern the flexibility we have for intervening for other purposes. We don't have much room for buying any more marks for our own account, if we don't raise that limit.",89
-fomc-corpus,1980,"I do think that the diversification argument is very important, and we ought perhaps to build that in from the start so that we not only have limits on [individual] currencies but an [instruction to] the manager. I don't think one can be rigid about it because it might make one buy currencies that one doesn't want.",64
-fomc-corpus,1980,"Yes, we can't buy yen now unless we really adopt a different policy that says we want to build up a war chest in yen. That would involve just going into the market for the sake of buying yen. I don't think we want to raise that issue today. That is not to say that if the yen turned weak, we couldn't buy some. But I don't think we want to buy it when it's strong.",83
-fomc-corpus,1980,There is an issue in terms of the [overall] magnitude of balances; we should remember that we have a limit on the overall open position--that is our total risk exposure--of $8 billion. So at one time we must have contemplated being in debt [to that extent].,57
-fomc-corpus,1980,"We did and we were, I think.",9
-fomc-corpus,1980,So I think one has to see the limits we have put on the [individual] balances in the light of that limit we have already set for overall risks.,32
-fomc-corpus,1980,"Are you suggesting that we raise that limit too, Henry?",12
-fomc-corpus,1980,"No, I'm just saying once we have decided that we can afford to be in debt up to $8 billion, we shouldn't be too worried--if we say we can take the risk of $8 billion--about having $4 billion.",48
-fomc-corpus,1980,$8 billion.,4
-fomc-corpus,1980,"No, I mean we are talking about $4 billion in balances now.",15
-fomc-corpus,1980,You don't want to make it $8 billion?,10
-fomc-corpus,1980,"I don't want to make it $8 billion, but I want to remind you that $4 billion is smaller than $8 billion. Somebody should be looking at the foreign currency directive and the other [foreign currency instruments] anyway before the March meeting, and I think that might be an appropriate time to look at any of these limits. I accept the other arguments. I'm just saying as a practical matter that we ought to give ourselves enough leeway to operate on a continuing basis now; looking forward, so far as I'm concerned, if the conditions were right, we could raise those limits if it became necessary. But I don't think we have to raise them so dramatically now that they would probably be bigger than what's necessary, or in some sense desirable. I would propose for the moment that we raise the mark limit by $1 billion; we can raise it further if you want to, but I'd be satisfied with that. I think we have enough leeway in the other [limits] should conditions change. Against the background that these general considerations are persuasive, and recognizing that [the current limits] are low in terms of the numbers that some people have suggested, we can have an understanding that if it's desirable, we'd look at it again either in terms of the warehousing or the System's [overall] limit itself. But I suspect that just raising the [mark] limit by $1 billion is probably enough to take care of this for a foreseeable time period.",293
-fomc-corpus,1980,"By doing this, though, we're not signaling any encouragement for more intervention than we are [doing]?",20
-fomc-corpus,1980,"No, definitely not. No, this implies no change in policy in the exchange markets at all as I see it. Now, it may involve some modification of policy in another sense in that we may end up holding more balances than we have ever held before. But it doesn't imply any operational change in terms of what has been happening in the exchange market. It implies that we're willing to give the Desk enough leeway to continue the kind of [operations] they have been doing, that's all.",99
-fomc-corpus,1980,"Mr. Chairman, if we raise the limit on D-marks by $1 billion, if we decide to [acquire] that whole amount, we have to raise the limit on total balances, excluding yen, do we not?",47
-fomc-corpus,1980,"Yes, I would assume so. You would raise the total from $2 billion to $3 billion and then the DM limit would be going from $1-1/2 billion to $2-1/2 billion.",45
-fomc-corpus,1980,"I don't know what ""the total"" is. Which limit is that? I thought the overall [limit] was $8 billion.",27
-fomc-corpus,1980,The [informal limit relating to the] overall total currently is $2 billion excluding yen.,19
-fomc-corpus,1980,[It's $1-1/2 billion] for D-marks and $500 million for other [currencies].,24
-fomc-corpus,1980,"By putting on these special limits, we have caused ourselves a bit of a problem in that sense. Obviously, if we raise the mark [limit], just to conform we have to raise the overall limit we now have, which seems to be expressed excluding yen. That is $2 billion, which implies we have $500 million for other [currencies] of which we only have what--about $200 or $230 million or something?",88
-fomc-corpus,1980,$233 million.,4
-fomc-corpus,1980,"May I ask if I'm correct that if we raise this, then we have an extra $1 billion for ourselves for marks and there is still $2 billion of leeway on the warehousing? So does that give a total of $3 billion of leeway at this point?",56
-fomc-corpus,1980,Right. That is correct.,6
-fomc-corpus,1980,For the United States.,5
-fomc-corpus,1980,Is there any reason for stating this excluding the yen?,11
-fomc-corpus,1980,I doubt it at this point.,7
-fomc-corpus,1980,"The reason for the yen being separate, as was explained in the paper, was that the last time around on this, in 1979, we were contemplating buying a lot of yen to help the Japanese. It turned out that we didn't do that. But [the yen limit] was set up outside [the total informal limit] at that time.",71
-fomc-corpus,1980,"I don't think there's any particular purpose in stating it that way now, but we better be careful about what we're doing. If we change it, what would you [recommend]? We could change the overall limit to $3.5 billion including yen, I guess. Right? Is that the arithmetic implication?",61
-fomc-corpus,1980,"We could do that, but then the limit is pretty tight on yen if you ever want to buy any more because you have this, in effect, limit of $500 million [on other currencies].",40
-fomc-corpus,1980,Nobody [has said] let's sell them! I'm not sure I want them any more.,18
-fomc-corpus,1980,"Mr. Chairman, I'm not opposed to accumulating balances, and these seem like like reasonable increases in the amounts. I would say, though, that I am disturbed about the fact that in this most recent episode with the mark and the dollar we've done all the intervention. Granted, we needed the marks to pay off our Carter bonds and all the rest, but the Germans have done literally nothing as far as I can figure out. And that bothers me in terms of how effective our policy is.",98
-fomc-corpus,1980,"Well, I spoke with the other day to get his feeling of the situation. I'm just passing this along. Their view is that",26
-fomc-corpus,1980,Including the repayment of swap drawings.,7
-fomc-corpus,1980,"And in that they include the repayment of the swap drawing by us; that's they way it shows up on their books. They're afraid that if they draw too heavily on their reserves, they will increase the pressure on the D-mark. Secondly, through the Ministry of Finance [they are] selling D-mark denominated assets to the OPEC countries. They also feel that this is a temporary situation--that there will be a turnaround because they keep pointing to their inflation rate of 5 percent, compared to ours. They appreciate a modest amount of intervention by us, and they feel that what we are doing now is modest. They are not asking us to do a large amount of intervention. We really have made this decision in terms of our own interest, although checking with them to make sure there is no objection. [It's the same] when the situation is reversed; we expect cooperation from them. But if the Germans wanted massive intervention and we were opposed to that, it's understood that we wouldn't do it. If the Germans wanted no intervention, obviously I think we would respect their wishes unless we ourselves had a view that we were losing competitiveness to such an extent that we insisted [on intervening] to protect our own interests. But that's their view on the amount of intervention. They feel that the [intervention] also has more effect on their domestic money supply. We don't seem to have those [effects] for reasons that we can go into detail some other day. But more effects on their domestic money supply arise when they do the intervention. So, that is their view.",316
-fomc-corpus,1980,"Well, I think the consideration raised is a relevant one. I feel less eager--I've never felt eager about intervening anyway--but there was the excuse of repaying the debt, which the Treasury felt very strongly about, complementing the other reasons. That reason is gone. And if the Germans don't want to intervene, that affects the eagerness with which I want to intervene as well. So that has an influence on the [issue]. Consistent with our past practice, do any of these limits have to be written down and voted on, Mr. Altmann? MR. ALTMANN(?). I don't think so.",128
-fomc-corpus,1980,"I think we ought to have a subcommittee, whichever the appropriate one is, look at this directive. Among other things, they can straighten out these [limit issues]. The simplest thing to do is to leave everything the way it is at the moment so we don't find out that we are doing something we don't intend. But we do have to [raise the limit on] the total as well as the mark, I think, to be consistent here. So, we would have to raise the [informal] overall limit ex yen to $3 billion and the mark limit to $2.5 billion. That leaves [the framework] exactly the way we have it with the implication of another $1 billion in marks, which I think is what we intend at the moment as a kind of holding action here until we straighten all this out. If that's agreeable, and I don't hear any opposition to it, we will just assume that. I also judge just as a matter of guidance that should something happen--I would guess that this amount is adequate, but it's a very uncertain world--we would have to discuss it if we want to go above this amount; but I don't hear strong [views] that that's an impossibility. Given the circumstances, [that issue] might arise.",258
-fomc-corpus,1980,"Mr. Chairman, I'd like to ask a question. What is the limit or what constraints are there on our warehousing for the Treasury? Is that based upon the Exchange Stabilization Fund availability?",39
-fomc-corpus,1980,No.,2
-fomc-corpus,1980,"Well, I think we ought to be clear on this. I want to make it as much as possible dependent upon a constraint of the Exchange Stabilization Fund because it could be construed as a form of Treasury borrowing from the Federal Reserve which isn't covered by the other prohibitions on their borrowing. We need the justification that it is the Exchange Stabilization Fund's lack of assets, not a general lack of funds on the part of the Treasury, that gives rise to this.",94
-fomc-corpus,1980,"The $5 billion rough order of magnitude originally came from the amount of Carter notes that they have outstanding. In fact, [the Treasury] wanted more than that. The notion was that as they reconstituted those DM, which they can't absorb into the ESF, they would warehouse them. So that's how we got to the $5 billion that exists now. Other kinds of claims, as the Chairman said, happened in the past--like claims on the ESF where they might want to help out a country or something like that through their own lending. They might not--",116
-fomc-corpus,1980,"I had not recalled that this had been explained to the Congress, but you [say it has].",20
-fomc-corpus,1980,"Well, it's all in the public--",8
-fomc-corpus,1980,"It's in the public record, I take it.",10
-fomc-corpus,1980,"It is in the public record in those terms, relating to warehousing on the one hand to help out the ESF in general when it gets into emergency situations. And the $5 billion limit is related loosely to that but explicitly to the Treasury's obligations.",52
-fomc-corpus,1980,"The Treasury is aware that we want a justification in terms of the ESF capacity to hold [these funds], not just that they find it convenient to park them with us.",35
-fomc-corpus,1980,"Well, is there any leeway at the moment?",11
-fomc-corpus,1980,There's $2 billion left.,6
-fomc-corpus,1980,$2 billion left?,5
-fomc-corpus,1980,"They do hold quite a lot of DM for their own account, obviously. They have, for whatever [reason], balances of $8.8 billion of which--",33
-fomc-corpus,1980,"They have given us a rationale as to why they have to warehouse this in terms of the capacity of the ESF. I think we have to insist on some reasonable rationale for that. Okay, with that understanding, we will proceed and Mr. Kichline will talk about the economic scene.",59
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"May I ask a question, Mr. Chairman? I noticed, Jim, that you're now basing your Greenbook projections on assumed M-1A growth. I'm a little curious in view of the fact that M-1A is probably the most volatile and least predictable aggregate in the short run. Why do you use it as a predictive device?",70
-fomc-corpus,1980,"Well, I assume that when I answer, you're going to say ""Why not use M-1B?"" So, why don't I wrap the two together. In our view, they're both better than the other aggregates in the sense that we want something closely related to transactions demands. I think one could make a very strong case that over time the preferable aggregate to look at is M-1B. In our forecast, even though we have assumed M-1A, the Bluebook specifies the M-1B numbers that go with it. So, in effect, we have a consistent forecast. If you prefer looking at M-1B, it's the equivalent growth rate for M-1B that's in the Bluebook.",146
-fomc-corpus,1980,"In other words, there is no significance to the shift?",12
-fomc-corpus,1980,"No, it's of no significance in terms of influencing the forecast because the equivalent M-1B is specified in the Bluebook.",26
-fomc-corpus,1980,"We have a bit of a timing problem as well as a great big substantive problem. We're going to have to terminate the meeting at 5:30 p.m. or shortly before. I don't know how far we will be able to go on this whole matter of next year's targets at this time and I'm not sure it's desirable to go too far. As a technical matter, can somebody inform me if these targets we present for next year are supposed to be consistent with the plans of the old Administration, not the new Administration, as I assume? Is that correct as a technical matter when we write the Humphrey-Hawkins report?",127
-fomc-corpus,1980,I think that's probably right.,6
-fomc-corpus,1980,It's related to the President's Economic Report isn't it? And that would be the old Administration.,19
-fomc-corpus,1980,I think it will become irrelevant before we've started.,10
-fomc-corpus,1980,"That may be the technical requirement, but it has a certain air of unreality about it. The reality is that one would like to know something a little more definitively about the plans of the new Administration before we make up our minds on this in a final way. It may not be useful to talk in anything other than quite general terms. The very general question it seems to me is what kind of strategy anybody has to achieve satisfactory economic conditions consistent with a decline in the inflation rate and how that balance is reached under unknown factors, budgetary and otherwise. Views of the economic outlook get mixed in that, but I think it may be desirable to discuss the economic situation in that very broad policy context as well, which leaves me in a slight dilemma as to what to do yet this afternoon. If I let Mr. Axilrod talk, he's going to say that [his comments] will result in using up the time, I presume. Maybe that's just as well.",195
-fomc-corpus,1980,Now may be the best time [for my comments]. I think that would just about do it.,20
-fomc-corpus,1980,"Paul, if we do choose to postpone until some future time our discussion of the longer-range strategy--",20
-fomc-corpus,1980,"No, I'm not suggesting that. I'm just saying that I don't think we can be very definitive about it. On this schedule we would open the meeting tomorrow morning with that discussion.",36
-fomc-corpus,1980,"Well, I was just going to ask: After the study of operating procedures is completed, is the plan to give the FOMC a little more time than usual to chew over it because it seems to me--",43
-fomc-corpus,1980,"When are you expecting to have something for us on that, Mr. Axilrod?",18
-fomc-corpus,1980,At the February meeting. We were assuming that there would be an extra day at the February meeting.,20
-fomc-corpus,1980,Does that mean that it's all going to be sprung on us that day or are you going to distribute something in advance or what?,26
-fomc-corpus,1980,"Well, if God's willing, we will distribute something a week or two in advance. That is our plan, but this is a very large--",29
-fomc-corpus,1980,"Well, we also face some uncertainties. We are very close to the point, which is relevant even to our short-term decision, where these numbers are going to go all over the lot presumably. It's conceivable that we may need another meeting here in January. I don't know that we have to decide that, but it may be a good idea to keep that in mind for a variety of reasons.",79
-fomc-corpus,1980,Have you thought of the possibility of requesting a delay in the Humphrey-Hawkins Report pending new Administration policy?,23
-fomc-corpus,1980,I think that might be seen as a sign of weakness.,12
-fomc-corpus,1980,"I haven't thought of it. Let me say that I hope it's not necessary. You still have time, Mr. Axilrod, so why don't you proceed and then we will start with a mixed discussion of what the general tenor of policy might be in the light of comments on the economic and inflationary situations.",63
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,I will be looking forward to all your comments tomorrow.,11
-fomc-corpus,1980,"Our course is clear, you know.",8
-fomc-corpus,1980,It's crystal clear.,4
-fomc-corpus,1980,"We had an introduction to our problems yesterday. I'd like to go around and get comments. It would be useful if people commented on their proposals in relation to how they see the business scene and what they think they are accomplishing--what the implications of their proposals are in that respect. We obviously don't have to settle, and I don't intend to settle, what the targets should be next year. They inevitably will be influenced by the larger setting in which we find ourselves with respect to fiscal policy and other matters, which is somewhat uncertain at this time, as well as what approaches are going to be taken in other directions psychologically and really. But it might be interesting to see how people reconcile our various concerns at the moment not only against the background of the real economy, but the rather enormous technical problems we will have in knowing what the M1 numbers will mean, in any event, for some indefinite period of time. Mr. Morris.",186
-fomc-corpus,1980,"I have been giving a lot of thought to this after reading that horrendous Bluebook, and it seems to me that the guidelines for next year ought to meet three criteria. First, I think we have to keep it simple. And having failed [unintelligible], that means immediately that we should not have guidelines for M2 because I don't think there's any way in the world that we can explain to a simple-minded monetarist press a 2-1/2 percentage point increase [from the tentative range] in the guideline for 1981.",113
-fomc-corpus,1980,"Let me just interject. I don't know how the staff arrived at that conclusion. I have not seen the analysis, and I'd want to look at it fairly closely; I think we all would.",40
-fomc-corpus,1980,"Well, I think it's because there is a large cyclical component in M2 because of its interest-rate sensitivity. And that does not make it very suitable for [use as] a long-term guideline. Would you agree with me on that, Steve?",51
-fomc-corpus,1980,"There's a cyclical element in Ml, as we saw this year.",14
-fomc-corpus,1980,"I'm not so certain, President Morris, although of course I would tend to prefer a narrower M to a broader M because of [the former's] closer relation to income over time. But if I might just take a minute on your question, Mr. Chairman, we came to the conclusion in two ways that intersect. One relates to the public's demand for assets based in part on this year's experience and how we think the public would respond, given our projection of interest rates next year. And secondly, going through the credit picture we asked: Would the credit demands expected to come out of that nominal GNP and this conservative allowance for growth of thrifts and banks satisfy them? They need [how] much in deposits in order to meet these kinds of demands? It was the intersection of those two strands of analysis [that led to our conclusion].",170
-fomc-corpus,1980,But isn't it true that in the first year of a business expansion M2 typically grows much faster relative to M1 than in boom periods?,28
-fomc-corpus,1980,"Yes, but that was in a period, President Morris, when interest rates were generally low and deposits were subject to ceiling rates. We have a very different situation now, with most of the movement in M2 and M3 occurring through these money market accounts and saving certificates that are at market rates. So there's more of an institutional volition in them than there used to be.",76
-fomc-corpus,1980,"Well, let me say that this is going to bear more analysis.",14
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,"When we are going through it, I don't think we are aware of it.",16
-fomc-corpus,1980,"Well, that is my first principle anyway, Mr. Chairman: Keep it simple.",17
-fomc-corpus,1980,"Because M-1A and M-1B are not good, we are going to throw out M2?",23
-fomc-corpus,1980,"Well, I'll explain. The second criterion is that the '81 guidelines have to be lower than the '80 guidelines, if only marginally.",29
-fomc-corpus,1980,Lower than the guidelines or the performance?,8
-fomc-corpus,1980,"Lower than the guidelines. And third, we have to have something that we have a reasonable shot at hitting.",22
-fomc-corpus,1980,That's true.,3
-fomc-corpus,1980,You've just wiped out two--,6
-fomc-corpus,1980,That wipes out the whole thing!,7
-fomc-corpus,1980,"Those are my three simple criteria. This leads me to the conclusion that we can only do two things: One, have targets only for the M1 measures; or alternatively, go to a bank reserves target. And with respect to the M1 measures, I think the targets should be exclusive of the impact of NOW accounts and we should explain the divergence later rather than try to put an estimate in the targets initially. We've learned from the 1980 experience to date that we don't have a very good basis for estimating and I think we'd be in a stronger position to explain it later. And particularly because one of the M1s is going to be lower and one is going to be higher, it seems to me that the explanation might be easier to make than otherwise. Now, I'd like to emphasize a point in reference to the New England NOW account experience. [Our Bank is] about to publish an article, which is very relevant to this discussion, that shows the initial impact of the NOW account in New England by states. The story is, as you wouldn't be surprised to hear, that the rate of penetration in NOW accounts is a function of the number of institutions that decide to offer NOW accounts and the terms upon which they are offered. In the case of Connecticut and Vermont for example, they both got NOW account powers at the same time. At the end of the first year, there were about 8 NOW accounts per 100 households in Connecticut and only 4 in Vermont. So the penetration rate in Connecticut was twice the rate of Vermont. In Connecticut, 62 percent of the institutions were offering NOW accounts, but in Vermont only 27 percent. In Connecticut, 27 percent of the institutions were offering free NOW accounts, and in Vermont no institution was offering a free NOW account. So here we have a case of two states in New England whose NOW account experience in the first year was very different depending on the way in which the institutions decided to go about offering NOW accounts. That is why I don't think the New England experience gives us any basis for estimating how rapidly NOW accounts are going to grow nationally; the differences within New England were enormous. And that's why I think we ought to use the Mls as targets, exclusive of the NOW account effect.",455
-fomc-corpus,1980,"Part of the trouble is that we can cite that as a target but it's an abstract notion; and we will not know, even when we get the data, what the adjustment should be.",38
-fomc-corpus,1980,"Yes, but that gives us an element of strength, Mr. Chairman, because nobody else knows it either.",22
-fomc-corpus,1980,"That's right, but one can argue quite realistically that we haven't got much of a target because nobody knows what it is, including us. Now that may be an advantage, but I don't think we ought to give--",43
-fomc-corpus,1980,"Alternatively, it seems to me the only thing we can do is to go to a reserve growth target.",21
-fomc-corpus,1980,"Well, I don't think that helps either, if I may say so. [I don't know] how long this [conversion to NOWs] is going to take, but the reserve growth is just an image of the Ms. And to the extent the Ms are distorted, the reserves are distorted. I don't think we can escape the problem. We can make it different visually.",76
-fomc-corpus,1980,But it does blend M-1A and M-1B.,14
-fomc-corpus,1980,"But it blends them in some proportion of their actual change, which is subject to all the [uncertainty].",23
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,I'm not saying these are perfect; I'm saying that they are the least bad of the alternatives.,19
-fomc-corpus,1980,"I understand that, but let me just take a minute. We have a lot of people to talk yet. What do you see going on in the economy? What are you trying to accomplish, particularly when you say these targets should be tighter? What do you visualize? [The staff says] we're going to have an expansion. Do you want an economic expansion? Are we going to affect inflation? What are we going to do?",87
-fomc-corpus,1980,"I think we're headed for a flat year. In the first quarter, we are going to have a mini-recession and the money supply is not going to grow at all. Did you want to get into what we are to do in the [short run]?",52
-fomc-corpus,1980,"No, but I obviously have to decide to wind this up somehow.",14
-fomc-corpus,1980,It's hard to answer that question without getting into the policy for the next four weeks.,17
-fomc-corpus,1980,"Things overlap, obviously, but looking at the year as a whole, give us some indication of what you conceive of as the appropriate strategy of the Federal Reserve and what that means. Let me put it specifically. If you accept the analysis of a very tight money supply figure or if you make a proposal of a money supply figure, I would be interested in knowing whether you are willing to accept the consequences or see as a consequence of that extremely high interest rates, perhaps higher than we have now. Do you not mind if we have a recession, all things considered, if that's the price we have to pay? Is that what you're talking about or not?",131
-fomc-corpus,1980,"I think the implication of even a modest revision in the Ms, say 1/2 of 1 percent, would be that we would have to be willing to accept a year of no growth or very little growth in real terms.",47
-fomc-corpus,1980,Is this a downward revision from the targets we chose in July or is it a downward revision from the actual money growth we experienced?,26
-fomc-corpus,1980,I would say that we have to establish the '81 targets on the basis of the '80 ranges and not on the basis of where we happened to end up at year-end.,36
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, I think the behavior of the economy in '81 is going to be determined more than anything else by what happens to inflationary expectations. If we can somehow or other convince the public that we are dealing effectively with inflation, or trying to, I think expectations are going to improve and we may have even more [growth] than the staff is projecting, although I certainly agree that we're likely to have a dip in the first part of the year as the staff is projecting. But I think we'll have more real growth, and I hope less inflation, in the last half. This point is made very well in paragraph 9 of the Bluebook. And I would like to emphasize that, because to me the key factors in determining the outlook are the people's inflationary expectations and how the public views the stance of Federal Reserve policy. Because I feel so strongly about that, I'm concerned about the possibility of base drift, although we thought we had eliminated it when we went to the Humphrey-Hawkins Act and got away from the quarterly shifting of targets. I am concerned that that could be a factor. As I know all of you noticed as you went through the Bluebook, most of it is written as if we would use as our jumping off place the actual behavior of the aggregates--where they actually ended up at year-end. And like Frank Morris, I would make a pitch that we should avoid doing that at this time. My reason, if we use strategy I, just to take an example, [can be seen] in the charts that I distributed yesterday. I suspect most of you probably don't have them before you now, but I have shown the long-run targets for '80 on the left-hand side of each of those first two charts, in the first case for M-1A and in the second case for M-1B. We have adjusted those ranges for the ATS and NOW accounts as we think they actually affected those [aggregates] during those years. And then there is a second cone on each chart, which uses as the end points the end points that the Board's staff has shown in strategy I. But, of course, the base was the actual behavior of the aggregates, which is quite different from what you would see if you drew the cone to the midpoints. And like Frank, I think we really ought to eliminate this base drift. So I would suggest that we put the jumping-off place as the midpoint of the targets for 1980, although one could certainly argue that it might be moved up somewhat so long as we had it within that 1980 range. I worry that if we don't do something like that, then our critics are going to confront us with pictures like the one I've drawn here, though maybe in a different form. And I think that could be rather damaging to our credibility. So far as setting the '81 targets, if you look at charts 3 and 4, you'll see what I would like to see us do. I think the most reasonable thing is to reiterate the targets that we selected in July, lowering these effective rates by 1/2 percentage point in both cases. The cones on the right show what we would have in the case of both M-1A and M-1B if we came down 1/2 percentage point.",674
-fomc-corpus,1980,"Excuse me, Bob. I don't understand the concept underlying the midpoint base. That's not really the route on which we'd be going. You'd have the aggregates expanding rather fast from a level at which they are not. So they would not actually, with respect to the future, expand that fast.",60
-fomc-corpus,1980,"But if you look at chart 3, Henry, where the money supply is held flat into next year, we are hitting the midpoint of that range.",31
-fomc-corpus,1980,"Yes, I think [I could] address it a little better, Henry, when we get to the short-run part, which I was not going to go into here. But we obviously have to take off from where we are. And what I would suggest for the short run is that we try to move the aggregates back somewhere within those ranges, or whatever ranges we agree on, which as Nancy points out does not involve much growth for the first three quarters of the year. But if you go back and look over a longer period of time, back to August and September, it involves ironing out the excess. Viewed in reference to that longer period of time, that's not a very restrictive policy particularly.",141
-fomc-corpus,1980,"What do you mean it's not a very restrictive policy? If I may pursue that, on your own chart the midpoint of the new range you have--I don't know what that growth rate is, but it looks like 2 percent a year or something--",51
-fomc-corpus,1980,"Well, it's even less. It depends on how we come back; it can even be negative, Mr. Chairman. But what I was saying--",30
-fomc-corpus,1980,"Well, given what has happened, all I can say is that we have had no real growth in GNP this year. We've had a money supply increase of 6 percent or thereabouts and we have ended up with 20 percent interest rates. What interest rates are you going to end up with, Mr. Black?",65
-fomc-corpus,1980,"Well, I think we're in a downturn right now. And I would guess--",16
-fomc-corpus,1980,I'm not talking about the next three months; I'm talking about the year as a whole.,18
-fomc-corpus,1980,"Well, I think one of the main reasons rates are high is because we have put out what the public perceives as too much money. If we show that we are going to deal with that, I would expect interest rates to come down largely in response to the elimination of part of the expectations effect problem.",62
-fomc-corpus,1980,You think that's going to affect the federal funds rate?,11
-fomc-corpus,1980,People won't demand as many federal funds.,8
-fomc-corpus,1980,"Yes, I really do. I think that's the main reason rates are high. But that's certainly a debatable point. In any case, I would recommend that we stick with the ranges we decided on before. And I've shown that in the form of cones on the last two charts. That brings down the effective [growth] rate by 1/2 or 1 percentage point. I think it would be unwise to widen the range as Steve suggested--although I know exactly why he suggested it--because our critics would say we were trying to obfuscate or that we really didn't have any targets in mind. And, of course, we do have targets in mind, but we don't know exactly what the figures are; I realize that. I'm sympathetic with that and also with what Steve perceives as a great deal of difficulty in explaining this NOW account effect to the public or even to those of us in this room. I find myself getting confused every time I go around on it! So when we announce the targets we decide on, [I would] express them in terms of effective rates as the staff is advocating and as Frank advocated. I would differ a little from Frank in that I'd put out a statement at the time saying that it looks to us as if the actual figures for M-1B might run, say, 2 percentage points higher. And if [the adjustments turn out] as expected, then the ranges we are setting for M-1B really ought to be tilted up about 2 percentage points or whatever the incoming evidence suggests. And similarly, in the case of M-1A we would suggest that the rates might come in around 4 percentage points [lower]. If we don't say something like that, the people who are trying to track what we are doing on a week-to-week basis--and I'm talking about professionals here to a large extent--are going to see incoming figures that are affected to whatever extent they will be by the NOW accounts. And if they try to plot those figures in cones or what have you that haven't been adjusted for what these likely [NOW] effects are, then they're going to reach incorrect conclusions about--",436
-fomc-corpus,1980,"Well, that's the advantage of my proposal because one is going to be low and one is going to be high.",23
-fomc-corpus,1980,"I understand that. But I'd favor being a little more open than you suggested, although when we are so confused here there's certainly some argument for perhaps not being that open. But I do think the data will be misinterpreted unless we at least make some mention of that, as we've always done. Mr Chairman, when you testified on this, you said that we would have to adjust these data. And I believe we ought to say it even a little more strongly than we have in the past. People are going to be tracking them and the figures are not going to look like our targets--even assuming we get perfect success--unless we have told them something about how the targets have to be adjusted. It's going to be confusing as the devil. I'm under no illusions that it will be simple, but I just don't see any alternative to doing that sort of thing.",174
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"Mr. Chairman, I'm going to address my brief remarks to the year 1981 in a broader context than usual. And I'm going to base my analysis on three fundamental factors that seem clear to me. One is that there has been an unusually strong indication that the public as a whole places inflation at the top of its list of priorities requiring attack by the government, by agencies such as ours.",79
-fomc-corpus,1980,"If I may just interject a comment, my perspective may be somewhat different. I am impressed by the number of comments I hear along the lines of: ""If this is what dealing with inflation means, I'd rather have inflation.""",46
-fomc-corpus,1980,"Well, I don't disagree with you. But I brought a letter that I received last week from a builder in our area. The gist of it was: ""I'm going down the tubes; I'm going broke. But please, Mr. Roos, express to your colleagues my hope and desire, in spite of my personal anguish, that you stick to your guns because until we resolve the fundamental problems, we are going to have a repetition of this periodically."" The second factor that I recognize is that there is an enormous degree of disillusionment about the ability of the Federal Reserve to act responsibly under these circumstances. I don't base that merely on cocktail party or locker room conversation. When the St. Louis Democrat, which is an ultra-conservative newspaper, and the Post Dispatch, which is a liberal newspaper in our area, both editorialized that perhaps we all ought to be impeached, I think there is a degree of disillusionment with us that hasn't existed for some time. The third factor that I would inject into my analysis is the fact that, fortunately, we are no longer the only game in town in that the incoming Administration appears to be willing to base its policy on tough measures, if necessary, to deal with inflation. So we won't be the sole recipients of any dissatisfaction that might occur with some rather bitter medicine that may be needed. I think the issue we have to address, as you very clearly set before us Mr. Chairman, is: Are we willing to tolerate--and in fact contribute to--a certain amount of further economic distress in the months and the year ahead if that is necessary to break the back of inflation? And I would say yes. If these are the choices we have, I would opt for gritting our teeth and being willing to support a monetary policy that might bring even greater pain than presently exists if that is necessary to get over the hump and to restore some long-range tranquility, if possible, to our economy by reducing inflation. Specifically, I would recommend a policy of gradual reduction in the rate of growth of money based on our announced targets of last year. I'd reduce those targets by maybe 1/2 percentage point this year and say we are going to persist with this for several years to come, enunciating this in simple yet forthright terms. And I'd say that it might cause further trouble but we are willing to do this in order to meet the longer-term objective of reducing inflation. In doing this we should concentrate on a few of the Ms or perhaps a reserve target. We should make it as simple as possible, even though we will have to state the difficulties involved in projecting the effect of NOWs on the aggregates. I'm not as despairing as some of you seem to be about our ability to explain to the public what we are trying to do. I think there has been a tradition in the Federal Reserve, as in other central banks, to play the game in a rather secretive and mysterious manner--to put out little signals here and there, hoping that participants in the financial markets would be able to reach some conclusions through this less-than-forthright statement of what we are trying to do. I think the greater candor we can express, the better we will achieve our purposes. We must do whatever is necessary to improve our ability to achieve our announced targets, and I think that involves a very agonizing reappraisal of our operating procedures and operating techniques. I hope that we will take whatever time is necessary to review how we can improve our ability to achieve the goals we announce because I think our credibility depends upon that. Finally, I believe we should make a greater effort to communicate more effectively with the public--to sharpen up our public information techniques, if you will--because there is a feeling abroad that we don't always address clearly and candidly what we are trying to do. A lot of people who are criticizing us don't understand the issues. I think that can be clarified by making an intelligent and planned effort to communicate, just as any industry or any institution attempts to do from time to time when it's in trouble. All these things are part of achieving an improved future; I think the monkey is very much on our back to face up to these challenges.",851
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"First, it is fairly obvious that the winds of change are blowing hard. If the Administration proceeds, for example, with its widely publicized plan--I don't know whether it's a trial balloon or what--for possibly declaring a national economic emergency, we can hardly make firm decisions, and I know you don't intend to today, on 1981 targets. We don't know what steps that plan might involve. I suspect we will know a lot more when we reassemble in February about what lies ahead in terms of other parts of economic policy of the new Administration. My comments first on the near-term outlook: I suspect we have already loosened some powerful potions of restraint; and I would expect a mild downturn in the first half of 1981, as does the Board staff. Our staff does as well, although we are not quite as pessimistic in terms of the decline in real GNP as is the Board staff. But I suspect we are in for a decline and that it's too late to avoid it. One thing, unfortunately, that we didn't see in the downturn earlier this year was any progress at all on the inflation front. And that has to be a source of great concern. Hopefully, as has already been expressed, we won't be the only game in town as we move into 1981. It could strengthen our hand somewhat if we got some better performance on the fiscal side. Moving to the various options that are open on which M to look at, this is a real horse and rabbit stew, and I don't have any magic answers. But I do have some thoughts on which are the least undesirable, I guess.",329
-fomc-corpus,1980,Which is the horse and which is the rabbit? That's what we need from you!,17
-fomc-corpus,1980,"I'll give you the conclusion and then the supporting arguments. All things considered, I would look mostly to M-1B. The reason is that I think it's going to be less sensitive to the shifts out of demand and savings deposits than M-1A. When we look at the New England experience, we find that in the aggregate--this may not be true case by case, as Frank has pointed out--that about two-thirds of the funds going into NOW accounts came from demand deposits and one-third came from savings. On the basis of the national ATS experience, today it appears that about three-fourths came out of demand and one-fourth out of savings. Based on some work we have been doing--",143
-fomc-corpus,1980,How do you conclude that?,6
-fomc-corpus,1980,"If you are talking about the national ATS experience, that's from the study we have done in our shop.",21
-fomc-corpus,1980,Of the experience in California or the whole country?,10
-fomc-corpus,1980,The whole country.,4
-fomc-corpus,1980,That seems different from the figures we have.,9
-fomc-corpus,1980,"Yes, it does. It will. We'll be glad to share how we got there. I don't have the time to get into the details now, but that's the way it looks to us. We've also have been doing some work with demand for money equations based on data that go through 1979, which we are also about to circulate to the staff of the Board and the Reserve Banks. And it looks to us as if the split will be more like 9/10ths out of demand and 1/10th out of savings. These updated money demand equations give considerably different results than the ones that have been used heretofore by the Board staff. And we'd be anxious to share the technical evidence with you and get your judgments on it. In any event, based on what I have seen so far, I'm leaning pretty strongly toward the view that M-1B is going to be more reliable by a considerable margin than M-1A. By the same token and for the same reason that Frank stated, I am very suspicious about placing much reliance on M2. The big jump shown in the [M2] range in the Bluebook apparently Steve has based on what is expected to happen to interest rates in 1981; at least that is my guess. And, of course, what will in fact happen to interest rates is highly conjectural at this point. I'm afraid we're in a situation where, with this big expansion we have had in the content of M2, that aggregate is going to be very interest sensitive. In the days when we had the old M2, some of you may recall that I argued quite strongly on a number of occasions that M2 was a superior target to M1. I can no longer say that because of the interest sensitivity we have in the new M2; that's because it now includes money market mutual funds, for example. Now, with regard to the ATS and NOW account issue, I don't think that source of uncertainty is as serious as some might believe, and I would come out pretty much where Frank did. We can monitor the actual growth of the NOW accounts. We can set ranges, which I think is what he was suggesting. And I believe that's one of the options set forth in the Bluebook--that we abstract from the NOW account growth and then monitor the month-to-month developments in NOWs. We could set the target within the range [for the year] based on incoming evidence on how NOWs are actually growing in practice.",506
-fomc-corpus,1980,"Just to repeat: [The actual number] is not going to tell you, from anything I know, where the money is coming from. There is no way we can know. We can make guesses.",41
-fomc-corpus,1980,"I'm not sure that we couldn't ask for information from a sample of banks, for example--",18
-fomc-corpus,1980,"We will ask. According to the ones we've talked to, the most they can tell us, if they tell us accurately, is that they understand they have a frequency distribution ranging from 10 percent to 90 percent out of transactions balances, which makes me a little suspicious about what data we are getting. The most they can tell us is where the check came from to establish the account. That doesn't tell us what the ultimate substitution is. It may give us a clue, but I am very suspicious when those results come in over such a wide range as they do. As I understand it, they have made an estimate of 2/3rds from the sample of banks that literally ranged from 10 percent to 90 percent in one direction or another; the arithmetic average came out to around 2/3rds on the initial deposit. But that is not a statistic which fills me with enormous confidence.",184
-fomc-corpus,1980,"That's a great quality, Paul, that no one can tell--",13
-fomc-corpus,1980,No one else can tell either. I fully agree with that. Nobody else can tell any better than we can.,23
-fomc-corpus,1980,"Well, Paul, it's better than nothing. And the alternative is nothing.",15
-fomc-corpus,1980,"Isn't there another [option] that will reduce [the uncertainty]? If we took as our target M-1B plus savings, that would cover most of the sources we think the funds are coming from. It would be a new concept in some ways, but it's also the one behind which we put reserves.",63
-fomc-corpus,1980,"Yes. The logic of that is impeccable, but the only trouble is that there are a lot of independent influences on savings deposits that make them unstable. If it weren't for that, then we'd have a fairly easy answer.",44
-fomc-corpus,1980,How unstable?,3
-fomc-corpus,1980,"Pretty unstable. Savings deposits have been going up and down a helluva lot in the past year. If that weren't going to be unstable, then I think you'd have a good answer.",37
-fomc-corpus,1980,"May I make a clarifying comment on M2, Mr. Chairman, extending that?",18
-fomc-corpus,1980,"Yes, please do.",5
-fomc-corpus,1980,"Since about the middle of last year or longer, we have been projecting a much higher M2 growth than the Committee has been targeting, consistent with the M1 growth and what we expected in nominal GNP. So this is a sudden change from what the staff has been indicating is likely to happen to M2. And on the question of interest sensitivity--though it's a phrase that means different things to different people--from our point of view, M2 in a sense has less interest sensitivity without fixed ceilings on interest rates. [When] ceiling rates disappear, institutions can adjust to the market. As market rates go up, we are not seeing a substantial reduction in flows into those types of deposits; and as market rates go down, we are not seeing a substantial increase in those flows. So interest sensitivity in that sense is lessening. And what we are seeing is that these flows are more responsive to what the institutions for one reason or another think they need in order to maintain competitive positions and to meet credit demands. That's essentially what is at the base of our projection of a further fairly sizable increase.",221
-fomc-corpus,1980,"I hate to make this even more complicated, but I am afraid it is pretty complicated. What the banks are fearful of, given a decision to make interest rates on NOW and ATS accounts the same as those on savings deposits, is that they are going to get a massive shift from savings deposits into ATS and NOW accounts because from the standpoint of the customer there is no disadvantage to it. And the banks don't like it, of course, because their reserve requirement is higher when the customer makes that shift. I don't know whether that's going to happen, but we have gotten frantic letters from the ABA and many state bankers' associations saying that they expect that is just what is going to happen. They are going to have an enormous exodus from savings deposits into NOW or ATS accounts. If that happens, these past relationships may be all off because we haven't had that [particular] relationship before. They may not be, but I just don't know.",189
-fomc-corpus,1980,"But if that happens, then M-1B is going to become interest sensitive.",17
-fomc-corpus,1980,"I don't know whether I'd say interest sensitive, but it's going to skyrocket. Your solution would take care of that if there were no independent influences working on the savings deposits.",35
-fomc-corpus,1980,But that's true of any of these. It's a matter of going to the one that is the least unstable.,22
-fomc-corpus,1980,I agree.,3
-fomc-corpus,1980,"I don't mean to take too much of the Committee's time, but in response to Governor Teeters, one of my less fortunate suggestions to the Committee a couple of years ago was to introduce an aggregate called Ml+ when we had this very problem with ATS transfers. That was going to be demand deposits plus savings deposits. And that happened to be introduced at a time when savings deposits began to drop sharply because market rates were high and savings deposits were subject to a ceiling rate. So the Committee was confronted with a series that was declining very sharply and it wanted it to increase a little.",117
-fomc-corpus,1980,"At the present level of market rates this may be the way to hit the target. Well, we're complicating the job for you, Mr. Balles.",32
-fomc-corpus,1980,"Just to wind up my comments, I'm going to be interested to see if someone else can come up with something better than M-1B. And I'd be willing to listen to the arguments for a reserve target. Obviously we are choosing among the lesser of evils, and it's going to be a very difficult year. Coming back for one more comment on the very near term: As I said, I think we have already set loose some powerful forces of restraint and that is obviously showing up in key sectors of the economy like housing and autos. And we've simply already missed our announced targets for [1980]. I wouldn't take any Draconian action at this time to try to get back within them in a near-term timeframe. In terms of the period immediately ahead, I would recommend the specs shown in the Bluebook under alternative B for November to March, and I wouldn't let the federal funds rate go any higher than 20 percent, which is where it seems to be right now.",198
-fomc-corpus,1980,Mr. Ford.,4
-fomc-corpus,1980,"To pick up on the criteria questions, I did feel that Steve's talk highlighted the problems and the complexity of explaining this multiple set of targets and, therefore, I strongly share Frank's criterion number one, which is that we should narrow the number of targets we aim for, preferably to one target. With regard to the volatility of the transfers of funds between the different categories, we also have been making some serious efforts to try to determine in our District how much shifting of funds there will be. And on the subject of the number of institutions offering NOWs, we have done some stratified samples of thrifts to see how many institutions are offering them, compared to the New England experience. We found in one survey that out of a stratified sample of 60 S&Ls, at a minimum 56 are going to offer the account immediately from day one, out of the box at the turn of the year.",184
-fomc-corpus,1980,"When you say NOWs, do you mean NOW or ATS accounts?",14
-fomc-corpus,1980,"NOWs, or share drafts.",7
-fomc-corpus,1980,"Savings and loans, he said.",7
-fomc-corpus,1980,"Yes, I'm talking about savings and loans. We didn't do the credit unions, although in talking to Jerry last night I was very interested in what he had to say because we are both coming up with similar feelings in our Districts. That is, given what we see from surveys of the thrifts and the amount of pre-emptive advertising of NOWs, share drafts, and so on, I'm afraid we are going to be overwhelmed and that the New England experience is likely to be less relevant than some of us had thought earlier. We expect to see an accelerated learning curve on the part of the consumer, which therefore highlights everything you have been saying all year long, Paul, about the problem of M-1A versus M-1B. It says to me that we have to come up with some sort of measure that averages them. So I tend to lean, again on the choice among evils theory, toward some measure that averages the two, [perhaps on a] total reserve basis, which Chuck said might be [a blend of the two], recognizing that it, too, has many inadequacies. So, I'd go for the one target approach. I don't think you or anybody else on the face of the earth can possibly explain all those adjustments, which I agree are relevant, that the staff came up with. We just can't explain all of those adjustments for four different targets. We have to pick one thing and try to explain it and simplify it with regard to how hard to come down on policy. I think by the time we meet in February we may find ourselves again worrying about missing all the targets on the down side. If my guess is right about where the markets are going, as John Balles and others said, we're leaning on so much stringency now that even though the immediate figures still show the economy surging, except on housing and autos, we are going to pay for this stringency and we're going to pay before the next meeting of this Committee. I think it's more likely that we will see something similar to what we had early last year--though I wouldn't say it will be an exact replay--than that we will have to worry about the aggregates running away. So for the immediate future, my feeling is that we can have a reasonable set of growth targets like one of the [alternatives suggested], but I'd hone in on one [variable] rather than all of them. And we are likely to find that our problem is that the economy will cool off. I don't think there is much we can do about it between now and early next year. Whatever is going to happen is already built into the policy we've been making. Then the question will arise next February, if we do get some relief due to a cooling of the economy, what we should make of it in terms of setting the year-over-year target. I end up, bottom line, being a little optimistic in that if the stringency we've put on bites within the next 90 to 120 days, bringing many of the numbers down so that we are starting to worry about the numbers being too weak rather than too strong, we may then have an opportunity to set targets for the whole year to catch up a little on this base drift. That would make us more credible, [particularly if] backed up, hopefully, by a Reagan strategy that deals with the other things we have to worry about, like the deficit and so forth, which you have been giving speeches about. So I come out wanting to pursue a very moderate growth policy for the next 90 to 120 days, but narrowing down to one target. I have a slight preference, amidst all the anxiety about which one to use, for a total reserve target. That's about where I would leave it at this point.",761
-fomc-corpus,1980,Mr. Wallich.,5
-fomc-corpus,1980,"I think we should make every effort to avoid a replay of 1980, with a sharp drop in interest rates which misleads everybody as to what our policy is, and then probably a replay of what happened this fall. I don't think there is a way of forming meaningful expectations in that environment because if we have a weakening of the economy in the first quarter or first half, as I would expect, then the aggregates will slow and interest rates will come down. And a few hundred monetarists in some sectors of the press will say that we are tightening terribly, but the other 220 million people will perceive this as an easing because they can get credit again at lower rates and they will say the Fed has given up. So I think we have to let the facts speak rather than bank on generating expectations. I would say, therefore, that we should undershoot our targets, whatever targets we set, if necessary; to do otherwise would mean to force in reserves and to push down interest rates sharply. That doesn't mean we shouldn't have some decline in interest rates, just not anything like what we had in 1980. That would also have a beneficial effect as far as the dollar is concerned. The dollar wouldn't make that down-trip to the extent it did and that, in turn, would have some beneficial result with respect to inflation, although I think the gains for inflation from a high dollar are not all that strong. The reason is that the price of oil is fixed in dollars, unfortunately, and [the value of] the rest of our imports isn't very large. I think we should look very closely at interest rates and use them to monitor the meaning of the aggregates. I have a suspicion that the way we are doing things now we are getting in our own way by generating a cyclical movement in interest rates and monetary aggregates--so-called instrument instability. And the level of interest rates is one way of judging what it is we are really doing--provided, of course, that we look at real interest rates. As to the strategies to follow, I would lean toward 1 or 4. Those are the tight strategies. I'm aware that these are going to be very different from what the Administration is going to present, both the current Administration and also very likely the next one. And they are very different from what the market thinks about 1981. So we may have a problem reconciling that in our Humphrey-Hawkins presentation with what the Administration is proposing, which is something we have to do under the Humphrey-Hawkins rules. As for the techniques, [accepting] base drift versus starting at the midpoint, I have a sense that we are not likely to get the full shift in demand that is implied in our projections. We may get some. We may get all, but if we don't, these targets are going to be extraordinarily tight because they are predicated on getting the full 3 percentage point shift. Now, tolerating a bit of base drift here may be an antidote. Otherwise, if we don't get the shift, the straightforward thing to do--if it weren't so devastating in terms of expectations--would be to raise all of our aggregates by a couple of percentage points or whatever the shift implies for M-1A and M-1B. I would hate to do that. We have here a means of equivocating a little. If we do move from the old base, the last quarter '79 base, it means that the present targets would involve slightly higher rates of growth, but not as sharply higher as those in Bob Black's first chart. For instance, M-1A of 3 to 5-1/2 percent would become under that calculation 4.3 to 5-1/2 percent; and M-1B instead of 3-1/2 to 6 percent would become 5.5 to 6.8 percent. These, I think, are reasonable to tolerate. If we do raise the M2 target, however, then I would say we don't have that much leeway to tolerate past overshoots and perhaps then we'd better go back to the old base and try to grow from the midpoint as Bob Black's charts suggest. Again, I think we have to put more weight on interest rates than on the aggregates. My preferred aggregate is still M-1B; it conceptually makes the most sense. But it will be looking pretty bad and its interpretation will be enormously difficult. I think we should simultaneously state M-1A as a compromise, but neither inspires any reliability. M2 inspires little reliability. I've never felt that was a very good indicator. Bank credit isn't going to be a good indicator because the share of bank credit in total credit is going to fall drastically, according to the flow of funds analysis, from something like 40 percent of total funds raised to something like 20 percent of total funds raised. This has to do with the bunching of credit recently at banks as a result of a drop in bond issues and a drop in the use of commercial paper. So bank credit, too, may not be a good indicator. One is left with the idea that we need positive real interest rates; that idea is gaining ground internationally and I think we ought to move in that direction. Thank you, Mr. Chairman.",1080
-fomc-corpus,1980,"Excuse me, Paul. May I ask one clarification question? Did you say that you would or would not allow the base drift? It sounded to me as if you said on M-1A and M-1B you would allow base drift and on M2 you wouldn't.",57
-fomc-corpus,1980,"Sorry, I was obscure. I would say that if we don't raise the M2 target, then I would accept base drift. If we raise the M2 target and make that very conspicuous, then I would have second thoughts about accepting the base drift.",52
-fomc-corpus,1980,Mr. Guffey.,6
-fomc-corpus,1980,"Thank you, Mr. Chairman. I'd like to start with the premise that for the long-run 1981 target the most attractive approach to me is strategy I, which has some implications. And you've asked that each of us speak to that. I would agree with those who say that we do have some powerful forces in place, that we are quite likely at or near the turning point, and that the first quarter will be a negative figure and perhaps a fairly substantial one. First of all, that doesn't bother me very much. It seems to me that what happened in 1980 is that the so-called recession had no impact on prices, and that is an experience that I hope we'll avoid this next time through. It seems to me we do need a downturn; we do need a washout. And I would be prepared to do what the Federal Reserve needs to do to accomplish that, having well in mind all of the pain that comes from that. As for the alternative, I think there is no alternative at all for the nation in the long term. Secondly, the prospects of hitting the targets under strategy I may be quite good in the first half of the year with this downturn we have spoken about. And there's another factor that may come into play: If indeed the Administration comes out on January 20th or soon thereafter with a program in which there is some fear, if you will, or some realization by the public that we really mean business, there are two possible results. One is that there will be some euphoria and we won't get the dip that I just predicted. The alternative, and what I think is more likely, is that we will see a withdrawal from the market --something similar to what we saw after the credit controls went into effect earlier in 1980. In other words, we will have no problem hitting the targets simply because there will be little or no money growth. Having said that, it seems to me our important task in 1981 is not to duplicate the 1980 effort and permit interest rates to drop. Therefore, I would join with Henry Wallich in the belief that there will be a time in the first quarter and maybe through the first half when interest rates will be more important to me than the targets. We can tolerate the lesser money growth that I would expect to happen and manage interest rates on the down side a bit more than might be acceptable to those who would want to follow our procedures strictly. There have been a couple of comments having to do with base drift; I would not opt to correct for the base drift. That is to say, I would center the targets for 1981 based upon the projections that we announced in July of 1980. I would go from that point forward and accept what happens, hopefully on the down side, and the base drift might correct itself by our getting some low growth. It seems to me that there is presently a window that the Federal Reserve can move through in anticipation of Administration programs coming on to help us for the first time in the years that I've sat with this Committee. The prospects are that if we adopt strategy I, which incorporates this rather large downward shift in the demand for money--I don't know whether that will occur or not, but it may not need to occur if these other things come to pass--we will have a window to move through to do our part and we perhaps will have another player on the field to help us. I would hope that we would take advantage of it and not wash the economy out to a very long and deep recession but accept one and do those things necessary to achieve [our objectives].",731
-fomc-corpus,1980,Mr. Rice.,4
-fomc-corpus,1980,"Mr. Chairman, I'd like to make some general remarks first about the economy and then about long-run strategy. With respect to the economy, it's clear that economic activity is still lively. That is indicated by the most recent data we've seen on industrial production, capacity utilization, employment, retail sales, the average workweek, and GNP. We're in a quarter where we expect GNP to increase at a rate in excess of 4 percent. We have seen the latest data, of course, and they obviously add up to strength, with housing starts holding up and real disposable income not slipping very much. The major areas where we see weakness are in business capital outlays and nonresidential construction. Despite this strength in the economy, it's difficult to see how this expansion can continue much longer in the face of interest rates as high as we are experiencing currently. Consumer demand, which has provided the main support to this expansion, seems unlikely to hold up as inflation continues to place strains on household budgets. And it's hard to see how households can continue to increase real spending as real disposable income slips, particularly at a time when the saving rate is already low. Therefore, I'm inclined to accept the staff forecast as the most probable outcome. However, I do have two concerns. The first is that the saving rate, while low, may go lower as consumers try to maintain their living standards. That, of course, would impart continuing strength to the economy and that strength could possibly continue further into 1981 than we currently anticipate. Now, if we have underestimated the consumers' tenacity, that would suggest that inflation may become worse and interest rates may have to go higher. And ultimately, we may have in reaction to this a sharper deceleration than we would like to see. The other concern is that the current monetary restraint and the current high interest rates, particularly if continued longer as I'm sure they will be, may generate unbearable strains in the business sector. If that continues and becomes severe, rather than a moderate drop in economic activity in the first half of 1981 as projected by the staff, we may well see a very sharp decline that becomes cumulative. And we could find ourselves in or headed toward a severe recession. And, of course, if that happens, we will see the kind of thing that Henry fears a great deal: We'll see interest rates fall sharply and will probably find ourselves in something of a replay of 1980. Given all this, I think the best we can hope for is an outcome that closely approximates the staff's scenario. And I think a policy should be established which would maximize the likelihood that we will get only a moderate contraction or moderate slowdown in 1981. If we adopt a more restrictive policy than is being currently pursued, I think we'll insure that we will get a sharp contraction, which will result in the downturn and the sharply lower interest rates that we're concerned about. With respect to the question of whether we should adjust our growth targets downward from the ranges set in July or from the growth actually experienced in 1980, I think we should move in the latter direction. We have been through a year when monetary growth contracted sharply, even declined absolutely, and remained sluggish for a while and then we've seen explosive growth in money, with growth rising above the upper limits of the targets that were established. Clearly, we don't know as much about money demand as we need to, and that's an understatement. So it would seem to me a mistake to start with targets that we already know to be unrealistic and to a degree mis-specified. So I would start with the actual results that we will have seen in 1980 and shave off [some] from that rate of growth. I would like to see actual growth targets that have an upper limit somewhere around the actual growth rates we experienced from the fourth quarter of '79 to the fourth quarter of '80 and, as I said, I would shave off from there toward a desirable midpoint. This would bring us somewhere in the vicinity of strategy II. It seems to me that following the strategy I that is suggested in the Bluebook would be much too constraining for the economy. If we are to believe the numbers, we would be buying some possible credibility with the hope of influencing expectations, with a large sacrifice in real GNP in 1981--nearly a 1 percent decline in GNP--and with no effect on the projected inflation rates. If we take strategy II, which seems more desirable to me, we get only a 0.2 percent higher inflation rate in [1982] and 0.4 percent more in [1983]; and output is 0.4 percent higher by 1983. So I would be more comfortable with strategy II as a means of achieving a moderate contraction in early or mid-1981 rather than risking a more severe recession later on with all the attendant instability in interest rates.",990
-fomc-corpus,1980,Mr. Corrigan.,5
-fomc-corpus,1980,"Mr. Chairman, on just a technical point first, I'm not unduly concerned about tolerating some base drift, maybe even a lot, because I think not accommodating some base drift runs a risk that the brunt of [the effects] will hit particularly hard early in 1981 when perhaps we will least want it. In terms of our basic posture, I think it has to continue to be one that is consistent with a reduction of inflation and is understood as being that. The near-term outlook for the economy, I think, is fairly well-defined in the sense that we are going to have some reduction in activity in the first half of [next] year. In my view, however, the amount of the reduction is open to some considerable question. We have major uncertainties in oil. We have major uncertainties regarding how long interest rates will stay in their current range and certainly the longer they stay there, the more significant the implications. And that does involve some very real dangers to the economy and the financial system. We have the uncertainty of budget and tax policy. I, too, draw some consolation from the fact that there appears to be some momentum on that side, but I'm not by any means sanguine yet. We have short memories. We had coordinated economic programs in November of '78, October of '79, and March of '80, and I think the public is pretty wise at this point and business is pretty wise. If indeed there is to be a very strong and credible assist coming from the fiscal side, it has to be one that really meets the test. And in some ways the critical part of the test is perceived to be the expenditure side of the budget where making real inroads, as we all know, is very, very difficult. So I'm still not quite sure how much weight to put on what may or may not come out of that process. I'm hedging my bets until I see a little more about it. In terms of monetary policy, let me just say a word about the 1980 performance. Certainly there are aspects of the performance, particularly the volatility, that I'm not happy with. I don't think anyone is. But at the same time, I think we make a serious mistake in going around to the extent we do with our tail between our legs in terms of the overall performance of monetary policy in 1980. When I look at the targets and at where I think we are coming out now, with any kind of appropriate adjustment for NOW accounts or ATS problems, I think our record in fact is pretty darn good. In some sense I think we make our own problems with the editorial writers and others by perhaps being unduly sensitive and defensive about what seems to me a pretty credible--and indeed in some ways remarkable--performance looking at the year as a whole. So I'm not about to be too apologetic about that. In looking ahead, broadly speaking I would hope we could keep the focus in terms of aggregates more or less where it is. Having said that, I should also add though, Henry, that I don't want to get trapped in a cage with your 200 monetarists either. And that, too, requires walking a bit of a thin line. The thinness of the line in 1980, for what it tells us, does suggest to me that if there was a mistake, the mistake was probably in the second quarter in chasing the money growth rates down too fast and letting interest rates go down too fast. To whatever extent it's possible in 1981 I think we should try to target something we can hit with a little better success in the short run than we did in 1980. When I look at that in the context of Mr. Morris's simplicity criterion, I have a bit of a problem, because my hunch--and it's just a hunch--is that the NOW account/ATS account impact on M-1B is probably going to be larger, and maybe significantly larger, than the estimates contained in the Bluebook. I conclude that for three reasons. First of all, I think the sameness of the Q-ceilings on passbook savings accounts and the NOW-type accounts is very important. It's very important particularly when, as the Chairman has suggested, the impact of that is likely to aggravate the shift out of savings deposits into M-1B. So maybe the two-thirds/one-third [estimate] is also wrong. Also, consumer sensitivity obviously is higher now than it was in New England or even in New York. And finally, the competition factor is very real. The thrift industry is looking upon these types of instruments as a bit of a salvation in the short run, where they can get their hands on money at the expense of commercial banks. While it's expensive money, it is cheaper than other money that's available to them right now. So my hunch is that they are going to go after that business very, very aggressively and force commercial banks--even those who might not want to go after it--to respond in kind. My conclusion--and again I can't document it any better than anybody else--is that the risks in terms of the possibility of larger flows from savings into these types of instruments are on the high side. If I'm anywhere near right, that could put actual growth of M-1B during 1981 almost out of sight. Having said that, I do agree with those who say that it's impossible to explain all these shifts away; but I don't think it's impossible to explain that they're there without trying to quantify them. Because of that, I would be prepared to give a lot more weight for the time being to something like M2 or perhaps Nancy's version of M2. My willingness to go in that direction would be perhaps somewhat greater if it weren't for the information in paragraph 11, page 9 of the Bluebook that says the broader aggregates are going to grow faster in 1981 than we thought they were. But I don't fully understand what's implied in that paragraph, and I for one would like to see some further analysis of it, particularly in a context in which the scenario we're looking at might be one where interest rates in the first half of the year decline by, say, 500 or 600 basis points from where they are now and then level off for the balance of the year at some relatively high level. If that were the framework of interest rates, I'd have to ask myself whether in fact we are as likely to see the kind of shift that the staff is suggesting in paragraph 11. The other thing that [concerns me is that] I know we can't monitor these shifts very well, but I'm not sure how much we can monitor at all what in fact is going on. Wherever one comes out in terms of the relative emphasis to put on the Ms, that doesn't fully solve, and maybe it doesn't even begin to solve, the related problems of how to conduct operations. That's because these very same shifts in deposit categories, particularly shifts from savings accounts into NOW accounts, are going to produce a huge impact on reserves as well. Basically, I think we have two alternatives. One is to stick with the current procedures, constructing the reserve paths more or less as we do, perhaps in the process giving more weight to M2. But I'm not fully persuaded that that's necessarily the best thing to do. I was struck, for example, by the question that kept entering my mind during 1980 as to how the lagged impacts of what we did in a given week or a given couple of weeks on those reserve paths and interest rates affected growth in the Ms three or four months down the road and the extent to which that in itself contributed to the sharp short-run swings we have seen. And partly for that reason I'm still a little intrigued about the possibility of rethinking the use of total reserves during this difficult period of transition as more of an operational target than in the past; we might do that at least on a quarterly average basis or something like that. I recognize all the problems associated with that. But it would raise the possibility that we'd be talking a little more directly about something that we may be able to hit on a quarterly average basis. And in that context I would use M2 or something like that and interest rates as Henry has suggested, more as informational variables than as operational variables. That covers a lot of turf. But because of the many uncertainties that we all have, I would like to think that maybe what we could do today is at least to narrow this down a bit. Also, Mr. Chairman, you suggested yesterday that we may need a meeting in January before we get down to the real hard [sell] of picking the numbers. And I wouldn't object to that.",1764
-fomc-corpus,1980,Mr. Gramley.,5
-fomc-corpus,1980,"Mr. Chairman, I, too, see signs that the economy is catching on to the fact that interest rates are awfully, awfully high and that there's a lot of pain out there. And we are getting some weakening. I don't see signs of an imminent recession in the numbers, but I agree with the staff that we are going to get a moderate drop in economic activity in the first quarter and probably in the second quarter, too. And the outlook for growth in real terms over the whole year is very, very poor. The reason it's poor, I think, is basically because we have adopted targets for growth of the monetary aggregates that in a world with 10 percent or so inflation, just don't provide any room for real growth. And I don't think we ought to back away from that. That's what we've been trying to achieve with our policy this past year. I'm not at all convinced that we should be sure the efforts of the new Administration are, on balance, going to be anti-inflationary in 1981. They may be or they may not be. I'm prepared to accept a weak economy. Like several other people, I want very much to avoid the kind of volatility we had in 1980. I don't think we can absolve ourselves from some responsibility for what happened. It wasn't entirely the Fed's fault by any means, but I do think we went way too far in pushing up interest rates last spring. We would have been much better off if we had tried to hit our monetary targets over a somewhat longer period. If you think about monetary targetry generally, I think you have to come to the conclusion that monetary targetry works best when the demand for money is stable. During the postwar period there hasn't been any period in which we have had greater instability of money demand than the years since 1974. And next year, at least with respect to two of the aggregates, M-1A and M-1B, we simply do not have enough information about the demand for money to know where [to set the targets for] those two aggregates. If, for example, one were to take the range we had for M-1A in '80 and subtract 1/2 percentage point from it and then take the staff's estimate that the growth of M-1A will be reduced next year by from 1-1/2 to 6-1/2 percentage points, the range for next year that is consistent with that uncertainty would be -3-1/2 to +4 percent. And we have a reasonable chance of--",524
-fomc-corpus,1980,Are you sure?,4
-fomc-corpus,1980,About the same chance as we had for hitting the range in 1980.,16
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,"For M-1B the same exercise would give us a range of 4-1/2 to 9 percent. I think ranges like that are ridiculous. And I think the public would so regard them. Yet if we put out the kind of ranges we have been putting out in the past couple years, there is almost no hope of hitting them. So if we are going to continue to play the game of monetary targetry for 1981, we have to find a monetary aggregate that is not going to be moved around so much by shifts in ATS and NOW accounts. Now, I see some thinking going in the other direction in the comments of Governor Wallich, President Guffey, and President Corrigan; and if the whole Committee wants to go in that direction, I would certainly strongly support it. But if we want to stay with monetary targeting, I think the way to go is with either M2 or Governor Teeters' suggestion of M-1B plus savings deposits. And if you don't like the fact that savings deposits have been very volatile, then what you could do to counterbalance that would be to add all small time deposits. Then the aggregate would be M-1B plus savings deposits plus small time deposits. The logic there would be that this year when we have seen very steep declines in savings deposits, we have seen accelerated growth in small time deposits. And, conversely, when saving deposits have picked up, growth of small time has ceased.",299
-fomc-corpus,1980,What have you left out of M2 in there?,11
-fomc-corpus,1980,"Well, it leaves out of M2 money market mutual funds, RPs, overnight RPs, and Euro-dollars.",25
-fomc-corpus,1980,"Why? I guess I would ask, if you go that far, why would you leave those out?",21
-fomc-corpus,1980,"I'm not sure we should. But if the argument is that we need something against which reserves are held, this would at least be a start in that direction. And I would hope as we go into this year that we take carefully into account Henry's suggestion that we think about what real interest rates are. And I hope we try to shoot for monetary targets over a longer period in recognition of the fact that if we try to chase the money supply too closely in the short run, we may end up pushing interest rates much further than we want and much further than is consistent with a fairly stable pattern of growth in economic activity. And, finally, I by all means do not want to correct for base drift. We ought to start from where we are rather than try to make up early on for mistakes that may have been made in the past.",169
-fomc-corpus,1980,Governor Schultz.,3
-fomc-corpus,1980,"Well, I'm going to argue that short term we ought to look pretty carefully at interest rates and long term we ought to get maximum flexibility. We have a very tough situation here, a real dilemma. We have put the economy through all this agony and we don't want to [waste] that if possible. On the other hand, as a friend of mine said: You were sending a message to the country prior to November 4th, but since then there hasn't been anybody there to receive it. So we do have a little problem about what we're doing at this point in time. It seems to me that the policy of the new Administration is really critical: the psychology they generate, what they can do about credit demands to allow the private sector to re-liquify, what long-run program they can come up with that looks credible on balancing the budget and getting the economy going. Obviously, monetary policy has to do its part. But one good thing about all this is that we are very effectively proving that monetary policy can't do it all. And maybe that is going to have the effect of getting us a little more help. But if monetary policy is going to do its part, it seems to me that we've talked so much about reducing the growth of the aggregates to non-inflationary levels over time that we somehow have to stick to that approach. Everybody looks at that and thinks about it and I believe we have to continue on that path. I, too, would ignore base drift. If we don't start from where we are, we will really have problems. I see no way to make it work. So far as what we target on, internally maybe we can develop some better single target but externally I would argue for putting a lot of targets out there for the simple reason that I haven't heard anybody make a very convincing argument that there's any single aggregate that is going to work very well. And it seems pretty clear to me that we really don't know how they're going to work. So I'd put out an M-1A and an M-1B, adjusted for the NOWs because I don't see how we can [operate] if we don't. I don't know what to do with M2 at this point, but surely we can find some way to massage that so it doesn't look too bad and is consistent. I guess what I'm really arguing for the long term is flexibility. We don't know what the Administration is going to do. We don't know what the next month or two is going to bring. We can't have very much confidence in any one of these aggregates, as I see it. So it seems to me that we ought to be thinking about a family [of targets] and the point of view--the way that the public looks at this situation and the kind of signal we are going to send short term. It's just amazing to me that banks seem to be willing to pay almost anything for money if they think they can sell [the funds] for more money. There are no institutional constraints at all and what we are doing is trying to affect the credit demands of individuals and businesses out there. It just doesn't seem to me that putting interest rates any higher at this point is going to accomplish very much. So I would argue that we ought to look at the level of interest rates at this time and we ought to put more emphasis perhaps on targeting the funds rate short term than we might ordinarily do. I am not willing to give up the procedure that we are using. I think it does make some sense to argue for heavy emphasis on monetary aggregates over time. But there are times when interest rates become very important and ought to receive more emphasis, and I think now is one of those times.",747
-fomc-corpus,1980,"We have a bit of a time dilemma. At the rate of speed we are going, we're going to continue this afternoon. I haven't any great inclination to speed the meeting up all that much because people have things to say. I think we might as well have a coffee break now and continue after the coffee break and we'll see how fast we go after that.",72
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"Paul, this morning I feel as if I have been sitting with a group of blind people describing a passing scene and I'm starting to lose confidence in my seeing-eye dog. I would like to try not to repeat what has been said [since I] share many of their feelings. But I'll pick up a little on our credibility problem in trying to find how we go from where we are to where we ought to be [in terms] of having a realistic target. It seems to me that several things might be said on that score. First, we are where we are and there's no use trying to assume some other basis; we have to go from where we are. But we could aspire still to get back into what we think would be appropriate target ranges that have some relationship to what we've decided in the past. The critical issue is the time period that we say it's going to take us to get there. It may not be within the year; it may take us longer than that to work in that direction. But that at least should be in our statement. Second, we should recognize that we are dealing with a number of variables here. We tend to concentrate on the Ms. And I think the shifts that Jerry was talking about have effects on the velocity of money and at least we ought to get that more into the conversation, not that we understand what's happening on that score. We have price developments and we probably should pay a little more attention to some of these than we do. For example, I got nervous about commodity market developments and the speculative activity and the credit being used in some of these areas. Maybe we should be somewhat more vocal on some of these things rather than ignore them.",340
-fomc-corpus,1980,What do you mean by that? We shouldn't permit speculative loans?,13
-fomc-corpus,1980,"No, it's not that, but maybe we should take another look. We don't have control over the margins in all areas, but I'm not sure those are all proper in this kind of environment. On the output side, I have a gut feeling that the year may turn out to be stronger than we're expecting rather than weaker. I say that for several reasons. One is that we may have a sharper decline in the first part of the year than some of us are expecting. But what strikes me is the underlying demand that is building up in a number of areas, from autos to office space and certainly housing. If attitudes change and the environment changes, we could have a sharper snapback in some of these areas than many of us are expecting. So, I would still stay with trying to address our concern about prices through our targets. I would not try to confuse people by shifting, although I recognize all the shortcomings of the present measurements that we have. I would build the targets from where we are, but with regard to what we thought our targets zones would be. And I'd accommodate the concerns of Henry and others in this area; maybe we ought to think not of a symmetrical zone around the median point, but [aim] somewhat on the lower side--perhaps 2/3 below and 1/3 above it. That may help us a bit in terms of the kinds of pressures that will build externally should the numbers fall short during the early part of the year. And hopefully doing it that way will avoid some of the pressures for a very sharp reduction in interest rates should the quantities fall short of [our targets]. I'd talk a little about our hope to be back in that zone over a period of time. And that doesn't have to be fourth quarter-to-fourth quarter; it could be somewhat longer. You will recall, Paul, our visit with some business people [in my District]. I interpreted them as recognizing the pain, but they didn't really see any other show in the works that would help us relieve it. While some of them were feeling [the pain], they weren't suggesting that we remove it. In spite of the outcries we're getting in other areas, I think we ought to try to balance that with [unintelligible] across the board.",458
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,I've practically forgotten what I was going to say!,10
-fomc-corpus,1980,Do you want to wait?,6
-fomc-corpus,1980,"Let me make two points. One is important--perhaps old hat, but important. And that is that we all ought to recognize that in our discussions around this table in the last couple of years we have greatly shifted [our views about] what we expect monetary policy to do. Traditionally, what we want to do is to keep pressure off markets so as not to have excessive demand. We were discussing as recently as a couple of years ago questions of what constituted excessive demand and what was full employment. I well remember that John Balles had a rather elaborate analysis of full employment in terms of utilization rates for industry and employment and unemployment numbers. And it seems to me now we have gone far, far away from that. We no longer care what employment is so long as it's plenty low. We now say that in addition to seeing to it that monetary policy doesn't lead to a situation in which demand presses against inflation, we are going to work to reduce inflation through monetary policy, [which] increases some costs in the economy. That has to be the implication of our policy. In that context, I think we need to have a view of how weak an economy we are prepared to see over this one or two or three-year period that we are talking about, as we look at the longer-run outlook. We have a pretty good idea at the extreme of what the economy may be like, because we have an example in Britain. There is a lot of similarity. There's a lot of similarity in the posture of the new Administration and the posture of the Thatcher government when it came in. And there may be a lot of similarity in terms of the budgetary results between the two. And yet [see what] it has produced. I think a question that we really ought to discuss seriously is how deep can we expect and how deep are we prepared to see a recession go. I read in the paper this morning that a good many of the English pubs are in danger of closing because of lack of business.",401
-fomc-corpus,1980,That brought it home to him!,7
-fomc-corpus,1980,"I was trying to think of a counterpart, Fred, for the United States. Pubs aren't so important here. And I decided that it was professional sports. So maybe we'll be in the same position the British are when professional sports teams go out of business. I say that not too lightly because I think it is an area where people get a sense of inflation in excess with the multi-million dollar contracts. As far as I'm concerned, we really ought not to plan a policy that produces less than zero growth. I really don't want to follow the British [model] over a period of time. And zero growth, I'm afraid, is probably associated with a pretty fair sized expansion in the monetary aggregates. We have this cosmetic, psychological problem with the aggregates, and I don't know how we can get out of the box. I fully agree with Lyle that there is a great deal of uncertainty here and to have an equivalent range now means we have to go from -4 to +4 percent or something like that. And as a matter of fact, I agree with Bill that there is going to be a very big competitive situation in the market for NOW accounts and that we might well miss on the other side. In thinking about all that, first, I wouldn't want to make up for the overshoots in the aggregates. If we have to state this properly, perhaps the way Emmett has done it is the right way: To state that last year the aggregates were a little strong in real terms, abstracting from this NOW account problem, and we certainly wouldn't want them to be any stronger than that; we would like to see a lower rate. That would be one reasonable way of addressing that problem. Or, we could--after all there's no particular importance to the midpoint of the ranges--extend the ranges. We are not so far above the top end of the ranges and we could say that we have been at the top end of the ranges and, therefore, to the extent we can get [monetary growth] down to fall more within the ranges, we would do that. That's a possibility, too, Paul; that might be looked at. This is a preliminary discussion, so I would suggest that as the staff focuses on this over the next month they take a careful look at total reserves. I believe there may be some averaging advantage in total reserves. After all, a good many of these NOW accounts are going to come from passbook savings, which has a 3 percent reserve requirement. They are going to go into a 12 percent reserve requirement. But some amounts are going to be coming out of demand deposits where the effective requirement has been higher than 12 percent, I think. In any event, somebody ought to take a look to see whether the possible range of variation would be somewhat narrower by using growth rates on total reserves as an approximate target for policy. It also associates well with what we say our operating procedure is, so it has that advantage. The disadvantage is that it doesn't mean a damn thing to anybody except those 200 economists that Henry mentioned. We ought to have a real market implication somehow that comes from this, assuming that we can't do anything more than speak in rather subjective terms about the traditional monetary aggregates. I'm wondering whether we ought to take another look at what we could postulate in terms of a financial number that we would look at in judging the reserve growth along our target path, and whether it could be credit. Bank credit happens to have been within the range during 1980. And maybe bank credit expanded to include the other institutions, so-called institutional credit, is a variable for which we could give a quantitative notion of what we think would be appropriate and related to our objectives.",750
-fomc-corpus,1980,"It's about the same as M3, isn't it?",11
-fomc-corpus,1980,"It is pretty much the same as M3. The reason I wouldn't go for M3 is that people would say we are just moving to another monetary aggregate and one that no one has ever paid any attention to. I think if we talk about credit flows and limiting credit flows to a reasonable range, we would be talking about something that people could understand. I don't mean that we wouldn't say something subjectively about narrow money and broader money. But when it comes down to it, this is quite within the scope of the Humphrey-Hawkins Act, which as you remember refers to the targeted rates of increase in ""monetary and credit aggregates."" So it is quite possible to do it and still be legal in connection with Humphrey-Hawkins. That is one possible variant I would suggest: To emphasize total institutional credit growth, which will be understandable to people generally and to associate [that with the aggregates] conceptually, as a way of approaching [policy] without following slavishly the idea of holding to the midpoints of the 1980 ranges. Those were established really a year and half ago now, and I think that [approach] would be a mistake.",238
-fomc-corpus,1980,Governor Teeters.,4
-fomc-corpus,1980,"Frankly, I don't find any of these strategies acceptable. We're not getting any decrease in inflation and any one of them leads to at least a 1 percent increase in unemployment next year. And we still have a fairly rapidly growing labor force, with lots of young people and minorities and so forth that won't be accommodated in that situation. I happen to agree with Chuck: We really are choosing how bad we are going to make the economy rather than anything that is positive at this point. However, I am also impressed by the 15 percent projected CPI for the first quarter; I worry about that because last year CPI numbers in that range caused panic, and rather severe panic, and led finally to putting in emergency credit controls. Given those considerations, I think we have to choose between a variety of unsatisfactory alternatives. I don't think we can achieve either alternative I or IV if we're worried about our credibility. With the inflationary forces that are loose in this economy, it is going to be impossible to [achieve] those targets. We might have a chance of achieving strategy II or III; besides, they are certainly the least damaging in terms of employment and output and we don't lose anything basically on the inflation rate. So I would opt to stay as near as we can [to those]. Maybe the best way to handle the public relations problem in terms of M-1A and M-1B is simply to extend the current ranges and use the [explanation] that we're above them and are coming back into them. However, I would lobby strongly for the idea of at least looking carefully at M-1B plus savings. If savings are too volatile and if what Jerry worries about happens, savings are all going to move into M-1B. Then whatever volatility is left will just move into M-1B. So that doesn't seem to be a reason for not using that particular [aggregate] at this time. We should at least find something that we can work on. I would also point out to you that this projection probably contains as much as any of us knows about the Administration's program. It has the $35 billion tax cut; it has what I think is our own good judgment that they won't get the nondefense [cuts]; and we still get a zero rate of [economic] growth. So I doubt we are going to get very much stimulus out of the Administration, certainly not over and above this [tax cut]. As far as base drift is concerned, I think that's asking too much. If we take [off] from the midpoint of the old ranges and try to bring the new ones down from that, that is a restriction on the rate of growth of money supply that we'd never be able to accomplish given the way things are going now. And I urge you to be very careful. We could create a very, very severe problem at the rates of interest we now have. Obviously, people are hurting and it's not just [affecting] automobiles and housing. People can't make decisions with rates this high. And I would caution that we should decide how far we're going to let rates drop, depending on what develops, rather than have some preconceived idea that they should be kept at a certain level throughout the year.",655
-fomc-corpus,1980,Mr. Solomon.,4
-fomc-corpus,1980,"I don't think we do any service to the country let alone ourselves if we present long-run targets that are almost impossible to explain with these screwy numbers, no matter how much fine print and explanation we give. I feel we would be perfectly justified and would get a reasonable reception if we said that we have a year of transition ahead in which there are going to be major and unpredictable shifts in NOW and ATS accounts and, therefore, during the year ahead we'll be targeting a broader monetary aggregate. Then we would publish once a month the results of our broader aggregates. Of course, the components that make up M-1A and M-1B are still in those published numbers, but we don't have to publish them as such. People can reconstitute them but there would be a difference in press treatment. We've examined pretty carefully whether there are substitute targets. We looked even at the monetary base; we looked at total reserves. I, at least, came to the conclusion that those alternatives were worse than simply targeting a broader aggregate in this year of transition. I feel also, as Lyle Gramley does, that we didn't help inflation any by letting interest rates go to such extremes as we did this year. It doesn't help to go to 20 percent for one or two months and then down to 10 percent for a couple of months. I think we have to pay much more attention to real interest rates and factor that more into our policy decisions. I also agree with quite a few people that we have to accept the base drift--that the targets for next year would be incredibly restrictive if we started the new range from the the midpoint [of the 1980 range].",337
-fomc-corpus,1980,"From the midpoint, yes.",6
-fomc-corpus,1980,"I tend to place enormous emphasis on this problem of communicating something simple, as Frank Morris said, and also targeting something that will enable us to have a better track record this coming year than we had [this year]. I think targeting a broader aggregate is easier to defend than what was presented [in the Bluebook]--coming out with targets for M-1A and M-1B as well as the broader aggregates. That's all I have to say on the long range.",96
-fomc-corpus,1980,Mr. Smoot.,5
-fomc-corpus,1980,"Thank you, Mr. Chairman. It's probably appropriate as the only First Vice President here that I go last except for you. Are there others left?",30
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,Excuse me.,4
-fomc-corpus,1980,"That's all right. I had my hand up long ago, but I didn't get noticed.",18
-fomc-corpus,1980,"I would be in agreement with those who expressed the view that the 1981 targets have to be lower than the 1980 targets. And I would endorse strategy I. There is a consensus, as I read it and see it in the [documentation], that we have a soft first half coming. And as President Ford outlined, that's going to make it possible to achieve those lower targets for that period and give us some time to think about the second half. I have heard some [comments] that we should be reluctant to let interest rates decline as rapidly as we did in 1980. However, I haven't heard anyone suggest yet that that may have been all right but perhaps we should have moved more promptly when the aggregates started to come in very strongly, rather than tolerate as much of the strength as we did and that, therefore, we may have higher interest rates today than we otherwise would have had. So I would put that on the table for consideration. You mentioned, Mr. Chairman, that you are hearing people say: ""If this is what dealing with inflation means, I'd rather have inflation."" I suspect that means: ""If this is what dealing with inflation is via monetary policy only, then I'd rather have inflation."" I think that simply indicates the extreme reluctance within the economy generally to make the kinds of adjustments that are really necessary to deal with the inflationary problem that we have. There are less painful ways, I'm sure, to handle this. And there are more equitable ways. In that regard, everything I have read about strategy conflict--and I think we have some here between monetary policy and fiscal policy and between labor union policies and other policies--is that we have to speak as strongly as we can on the resoluteness of the Federal Reserve in this endeavor. When we are involved in these strategies of conflict, people have to believe that we mean to carry out our stated strategies or certainly we will lose. Finally, two minor points. One is that I would agree with those who have suggested that we look at some aggregate other than M-1A or M-1B, or M2, on the order of perhaps an M1-C. I don't endorse [any alternative] wholeheartedly at this point, but it is certainly worth further staff consideration. My second point is that on ATS and NOW accounts, there is some evidence in New Jersey that about 20 percent or maybe a little more of the money that went into NOWs came out of ATS accounts. We are doing some further work to try to highlight more of what that was all about. But, of course, to the extent that those kinds of transfers took place, that would have no effect on M-1B. Thank you.",549
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"Mr. Chairman, Messrs. Schultz and Corrigan gave quite a bit of my speech, so I can shorten it up. But I must join very strongly with what Jerry had to say [about our performance], and maybe even more strongly than he said it. If our record in meeting the targets for 1980 is the temperature gauge one is going to use for our success or failure, I think we got a B in the course. The reason we didn't get an A is the volatility; I feel very sensitive about that and agree with what has been said here. But if you look at the monetary aggregates--adjusted for OCDs as I guess we call them now, Steve--we are within 10 percent of our ranges on all four of the Ms. If we got so statistically crazy as to average all of our target results with some sort of weighting, we could prove that we were within the targets for 1980!",189
-fomc-corpus,1980,I'd like to see that.,6
-fomc-corpus,1980,"You know how statisticians are! Anyway, even if one acknowledges that we are outside of our ranges, we are less outside of our ranges than are I believe most, if not all, of the countries in the western world that have set up monetary targets. All the chips aren't in for this year, but I think that's a fair statement if not a completely accurate statement. Having said that, I agree with Jerry's point that there are too many apologists around, including I suppose most of us on some occasions when we feel on the defensive and spend more time pointing out why we didn't do this and didn't do that and what went wrong than we do explaining the positive side of this. We didn't have a failing record for 1980 by any stretch of the imagination. Point two is that I share Fred Schultz's question mark about the extent to which we are going to get real relief from our ""only game in town"" syndrome during calendar year 1981, despite the sincere and I think conscientious intentions of a new Administration, which still hasn't gotten its act together. I hope it will get its act together. We have to do something in terms of a coordinated policy but until they put out their statements in January, there isn't much more we can do other than what we are doing today, repeating [that desire for a coordinated policy] in discussing the background for our problem in February. There is uncertainty in both directions from precipitous action by the new Administration, one of which is being considered seriously and obviously has congressional support. The other is whether they are going to jump in too fast and jeopardize the entire program or whether they will take a more reasoned approach, with all of the adequate staff work that requires, and meld these two things. We won't know for some time yet. As for the outlook, I think we will have a recession, though not as steep as in the second quarter of 1980, but I fear a little more during the first half of 1981 than is implicit in the Greenbook. That may make our [success] in controlling the aggregates seem a little better, but [that could provide] a false sense of security. I hope we handle it a bit better despite what I said about the basic adequacy of our record. We have to keep our eye on the ball and dig in. I also don't think there is any alternative whatsoever to the confusing technicalities we--and even more the Chairman--have to explain on Capitol Hill and to the public next year. There is no pot at the end of the rainbow. Even to Nancy's suggestion, of which I am somewhat enamored, or the suggestion that we go back to reserves or that we average M-1A and M-1B, or come out with some new M I say forget it. In terms of our public stance and keeping our eyes on the ball within this group there is no simple answer. It's like putting a questionnaire around this table and asking ""If you had only one thing to eat in the next six months, and could have plenty of it, what food would you choose?"" Would it be peas or beef or milk or what? Everybody would say that's a ridiculous questionnaire. Everybody knows it is necessary to have some balance in one's diet and that one's excitement over a given type of food is relative to something else. We're trying to get the ideal M and there isn't any ideal M. So let's realize that and, as the British say, just muddle through on what we can do. That means a lot of technical confusion and a lot of public relations confusion. I see no alternative to that. Any way we do it, it's going to affect at least our statistical credibility, which I think is a little different from our economic credibility. Let's keep those two things in mind. I certainly would not go to the proposal in Bob Black's charts. That would not only give us great problems in 1981, but is a very dangerous precedent. If that precedent is one we like, let's make up all of our overshoots for 1975, 1976, 1977, and 1978 while we are at it, which to me would be a reductio ad absurdum. Let's face it, we have a confessional at the end of the year in this church and we are going to start a new year. Let's observe it that way. We have justified or will be justifying what happened in 1980. Let's go on with 1981 and not try to make it up. I must say that when push comes to shove, as they say, strategy I is okay with me. It maintains a public position which is quite acceptable; perhaps in some ways it's a cowardly ""don't rock the boat"" approach, but I still believe in it. The differences among the strategies in 1981 and their economic effects [are minor]; the differences are all within the margin of error in my book. So let's not take those differences too seriously as we try to aim for a simplistic approach as to what [the outcome] might be by 1983. I suppose I should stop there. But I also have a euphoric goal in that I'd like to see us get rid of the blankety-blank weekly figures; given the state of the world, I guess that's still an impossible goal.",1080
-fomc-corpus,1980,"Mr. Baughman, you have the honor, given your status of attending your last meeting, of being the next to the last commentator. I have to reserve the right to comment last for myself.",41
-fomc-corpus,1980,"It seems to me, Mr. Chairman, that it might be appropriate for a lame duck to quack last.",23
-fomc-corpus,1980,"No quacks, please!",6
-fomc-corpus,1980,Important things first: My answer to Bob Mayo's question is pecan pie.,16
-fomc-corpus,1980,He had no trouble with that one!,8
-fomc-corpus,1980,"As for the economy, it seems to me that the outlook is for no growth or worse for the United States. Further, as Nancy has already alluded to within that framework, the numbers on housing and autos just chill one's teeth. But I'm inclined to agree with that as the outlook. With respect to the Southwest, it looks as if things will continue to boom along and for two reasons primarily: the energy situation and the fact that the Southwest apparently will get a break compared with some other parts of the country from defense expenditures. We assume they will be increased or, even if they are not increased significantly, that the shift in their make-up will [be beneficial to our area]. As has been the case for the last several years, the forces of inflation in the economy seem stronger than the forces of expansion. Unless something different is done, we will continue to be compelled to trade off employment and production as we attempt to restrain inflation. And the results of that exercise will not be particularly satisfying; in fact, the results may well be a continuing acceleration of inflation and a decline in the growth [of economic activity]. This suggests that the gradualism strategy or the slow persistent pressure hasn't been working, and I don't see any reason to expect that the situation will change. Therefore, if the incoming Administration is inclined to embrace something they call an emergency philosophy and propose some program of action under that caption--and to my surprise there is some noise of that around now--I think that is a development that should be encouraged and supported. And hopefully, under that kind of program, we would succeed in getting some restraint on the rate of growth in government spending and a fairly broad array of actions to begin to free up the economy and make it somewhat more flexible than it is. Only by making progress in that area are we likely to be able to get the benefits of monetary and fiscal policy that we'd like to have in the way of a favorable tradeoff among growth and employment and inflation. A suggestion came up in our board of directors meeting last time around--and it came from the directors not from the staff--that a change in our targets on the order of a reduction of 1/2 percentage point would simply be shrugged off as inconsequential, particularly given the ranges of the targets. And they finally wound up adopting a resolution suggesting that I carry their view down here that the targets should be reduced on the order of 20 to 25 percent for 1981 compared to what they were for 1980. There was a good deal of discussion. It was initially suggested that we reduce them by 1-1/2 points; but after some discussion they settled on 20 to 25 percent as being a preferable characterization. As to the base for the [1981] targets, I would rather present the targets to the Congress and to the public using the 1980 base; in other words, I'd avoid appearing to accept the drift in the base even if that necessitated using larger numbers than if we did accept the base drift. It seems to me that base drift has become a pretty sensitive issue and one on which we are likely to lose if we take on its defense in the public arena. With respect to wider ranges, I can appreciate the statistical evidence in support of the need for that but, again, a public proposal of wider ranges is likely to erode our credibility. So I think we would be better off not to widen the ranges even at some fairly high risk of not coming within them. It also seems to me that we are almost going to be forced to talk in terms of something more than the next year if we are going to look credible, particularly if we were to take the position of accepting base drift and having rather wide ranges and then saying we are going to cut our targets by 1/2 percentage point. That would be construed as raising rather than reducing the targets and probably would be construed as abandoning or weakening our resistance against inflation. With respect to [which aggregates to] target, granting all the [uncertainties] involved, we probably would be best off to try to emphasize M2 because it has less danger built into it for 1981 than the alternatives. With respect to the strategies suggested, we pretty much have to go either with I or IV. And since we have talked enough about gradually moving toward non-inflationary monetary growth rates, strategy I is preferable to strategy IV in that respect. If we were to go to strategy IV, feeling that growth rates of that magnitude for 1981 were feasible, then I would think [we'd want] some downward progression there. But we need to bear in mind that unless we put them out, nobody is going to know what our projections are for '82 and '83 and, therefore, we will be read and evaluated on what we put out for '81. Looking at [the scenarios described in the Bluebook], we'd look better giving them the whole picture than just the first timeframe. I admit I still hold the view that with all the uncertainties involved we can get more mileage out of announcing our plans and intentions over a longer timeframe than one year, even at the risk of necessitating revising it later on. Well, for what it's worth, those are the views of the lame duck.",1068
-fomc-corpus,1980,"Well, the wisest decision we have made is not to arrive at [a conclusion on] these long-term targets and strategies today. I suspect we might be here for quite a length of time [if we tried]. Many of the problems have been well exposed, with quite different views toward them. I took a few notes as [the discussion] went along, so let me try to work my way through these notes and make some points that stand out to me. First of all, I think Governor Partee's point is an interesting one that deserves reiteration: We are in completely new territory for the Federal Reserve or for economic policy. An implicit assumption that we are just avoiding excess demand is not the present policy. We have been put in a position or have taken the position--wisely or not, but I think probably wisely given the economic conditions--that we are going to do something about inflation maybe not regardless of the state of economic activity but certainly more than we did before in looking at it in the form of avoiding excess demand. It is a very important distinction. I also think his comment about the English experience is worth reiterating. If you want to know about the difficulties of monetarism, look there. They have a government with a 5-year lease on life, totally dedicated to the proposition of monetary restraint as the way to kill inflation and totally prepared verbally to take the budgetary measures that they thought appropriate to accompany that. They were almost unsuccessful on the budgetary restraint side, and on the monetary side missed a target not by 1/2 or 1 percent but by 100 percent from the midpoint of the target.",333
-fomc-corpus,1980,Although M1 was very good.,7
-fomc-corpus,1980,"Well, I was just going to say that they put a lot of weight on one target, [almost] entire weight on one target. They have missed it by 100 percent. There's a lot of talk about their credibility and missing it by 100 percent, but is there anybody who really [doubts] that if they met that target the British economy would be in a much more serious recession than it is now? Was that wise or not? They might also have less inflation. I don't know. I'm not saying the experiment will be unsuccessful. We will find out about that. But I do know that to make what progress they have made on inflation--the British people I talk to are very discouraged, but from 3,000 miles away one can see some glimmerings of hope--they have a very serious internal economic situation. They are battling in an attempt to establish their credibility, and we'll see whether they can do it. In that connection, we obviously have a credibility problem--by ""we"" I mean the United States--as to whether [our policies] are going to deal with inflation. The Federal Reserve is only part of that larger problem. But when we talk about credibility, I think far, far too much emphasis is put on these monetary targets. When I listen to people talk about credibility and their discouragement about inflation--and they are plenty discouraged--what I hear about the last year, specifically on Federal Reserve policy when you get away from the money market analysts, is: ""You brought us to the brink in the winter and we got a little worried. We have been through that kind of experience before and in two months it all evaporated and nothing happened."" They weren't looking at the money supply decline and saying all the pressures are off the money markets and it's full speed ahead. But there are a lot of other examples where Federal Reserve policy repeated [a pattern], as they see it, over a 20-year period, not just this year. They thought some results might be seen over the year and after two months the markets were easy again and they said: ""We shouldn't have worried."" What else did we hear cited? Chrysler. A big company gets in difficulty and the government steps in, just as it did a few years ago when New York City got in difficulty. What happened this spring--I, at least, was part of it and I won't implicate any of you--is that we had a calamity in one commodity market. People got darned worried about it. The Hunts arranged a bail-out in the end. We acquiesced in permitting them to do it. Why did we acquiesce? Because we were worried about the second biggest brokerage house in the United States, and the biggest brokerage house in the country was not all that far behind. And at least one of the biggest banks in the United states was in potential jeopardy. Money eased anyway; maybe it wouldn't have happened. We came close. But the message that people came away with in their minds is not that we came close, but that when we come close somebody steps in to avoid it. I have a wonderful example in the commodity markets in the last few weeks. Commodity prices had been going up pretty fast since about July or August. People got a little worried in the first half of December and prices went down for two weeks. The level went down all the way to where it was in October. There was a tremendous loss in the last two months [after the] inflationary gains, and there was almost a panic in the market. Those people weren't cheering for tight money at that point. They were worried about saving their own skins. Now again that has been avoided. I don't know what message is carried away from that, and I'm not sure it's over. Maybe I'm getting discouraged in one limited sense, but I will say in that connection that when we take on this inflation fighting job--taken on by ourselves or taken on in a broader context--we should not look around for much of a constituency. If we, in effect, go to the brink or let some of these things happen that we have not allowed to happen during the entire postwar period, people are not expecting that and they are not going to be very happy if and when it happens. And I'm not at all sure that we can change inflationary expectations without it happening. That, I think, is the nature of our problem. I wish Mrs. Thatcher well, but I don't think she has all that much of a constituency in the United Kingdom now. She does have a parliamentary majority for the time being. So far as the business outlook is concerned, while I share the view currently that on any kind of analysis one would think we're going to have a downturn of some sort in the economy, I would be a little cautious about too much confidence in just what that is going to be. The economic forecasting ability of the assembled economic wisdom of the United States in the short run has not been notable. And I don't know what the increase in GNP will turn out to be in the fourth quarter of this year; we are projecting between 4 and 5 percent. If we get a good December, it could be higher than that and entirely out of the range of what any economic forecaster was thinking of three months ago. And it will explain a lot about why the money supply has been rising so fast. As I say, I share the view that sometime along here we are going to have a decline in economic activity. I also think that the experience of the last year, as a number of people here have mentioned, suggests that there is an enormous latent expansionary force in the economy stemming partly from inflationary expectations, as soon as people think they have the money to finance it. So, I don't know how far it would go if we really got some easing of the money markets. On the other hand, the opposite danger is sitting there. The danger is that if people's confidence that they're going to get bailed out of any serious situation were ever seriously challenged, the sense of panic in this economy could be enormous. We have one big company that is sitting on the brink right now, and I'll bet you that 90 percent or more of the people in the country think the government will not let it go down. They think in not letting it go down we are [reaffirming their] basic inflationary expectations and expectations that the government doesn't allow that kind of thing to happen. They also read into it that there's not much danger of real problems arising, so why should they change their behavior patterns. I was out in Chicago yesterday and I heard two comments at breakfast that are typical of this. One banker commented on a conversation he had with a savings and loan executive the night before. The conversation apparently went banker to savings and loan executive: ""Aren't you a little worried about the state of your industry?"" They probably should be worried. ""And how are you behaving?"" The answer from the savings and loan executive: ""I'm behaving perfectly normally, the way I always do, trying to expand my assets because the government is going to come in and bail out the savings and loan industry."" The other conversation, instigated by me, was with a banker: ""What do you fellows think you're doing? You're expanding your assets like crazy in the middle of interest rates rising; you're eroding your capital positions; you're getting more extended on liquidity; and you have every lending officer out there on the road."" His answer: ""I sure do. If we get in trouble, the government will protect us."" These are attitudes that go a little beyond whether we made or missed our monetary targets. In effect, one way of putting it is that they think if there's a clash between the monetary target and a real problem in the economy, we are going to give way, whether we are inside the target or outside the target. And they don't translate those targets into their own behavior very readily even if they're fairly sophisticated. In terms of those targets, I feel a little cautious about how much relaxation of pressure we are going to see in the money supply even if we have a little downturn or softness in business activity after the turn of the year. That's because, first of all, I'm not sure that it isn't going to be relatively mild. We don't have the credit control program we had in force that contributed to the sharp downturn both in the economy and in the money supply last year. We're process. We were talking about budgetary expenditures of $613 billion six months ago. I think that was an honest effort. They have been affected by the recession in an important way. But the last I heard the present Administration is going to be projecting budgetary expenditures of $660 billion or thereabouts. That is an increase of close to $50 billion in six months. I myself think it would [border on] a miracle, quite literally, if budgetary expenditures in fiscal year 1981 were brought down to that $635 billion level that is sometimes mentioned by the Administration. I suspect the way things are going, it will take heroic budgetary measures to hold it to the $660 billion level, after an increase of $50 billion in six months. Just to hold the level at which it is now projected may be an extraordinary achievement. I'm not sure about that and I'm not sure about what they are going to project. All I know is that there's an enormous amount of built-in momentum; and if we casually talk about the economy taking another downturn, it means more unemployment compensation. We have succeeded--we, the markets; I'll be careful of my language--in sending up interest costs beyond what I'm sure is already in the budget. Defense spending isn't going down; it's going up. And there isn't much time left to make savings elsewhere in the budget in fiscal 1981. So when you are looking for help in other directions, you may have to wait a little while. I wonder a little about declarations of economic emergency that raise expectations that something is going to happen. It's nice and visible [and there may be] results in a visible period of time. That's not my decision to make. Whether that will be done or not or how it will be couched if it is, I do not know. But it all has a bearing on the decision that we finally have to make about how we posture ourselves for 1981. I'm sure I have not succeeded in making it any easier, but we have a lot of things to think about over the next month or two. Whether or not we will want a meeting in January, I do not know. But I do know we have to make some decision between now and then. Let me outline a possible course of action in principle to you in the interest of perhaps speeding a decision, or maybe we will delay it. I do this against a background of an increasing restiveness over the artificiality of our decision-making process in some respects in setting forth these monetary targets for a short period in a framework of very static language in the directive itself. There are great advantages in static language on the other hand, so [changing] that is not my principal purpose. But, what do we want to do in this particular period? We have a lot of pressure, in terms of interest rates, on the markets. How much real pressure we have on the markets I don't know. We hear a lot of complaints now. I think we are getting a lot of complaints before people are very much hurt, in fact. You may think people are hurting now; but if we really do have one of these crises to which I alluded earlier, you haven't seen anything yet. We have all the questions of lags in the process, of overkill and underkill subsequently, and of what happens to interest rates the future. We have a fair amount of evidence now that the money in supply is leveling off after all this pressure. And we have all the technical uncertainty beginning about 10 days from now, in terms of what those figures are that we are going to be looking at. I really have no idea how fast that's going to go. I hear what Jerry says on the one side and I worry about that. On to some bankers who think it's not going the other side, I've talked to go all that fast initially, just from the inherent sluggishness of people in making changes. So we may not see much effect in the figures in the short run. I just don't know, but we may begin seeing an effect within the time period we are now talking about. It's going to make it very difficult to judge those M1 figures. My thought in general is that we might say something [about the fact that] we are now at the meeting before the beginning of a quarter when, in accordance with our normal procedures, we would be setting a target for a quarter with a relationship to a longer-term target. We have talked about setting the target in quarterly terms against the background of the annual target but we don't [at this point] have a well-defined annual target, [though] we have these tentative ideas that we talked about earlier. It occurred to me that it might be sensible to say that against the background of the tentative ideas we have, we would in a general way be content with and look toward growth during the first quarter consistent with those tentative views. We could cite what those tentative views are and say that for the quarter we'd be delighted to be on that path. We have a certain advantage, hopefully, if we are right about what most people expect for the near term, that this ought to be obtainable during this period without any additional pressure on the market. Indeed, if I take any of the projections literally, they would be obtainable with substantially less pressure on the market. Now, that is combined with the concern--I don't know how widely shared--over the amount of pressure that is on the market now and the lagged effects that might have and all the rest. But it does seem to me conceptually that we might say we have a broad objective of being content with a result consistent with those tentative targets for next year. I would suggest that we also say that we would be quite content with a lower outcome than that, given that we have been overshooting [our target ranges] most recently. So, if we had a decline from what has been a recent overshooting, we would be quite content with that, assuming that occurred in an environment of declining interest rate pressures. In other words, I'm not saying we would push for any undershooting of this tentative target; but if it developed out of what has already been done and developed consistent with some easing of market pressures, that would be quite acceptable. Finally, on the other side of that dimension, if some undershoot did develop, presumably market pressures would go down and we would permit some reduction of market pressures but we would not aggressively try to get growth up to an annual target for the year. That's the other side of the same coin, given that what has been happening most recently has been an overshoot. And then I'd put in a federal funds constraint of the type we have been talking about tentatively, one that encompasses this feeling. I would think the range would have an upper end around where the funds rate has been most recently or thereabouts, say, 20 percent; and a bottom end of the range consistent with all of this seems to be something like 16 percent. Those numbers can be debated. I have written a tentative directive to that effect. It tries to encompass that kind of thinking. I don't know whether the language is any good. I did it in about 3 minutes this morning and Steve tried to make it look a little better. I don't know whether it conveys the message or not, but I might distribute it so we will have something to look at and see whether it captures a consensus of the flavor [of our views] or whether it's comprehensible. Look at it in that view and, unless this is clearly understood and meets immediate acclaim, I suggest we go to lunch. Maybe it's going to meet such immediate acclaim that we can finish before going to lunch. We have to pick up at some point the analysis of what the market has been doing recently and maybe we ought to get that from Mr. Sternlight before we discuss this any further. I don't know how long your report is, but maybe we ought to do that before lunch anyway. Why don't you proceed.",3328
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"Let me say one thing. This market has been affected yesterday and today by rumors about the money supply figures. One rumor involved whether the figures were affected by this change and/or reserve saving games a couple of months ago, which is the thing that worried me. But we haven't been able to identify it in any significant way and we are not making any revisions on that accord. [Another rumor is] that there may be a decline in the money supply figure this week. I'm very much disturbed that it sounds as if there has been some kind of leak. That is just poison in terms of our whole posture in these markets and our credibility as an institution, and I am very much disturbed by it. The fact is that we are not going to make changes but we were intending at least to point out that the reserve figures in November were affected by the changes in that reserve game. Perhaps it would have been unusual, but maybe we should have made an announcement [earlier] to market people, who have inquired, that that did have an impact on the reserve figures during November. That itself could have gotten confused with the money supply figures earlier. But as for the rumor suddenly appearing about a decline in the money supply this week, which hasn't been announced yet, I don't know where it came from. It may have come from no place, but on top of these other developments it looks like a coincidence that I would be happier not to see. I don't know what else I can say.",299
-fomc-corpus,1980,The rumor was heard in the foreign exchange market that the decline would be on the order on $10 to $15 billion. It's a wild rumor; it's not necessarily something with any substance.,38
-fomc-corpus,1980,What is the magnitude of the decline the markets seem to be expecting?,14
-fomc-corpus,1980,"For the money supply this week? I don't know exactly, but I heard something this morning about a couple billion dollars. I don't remember whether it's quite that closely identified, but it is a decline of some significance.",43
-fomc-corpus,1980,"If I could add one point on that: The rally of the last couple of days is based on a rumor about the money supply and also on reports from the incoming Reagan Administration to the effect of some [likelihood] of a national emergency program, which the markets seem to be interpreting, for whatever reason, rather bullishly for the bond markets.",70
-fomc-corpus,1980,Can we have a motion to approve these transactions before we forget it?,14
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,"Without objection they are approved. And I would propose, unless the sentiment is the other way, that we have a quick lunch.",26
-fomc-corpus,1980,Can we try to have it fairly quickly because changing airline tickets late in the afternoon is going to be an awful problem today.,25
-fomc-corpus,1980,"So far as I am concerned, we can sit here if you prefer, but--",17
-fomc-corpus,1980,I'd just as soon go forward.,7
-fomc-corpus,1980,We'll get finished quicker if we are hungry.,9
-fomc-corpus,1980,That was the Arthur Burns technique!,7
-fomc-corpus,1980,I am perfectly happy to do that if that--,10
-fomc-corpus,1980,Are we going to bring sandwiches in here today?,10
-fomc-corpus,1980,"Well, we were not going to. We should have, obviously.",14
-fomc-corpus,1980,"Well, let's decide quickly.",6
-fomc-corpus,1980,Let's keep going.,4
-fomc-corpus,1980,"Let's try to keep going and see what happens. Let's distribute [this draft]. I looked at it and the language is not perfect. I don't know whether people will even agree with the concept, but let me go over it and tell you what I am trying to convey because the language may not be adequate to convey what I am trying to communicate. The whole thing indicates some sense of uncertainty about what the figures will mean in the short run, but the first sentence is simply designed to say that we are tentatively proceeding for this first-quarter period in accordance with our [preliminary long-run] plans [announced] before. As I noted, I don't think that raises all the issues as to whether the long-term plan is really the one we want to follow for the year as a whole because of this expectation that the money supply may be a little softer in the near term. The second sentence identifies just what that is. There is a practical problem. These [figures] are cited as the midpoint of those long-term ranges and M2 is probably going to be higher than that. So there is a question of whether we want to leave that as the mechanical midpoints of the ranges. The next sentence says that we are not going to give a precise figure for M-1A and M-1B right now because we don't know what the NOW and ATS accounts are going to be. And it says that's the way we will try to conduct ourselves in terms of the specific job of setting forth the reserve path. Then an important sentence is the next one, which says that we want [our short-term targets] to be consistent [with our longer-term targets for] next year, but we are not going to be disturbed by a shortfall. That has perhaps some implication that we'd be just as happy if [monetary growth did] fall short of these figures. The reservation is that we are not going to [push] for a shortfall by tightening the money market further, but rather that if the shortfall arises in an atmosphere of some relaxation of money market pressures it would be accepted. It's an acceptance rather than a seeking through aggressive tightening action. The last sentence is more or less standard, but the numbers are important. I would like a phrase in there indicating ""over a period of time"" or something like that so it doesn't sound as if these ranges are applied rigidly on a day-to-day basis. That has always been the understanding. So, that is the sense of it; other people may have quite different ideas. I'd avoid the term ""weekly average;"" it sounds rather rigid and we have been over--",531
-fomc-corpus,1980,"I think it's a good statement, Paul, except for the next-to-last sentence where it tips our hand that we are expecting some shortfall.",29
-fomc-corpus,1980,"Well, the wording of that sentence is difficult. This is a little different than the way I had it written, but that proved incomprehensible to Mr. Axilrod. I think my way had a little less sense that we were expecting [a shortfall]. It was mainly that [a shortfall would be acceptable] if it proved consistent or something like that, though I recognize that's obscure. Just how that's written is a point of difficulty, I think.",94
-fomc-corpus,1980,I'm sure we need that sentence.,7
-fomc-corpus,1980,"I don't think it tips our hand. It just says if it happens, it happens and we won't resist it.",23
-fomc-corpus,1980,"I think the last sentence, with the expression of a narrower fed funds range, could be terribly disturbing to some who might view it as a signal that indeed we are moving toward greater emphasis even in the short run on targeting on interest rates. If we narrow the range and set the upper limit at 20 percent--and we are over that now--with a lower limit of 16 percent, I think, that will wave a red flag to those who are suspicious of a possible tendency to move back to our old procedures.",105
-fomc-corpus,1980,"Well, you obviously raise an important point. It's a substantive point as to whether we do want to avoid further increases in interest rates and also a presentational point that even if we do, do we want to say it this way. I don't know which you have in mind. As I said, I would put in a softening kind of phrase such as ""are inconsistent with fluctuations in the federal funds rate in a general range of 16 to 20 percent""--if that's what it is--""taken over a period of time"" or something like that to avoid any implication that we're going to sit on it on a day-by-day basis, whether it's above or below. But I don't know whether that helps you very much.",147
-fomc-corpus,1980,"I just don't think the range should be narrowed. I would disagree on the wisdom of narrowing it. From a presentational point of view, I think narrowing it to 4 percentage points from the broader range that we've come to live with over the past year would be viewed by some as a reversion to the old [procedures].",67
-fomc-corpus,1980,"Mr. Chairman, as a point of information, the Committee at its last meeting established a range of 13 to 17 percent. It was subsequently widened in a special meeting to 13 to 18 percent.",43
-fomc-corpus,1980,"So we have a recent precedent, in fact from the last meeting, of 13 to 17 percent. This is a substantive issue where the Committee has to express its view. I was trying to reflect here what I thought were views on both sides: The view that we didn't want to put any more pressure on the market and the view on the other side that we didn't want the rate to get down too far. So, that's what I ended up with.",93
-fomc-corpus,1980,"I have a problem with this, Paul, because I think we have been in a corn-hog type cycle in monetary policy. It has produced the volatility of rates in monetary growth that we have seen and that we're all disturbed about. Now, some of it is inevitable from the fact that we are trying to impose a strict monetary guideline on an economy with a very high inflation rate. So, I don't think we can eliminate these cycles, but I think we can dampen them. But to dampen them we need to act before we get clear evidence that the economy is accelerating or decelerating. It seems to me the problems of 1980 were: 1) that we clung to a very tight policy too long; and 2) that we waited this summer and fall until it was very clear that the economy was accelerating before we started moving very vigorously against it. It seems to me we are in a situation now where we're beginning to get some evidence that the economy is about to nose over [into recession]. It's showing up in the money supply, in a jump in initial claims and unemployment compensation, and in projected cut-backs in auto production. We know housing is going down now, even though it hasn't shown up yet in starts. If we want to get out of this severe corn-hog cycle, we've got to act on the basis of what the data tell us right now. I would buy this if the fed funds range were 14 to 18 percent. In other words, I think we have to move now on rates. If we don't, we will be back in the corn-hog cycle we were in during 1980, it seems to me.",341
-fomc-corpus,1980,I was wondering where you were going to come out because your initial comments about the corn-hog cycle seemed to me consistent with the way I view most of this. But you're just saying--,38
-fomc-corpus,1980,"No, because this will mean that the Manager will stay with a 20 percent funds rate until we have had a very long period of weak monetary growth.",31
-fomc-corpus,1980,"Well, I don't read it quite that way. It says the Manager will stay on some reserve path, which is probably--it's a matter of judgment--now very close to being inconsistent with the present funds rate. I think the funds rate is being held up a little by psychological [considerations] right now, perhaps by banks feeling that they don't have such easy access to the discount window after some months.",82
-fomc-corpus,1980,"But we're telling the Manager that shortfalls from the ranges are acceptable. I don't know how long it would take Peter to move on this, but it could well be a month or two if we have the--",42
-fomc-corpus,1980,What would you want the Manager to do? You want him to get that funds rate down to 18 percent now?,24
-fomc-corpus,1980,"Down to 18 percent, yes.",8
-fomc-corpus,1980,Now?,2
-fomc-corpus,1980,"If we want to avoid another cycle like the one we had in 1980, I think we have to.",23
-fomc-corpus,1980,"My heavens, I think the effects of that would be terribly dangerous and disruptive.",16
-fomc-corpus,1980,I think the market is anticipating--,7
-fomc-corpus,1980,"We're going to publish a drop [in the money supply this week] and next week we'll publish what looks like an equally big increase. If we get that rate down to 18 percent now and publish that increase next week, God only knows what is going to--",53
-fomc-corpus,1980,"No, I disagree. The action in the marketplace [suggests that] the market is anticipating that we are going to do something like this because they apparently think it's sensible.",35
-fomc-corpus,1980,"Well, I'd go slowly. I don't know what they're thinking. There are a lot of misleading rumors in the market at the moment.",27
-fomc-corpus,1980,"Mr. Chairman, what is it that is going to tell the Manager that he is supposed to keep the funds rate closer to the upper end of this 16 to 20 percent range or the lower end? I have problems similar to the ones that Frank has on the corn-hog cycle. And if I can be assured as to what is going to lead the Manager to lean toward the lower end--. But this language is so general that I have no idea what it is that's going to prompt a movement of the funds rate toward the lower end.",111
-fomc-corpus,1980,"Well, first of all, I don't conceive of this language as saying he should be guided by the federal funds rate in the short run. We're going to sit here and establish some money supply and reserve paths as we did before. A larger element of judgment will be involved, if we really think we can't interpret these M-1A and M-1B figures very well. But Mr. Axilrod will struggle as best he can to see whether we're coming in at or below the numbers cited [in the draft sentence] above, just the way he does now. And if those numbers are coming in lower, then presumably the borrowing total will be lowered and the money market [will react].",140
-fomc-corpus,1980,Are these numbers internally consistent?,6
-fomc-corpus,1980,"Well, as I said, that M2 number may not be. There's a presentational problem. If we put in a higher M2 number in the short run, which is consistent with the projection for whatever that's worth, it also raises a question to the reader of this a month from now--the way it's constructed--about what we're doing with the annual ranges. So I don't know what to do with that number; it's a bit of a problem.",92
-fomc-corpus,1980,"Mr. Chairman, because of the expectational effects, when will these minutes be published? Will they come out a month from now irrespective of whether we have a meeting [in January] or what?",40
-fomc-corpus,1980,Have we ever faced that problem before?,8
-fomc-corpus,1980,Wouldn't they come out on February 6th?,11
-fomc-corpus,1980,"February 6th would be the day, as of now, if we have our regularly scheduled meeting. If we call a meeting in between, it's not a regularly scheduled one, and I suppose we can hold this until February 6th.",49
-fomc-corpus,1980,That's all right.,4
-fomc-corpus,1980,"But if we hold to that schedule, I suppose the expectational effect won't mean much because we will be coming out very shortly and explaining our targets for the year.",33
-fomc-corpus,1980,That's an important consideration.,5
-fomc-corpus,1980,I have reason to believe that we couldn't have [the policy record] prepared in three weeks.,19
-fomc-corpus,1980,"Could we ask the Manager, Mr. Chairman, how he would interpret this directive? Maybe that would help Lyle and Larry.",26
-fomc-corpus,1980,"Well, let me ask my question more concretely. You're going to make up a reserve path which is consistent with this language. Will this reserve path be basically the numbers that appear under alternative B on page 11? I presume it would be. If that's the case, my question is: Why is it that we are considering changing the federal funds range from 13 to 19 percent to 16 to 20 percent?",86
-fomc-corpus,1980,"I think the easiest way to see it is on page 12, Governor Gramley. Just throw away that December 2-1/2 percent rate of growth; we now estimate it at 1-1/4 percent. Look at the panel that has December '80 to March '81 under alternative B for M-1A; that's constructed right on the midpoint of the tentative range, which is 4-1/4 percent. As of now we think NOW accounts will subtract 5.6 percentage points over the quarter, so the M-1A number in parenthesis would be -1.4 percent. For M-1B under alternative B, it would be 4.7 percent--that's the 4-3/4 percent--and we think NOW accounts would add 2-3/4 points. We would try to monitor this as these data come in to see if we're anywhere near right on that. And we'd construct the path on that -1-1/4 percent, which is something like -2 percent for January and -1.9 percent for February. That's the path we would construct the reserves on, which is what we'd guess now; and then we'd adjust it as the data come in.",252
-fomc-corpus,1980,"It's not a coincidence that this is the same as alternative B because alternative B assumed a path that is the same as our tentative annual ranges, which is what this is saying. What it adds up to is that we are not disturbed about a shortfall from the specified--",54
-fomc-corpus,1980,"Well, I would be quite disturbed about a shortfall, if the shortfall were not coming from a shift in the amount of funds going out of demand deposits into ATS but a slowdown in the economy and if the funds rate were staying up at 20 percent. Given the degree of uncertainty about what may be happening, I don't know how this Committee can make a decision without giving the Manager a lot more instructions about what he's to do with the federal funds rate. When the numbers we're looking for--",100
-fomc-corpus,1980,This does not say a shortfall will be accepted at a 20 percent funds rate. It says a shortfall will be accepted if money market pressures are easing. It says that quite explicitly.,39
-fomc-corpus,1980,It could back off from 20 to 19-1/2 percent.,16
-fomc-corpus,1980,"It's a little tough, I know, Paul. It says a ""modest reduction."" A modest reduction could very well be 16 percent on the funds rate. It seems to me that it has to be a little more straightforward than you have it.",51
-fomc-corpus,1980,"I think this is a lot more straightforward than I would suggest in the ordinary directive. It is a little more operational in that sense. But if you want to give the Manager instructions that the federal funds rate should be 19 percent next week and 18 percent the following week and 16 percent the following week, that's a quite different kind of instruction. It's not the way we have been operating.",80
-fomc-corpus,1980,"Compared to the fed funds ranges in the three alternatives the staff developed, this is narrower than any of them. Why narrow it? I'd be inclined to give more leeway rather than less.",38
-fomc-corpus,1980,"That's the question you have to decide. This is simply designed to reflect the feeling--which I share to a substantial degree--that we wouldn't like to see the funds rate go up a lot more in view of this hog-corn cycle. But I'm also reflecting the feeling that a lot of people wouldn't like to see it plunge too precipitously if things get a little weak for a while. I don't know how to express that in the directive other than here, if it is the feeling that we want it in the directive. We can presentationally say one thing in the directive and have an understanding that it's a little different than that in practice. That's another way of doing it, but I--",140
-fomc-corpus,1980,"Yes, but we're setting this presumably for three months, right?",13
-fomc-corpus,1980,"No, it's until the next meeting.",8
-fomc-corpus,1980,"Oh, just the one month.",7
-fomc-corpus,1980,"Well, it's subject to review at the next meeting.",11
-fomc-corpus,1980,That's in February.,4
-fomc-corpus,1980,That's a month and a half we are talking about.,11
-fomc-corpus,1980,"Well, if we don't have a January meeting it would be until--",14
-fomc-corpus,1980,February 3rd.,5
-fomc-corpus,1980,February 3rd.,5
-fomc-corpus,1980,"Yes, but still we're talking about a target that goes for at least a quarter or so.",19
-fomc-corpus,1980,"The target tentatively goes for a quarter, but the operational--",13
-fomc-corpus,1980,I'd hate to think that within the next quarter we'd be upset to see the fed funds rate come down to something close to what any of these--,29
-fomc-corpus,1980,"Oh no, I think the federal funds range quite clearly only applies until the next meeting.",18
-fomc-corpus,1980,The lower part of the range I mean.,9
-fomc-corpus,1980,"The history of these federal funds ranges, I will repeat, is that without exception every time we have hit the limits, they have been changed. Every time.",32
-fomc-corpus,1980,So make it a little wider as these alternatives suggest and--,12
-fomc-corpus,1980,"Well, that depends upon whether the Committee wants to take another look at them. That's what we have to tell the Desk.",25
-fomc-corpus,1980,I could accept 15 to 20 percent.,10
-fomc-corpus,1980,I'd say 15 to 21 percent; we are there now.,14
-fomc-corpus,1980,"No, 21 percent is too high for me.",11
-fomc-corpus,1980,"Me, too.",4
-fomc-corpus,1980,"Steve, this is an unfair question, I suppose, but what is your view as to the level of borrowings that might be compatible with this, say, over the next four weeks?",38
-fomc-corpus,1980,"Well, for lack of anything else, President Corrigan, I would tend to start out about where we are. And where we have been is that last week the average was around $1.5 billion and yesterday it was $1.7 billion. So, somewhere around $1.5 or $1.6 billion strikes me as a reasonable place to start, lacking any other indications.",79
-fomc-corpus,1980,"If there's anything to this view that once we get below $1-1/2 billion or whatever the thought is about the frictional level of borrowings, the implication then might be that the funds rate could indeed come down fairly fast.",48
-fomc-corpus,1980,"Well, on that there is a divergence of opinion on the staff. My view, which has proved wrong this week, is that a level of $1-1/2 billion of borrowing is probably consistent over time with a lower level of the funds rate than we have had. Once we get through this period--",63
-fomc-corpus,1980,"Well, that's not inconsistent with what I'm saying.",10
-fomc-corpus,1980,But that isn't certain. And I'm not sure Peter shares that view exactly.,15
-fomc-corpus,1980,I think it could well be [the case] in time. Right now I would tend to associate $1-1/2 billion of borrowing with something more like the 20 percent upper end of this funds range.,44
-fomc-corpus,1980,"Why, Peter?",4
-fomc-corpus,1980,Just because that has been the recent behavior of banks. There seems to have been a considerable--whether it's regional differences--,24
-fomc-corpus,1980,"Yes, but isn't that very recent experience a combination of some banks getting a little discipline at the window plus this expectational effect that may well be built into the funds rate right now?",37
-fomc-corpus,1980,"It could well be. And I share Steve's view that in time we ought to associate $1-1/2 billion of borrowing with something a little lower in the funds rate, 17 or 18 percent maybe. But I'm not sure how long this psychologically higher funds rate may last. I'm not sure we are about to depart from it quite yet.",72
-fomc-corpus,1980,"I can live with a 16 to 20 percent range, but the real question then becomes under what conditions you would feel compelled to adjust the nonborrowed path if things worked in the direction that we are talking about now and the edge came off the funds rate for whatever reasons--borrowing got at or below this frictional level--even in the framework of six weeks. The real question is: What would be the attitude toward adjusting that path?",91
-fomc-corpus,1980,"I think this spotlights a very serious weakness in our present process whereby this Committee very carefully chooses aggregate growth targets and fed funds ranges and then the staff with some verbal guidance but no official guidance from this Committee makes the borrowing assumptions. Sometimes the borrowing assumptions are not consistent with the [monetary aggregates and fed funds] decisions we have made. Now, this may be something we ought to discuss when we talk about our future operating procedures, but I sense an awful lot of emphasis being placed on the definition of certain borrowing assumptions and shifts in those assumptions, which have an impact on the fed funds rate and on growth in the aggregates. I don't think the Federal Open Market Committee necessarily makes a policy judgment in connection with these borrowing assumptions. I know we talk about them.",154
-fomc-corpus,1980,"Well, I tried to bring that to your attention recently. And that's precisely [the reason for] my restiveness about sitting there and putting down some money supply figure that we have no control over in the short run. It's not a very satisfactory policy decision. The question comes to: What do we do about it? And I think the question that this conversation is posing right now--and there may be differences of views and one way of putting it is that it's related to the borrowing decision--is this: Are you willing to see the federal funds rate stay around or move higher than 20 percent on the one end and are you willing to see it stay around or go lower than 16 percent on the other end? We have to get some consensus on that point, and people's views may differ.",161
-fomc-corpus,1980,"Mr. Chairman, it seems to me that the directive has to take account of two contingencies. One is that the economy may continue strong; the other is that it may weaken. If it continues strong then it needs restraint, and that means a higher funds rate--higher than it is now. If it weakens, it doesn't need much of an increase in the money supply because interest rates will go down anyhow. Our main concern will be to slow that decline. So I would go for a higher range on the funds rate than we have here, maybe 17 to 22 percent. And I'd go for a low rate of increase in the money supply. I think that meets both contingencies--if the economy weakens or if it remains strong.",152
-fomc-corpus,1980,"In your first case, Henry, if the economy remains strong, the money supply will be above these numbers that are mentioned. And, therefore, it will immediately bring to the fore a telephone conference meeting to raise the funds rate. So you needn't put the limit up to 22 percent. You can just depend on that occurring if the economy is strong.",72
-fomc-corpus,1980,"Well, we didn't follow a practice like that this last time. I'd rather have the number there so that we understand what we mean.",27
-fomc-corpus,1980,"Mr. Chairman, could I ask the Manager to define his understanding of this clause ""some shortfall from the target ranges would be acceptable in the near term"" as consistent with a modest reduction in pressures on money markets?",44
-fomc-corpus,1980,Governor Partee has given you what is probably a more elegant expression of that thought.,17
-fomc-corpus,1980,But Peter is going to be running [the operations].,11
-fomc-corpus,1980,"Well, Peter hasn't seen this language before, so let me give him the exact language: ""Some shortfall from the target ranges would be acceptable in the near term if that should develop in the context of reduced pressures on money markets.""",47
-fomc-corpus,1980,That's simpler and more straightforward.,6
-fomc-corpus,1980,But no shortfall would be permitted in the target range in the federal funds rate?,17
-fomc-corpus,1980,"Well, not without a meeting. It depends upon what we put in. I remind you that every time we've hit one of these [constraints], we have removed it, rightly or wrongly. But if I may say so, I don't think it's up to the Manager to interpret this now; it's up to us to tell him what the interpretation should be. We could discuss a little more whether [we agree with] Steve's view that the federal funds rate would probably come down if with $1.5 billion in borrowing the money supply came in a little weak and the judgment was that it was running below this target. But my interpretation of this is that the Desk would move a little more slowly in reducing the borrowing target under those conditions than if we didn't have this reservation that says if interest rates are declining. So there would be a reflection in declining interest rates, but that would be moderated in the rate of speed with which the borrowing level was reduced.",191
-fomc-corpus,1980,I think in principle it's a good formulation because it says there has to be some compromise when we're not meeting the target on the aggregates and having a movement in interest rates.,34
-fomc-corpus,1980,"The problem, though, is the numbers that are going to be used to make up the reserve aggregates and what the reserve aggregates are going to look like. The M-1A number, depending on whether or not one takes into account the staff's estimate of NOW accounts in January, is from -2.1 to 4.0 percent. The number for M-1B is 4.6 to 7.5 percent. And I think this--",94
-fomc-corpus,1980,"Those problems clearly exist, but I'm not sure what your operational point is.",15
-fomc-corpus,1980,But that's my whole point. My whole point is--,11
-fomc-corpus,1980,Do you want to give the staff a guideline on the federal funds rate and say aim at a 19 percent federal funds rate this week?,28
-fomc-corpus,1980,"I would be prepared to do that, although I don't think the Committee would. But the essence of the arguments that were going around the table was that we have to give more weight to broader aggregates. And I think we have to start now. If we don't start now, we'll be working with this element of uncertainty--which is going to prevail all year long--until such time as we make our longer-run decision. And one way to deal with this operationally would be to say that particular emphasis will be given to M2 in light of the uncertainty in M-1A and M-1B.",122
-fomc-corpus,1980,"Well, I don't disagree with you [but] we ought to discuss what we are talking about for the annual range. If you want to say that this time, we've got to put in a higher number for M2, I suspect, if we give any weight at all to the staff forecast. It's on page 13, Lyle.",69
-fomc-corpus,1980,I don't think we ought to face that today.,10
-fomc-corpus,1980,"Well, that's what I implicitly said: Let's not face that today.",14
-fomc-corpus,1980,"This says reserves along a path consistent with growth of 4-1/4 percent in M-1A and 4-3/4 percent in M-1B. I think that does allow some room for the kind of thing you are talking about; that is a bigger M-1B number because the M-1A number will be smaller. As far as reserves are concerned, it allows us some room. I just don't think we are prepared to decide what these numbers ought to be for the range of aggregates today. We've just had a long, long discussion of it and we are all over the lot.",126
-fomc-corpus,1980,"Just to be clear, if we accepted these kinds of numbers with a 20 percent [upper constraint on the funds rate]--though Henry doesn't want that--I interpret this to mean that the borrowing number initially is going to be set, with all the uncertainties that exist, at something that is not thought to be inconsistent with a 20 percent federal funds rate or lower. It is not going to be set with the idea that the federal funds rate is going to go above 20 percent. In making the decision today, we are saying that we are broadly concerned about 20 percent. Obviously the operational people should reflect that decision in their target. Now, if we want to change that next week or whenever, we can do it. But talking about it right now, this week, that's what we're saying.",163
-fomc-corpus,1980,"Mr. Chairman, maybe in view of the time and hunger, I would say I like what you have proposed. The only reservation I have about it is the 16 percent on the low side. I think we must maintain at least a 4 percent range but I would hate to see us get to 16 percent in the next two or three weeks or even by February 5th, or whatever the date of the next meeting is, without some consultation and a better view of what is happening in the economy. With money growth and what is evident now, I would really prefer a consultation, say, at 17 percent, which is consistent with what the staff is projecting under the B alternative in the short run.",145
-fomc-corpus,1980,"Well, I didn't put 16 percent in there with any thought that it would actually reach that, but who knows.",24
-fomc-corpus,1980,What I'm really suggesting is that we adopt this with Chuck Partee's amendment to the language in that one sentence. I think we should at least consider some consultation if the funds rate is above 20 percent and stays there for any long period of time or if it drops to 17 percent and looks as if it's going to pass through 17 percent to that 16 percent level.,77
-fomc-corpus,1980,"I'm as hungry or hungrier than Roger; nevertheless, I would be able to support this only if we don't have a narrow specific numerical range. I would urge instead that we broaden that fed funds range. If the Chairman at any time feels uncomfortable and wants to set up an interim telephone conference, that's the chair's prerogative. But the tenor of this discussion has implied an awful lot of sentiment to get back on a federal funds rate constraint, and that just ruins my Christmas Eve.",98
-fomc-corpus,1980,"You're celebrating early, Larry!",6
-fomc-corpus,1980,"I should say on this word change, Larry, that I'd change the 16 to 15 percent if the Chairman agreed.",25
-fomc-corpus,1980,"Well, you had some other suggested word changes anyway. This language could use a little tuning up just in the sense of smooth reading. It has ""consistent"" in the first paragraph twice and Governor Partee suggests making the first one ""associated."" He puts in a sense of a longer path before the second consistent, so it reads: ""In the short run the Committee seeks behavior of reserve aggregates associated with growth...over the first quarter along a path consistent with"" those targets. I had begun changing it to start the sentence with ""Abstracting from the effects of deposit shifts..."" I was looking for whatever language we used in earlier directives when we actually cited the [numbers] here. That should be 1981, of course, in the next sentence. ""Beginning in 1981 the discrepancy between growth in M-1A and M-1B is likely to widen to an extent that cannot [be determined]."" That, I think, is an improvement in the language. And for the last sentence on the federal funds rate he put ""averaging generally between 15 and 20 percent."" Apart from the numbers, ""averaging"" sounds like averaging over the whole period. I think that goes a little too far, Chuck.",250
-fomc-corpus,1980,It's a very difficult thing to deal with. A weekly average is what we have referred to in the past.,22
-fomc-corpus,1980,"That sounds somehow as if it has a little too much rigidity. Weekly average is all right with me, but I would say is consistent with a federal funds rate of whatever range we put in ""taken over a period of time"" or something like that. That conveys the notion that we are not talking about one or two days but about something that seems to be persisting.",75
-fomc-corpus,1980,"Isn't this consistent with what we publish [now] --""generally in the range of"" and then we cite the range--for the federal funds rate?",33
-fomc-corpus,1980,"Well, that language is somewhat different than what we've published before. It sounded a little more rigid before, and that's what I--",26
-fomc-corpus,1980,Remains within a range of--,7
-fomc-corpus,1980,"It's in two sentences. It's stuck in as a proviso or understanding ""provided that in the period before the next meeting the federal funds rate remains within a range...."" That, just on the face of it, sounds as if it's a daily thing.",51
-fomc-corpus,1980,It says weekly average.,5
-fomc-corpus,1980,"Oh, it says weekly average. That's how we used weekly average. We can go back to the weekly average, but that always sounded a little peculiar to me, in terms of a weekly average coming in precisely above or below--",46
-fomc-corpus,1980,"I'm willing to live with the substance of this--the 16 to 20 percent and accepting the shortfall. I am a little concerned that the first sentence, by setting up the first-quarter targets as consistent with a kind of annual target, may be read by the markets as indicating that we are probably going to go ahead with the same annual targets that we set tentatively. We we might correct that impression, which I think is a distinct danger, if we simply add to the end of the first sentence ""consistent with the tentative annual targets set at its meeting of July 1980, which will be reviewed...""",124
-fomc-corpus,1980,"""Will be reviewed."" I think that's fine.",10
-fomc-corpus,1980,"Yes, that helps a lot. Your point is very good.",13
-fomc-corpus,1980,That means we are locking ourselves in in view of the--,12
-fomc-corpus,1980,"If in fact we don't publish this until February, there isn't much locking in; but I think what you are saying is fine. I have no problem with it.",33
-fomc-corpus,1980,There's about a 3-week lag between when this will be published and your testimony.,17
-fomc-corpus,1980,You testify when--February 20th?,9
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,There are still two weeks.,6
-fomc-corpus,1980,"Yes, there is still some [lag]; this will be out in the market for--",18
-fomc-corpus,1980,"Well, the substantive issues--and they are substantive--revolve around the borrowing assumption and the implications of that for the federal funds rate. And that's what we can't duck. Before we get to that, I don't know what people think about these [monetary growth] numbers. Somebody may think these numbers are too high and we should in fact aim for a significantly lower level--not just accept a shortfall but express it as an objective. If we do that, it substantially increases the probability, or the possibility anyway, of having to force a higher federal funds rate.",116
-fomc-corpus,1980,"Let me note what my market contacts in New York say. I went out of my way to hear [the views of] a very wide group of people during the last two or three weeks. Even those who I might say are the strongest hawks in the tradition of the New York market sense are saying: ""Don't tighten any further; keep the funds rate where it is."" I don't see that our credibility requires us to do any further tightening. There may be periods of time in which the operations will work out so that the funds rate has to be somewhat over 20 percent, in the 20 to 21 percent range, but I gather it's possible that the rate will subside a little. The language ""over time"" is loose enough that if we have to spend a large part of one week at 20-1/4 or 20-1/2 percent, that's permissible.",181
-fomc-corpus,1980,"I think that is right. But consistent with this language and those numbers, which can be changed, we will set a borrowing total that we don't think is inconsistent with what we are saying here. Now, we don't know; so, something else could happen.",52
-fomc-corpus,1980,We don't know.,4
-fomc-corpus,1980,"But we are talking, I would say, about a $1-1/2 billion borrowing level, or maybe a trifle lower, particularly if next week's money supply comes in low. That probably is consistent with a federal funds rate of 20 percent or less. It may take a few days for that to develop, but that is the implication. Now, if the next money supply figure or the next two money supply figures came in high, there may be some doubt. At some point we may run into an inconsistency, but that's--",110
-fomc-corpus,1980,"And we'll be calling each other up during the Christmas holidays. To me, Mr. Chairman, your proposal to soften the language so as to signal the money market watcher that we're not watching every day for every little glitch of fed funds rate--the averaging idea or however you want to express it--is a good one. Between that and Governor Partee's idea of making the range 15 to 20 percent it may provide enough [flexibility] so that we won't have to be on the phone with each other all over the country.",108
-fomc-corpus,1980,"Well, let me take it up in order and see whether we have a consensus. The first thing is the numbers we mention. Forgetting about the special problem with M2 for the moment, is citing something like the midpoint of these tentative ranges too high, too low, or on the mark in terms of recognizing that presumably we will have a clause in here that says shortfalls will be accepted.",80
-fomc-corpus,1980,Just right.,3
-fomc-corpus,1980,Just right.,3
-fomc-corpus,1980,Fine.,2
-fomc-corpus,1980,It's too high to me.,6
-fomc-corpus,1980,We need to have a show of hands or something.,11
-fomc-corpus,1980,Right.,2
-fomc-corpus,1980,These are the figures for the aggregate?,8
-fomc-corpus,1980,Yes. I'll ask another question [later] about the M2 figure. I'm talking about citing a figure which as a point of departure is the midpoint of these tentative ranges and implies that that is an acceptable number but shortfalls will be accepted. We won't be happy about overshoots. How many members of the Committee find that a desirable way to go about it? That's not so many.,79
-fomc-corpus,1980,"It's eight, not counting you.",7
-fomc-corpus,1980,"Well, let me just linger over what is partly a presentational problem on M2. The staff tells us this M2 figure is too low. Let me make Henry happy. It looks a little funny if we say ""broadly consistent with the tentative ranges"" and then cite a number that doesn't seem consistent. So, we have a bit of a substance versus presentation problem here.",78
-fomc-corpus,1980,We either have to depart from that base or give up M2 and not state [a number for] it.,23
-fomc-corpus,1980,"What about adding a sentence, if we do have a higher M2 figure, qualifying it or explaining why that is higher.",25
-fomc-corpus,1980,"We could do that. We could use the basic form of the sentence which says that these are the midpoints that we are aiming for but add a clause at the end of the sentence saying ""although it is recognized that M2 for a time may run somewhat higher"" or something like that.",59
-fomc-corpus,1980,It doesn't seem to me that this is something we need to deal with in this intermeeting period. Your testimony is going to come within 10 days [of the publication of this directive].,38
-fomc-corpus,1980,"Well, I think we can just barely get by with it this way, even recognizing in substance that it's only one of three numbers and so forth. But it is something of a problem.",38
-fomc-corpus,1980,That thought could be in the policy record without being in the directive.,14
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"You would explain it in any event in your testimony, right?",13
-fomc-corpus,1980,Can we instruct the Manager to read 10 percent where the 7 percent is?,17
-fomc-corpus,1980,"Well, Murray is pointing out, which I think is fair, that we can mention this point in the policy record. We can say that while it's generally consistent, we recognize that M2 for a time may run above [the midpoint]. That's one way to handle it.",55
-fomc-corpus,1980,I think that would be better. We don't really want to open up this discussion until we talk about it in the context of the longer run.,29
-fomc-corpus,1980,"That strikes me as a reasonable compromise, to make sure it's in the policy record but just as a general practice to use the midpoint of the ranges here.",31
-fomc-corpus,1980,We would construct the path assuming something like 10 percent.,12
-fomc-corpus,1980,Is [your estimate] that high?,8
-fomc-corpus,1980,[M2] doesn't make much difference in the path.,11
-fomc-corpus,1980,"That's what we have as consistent under alternative B. We have 10 percent for the December-to-March period, which translates to roughly that for January and February. That may be wrong, but most of those [components] don't have reserves attached to them anymore, of course.",56
-fomc-corpus,1980,Then your reserve path wouldn't change.,7
-fomc-corpus,1980,"I wonder whether it's really going to be that high. I was looking at this 8-3/4 percent figure you have; that's because you're projecting a low December, I take it. Well, okay. We're saying [the Manager] is not going to be too disturbed if it's 10 percent in the short run. I wonder if it will be that low in December; we are talking about the period until the next meeting and--",89
-fomc-corpus,1980,That paragraph on page 5 really is critical.,10
-fomc-corpus,1980,I'm not sure you are talking about 10 percent between now and the next meeting.,17
-fomc-corpus,1980,"No, that's right. But in constructing a path, January is what we would be putting in there. And I would tend to put in around 9 percent.",33
-fomc-corpus,1980,What makes you think January is suddenly going to jump up if December is very low?,17
-fomc-corpus,1980,"Well, it may or may not; we have had this--",13
-fomc-corpus,1980,"I just have a gut feeling that if December is that low, there isn't a strong basis to think growth is suddenly going to jump up to 10 percent in January, even if you're right for the quarter.",42
-fomc-corpus,1980,"Well, the only operational question is what number to put in. It's not going to have any real effect on the operations.",25
-fomc-corpus,1980,8-3/4 percent.,7
-fomc-corpus,1980,"Whatever number we put in there, because we tend to ignore M2 in the very short run,--",20
-fomc-corpus,1980,Why argue about it?,5
-fomc-corpus,1980,"Even for the long run, too.",8
-fomc-corpus,1980,"I guess what we are implicitly saying is that we are not going to get too disturbed about something in the 8 to 10 percent area, and that will be reflected in the policy record. Otherwise we have to use the exact number. I take it the shortfall idea is incorporated in here. Is that generally acceptable? SEVERAL. Yes.",71
-fomc-corpus,1980,With the revised language?,5
-fomc-corpus,1980,"Yes. Then we're down to the federal funds rate range; varying views have been expressed. I listened to both sides of this and I don't have a better suggestion for you than 16 to 20 percent, but let's look at it differently. Let me ask questions. What about the upper end of the range? How much consensus is there on 20 percent with language that says ""over a period of time"" or ""weekly average,"" whichever you prefer? Understand that as before--we have had two recent examples--we have never let these things be binding, for better or for worse. I'm not saying that's right, but again I cite the historical experience. We have discussed this at frequent intervals recently and we can continue to discuss it if it becomes a problem. So with all those understandings, to how many is 20 percent acceptable? That does influence where the borrowing figure is put at the moment.",183
-fomc-corpus,1980,Does that mean you are going to set the borrowing figure to achieve 20 percent or so?,19
-fomc-corpus,1980,No.,2
-fomc-corpus,1980,We are thinking of the kind of borrowing figure that Steve is talking about as consistent with that.,19
-fomc-corpus,1980,Initially.,2
-fomc-corpus,1980,"Initially, right now.",5
-fomc-corpus,1980,"But if the aggregates are weak, the borrowing figure will drift down from that and eventually the funds rate would come down.",24
-fomc-corpus,1980,You are going to starve me to death if you keep [talking]!,16
-fomc-corpus,1980,What was his borrowing number again?,7
-fomc-corpus,1980,"It was $1-1/2 billion, I believe.",13
-fomc-corpus,1980,Probably.,2
-fomc-corpus,1980,It would go down if the incoming money supply figures are below the present estimates.,16
-fomc-corpus,1980,"I'd like to raise one question along this line. I'd invite the Committee's attention to page 18, which has language we have used in the past in the last paragraph. It says: ""If it appears during the period before the next meeting that the constraint on the federal funds rate is inconsistent with the objective for the expansion of reserves,..."" We are changing the words. In this draft the wording is: ""If it appears likely that the monetary and related reserve paths are inconsistent with fluctuations in the fed funds rate,..."" It seems to me that the latest wording places the fed funds rate as the anchor that will control aggregates behavior, and that's exactly the opposite, I think.",136
-fomc-corpus,1980,"I assure you that you've picked up a point to which no substance was attached by the author. He has probably written it that way without knowing it. But I take it you would prefer it to be written as: ""If it appears likely during the period before the next meeting that fluctuations in the federal funds rate over the general range of 16 to 20 percent, taken over a period of time, are inconsistent with the monetary and related reserve paths, the Manager will....""",96
-fomc-corpus,1980,I'd feel much more comfortable.,6
-fomc-corpus,1980,"Okay. If you can detect a difference in that language, I--",14
-fomc-corpus,1980,Some Fed watchers might.,5
-fomc-corpus,1980,Okay.,2
-fomc-corpus,1980,"That's the only thing I've ever discovered on my own, Mr. Chairman!",15
-fomc-corpus,1980,Let me assume the reversal of the language is made. Do we have we a consensus on 20 percent for the number to put in?,28
-fomc-corpus,1980,It's a majority.,4
-fomc-corpus,1980,It's 7.,4
-fomc-corpus,1980,Can we do it again?,6
-fomc-corpus,1980,We went through that one. Let me try the 16 percent on the bottom.,17
-fomc-corpus,1980,You want hands raised on 16 percent?,9
-fomc-corpus,1980,"1,2,3,4,5,6. Is there a greater number for any other number on the bottom, like 15 percent?",30
-fomc-corpus,1980,I could vote for 15 percent just as easily.,11
-fomc-corpus,1980,"We're about tied, I guess. Is anybody for 15-1/2 percent?",18
-fomc-corpus,1980,I can accept 15 but I prefer 16 because I'd like to see us talk about it if the rate gets down to 16 percent.,29
-fomc-corpus,1980,"Yes, we'll talk about it.",7
-fomc-corpus,1980,We have never had a problem on the up side. I would see no particular problem on the down side but it would be worth talking about. There are a lot of things going on. And 16 percent seems to me [a big move]; we have talked about the volatility problem. I think we ought to do some talking at 16 percent.,71
-fomc-corpus,1980,"Well, Paul, maybe those of us who prefer 16 percent would go along with 15 to 20 percent to get a larger consensus if there were an understanding that when it got down near 16 percent we would have a consultation.",48
-fomc-corpus,1980,I would go for consultation at 17 percent. Then I would join you.,16
-fomc-corpus,1980,I do believe that the aggregates would have to be pretty weak for the funds rate to get down in the low end of the range we are talking about. And we would probably want to have a telephone conference call to talk about what is creating the weak aggregates in any event.,55
-fomc-corpus,1980,"I can obviously go either way, but it seems to me that 16 percent has some advantage. Well, it's not going to be published for a long time anyway, so maybe it doesn't make much difference. But there is some disadvantage in saying that the Committee in the middle of December, when everything was still on the high side, was rather anxiously looking for a great big decline in interest rates. I think there is some credibility problem in that direction, too. But--",96
-fomc-corpus,1980,That's our lower end now.,6
-fomc-corpus,1980,"Well, does it look as if we have widened the range? The last range the public has--",20
-fomc-corpus,1980,The last range was apparently--,6
-fomc-corpus,1980,But when do we publish the 13 to 18 percent?,13
-fomc-corpus,1980,"On this Monday we will publish the directive, which had a range of 13 to 17 percent, along with the subsequent actions which raised the upper end to 18 percent and then allowed in effect for it to be exceeded.",46
-fomc-corpus,1980,The pattern is very clear if anybody--people who are so suspicious of us all the time--ever looked at it. This range has never bound that hard.,32
-fomc-corpus,1980,"Yes, it certainly hasn't.",6
-fomc-corpus,1980,It has bound at the bottom.,7
-fomc-corpus,1980,"Well, we stayed with it for a couple of weeks; it never [presented] a hard conflict. We thought we were going to--",29
-fomc-corpus,1980,I agree with Nancy. I think we've had more difficulty getting it reduced than getting it raised.,19
-fomc-corpus,1980,[Unintelligible] down than up.,10
-fomc-corpus,1980,"Mr. Chairman, on the point you just made about how it would be read if we made it 16 percent, am I not right that our current range, [which went into effect after we consulted] on the telephone, has a bottom of 13 percent?",54
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"So if we raise the bottom by 300 basis points, we're going to be read as tightening now.",21
-fomc-corpus,1980,But they know where the rate has been all this time; the funds rate is now up to 21 percent.,23
-fomc-corpus,1980,"But that is a big jump, going from a bottom of 13 percent to 16 percent, when we're really anticipating moving the other way.",29
-fomc-corpus,1980,"Well, I don't think this is a vital matter, myself.",13
-fomc-corpus,1980,"I don't think we're going to be operating in the bottom part of the range and, therefore, I don't think we're stretching out the--",27
-fomc-corpus,1980,15 to 20 percent.,6
-fomc-corpus,1980,"Well, let me try something. Everything remains the same, with some changes in language which I don't think are substantive at all, apart from the ones we've discussed. Let me just ask: Is your preference to say ""taken over a period of time"" or ""weekly average""?",56
-fomc-corpus,1980,Taken over a period of time.,7
-fomc-corpus,1980,That's okay.,3
-fomc-corpus,1980,"Let's assume the language says ""taken over a period of time.""",13
-fomc-corpus,1980,"[Maybe it should say] ""days""--taken over a period of days.",16
-fomc-corpus,1980,"No, no.",4
-fomc-corpus,1980,It is a period of days.,7
-fomc-corpus,1980,Over a period of time could mean a year.,10
-fomc-corpus,1980,"Right, the whole [intermeeting] period.",10
-fomc-corpus,1980,Let's stay as loose as we can here.,9
-fomc-corpus,1980,"I like Chuck's ""days."" I'd like to be a bit more specific on what we mean. I'd hate to give instructions to the Manager that are so general that no one has the foggiest notion of what anybody means.",46
-fomc-corpus,1980,We don't say how many days. It could be 30 days.,14
-fomc-corpus,1980,"We have three choices: a period of time, a period of days, or weekly average.",19
-fomc-corpus,1980,That's seven days in the weekly average.,8
-fomc-corpus,1980,I'm for a period of time.,7
-fomc-corpus,1980,"Let's say ""a period of time""--I will interpret that as a series of days--and change the 16 percent to 15 percent. We are reversing the language to conform with the way it was before.",43
-fomc-corpus,1980,Are we going to talk when it gets to 16 percent?,13
-fomc-corpus,1980,"Unless somebody has a suggestion that he thinks will command [wider] support, I would propose that we vote.",23
-fomc-corpus,1980,You're going to specify the borrowing at--,8
-fomc-corpus,1980,A billion and a half dollars.,7
-fomc-corpus,1980,"I hear no appeals that we have another plan that is going to command wider support. I will, therefore, call for a vote.",27
-fomc-corpus,1980,I'll mention that I'd go back to 25 years ago and add in tone and feel of the market and operate in bills only.,26
-fomc-corpus,1980,"Gee, we didn't have any inflation in those days.",11
-fomc-corpus,1980,It was pretty good.,5
-fomc-corpus,1980,Which way did the cause and effect run?,9
-fomc-corpus,1980,I wish we knew.,5
-fomc-corpus,1980,May I ask what the vote is on?,9
-fomc-corpus,1980,On the whole directive.,5
-fomc-corpus,1980,"No, I mean the range of the federal funds.",11
-fomc-corpus,1980,It's 15 to 20 percent.,8
-fomc-corpus,1980,With any idea of consultation at a higher level?,10
-fomc-corpus,1980,I have observed the remarks about consultation.,8
-fomc-corpus,1980,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey Yes President Morris Yes Governor Partee Yes Governor Rice Yes President Roos Yes Governor Schultz Yes Governor Teeters No Governor Wallich No President Winn Yes,46
-fomc-corpus,1980,Thank you. We can go eat.,8
-fomc-corpus,1980,"If Henry and Nancy dissent, you know you're in the right area!",14
-fomc-corpus,1980,Hold a minute. Let's see whether we have any objections to [publishing the 1975 Memoranda of Discussion].,24
-fomc-corpus,1980,You received a memorandum about the minutes for 1975.,12
-fomc-corpus,1980,I move that we accept the proposal.,8
-fomc-corpus,1980,Do I have a second?,6
-fomc-corpus,1980,Second.,2
-fomc-corpus,1980,It's all right with me.,6
-fomc-corpus,1980,[Approved] without objection,5
-fomc-corpus,1981,"I think we better get started. In general outline, I assume we probably will end up spending all morning, at least, on the so-called technical study. We'll see whether we complete it this morning. I assume sometime today we will get to the economic outlook over whatever your forecast horizon is. Assuming we get that far--and I would think we would get that far--we will have at least a preliminary discussion of the longer-range targets; I doubt that we will get to the shorter-range targets today. And I think we can defer all the managerial reports and that kind of thing until tomorrow. So, we will start. We have to approve the minutes. Do I have a motion?",139
-fomc-corpus,1981,So moved.,3
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,"Without objection, we will approve the minutes. Do we have anything else we're supposed to do here at the beginning? Well, we'll just go to the [new] monetary control procedure. Presumably, the objective of this discussion is to arrive at some judgment as to whether or not we're generally satisfied with the technique that we adopted [in October 1979]--a technique which, in the short run, emphasizes control of nonborrowed reserves. And we alter that in the light of what is going on in the money supply or total reserves. It implies judgmental adjustments in terms of the multiplier; it implies some kind of federal funds rate band. My own interpretation of that federal funds band may differ from that of others, but I don't think it has been, in and of itself, much of a constraint because every time we [reached the limit] we moved it. On the other hand, there is some sense inherent in the technique, but maybe not openly stated, that the way the technique is run doesn't bounce reserves up and down very sharply depending upon what happened last week or even last month. There is some sluggishness in adjustments which in itself presumably has a short-run stabilizing effect on money market interest rates even though that is not the stated objective. But it is inherent in the way the technique has been operated. So, we have to decide whether to continue with that general technique. And if we don't want to continue with it, somebody has to put forward an alternative that is desirable in a rather important way, which I suppose could go the gamut of more emphasis on interest rates to more emphasis on some stricter or more mechanical reserve technique. Assuming we want to continue generally with the present technique, there are a number of questions that arise as to what modifications might be made as a matter of emphasis, [such as] speed of the reactions on nonborrowed reserves and some important questions --which we probably could never resolve today in any event--on the discount window and discount rate management and the management of the federal funds rate band. I hope we can come out with some coherent or incoherent--preferably coherent--conclusion on these subjects. Let me say something as far as the conclusions of the study in a more technical area are concerned. I believe that in any statement I make to the Congress I am going to have to review this study and pronounce some general conclusions. The most important conclusion will be whether we want to change the technique, the question I just raised. But on a somewhat more technical level, my understanding, subject to confirmation or change during our discussion this morning--and I may not be comprehensive in this listing--is that there is no real evidence that on a weekly or monthly basis the money supply has moved more erratically this year than before. I think what the study shows is that it looks that way if you look at the raw figures; but by the time we get finished seasonally adjusting and revising seasonal adjustments as we did in earlier years, it's likely to look in a very short-run perspective about as stable or as unstable as it did before. In fact, there is a very large random component in the weekly figures and a considerable one in the monthly figures. So, I take it the study suggested that it was somewhat of an open question as to whether we had a more erratic performance in the money supply this year than in earlier years. If you look at it in a little longer perspective, say, quarterly, then statistically we did [have more variation]; but whether that was a reflection of external events like credit controls and the sharp fluctuations in the economy or whether it had anything to do with the technique is the open question. As the study put it, it's certainly not proven that the technique had anything to do with it. I think all the studies suggest that there is a definite tradeoff between interest rates and money supply stability. And the tradeoff assumes rather violent proportions in terms of interest rates, if we really want to stabilize the money supply. The studies also suggest that the whole structure of interest rates has been affected by fluctuations in short-term rates much more than earlier, depending upon how you look at the studies. So, when we're talking about fluctuations in short-term rates, at least in the last year, we're talking about fluctuations in the whole structure of interest rates. We have not found much evidence of an induced cycle in the money supply when the procedures [led us to] tighten to force a decline [in the money supply] and then to ease off to force another increase. That's an important question. My judgment of what is said is that there's not much evidence for that. And there isn't much evidence that short-run--by that I mean quarterly or more than quarterly--deviations in the money supply have any very pronounced effect on the economy or on inflation because they are not terribly important in that sense. Well, those are some of the tentative conclusions I have drawn from what I have read of these studies, but they are all subject to further interpretation as we proceed. With that much introduction, I will have Mr. Axilrod introduce the discussion more technically after welcoming Mr. Boehne and Mr. Boykin to our council this morning. If you can survive this meeting, I suspect you will be able to survive any of the future meetings! Mr. Axilrod.",1078
-fomc-corpus,1981,"Thank you, Mr. Chairman. Some of my introductory comments will repeat some of yours, but I don't think any of them will contradict.",28
-fomc-corpus,1981,We'll watch carefully. It may come as a surprise.,11
-fomc-corpus,1981,"I'd like to organize my introductory comments around three general points. One is the limitations in the study; second is a very brief summary of the findings, since they have been summarized over the course of 15 pages in a memo; and third is a general statement about what I, at least, would see as some of the implications of the study for our present procedure. First, on the limitations: It seems like a long period since the introduction of the [new] procedure in October [1979], but the period is now 15 months; and it's really very short for evaluating the procedure. And it's particularly short because last year was a very strange year in that there were a lot of what we call exogenous factors affecting the economy that would have had impacts on the money supply and interest rates no matter what procedure the Federal Reserve was following. That makes the problem of averaging out, so to speak, even more complicated because we had a year where interest rates, money supply, and spending were subject to exogenous shocks that make trying to find out what the procedure did to the economy or to the money supply or to interest rates very difficult. It's very hard to separate it out. So, given the nature of the period, the 12 months that we actually used in [our studies to evaluate] the 15 months or longer that we now actually have [used the new control procedure] is quite short. Secondly, of course, we couldn't just observe the procedure and say: ""Well, there was a lot of money and interest rate variability."" We were forced to try to see if we could conclude that either the procedure gave rise to the variability or the variability was caused exogenously and was independent of the procedure. We needed something to judge all that against, so we had to use models, which are nothing more or less than an average of 10 or 15 years of experience, and see how they would have worked if 1980 in some sense had had the characteristics of those 10 or 15 years over which the models were constructed. Thus, I would really want to caution you about that. I think that was a necessary procedure, but I want to caution you because: (a) 1980 wasn't like the previous 10 or 15 years; (b) models do tend to be misspecified and they may not even be a correct representation of the previous 10 or 15 years; and (c) models have a disconcerting tendency to give very different results if you put in one variable and take out another or if you change the period over which the variables are estimated. As a result of that we did try to use a number of different models, which had a number of different views of the world, in order to try to give as fair a test as possible. But I would use all these results with caution. Because one model works in one period surely doesn't mean it's going to work in the next. Finally, I would say on behalf of the whole staff that we have had a limited time to evaluate so complicated a subject. We started thinking about this sometime in September; I remember discussing it with the Chairman. I think we started working in earnest on it sometime in October, and that really is a limited time given the very complicated procedures we were involved in. So, some of the work is actually ongoing and is therefore subject to change as we learn more or stumble across better ways of doing things. As a check on ourselves, we did try in a seminar-type setting to expose all the work to all the people in the Federal Reserve System who were working on this project [for their critical evaluation]. And on two of the crucial pieces, those by Mr. Tinsley and Mr. Lindsey, we did have a conference with academic economists--Messrs. Brunner, Meltzer, Rashe, Pierce, Kareken, and LeRoy--to have input from that end and to expose our work not exactly to disinterested observers but to, we would hope, rather critical observers. And I think that our work there survived rather well and did have some impact on their thinking. With that background, I'll try to generalize the findings even more than they are generalized in the discussion paper. One principal finding--and again this is not a matter of logic but partly a matter of logic and partly just a matter of judgmental analysis--was that 1980 was a rather special year, mainly because of the credit control program and also, I believe, because of the dynamics of inflationary expectations. The latter led to very much higher interest rates than otherwise would have developed, which I think set off apparent sizable further efforts by the public to economize on cash as those high interest rates developed. So, I think the special nature of the year gave us very pronounced disturbances in the market for goods and services, which were set off by the credit control program, and pronounced disturbances on the side of money, which were set off by the very high interest rates that developed very early in the year. And some of these developments actually were occurring [concurrently], which tended to confuse some of the econometric models. Another general conclusion I would draw is that so far as we could tell, because of these external shocks, much of the interest rate and money variation was probably not intrinsic to the procedures but derived from the large-scale shocks external to the Federal Reserve [impinging upon] monetary policy against which the procedures were working. That is an odd assertion. In some of the work that Mr. Tinsley did, using the model constructed over the past 10 or 15 years, he tried to see whether the results of the year fell within a confidence interval one would expect, given the average of the past 10 or 15 years. And he found that for the most part they fell at the lower end of the confidence interval or below. So, just from that kind of simulation, it looked as if it was a rather special year. Another conclusion is that on a more technical level it seemed that our procedures performed reasonably well in the present institutional environment relative to the simulated options; and I think that was the conclusion drawn by our academic consultants also in that conference we had with them. That is, we could not assert from what we found statistically that we would have gotten better control of money if we had just used as the criterion the monetary base or total reserves over a period of one month and probably not over a period of three months in the present institutional environment. Indeed, it did look as if control of the base or total reserves might even have made for less control over money in the present institutional environment. Now, it is of some interest just to indicate why that turned out to be so; it turned out to be so because I think we all tended to underestimate what we call our [money] supply-side disturbances. That is, there were shifts in the deposit mix, with more CDs, meaning a need for more required reserves. And unless [the needed reserves are] provided--if we just hit our total reserves or total base target and don't provide them--we immediately would get less money supply because the reserves aren't there and [we would get] higher interest rates in consequence of less money, given short-run money demand. And unless we have made multiplier adjustments or have made a good guess about what the multiplier is, we would get these erratic money supply movements if we were following total reserves or a total base target because of these supply-side disturbances--not demand-for-money disturbances, but the [money] supply-side disturbances. And, of course, the models we work with don't allow for that. So, our conclusion was that it would be very important to have judgmental multiplier adjustments if we were to work on total reserves or the total base, certainly in the present institutional environment. Now, with institutional changes, it did appear that we could do very well with a total reserve or total base aggregate; we'd make the obvious institutional changes that I don't think I need to detail for all of you. Some of this will [be discussed] later. But our evidence, again working from the model, was that we'd do better with total reserves in that context than the base because in the end we would still have the institutional supply-side problem that currency has a 100 percent reserve requirement and deposits have a fraction of that reserve requirement. So, changes in the mix of currency and deposits seem to have bigger disturbing effects in the multiplier if one works with the base than if one works with total reserves. Another conclusion we reached--and it seemed fairly clear--is that more precise month-to-month control in money is likely to lead to greater interest rate volatility. Indeed, the more precise we try to make it--that is, the more we try to hit it month-to-month instead of letting it average out over a 2- or 3- or 4-month period--the more interest rate volatility there is likely to be. And this is a result of what seems to be a rather inelastic money demand in the short run; that is, in a week or two or three or whatever time affects the monthly average, it takes one heck of a lot of interest rate change to make people want to hold less or more money than they otherwise wanted to hold when there is a normal, and often random, flow of funds in the economy. Finally, as a general finding, we detected little need for precise month-to-month money control on economic grounds. It appeared that significant economic effects are more likely to appear after three months or so than before, clearly. Some work Mr. Enzler did gives us an order of magnitude of the effect [on GNP] if we were off path for six months. It turned out, for example, that if money was growing faster than target by 2 percent at an annual rate over a 6-month period, we might get a higher nominal GNP of about 1/2 percent at an annual rate. So, it's after six months that there gets to be a little but nontrivial effect; it depends on your values and preferences. But [such a divergence for] three months is rather trivial in terms of its effect, and much of the 6-month effect is offset later if you undershoot later; it's not offset, of course, if you don't undershoot but just go back to the original level that you had. Let me say a few words, Mr. Chairman, if I may, about the implications. I'd first like to note the advantages of the present target procedure, which is a procedure in which we use nonborrowed reserves as a day-to-day or week-to-week target but take total reserves as a general guide so that adjustments are sometimes made to the nonborrowed target because of what is happening to total reserves. This procedure can be viewed as something of a compromise because it is somewhat accommodative to deviations of money from the demand side. That is, when money demand is strong--and it could be strong for random reasons, as Dave Pierce's paper showed, because there's a lot of noise in the money [stock] weekly and even monthly--there is a degree of accommodation; borrowing goes up. But it is not total accommodation because interest rates also go up. So the procedure in some sense involves a degree of accommodation to money demand shifts. If disturbances are from the goods market, there is a degree of offset; it's the other side of the degree of accommodation, because if there's an increase in spending and an increase in money for transactions purposes, then there's pressure against that and interest rates go up. This is not a bad thing because the economy, so far as we could tell, last year showed evidence of both types of shocks in it; indeed, since the mid-1970s there have been considerable money demand shocks. So, there is something to be said for a target that compromises between these two and gives the Committee time at subsequent meetings to make a judgment as to how it wants to weigh what is going on in the economy, particularly since in the 1-month interval it doesn't look as if anything very fatal can happen to the economy from that kind of compromise. In a sense, the present procedures are a reasonable compromise. But because the discount window isn't entirely open--if it were, then we'd be accommodative entirely to all money demand [variation] whether it was a shift [relative to spending or not--I'd say the compromise is weighted to assuming that the shocks probably are mainly from the goods market. But that represents a judgment on my part. If the Committee wants more short-run precision and control of money than it now has, there are a number of suggestions that come out of the study. I would say that last year we did detect a little more slippage in the way the control procedures have been run and have worked than one might have expected in advance. I [use as] the criterion that what one might have expected in advance was not so much the 1-month slippage but the gain in precision if one goes from one month to three months. If you look at the control horizon, it's three months. And the gain in precision we got last year and actually how the procedures worked out was less than the gain in precision one might have expected just from averaging out a bunch of random errors in the money to reserve relationship. That means there may be something somewhat systematic [happening] there. And that systematic thing could have been exogenous, in that it just sort of happened that way, or there could be things in the procedures that we could improve. Now most of the things that one would think of improving go in the direction of playing the game as if we were operating on total reserves because, while they don't bear a close relationship in the models, once we abstract from all the things that the models can't abstract from--which include the reserve requirement structures and things like that--then the relationship gets closer. The evidence we developed indicates that; much of that is in Mr. Lindsey's tables. So, one way of pretending that you're a bit more on a total reserves target is to adjust the nonborrowed path more quickly when total reserves are strong or weak relative to path--that is, of course, with total reserves strong or weak properly adjusted for multiplier shifts to the extent that we can detect them. That would be one method of pretending we were tending more to follow total reserves. Another method would be to employ the discount rate more actively, which in some sense is very similar to adjusting the nonborrowed path. In one case, if total reserves are strong, you provide less nonborrowed reserves. In another case, if total reserves are strong, you raise the discount rate and provide less incentive to borrow. So the two methods are tantamount in a way to the same thing. In some subtle sense of policy strategy, there are differences; but in a technical sense they're tantamount to the same thing. You are trying to control total reserves either by holding back on nonborrowed reserves or by holding back on borrowings or vice versa if [total reserves] are weak. Another possibility is to restructure the discount window so that the demand for borrowing is more certain. That's a much more controversial question and it tends to limit in a sense the System's flexibility if pursued very far. We discussed that at length in Mr. Keir's paper and in the summary document. I'll only mention that there are two extremes to consider: One is to close the window entirely except for emergency borrowing, which would really convert the nonborrowed path to a total reserves path; the other is to open it entirely, and that would give you a structured discount rate possibility so that as borrowing rises, interest rates would rise and some resistance would develop, somewhat like now, to increases in money above path. Of course, if we didn't have that structured discount rate--if there were just a flat discount rate and an open window--then the increase in borrowed reserves would be tantamount to nonborrowed reserves. Even with a structured discount rate, I think this kind of technique would make the highest discount rate the top of the funds rate [band]; the funds rate would never go above it and it would elevate the discount rate as an instrument of policy to an even more important [position] than it could be under the present way we operate. It's not a more important instrument of policy now but it could be; and if the discount window were restructured, it could become even more important. The variability of borrowing [demand] that we've been so suffering with and unable to predict to any great extent this year--and the evidence of last year is that it did become more variable--so far as one could determine must have had to do with administration of the window because if the window were open and there were no problem with borrowing, presumably banks would use it. And if it were closed, there wouldn't be any administration to worry about. So there's something in the interaction between the way the discount window is administered and how banks view the administration that causes a variability in the borrowing demand that is difficult to predict. On other matters, it was difficult to find anything that would say that a shift to contemporaneous reserve accounting would not help short-run money control, particularly if we were on any kind of even shadow total reserves target. On the other hand, it was difficult to argue that maintaining lagged reserve accounting would be a major deficiency if our horizon were something like a 3-month period. I did not take a staff vote on any of these matters, but I think the people who worked mostly in the Lindsey-type area do prefer a shift to contemporaneous reserve accounting. Finally, on these particular points, if you want to control a narrower aggregate like M1-B, then it's obvious--again, if you're playing a shadow total reserve game--that you ought to remove the reserve requirement on nonpersonal time deposits. If you want to control the broader aggregates, you have a considerable problem because you don't have the legal possibility of putting reserves on most [of the components] of those broader aggregates, even those that are held at banks and thrift institutions. So, by their nature they are going to be more difficult to control with a reserve technique than the narrower aggregates. All of these changes that one could suggest--some of them are small and some of them are large--structurally would lead so far as we could tell to more short-run volatility in interest rates in the degree that they reduce short-run accommodation to random money supply movements. So, in a sense, if you're organizing the system to achieve precise month-to-month control of money, we believe that would give you greater short-run volatility in interest rates unless you're fortunate enough to predict exactly the amount of money the market happens to want [in a particular] month. And given the amount of random noise in the money [stock], I suspect that's just purely impossible. However, these things would reduce the odds, I believe, on getting far off the long-run [money growth] path over a period of three months or so. I think they would have that constructive effect. So, even if they increased the volatility of interest rates in the short run, which is likely, you might get a little less intermediate-run fluctuation. That's because even with more volatile short-run movement, the trend up or down [in short-term interest rates] once you begin deviating--once money growth begins to get stronger or weaker--would begin sooner and with less of a lag than now, possibly. So, you would have less need for very high [rates later] because you would have gotten less far off [the money growth] path over a 3-month period. While it rather clearly gives you more short-run volatility in interest rates, it seems to me quite possible that you would reduce the highs and lows and the intermediate-run fluctuations in interest rates. Finally, and on balance, Mr. Chairman, I don't think we found a clear need for overhauling our procedures radically; at least that's my conclusion. I'd say that was particularly so because it was also clear that last year may have been a special year in that the disturbances that hit the system from the economy occurred [not only] in the market for goods and services, which argues for a money supply target, but also to a great extent in the long-run and the short-run, that is the monthly, market for money, i.e. in money demand. And with those kinds of disturbances, the present procedures tend to be a rather reasonable compromise.",4151
-fomc-corpus,1981,I think it might be helpful if we divide the discussion up into more technical questions at the beginning and then more policy-oriented questions after that. In the area of technical conclusions or questions--I didn't bring the information with me--it might be useful if you reviewed some of the results that Mr. Lindsey had on the expected short-run instability in the money supply [from the use of] the technique.,80
-fomc-corpus,1981,"Well, Mr. Lindsey is here. If he would like to come up to the table, he could review very briefly the evidence from using total reserves, the total base, nonborrowed reserves, and the nonborrowed base from several models, as well as some of the results that the simulations suggested if we made some of these structural changes. That is mostly in Table 7 of your material, Dave?",83
-fomc-corpus,1981,"That's right. For those of you who have the paper, you may turn to Table 7. We did try to construct various experiments that pretended we were on different operating targets with different reserve measures in turn and we asked ourselves: What is the minimum amount of variability of money month-to-month and also quarter-to-quarter that one might expect? We used two models under the current institutional structure: one developed some years ago by the Board's staff and one recently developed by the staff of the Federal Reserve Bank of San Francisco. The results appeared to indicate to us that, looking at month-to-month growth rate deviations of money from a targeted level, about the best we could expect to do under the current institutional structure was a month-to-month growth rate error on the order of, say, 5 to 10 percentage points under any reserve aggregate operating target.",171
-fomc-corpus,1981,Plus or minus 5.,6
-fomc-corpus,1981,"That's plus or minus 5 to 10, in terms of a standard error, which means that one-third of the time we would even be outside of that band. Those results applied to the nonborrowed reserves and nonborrowed base measures; they both gave very similar results. As a result of the supply-side problems that Mr. Axilrod discussed earlier, the [errors using] total reserves and total base measures under the current institutional structure were considerably larger than for the nonborrowed measures. So, that's the range of error in hitting your month-to-month money target with the current institutional structure. The actual misses were a bit above that for M-1A and around the upper end of that range for M-1B. Now, those did average out to some extent in the Board's monthly model over quarterly periods, as Mr. Axilrod mentioned--a bit more in fact than the actual experience quarterly. The Board's monthly model appeared to have errors month-to-month that were about random, so they would tend to cancel out partially as the period under consideration lengthened. With the Board model we did look at a change in the institutional structure both in terms of trying to eliminate the supply-side errors that are susceptible to regulatory changes--eliminating lagged reserve accounting, making reserve requirements on demand deposits uniform and universal, toward which of course the Monetary Control Act will move us as it's phased in, as well as removing reserve requirements against savings and time deposits. And there once again I'm summarizing Mr. Axilrod's conclusions, but I'll give you some numerical examples. Total reserves improved considerably; in fact, it became the best operating target if rigidly adhered to over a control period, giving an error on the order of 3 percentage points plus or minus two-thirds of the time. Also, as Mr. Axilrod said, that would imply very significant [interest] rate volatility in response to unexpected shifts in money demand over the control period, which in this case is a month. So, it's not clear you'd want to control money that closely. But it would be feasible even, I might add, with the kinds of errors that we saw over the last 15 months since October 1979. We did try an example with the kind of graduated [discount] rate structure in the Board model that Mr. Axilrod referred to and we did get some improvement--on the order of 2 percentage points--with the nonborrowed reserves and nonborrowed base targets. That gives you a sense of the range of variability under different operating targets and different institutional structures month-to-month. Looking at annual rates, even under the present operating structure, it looked as though for a 3-month or quarterly period the errors by and large fell into a range of 1 to 2 percentage points in both the San Francisco and the Board models. As Mr. Axilrod mentioned, the actual errors were somewhat larger than that because there wasn't as much averaging out of the monthly errors in the actual experience as was the case with the models.",618
-fomc-corpus,1981,"Dr. Burns used to be fond of saying that for a monthly period, four equals eight on the money supply. As nearly as I can understand your results, in the present institutional settings, minus 10 equals plus 10.",46
-fomc-corpus,1981,"Well, Mr. Chairman, if I can translate that, I think he's saying minus 10 is as likely as plus 10 if you aim at zero.",32
-fomc-corpus,1981,"Right, if you're aiming at zero.",8
-fomc-corpus,1981,"May I ask, Steve, is short-run month-to-month precision really important? I believe that even the most ardent advocates of aggregate control will freely admit that short-run precision is almost impossible to achieve. Is this a necessary factor in deciding what we're going to do? Or if we announce and make clear that we are going to concentrate on achievement of our longer-range target, wouldn't this be it?",80
-fomc-corpus,1981,"Well, very clearly, on economic grounds short-run precision isn't very necessary. So far as we can see, it has a disadvantage of much greater interest rate volatility. It's very hard to evaluate the implications of this greater volatility, but there are certain kinds of thin capital structures in the various markets for securities and [greater volatility] does tend to increase risks rather greatly because of that. But if I could translate your question a little, it's clear to me that if you could hit [a target] month-to-month precisely, these interest rate variations would go away over time. That's because as the market responded to them, then of course that would give you greater assurance of hitting it quarterly. That is, if you can hit it month-by-month, you can surely hit it quarterly. Clearly, it's more important to hit it quarterly than month-by-month. I'm trying to say the only importance of having a procedure that gives you better assurance [of hitting the target] month-by-month is that it gives you better assurance [of hitting it] quarterly. I have a feeling--and I'm not sure how we could test this--that you have better assurance of hitting it quarterly even if you don't have a lot of control month-by-month by aiming at it month-by-month; that would get you where you want to go in the quarter even though you can't hit a month-by-month target. I've gone around Robin Hood's barn a little in answering the question, but that's how I would perceive it.",298
-fomc-corpus,1981,"But if one were skeptical of the long-term wisdom of pursuing our present policies of trying to control money and credit through aggregate control, one would not use the staff conclusions that month-to-month precision is difficult to achieve. That would not be a basis for walking away from considering the broader advantages or disadvantages of aggregate control.",63
-fomc-corpus,1981,"Oh, heaven's no! And that certainly was not the staff's conclusion.",16
-fomc-corpus,1981,Yes..,2
-fomc-corpus,1981,"Just to make sure I understand you, the quarterly precision results imply that one goes off one month or two but in the third month one returns to track. If one stays off track and comes back later than the third month, then there are more perceptible effects on the real sector. Is that right?",61
-fomc-corpus,1981,"That's right. That's what I was trying to say. Jerry Enzler's simulation showed that if growth is off 2 percent at an annual rate for two quarters, you'd have an impact of 1/2 percent at an annual rate on nominal GNP.",53
-fomc-corpus,1981,"How do we make that need to get back within the quarter, as it were, consistent with the [great] uncertainty--the very large standard error within a month of plus or minus 10 percent--if we really don't know in the first month where we are?",54
-fomc-corpus,1981,"Well, I think the answer is in part what I was trying to say in response to President Roos' question. To the degree that these are random errors, you keep aiming [at the path]. This month, let's say, you aim at the path and you go way over. Next month you keep aiming at the path and you may go way under, so in some sense you've averaged out. There's no reason to think that the errors are going to be persistent on one side or the other.",101
-fomc-corpus,1981,"Except that they seem to be, in fact.",10
-fomc-corpus,1981,"What we found in the past year was that, in fact, [the actual errors] didn't average out as well as the models averaged out. So it might lead you to think that there was something in the way the procedures were constructed or maneuvered that produced this result or that there was something in the economy that was more special [last] year. Of course, the models were confronted with that also; but that worked out in practice to give you these greater deviations. The simplest way to put it is that your average error in a month is .6, or 7.2 percent at an annual rate if you think of it as an absolute error. But if you think of it quarterly--the world isn't this way--but if you had plus .6 and minus .6 and plus .6 in each month of a quarter, then the absolute error that quarter because you're now averaging quarterly in absolute terms would work down to plus .2. With plus .6, minus .6, and plus .6, you'd be left with plus .2 [for the quarter]. According to the models, the errors aren't distributed in that nice way, so the improvement shouldn't be that spectacular. But [the improvement] ought to be more like .6 to .3 or something instead of .6 to .2. We got an improvement of .63 to .47 or something like that. It wasn't quite as good as some sort of random distribution of the multiplier errors would suggest, and that was the reason to think that there might be something more systematic [happening] or some way to operate the procedures that would get us there better.",330
-fomc-corpus,1981,"Steve, does it make any difference in your analysis whether you aim at a fixed quarterly cleanup, so to speak, or a quarterly moving average?",29
-fomc-corpus,1981,"I don't think so. What we actually did in this test was to take each month's target and see if we were off and just average each intermeeting target for 3 intermeeting periods as a way of viewing the random nature to see if, because of the random nature of the money supply multipliers, that [approach] would capture that. That is, if randomness had [produced] an upside shock in one period, it ought to end up [producing] a downside shock in the next period. We just averaged through that, so it wasn't a direct test of what you're asking. But I would say the answer to [your question] is probably no. One can conceive of a world where you're trying to get on a long-run path and you just keep aiming at that level each month to get you there, trying not to forget the past, and you're aiming at [unintelligible]. If two months from now you're supposed to be ""here"" and in one month you were ""there,"" you'd still try to get ""here"" two months from now.",218
-fomc-corpus,1981,"It may give you the illusion of a little less rigid definition of your intermediate goals, but I agree with you that it probably wouldn't make any real difference over a period of a year.",37
-fomc-corpus,1981,Governor Schultz.,3
-fomc-corpus,1981,"I had a couple of questions, Steve. First, I noticed in the Bank of Canada's report to the United Kingdom that they indicated that they didn't believe fluctuations in the money supply [for periods] of less than six months made very much difference. Is that a judgmental [assessment] on their part or did they do some studies? Or would it really make any difference to us?",77
-fomc-corpus,1981,"Well, I assume they did some studies. I'm not acquainted with their model as far as what results it would give. I assume they have done the same kinds of studies we've done on running over or under path for given periods and determining how much effect on nominal GNP the model gives them. We used to say 6 months here; the lags seem to have gotten a little shorter, so 3 months seems a little safer. But, again, it depends on the magnitude of effect one is willing to tolerate. I ought to add in that respect, Governor Schultz, that none of the models takes account of the expectational reaction to what is going on in the money supply. The expectations are largely derived from past price behavior or past interest rate behavior to the extent [the models are looking at] interest rates or price expectations. And in this modern world I think [expectations are] an additional factor to take into account. That is, if you're running off path for 2 or 3 or 4 months, what will be the reaction in markets to that? You may get more prompt interest rate responses. You may get different kinds of pricing decisions than the models are suggesting.",240
-fomc-corpus,1981,"Well, that leads into my second question, which is essentially on the question of lag time. How good a handle can we get on that question, and does it make any difference at all or could it make any difference? If you look at the question of money supply on one hand and interest rates on the other, do you get a different feel for a lag time? That, of course, goes to my final question about whether interest rates have induced wider cyclical changes. If you make different assumptions about lag time, do you come to different conclusions on that question?",115
-fomc-corpus,1981,"We tried to examine some of the evidence on that and Mr. Enzler, who I don't think is here at the moment, did a considerable amount of work in that area, both theoretically and using the model. You could construct a system where money demand was highly interest inelastic--much higher than it is, presumably--so you would have a lot of interest rate fluctuation when you tried to control that, and where there was no response in the economy in the current period but it occurred with a lag. Cycles in economic activity might begin to develop because you are controlling money. This is quite the opposite of what monetarists would contend. He could develop, with reasonable estimates or unreasonable estimates of interest elasticity, 4- or 5-year cycles. Last year, of course, our cycle was--",165
-fomc-corpus,1981,Four or five years you said?,7
-fomc-corpus,1981,"Yes, with 4- or 5-year regularity. Last year our cycle was 3 or 4 months and that would imply a lot shorter lags than we discovered empirically and that are therefore embodied in our quarterly model. And given the fact that--",54
-fomc-corpus,1981,"Well, that was one of the things we learned: That the lags are shorter.",18
-fomc-corpus,1981,[Unintelligible.],6
-fomc-corpus,1981,"Unfortunately, there was a credit control program last year and there seems to be quite a correspondence between the behavior of consumer spending and the imposition of the credit control program and [subsequently] the reemergence of consumer spending and the phasing out of the credit control program. It's difficult to ignore that evidence. So, we concluded tentatively that the lags haven't gotten so short in relation to money policy and interest rate behavior as to make it likely that we're going to get consistent 3- and 6-month cycles as a result of a policy of trying to control money. I wouldn't say that that's impossible, really; but it just didn't seem consistent with the evidence of last year, given that the credit control program was a very big factor in the year.",156
-fomc-corpus,1981,Does the evidence indicate that the higher interest rates go the shorter the lag time? Do you have any empirical data on that? Or do you get about the same kind of problem: That the credit controls have put you in such a situation that you can't come to any conclusion?,55
-fomc-corpus,1981,"Well, I wish Jerry [Enzler] were here, but I don't think we have evidence that says the lag time is related to the level of interest rates. But, of course, the higher the interest rates, the more there is a current reaction, given a lag, because it's just multiplied; if interest rates go up 20 percent instead of 10 percent, you get more effect given any lag structure right away because the 20 percent is bigger. If you're going to get a 1 percent effect right away out of 10 percent, you'd get 2 percent out of 20 percent. So it's simply that you get more power right away, but it's the same kind of lag structure.",143
-fomc-corpus,1981,"Final question. When you were looking at the discount rate, did you look at the possibility of varying the discount rate with some relation to the capital ratios of the borrowing institutions?",35
-fomc-corpus,1981,"No, we did not.",6
-fomc-corpus,1981,"The reason I asked is that it is clear that interest rate spreads seem to have more effect at this point than interest rate levels. And, obviously, the larger banks tend to be doing the biggest borrowing. And they're the ones that are more concerned with interest rate spreads because they can go out and buy their money more easily. If [borrowing] had some connection with capital ratios, wouldn't it have some interesting effects on [the amount of] borrowing? Is it worth thinking about?",97
-fomc-corpus,1981,"Well, it's certainly worth thinking about. As I say, we didn't consider it. The types of structures we did consider were to try to increase rates as the amount of borrowing went up; and, depending on how you do it, that could have an effect on larger banks relative to smaller banks. The surcharge, of course, affects mainly the larger banks where the capital ratios are low. So, I think in practice, particularly now, much of that is taken into account. But we could certainly consider it. The legality of it would be something I would wonder about also. But it's certainly something to be considered.",124
-fomc-corpus,1981,Governor Partee.,4
-fomc-corpus,1981,"I just wanted to ask a question, a point of clarification, about this business of departures from path. I think we run into semantic difficulties because some people think of the path as a rate of increase in an aggregate and other people think of it as observations of the desired level over time. I think it's awfully important that we all understand how the experiment was done. Now, when Jerry introduced a departure from path--he's here now--that was, say, the correction in the second quarter or the third quarter or whatever his periodicity was, was the correction such that he reduced the growth rate as much below path as it had been above path before? What was done?",137
-fomc-corpus,1981,"It was run two different ways. First, if you were above path in the first quarter--your path level was here and you ended up there--in the second quarter you would go back to path. You'd reduce the growth rate in the second quarter but just enough to get you back to the long-run path level. The second kind of experiment was that if you were above the path in the first quarter, you'd [aim] below path in the second quarter and go back to path in the third quarter and continue on.",106
-fomc-corpus,1981,So that in some sense for a longer period the average amount of money was the same as it otherwise--,21
-fomc-corpus,1981,"That's right. For example, if growth is over [path by] 1 percent on average for 2 quarterly periods and then goes back to path, you obviously have more money in there on average than if you'd been on the path consistently and also more money on average than if you had gone under path before.",63
-fomc-corpus,1981,"In the first case, you'd have a rather lasting effect on the GNP.",16
-fomc-corpus,1981,"That's right. In the second case it tends to offset. Now, the Committee targets are more like the first case because they are measured QIV to QIV, so you have a QIV average level that you get back to. So the way the Committee has set its targets is much more like the case of being over and then going back to the path instead of going under.",77
-fomc-corpus,1981,So there could be some residual GNP effects in what our current path structure is?,17
-fomc-corpus,1981,"Yes, if it works out that way.",9
-fomc-corpus,1981,Mr. Ford.,4
-fomc-corpus,1981,"I also want a clarification of what you did with regard to your discount rate sensitivity studies. A priori one would expect to see the amount of borrowing out of line with your plan the greater the differential between the effective rate at the window and the effective comparable rate in the market. But the amount of borrowing is obviously conditioned by the administration of the window. Did you find as we hit periods of time when the spread widened between the effective rate at the window and market rates--say, for CDs adjusted for reserves--more problems with the borrowing at the window or not?",113
-fomc-corpus,1981,"Well, I was just going to say that in the experiment I referred to we essentially took the monthly model, which has borrowings as a function of the spread of the funds rate over the discount rate and we eliminated--",44
-fomc-corpus,1981,"Which discount rate, with or without the differential?",10
-fomc-corpus,1981,Essentially without the surcharge. Is that what you mean?,12
-fomc-corpus,1981,"Yes. In other words, you did it against the nominal discount rate rather than the one that affects the larger banks.",24
-fomc-corpus,1981,"Yes. What we essentially did was to take account of the effects of the surcharge and other sources of error by surpressing the error in that equation in the model completely. What we had, then, was a perfectly known function of borrowing with respect to the spread of the funds rate over the discount rate. And what that meant was that it really didn't matter whether the funds rate was a little over the discount rate or a lot over the discount rate in that model simulation because we knew exactly how much borrowing would come out of that. And then we just simulated the model accordingly. We really didn't address your specific question in that model run. We addressed another question, which was: How closely could money have been controlled if we had had this graduated discount rate structure that would tend to eliminate the noise in the amount of discount window borrowing as a function of the funds rate/discount rate spread?",178
-fomc-corpus,1981,"In other words, we don't know for sure that we would have had less problems with the borrowing track if, for instance, we had [operated] the window with a penalty rate lover] the funds rate or something like that?",47
-fomc-corpus,1981,"That was one we didn't explicitly look at, although we did look at the case where total reserves were simply held fixed. And, as Mr. Axilrod mentioned, the case where you have the penalty rate--where it is always a penalty or you just close the window to borrowings other than emergency borrowings--you essentially create a total reserves kind of target because nonborrowed and total move together. So, in that sense we did examine that second case as well.",96
-fomc-corpus,1981,I'm not sure I understand the question.,8
-fomc-corpus,1981,"I was going to say that I thought one of the things you were asking, President Ford, was: Did we have more trouble predicting demand for borrowing as the market rates widened above the discount rate? I just checked with Mr. Johnson, who did some regressions and looked at that material, and his response coincides with my memory or lack of memory, which is that I can't recall that we did have any more trouble with wide spreads than we did with relatively narrow spreads. But it may be--",101
-fomc-corpus,1981,"We, of course, had more borrowing.",9
-fomc-corpus,1981,"We had more borrowing; trouble in predicting the borrowing, I don't think we had.",17
-fomc-corpus,1981,The borrowing is not controlled by the spread; the spread is controlled by the borrowing.,17
-fomc-corpus,1981,Or something.,3
-fomc-corpus,1981,"Should we go over it once again? We have lagged reserve accounting in the present institutional setting. Mr. Axilrod and Mr. Sternlight are setting the level of nonborrowed reserves. That decision sets the level of borrowing. The market rate of interest at which that borrowing takes place is determined by the banks, but not the level of the borrowing.",73
-fomc-corpus,1981,We observed that the amount of borrowing we predict is--,11
-fomc-corpus,1981,"You observed that the higher the borrowing, the higher the spread. The causation is the opposite way than you are suggesting.",25
-fomc-corpus,1981,"What would happen when the demand for borrowing is elusive is that in the end the funds rate would turn out to be different than we expected. We force the borrowing on them but then the funds rate might be different from what we expected, if we start from that point of view.",56
-fomc-corpus,1981,"I guess, Paul, I have the bias of someone who has been involved in it on the other side. That is, as I understand my micro-economics, it says that the inducement to a profit-making bank to come to the window is higher the greater the spread. All I'm asking is--",62
-fomc-corpus,1981,"Exactly. When you look at it from the standpoint of an individual bank, that's the way it looks. But how is the total amount of borrowing determined? It's determined by the difference between the reserve requirement and the amount of nonborrowed reserves. And when all the individual banks [in some] form or guise come in to borrow and when they've borrowed enough to meet the total reserve requirement, they stop borrowing. It looks as if it's your individual [bank's] decision, but it is not. It's ours in the aggregate.",106
-fomc-corpus,1981,"Well, that's a static analysis, Paul. I agree with you; it's absolutely true arithmetically. But I think what happens is that you set into process dynamics that in fact [produce] required reserves that can do that.",47
-fomc-corpus,1981,"You do that by the fluctuations in market rates, which are affected by the discount rate. The discount rate will affect the level of market rates but not the spread, and that will set in motion the dynamics.",42
-fomc-corpus,1981,"But my point is that if in period 2 we raise the discount rate in order to try to close the spread, we can get a higher funds rate pretty [quickly]. A higher funds rate will bring about--",44
-fomc-corpus,1981,"And that would bring the money supply down, so it brings down the--",15
-fomc-corpus,1981,"And then you'll have a narrowing in the spread, you see, in subsequent periods.",17
-fomc-corpus,1981,"But it's the banks individually, of course, that decide how much excess reserves they want to keep.",20
-fomc-corpus,1981,If that varies.,4
-fomc-corpus,1981,"Mr. Chairman, maybe I should try to be clearer. Where the demand for borrowing--the lack of knowledge of it--gets us in trouble is this: We believe, as the Chairman said, that it's the rise or decline of interest rates that sets in motion forces that get you back on your money supply path. And the theory of all this was that as required reserves strengthened, borrowing would have to go up because Mr. Sternlight isn't going to provide those additional reserves; and with the rise in borrowing, the funds rate and [other] interest rates would have to go up, setting in motion these forces. And what throws us off sometimes is that on occasion the borrowing will go up but interest rates won't. On occasion there's not that kind of consistency and we get delayed; and then what further throws us off is that the borrowing might go up and the interest rates might go up but not enough and we really ought to be lowering the nonborrowed path and forcing more current rate fluctuation. That's what we tend to mean when we say the demand for borrowing is a problem. Sometimes banks are more willing to borrow than at other times and we don't get the kind of rate response we think would develop in [these circumstances].",247
-fomc-corpus,1981,"The bottom line of what I'm trying to get at is this: On the basis of your research, if we did two things that have already been discussed--one is to get to contemporaneous reserve accounting and second is to make the window more directly related to market rates--rather than the lags that we now have, would the procedure otherwise be improved overall or not? Do we gain nothing by doing that?",82
-fomc-corpus,1981,"The evidence that Dave Lindsey has developed would say that contemporaneous reserve accounting would clearly improve the multiplier between total reserves and money in the short run. I think that would clearly happen. It would mean that in the very short run, like a week, we wouldn't be able to predict required reserves very well, so the funds rate might vary a bit more for any given nonborrowed target. So, it would have that ""cost,"" if that's a cost. But, on your other question, I was unable to convince myself--maybe others have convinced themselves and if they have, then they should speak up--that tying the discount rate [to market rates] would make [the relationship] between reserves and money a lot more predictable. Even if we had a penalty rate, if money got created this week like mad--and it might--then because Mr. Sternlight is holding back on nonborrowed reserves, market rates would jump well above the penalty rate. So we'd get a sharp rise in market rates and then of course we'd have to reset the penalty rate above that; and unless the money supply responded very promptly that week, we'd get another ratcheting up of rates and that sharp rise in rates might cause the money supply to drop rather substantially. And we'd end up chasing our tail a bit, particularly if [money] were to drop substantially [and] randomly in any event. So, I can't believe that tying the discount rate [to market rates] would give us more predictable borrowing; but it would, I think, more predictably and probably more certainly, force rates up faster or force them down faster. And [some may] consider it [desirable] to have that advantage; but that's about the only advantage I could come up with.",354
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Steve, or Dave, or whoever, on this business about random monthly or weekly movements of money: Is there anything in your work that sheds light on the question of how you know when it stops being random? My casual observation here--I hear your pluses and minuses--is that it always seems that once the thing starts to go, it cumulates [in one direction]. It isn't a plus and minus relationship.",85
-fomc-corpus,1981,"All we could come up with is that as the time lengthens, it gets less and less random. We, too, have observed that the revisions seem to be consistently up or consistently down over intervals of a month or so. And we have not yet shaken the resources loose to finish the project of examining the sources of those revisions to see if there is any bias evolving as we get into a period when the revisions are moving up or moving down. But I don't think that relates particularly to the material that Dave Pierce worked on because, after all was said and done, it still looked as if there was a substantial amount of noise, so to speak, which included anticipating next year's seasonals in the weekly series less than the monthly, less than the quarterly, etc.",154
-fomc-corpus,1981,"So, there's nothing here that really bears on how we know whether we should consider something random or not in the short run?",25
-fomc-corpus,1981,"No. If it's plus or minus $3.3 billion, two-thirds of the time it's noise in a weekly series and we show a zero; we don't know whether that zero has a +$3.3 billion of noise in it offset by a -$3.3 billion of trend.",60
-fomc-corpus,1981,"It is true that over time that $3.3 billion falls. For a month, for example, the random noise in the change is $2.0 billion. So, as time progresses, the range of uncertainty about whether it's random or not narrows.",53
-fomc-corpus,1981,The $3.3 billion was weekly?,9
-fomc-corpus,1981,That was weekly; and the $2.0 billion was for a monthly change.,17
-fomc-corpus,1981,"Steve, are the X-11 program and other seasonal programs still showing about a 3-month span of time in which to suppress these random movements so that trend shows through? That was my recollection, but I haven't looked at that in a long time. Mr. AXILROD. They keep perfecting those programs, President Balles, and I'm not sure what that is.",78
-fomc-corpus,1981,"Well, my impression is similar to Jerry's, because we did have these long strings of upward revisions and then long strings of downward revisions. I thought you implied, Steve, that the fact that we get a long string of upward revisions or downward revisions comes from external factors. Is it possible that these errors in the money supply are leading indicators of economic activity? In other words, if they are all going up, we may be seeing a sharper rise, say, in the goods sector than we had anticipated--or [conversely], a sharper fall. Is that possible?",116
-fomc-corpus,1981,"Well, that was one feeling we had when we were living through it, in periods such as April and then in the summer. We had that feeling [in April] when the economy was weaker than expected and the revisions in the money supply between the preliminary and the first published [number and] between the first published and the second published [number] were showing a weakening in the money supply. And we had that feeling in the summer when the economy was turning out stronger than expected that those revisions were [all] going the same way. That sounds as if there's a ghost operating two machines--the economy and the money supply. There's not much reason, if the data we get are coming through in some sort of ""unbiased"" way, for those things to happen that way. I don't have any response other than to say that we are trying to see if that was really true and what the sources were. The only thing we could think of offhand was that some of the original data, particularly the preliminary data that we don't publish, have a good deal of estimating in them. And if we are in a period when the money supply is dropping sharply, the estimators --either at the Reserve Banks or the [commercial] banks--put in last week's figure, but they should have been lowering last week's figure; so, we get that more systematic kind of bias. I don't have the evidence yet to say whether that was indeed what was happening. [We don't know] whether we have a coincidence or whether our instincts of what was happening were not right.",314
-fomc-corpus,1981,"I have a second question. The studies distinctly show that fluctuations in the short-term rate got transmitted much more thoroughly to the other rates in the [financial] system, long rates as well as short rates. Did we find any evidence that the increased fluctuations of the longer rates were interfering with or changing investment patterns?",62
-fomc-corpus,1981,"Well, I think the answer to that is probably ""no,"" because of the length of lags in our big model between long-term rates and investment plans. We didn't see evidence in 1980--this is what I am remembering from the paper that Ed McKelvy and Larry Slifman did--that there was much of a response in investments to the kind of interest rate fluctuations we were getting. Moreover, we couldn't find evidence that long-term rates were made higher in some sense than they otherwise would have been because of the uncertainties created by the operating procedure. That is, we couldn't find much evidence that a liquidity premium was developing which would have lowered short rates from what they otherwise would have been and raised long rates from what they otherwise would have been. The latter, of course, would be a damper on investment but with some lag. So, in general, we were not really able to investigate, except through models or judgmentally looking at the economy, the possibility of some impact of greater week-to-week fluctuations in interest rates, short and long, on business planning. That's an area we just--",224
-fomc-corpus,1981,"You are dealing with a model that was built on much lower variability in long-term rates, so that sort of constrained your conclusions.",26
-fomc-corpus,1981,"Exactly. One could not say that there was no impact of this kind of interest rate variability on business planning. It was rather difficult for us to detect it or to find out how to measure it, really.",42
-fomc-corpus,1981,Governor Rice.,3
-fomc-corpus,1981,"During the period of the study, it appeared that the broader the monetary aggregate targeted, the less variability from these targets. I think that's true. Was there anything in the study that would suggest that that would always be true--that there would be less variability in, say, M2 than in M-1A or M-1B?",69
-fomc-corpus,1981,"My memory, looking at it another way, is that the monthly multiplier errors, at least in the models, were bigger on M2 than they were on M-1B but that our judgmental miss--judgmental meaning how we actually ran things--was less on M2 percentage-wise than on M-1B in terms of the growth rates. I'm not sure whether I have answered your question exactly.",83
-fomc-corpus,1981,"Well, I think that M2 deviated less from its target range than did M-1A and M-1B from their target ranges.",30
-fomc-corpus,1981,"Yes, exactly. That's right.",7
-fomc-corpus,1981,That was the question I was raising--whether there was anything in the studies that suggested that would go on in the future.,25
-fomc-corpus,1981,"No, only if the past is any guide to the future. And on that I would say that in the future M2 gradually will have less and less assets in it that are subject to reserve requirements because [such requirements] are being phased out at member banks. Savings and small time deposits at member banks will no longer be subject to reserve requirements and certainly are not now at thrift institutions and nonmember banks. So, whether that will pertain in the future or not, I'm really not certain. Nor do I know if it would pertain if we really aimed at M2. We were aiming at M-1B here or at M-1A; we weren't really aiming at M2.",141
-fomc-corpus,1981,"Isn't it true that there are certain countercyclical elements in the broader aggregates because of their composition? That is, if the economy begins to slow down, isn't there a tendency for people to put more money into some of the assets that are in the broader aggregates rather than in the narrow aggregates? Is there not a countercyclical movement in the broader aggregates? So, would it not basically be true that what Governor Rice has said is accurate because of the composition of the broader aggregates?",100
-fomc-corpus,1981,"I thought Governor Rice was raising the question [of what would happen if] we were aiming at the target, which is different from what would happen to these [aggregates] over the cycle. It's quite possible, though I just don't remember. We didn't look at that in detail. But M2 might have a little less volatility over the cycle than M1; one would think that would be the case because it has higher interest elasticity of demand and M1 is much more sensitive to income.",99
-fomc-corpus,1981,[Unintelligible] savings accounts.,9
-fomc-corpus,1981,"Yes, I think John Paulus just did something on that [suggesting] that the narrower aggregates were better to look at than the broader ones because of this countercyclical effect of the broader aggregates.",41
-fomc-corpus,1981,"Yes, but he ignored the fact that the statistical relationship between the broader aggregates and nominal GNP is much closer than the relationship between the narrower aggregates [and GNP]. It seems to me--",39
-fomc-corpus,1981,That depends on whose model and what time period.,10
-fomc-corpus,1981,"I don't think that's true. If you were to take, say, the pre-1970 data and estimate GNP in the past 10 years, there is no question that the broader the aggregate, the better estimate you would have made, no matter what kind of model you were using.",59
-fomc-corpus,1981,"Well, I don't want to quarrel with your conclusion in particular. What I have been exposed to shows--and my memory may be wrong--that you can come to virtually any conclusion you want, with virtually any aggregate, in large part depending on how you do it, but probably based on the premise that everything tends to go up and down with GNP. There are big differences; the broader the aggregate, the more it tends to go up and down with GNP. Sometimes you can even find that total credit goes very well with GNP but there is a cause and effect problem there. The world turns out very differently depending on what determinants you control. In this study it was shown that the monetary base goes very well with money. That happened to be because we were controlling the federal funds rate. They went up and down together. If we turned the world upside down and tried to control the monetary base, it didn't look to us from that experiment that it went very well with money because one would be in a different kind of world. So, without trying to contradict you directly, I'd view all that with considerable caution.",227
-fomc-corpus,1981,Mr. Boehne.,6
-fomc-corpus,1981,"Well, I have a second question.",8
-fomc-corpus,1981,Mr. Rice.,4
-fomc-corpus,1981,"Was there anything in the study that would suggest what the most appropriate [width of the] target ranges would be? Would the most appropriate range be, say, 2 or 2-1/2 or 3 percentage points?",47
-fomc-corpus,1981,"No, there was not.",6
-fomc-corpus,1981,"I'd like to switch away from the financial side to the real sector side. I was somewhat surprised that you didn't lend much credence to the view that these fluctuating interest rates had some kind of destabilizing feedback effect on the real sector, especially since interest rates other than the federal funds rate did seem to go up with the same amount of volatility. That's rather a casual analysis, [based] especially on talking to people in construction and to some extent in autos and some other durable goods [industries] where inventory was important. I had a very definite impression that these fluctuating interest rates did have an impact on economic activity in their areas. I was wondering if your analysis was largely econometric or if you attempted to gather any information from the people who are actually in these industries.",157
-fomc-corpus,1981,"Well, we had a very difficult time, as you might guess, trying to distinguish between interest rate fluctuations that were a result of our procedures week-to-week or month-to-month and interest rate fluctuations that reflected what was going on in the economy, given the System's money supply targets. As we went into the year, most people would have expected that if interest rates rose, we would have had a sharp drop. For a while we fiddled with the idea of developing what economists, taking the words of philosophers, have begun to call counter-factual worlds, and pretending that we knew what the Committee would have done if they were on the old procedures. After two or three what I thought were abortive attempts at that, I thought the safest thing--in fact I might say the only intelligent thing to do--was not to do that, because who knows what the Committee really would have done in this very unique period. So, we didn't try to construct the world based on the funds rate moving only a quarter of a point or a half point. We in no way meant to say that housing wasn't affected by the rise in rates that occurred or wasn't aided by the decline in rates that occurred. But it looked as if the decline in rates that occurred in the second quarter was not out of keeping with the weakness in the economy in that quarter, so that we normally would have gotten that [decline] no matter what procedure the Committee was [following]. The question was how fast. However, we could not ignore the fact that there was a credit control program that went off in that period. It looked as if the sharp drop in GNP was also caused by the credit control program [and that to an] extent the rebound in the third quarter was affected by the phasing out of the program. So we were driven to a rather weak conclusion that the procedures themselves may have hastened the rise in interest rates and hastened the decline in rates and, therefore, induced the drop a little earlier and moderated the decline. That was our weak conclusion because we really expected that under any control procedure, given those money targets, we would have had that cycle developing. Maybe that isn't stated as clearly as it might be, but that's the basis for saying that the procedures as such might have had what looked like other minor effects. We didn't think that monetary policy did.",474
-fomc-corpus,1981,Thank you.,3
-fomc-corpus,1981,Mr. Black.,4
-fomc-corpus,1981,"Steve, you made the point a while ago that under the existing institutional set-up the main thing--or maybe even the only thing--that brings the money supply back to target, if it deviates, is a change in interest rates. If I understand the way you view this, my guess is that you would think about that mainly as the effect of interest rates on the level of money demanded. Do you also think that the changes in the level of interest rates have any significant effect on the supply function of money by affecting banks and other financial institutions' attitudes with regard to how much money they create?",121
-fomc-corpus,1981,"Oh, sure. It can get you into all sorts of multiplier problems because of the mix of deposits, if there is any response of bank excess reserves--we don't think there is much--and also questions about the demand for borrowing if you are on a nonborrowed target. So, I do think that interest rates react both to the demand for money and the supply of money functions. The inability of our monthly money market model, for example, to examine and to allow for variations in the supply function are what throws it very far off. Its ability to predict interest rates that might emerge from money demand/money supply interactions is, on the other hand, what gave it a little better track record than we had judgmentally last year. Judgmentally last year, in some sense, we didn't have it right; we weren't able to say interest rates would go up fast enough or down fast enough. Therefore, in determining the path, we were unable to set borrowings high enough or low enough to begin with and, if we began to get off, we didn't make adjustments fast enough. But I do believe it would have an effect on the supply function.",232
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"First of all, Mr. Chairman, I would like to say that this whole study was quite impressive--it produced some very useful results--especially given the time constraints that the staff had to wrestle with, not to mention all the exogenous shocks [to] the economy as the year went on that they had to try to sort out. My question at this point, Steve, is with respect to what I consider one of two parts of your summary memo. You point out various options that the Committee might adopt if it wanted closer control over money. You mentioned adjusting the nonborrowed reserve path more quickly, using the discount rate more actively, and this rather extreme proposal with respect to the discount window--either to close it down altogether or open it altogether. The latter option is pretty far out, so I'd like to concentrate on the first two. I'd ask you in your judgment which one would be the more promising, since you have been so much involved in having to construct these paths. That is, do you think it would be more feasible to adjust the nonborrowed reserve path more quickly and by greater amounts, or would you recommend that we do what we thought we were going to do in October of '79, which is to adjust the discount rate more actively?",256
-fomc-corpus,1981,"Well, as a matter of tactics, I would be more inclined to start with adjusting the nonborrowed path because you can undo that more easily if it turns out, as it may, that you've made a wrong adjustment and want to undo it. When you are really rather more certain that you want to force interest rates up or down faster than they are going, then it strikes me, again, as a matter of tactics that it's ""better"" in some sense to use the discount rate because it is a more forthright, clear announcement to the market. But in periods when you are a little more uncertain, which will probably be a large proportion of the periods, then it seems to me that adjusting the nonborrowed path, pretending you are more on total reserves, is a reasonable approach for putting pressure on market rates that you may want to undo later if it turned out to have been a wrong thing to do.",186
-fomc-corpus,1981,"Well, if I could pursue it just one more step: As you reflect on our experience since October '79, if one had the opportunity to do things all over again, so to speak, and do them differently, would you recommend with this benefit of hindsight that we might have used the discount rate more actively? Or are you relatively satisfied with how things came out?",74
-fomc-corpus,1981,"Well, that's a difficult question--",7
-fomc-corpus,1981,I know.,3
-fomc-corpus,1981,"--to respond to, President Balles, because with hindsight I might not have adopted the paths the Committee adopted.",23
-fomc-corpus,1981,"Okay, I withdraw the question.",7
-fomc-corpus,1981,Mr. Morris.,4
-fomc-corpus,1981,"Well, the principal tool the Manager has to deal with an overshoot or an undershoot of total reserves is his ability to adjust the nonborrowed path. Last summer and early fall when I raised questions on this issue, you apparently had found a rule of thumb that you would adjust the nonborrowed path by half of the deviation of total reserves from the path on the grounds, I assume, that it was not clear whether this [deviation] was evidence that the economy was stronger or whether we had an increase in demand for money. So, you split the difference. Has the study developed some guidelines that would lead you to change that behavior in the future, or do you still think that splitting the difference is about the best we can do?",151
-fomc-corpus,1981,"Well, we've always known from work we had done before with the model, and this is specifically in this study, that if you put yourself in a contemporaneous reserve accounting world--if you had forgotten, it's almost impossible with lagged reserve accounting--if you were really aiming for total reserves and total reserves were running, say, $200 million stronger [than desired], it's not sufficient to lower nonborrowed reserves by $200 million because borrowing would go up. You'd have to lower nonborrowed reserves by $400 or $500 or $600 million so that the increase in borrowing is less; so if borrowing then goes up $400 million, you've got your $200 million effect on total reserves. You have to do a lot more in some technical sense than you were suggesting that we were doing at times last year. All our study suggested to me was that if we want more short-run control, we ought to do more of whatever we were doing last year. Now, that doesn't say how much more. Other evidence would suggest one heck of a lot more to hit that total reserve target. Of course, our other evidence was that you shouldn't bother hitting that total reserve target because it's going to give you more disturbing interest rate variations than are worth whatever good you do for the economy.",259
-fomc-corpus,1981,"But reacting more quickly in adjusting the reserve path does not eliminate the desirability, possibly, that while you are doing that you may at the same time want to have the discount rate move more closely [with the market] or more frequently. They are not mutually exclusive, are they?",57
-fomc-corpus,1981,"Oh, no.",4
-fomc-corpus,1981,They're reinforcing.,3
-fomc-corpus,1981,That's right; they are reinforcing.,7
-fomc-corpus,1981,"So, we could think of [using] both.",11
-fomc-corpus,1981,"But that might give you more of an impact than you want. Both of those could work in the direction of more rate volatility, and that is something to be weighed along with that.",37
-fomc-corpus,1981,That's what you give up--control over rate volatility.,11
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"Mr. Chairman, I would like to join John in complimenting the staff for what I thought were the right procedures of really looking at what we have done and trying to learn some lessons from it. One of the technical developments last fall, particularly, was the development of excess reserves. Did we really ever focus on what happened on that to throw us off in terms of--",75
-fomc-corpus,1981,"Well, it is widespread throughout the member banking system. Very little of it, of course--the way we counted it, it couldn't be very much--is for nonmember banks. It seems to have developed in the first week of November just before they actually had to hold reserves under the new procedures; and it has been sustained and actually was rising on a monthly average basis through January. So, in terms of correlations, it relates to the new Monetary Control Act. Why it just didn't disappear after four or five weeks, we don't have an answer for because we can't locate it at any particular set of banks; it is pretty generally dispersed.",129
-fomc-corpus,1981,I suspect that the Federal Reserve Bank Presidents may be in a better position to answer that question than Mr. Axilrod.,25
-fomc-corpus,1981,"Well, I tried with our banks, and some of them that suddenly have acquired branches or tried to consolidate their holding company operations really got fouled up in their calculations. But we didn't find a heck of a lot in our District; I've tried that. And many of them who denied that they held any excess reserves, when they really got into their figures found that they had them. So, sometimes it's a matter of their not knowing what they're saying.",91
-fomc-corpus,1981,I really think it's the switchover to the new accounting that is somehow screwing up their own internal bookkeeping procedures.,25
-fomc-corpus,1981,I think that probably is a lot of it.,10
-fomc-corpus,1981,And that will wear down over time.,8
-fomc-corpus,1981,"Yes, but it should have worn down by now.",11
-fomc-corpus,1981,"Well, we haven't been on it that long.",10
-fomc-corpus,1981,"Some of our banks are getting into the electronic funds disbursements--the Max or George or whatever--and find that they have to have a lot more cash to handle that, so they end up with excess reserves. They are still trying to adjust their inventories of cash and figure out how much they really need; that's a factor in our area.",71
-fomc-corpus,1981,"Yes, but they know that when they go into the reserve period because that's lagged.",18
-fomc-corpus,1981,They know that except that they have people dealing with new reduced reserve requirements and a new regime. There are also different cash needs out there in their branching systems because of [these ATMs]. I think the uncertainty just makes them more cautious; that's what we find.,53
-fomc-corpus,1981,"Well, rate volatility could be involved, too.",10
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"Paul, could I ask one more question? If we looked at our cyclical experience in the past where the fluctuations were wider than we would have liked, do you think we could have used various types of smoothing techniques, such as subsidiary targets--whether you used credit or nonborrowed reserves or any of those things? Of course, our experience is very short lived. But you do get some smoothing effect from that. On the other hand, that's a [unintelligible], and other problems could arise.",103
-fomc-corpus,1981,"Well, I'm not sure exactly what you mean by smoothing techniques, President Winn.",16
-fomc-corpus,1981,"To try to eliminate the fluctuations. In addition to using the procedures we had, if we had had a subsidiary target with respect to nonborrowed reserves or credit or any of those things to modify considerably your intervention points--",44
-fomc-corpus,1981,"Well, after the fact, we did try to see what would have happened to GNP if we held the money supply path constant--that is, if one wanted to eliminate the M1 fluctuation. In that work we did that partly through the quarterly model. But an implication of the work Mr. Tinsley did on the monthly money market models was that we would have had a lot more federal funds rate fluctuation. So, we concluded that there was no way, given what was going on in the economy, that we could have smoothed the money supply without desmoothing--if that's a word--the federal funds rate. If you wanted to smooth the federal funds rate, it wasn't absolutely clear that on average you would have gotten more [money] supply fluctuations. There was probably a little more, but that didn't show up as strikingly.",172
-fomc-corpus,1981,You get different intervention points.,6
-fomc-corpus,1981,"Well, yes. If you wanted to smooth the funds rate, you would have had rather different intervention points. You would have had a different funds rate limit.",32
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"First, Mr. Chairman, I'd like to add my compliments to those of Presidents Balles and Winn on the quality of this staff study. I think it is excellent--perhaps the best that I have seen in 25 years of association with the Federal Reserve.",52
-fomc-corpus,1981,My goodness! Better than under previous research directors?,10
-fomc-corpus,1981,A very good study indeed.,6
-fomc-corpus,1981,"Well, I don't know!",6
-fomc-corpus,1981,Better than the preceding housing study?,7
-fomc-corpus,1981,That was a good study; nobody ever did anything with it.,13
-fomc-corpus,1981,"I have two questions. First, back in the days when policy was run with the federal funds target, staff studies here at the Board indicated that if we switched from a fed funds target to a reserves target, there wasn't really any reason for thinking that we would improve our precision of monetary control. There wasn't anything in the law of economics on how financial markets operate and how financial institutions operate that would improve the precision of monetary control by going to a reserve target. And I take it from this staff study that that conclusion still holds.",106
-fomc-corpus,1981,"In the work that Dave did, using the models, we got about as good a result with the funds target as we did with the nonborrowed reserves target in terms of short-run precision. However, if you assume structural changes in reserve requirements that would eliminate multiplier problems, I think we would get better results either with [nonborrowed or] total reserves on the Board's monthly model than we do with the funds rate just because of the elimination of that multiplier problem. But, in general, we get roughly the same result with the funds rate as with nonborrowed reserves.",117
-fomc-corpus,1981,"Second, I recognize that it certainly would have been difficult, perhaps even impossible, to ascertain whether or not these short-run fluctuations--week-to-week and month-to-month--in long-term rates such as mortgage rates and so on affected adversely the volume of investment. That empirically would have been hard to pin down. But there isn't any real doubt as to the direction of influence, I would think. Wouldn't you expect that to increase the cost of doing business? It would increase the riskiness of investment and, therefore, would tend to have a negative effect.",113
-fomc-corpus,1981,"Well, we certainly would have agreed with that if we could have found convincing evidence that long rates were on average higher because of fluctuations induced in short rates--that is, if the yield curve involved a wider spread of long rates relative to short rates. Of course, the yield curve was downward sloping much of the time, so in that sense the spread was narrower, and we couldn't really find much evidence of that. So, that led us to think that the procedure itself is not a factor making long rates higher than they would otherwise be. There were the fluctuations, and we can't answer the question on that. Monetary policy, of course, in the sense that the money targets did give that constraint [unintelligible], and that isn't exactly what we were investigating. I would agree, of course, that the money target was relatively low, so that did give us higher short and long rates and the constraints from that. But my memory is that we didn't find evidence that the fluctuations endemic to the procedures were making for higher long rates relative to short rates.",213
-fomc-corpus,1981,"That's not my point. My point is that at a given level of long-term interest rates, rates are fluctuating more; so an investor cannot know what his cost will be at the time he's going to finance, and that will tend to have an adverse affect. I don't know how big, but it can't be helpful.",65
-fomc-corpus,1981,"We did not find a way, really, of investigating that. I don't think there's evidence for or against that proposition. I would say the evidence does suggest that transactions costs have gone up. So, in some sense, if you go to that point, a new issue is slightly more expensive even though the whole yield curve may not show it. We did find that bid/ask spreads were higher; I don't know who is bearing that [cost] ultimately, whether it's the borrower or the lender. But there was evidence that transactions costs went up.",110
-fomc-corpus,1981,"If I could add a little to that: I don't think I could provide any evidence about what happened to the volume of investment, but there were truly adaptations in the market because of the fluctuations in rates in terms of more variable-rate contracts or floating-rate contracts. Also, there was some tendency by corporations, municipalities, and so on to have shorter-term borrowings.",73
-fomc-corpus,1981,"We had a lot more hedging, too, didn't we, Peter? Didn't we see an increase in the participation in the futures markets by dealers over the last year and a half?",37
-fomc-corpus,1981,Very much so. How much of that was because of the greater rate volatility or how much was a trend in those futures markets because they were just recently developing would be very hard to untangle.,39
-fomc-corpus,1981,"Well, in the housing market there would seem to be evidence--again it was a continuation of a past trend--of [lenders] trying to put all the risk on the borrower, which tends in effect to raise rates. When rates go down, they don't want to incur the bigger cost of getting out of that higher rate commitment, so they try to [lend] at the higher rate, and that sort of thing. But whether that had to do with our procedure or was just a response to the cyclical volatility of rates and the greater rate of inflation expected and the fears that that induced is somewhat open to question.",126
-fomc-corpus,1981,I think the rate swings--it was such a big [interest rate] cycle--must have had quite an influence on behavior in real markets.,29
-fomc-corpus,1981,"Continuing on this question just a bit more: In the Bluebook I noticed that you assumed that if short-term rates were at current levels a year from now, the mortgage rate would be higher. Why is that? That was the one thing in that family of interest rates that seemed rather interesting to me. All the other rates you assumed would be at about the same level but the mortgage rate was higher.",82
-fomc-corpus,1981,It's a bit higher; we assumed essentially that the demand for mortgages is still pretty strong given the structure of the--,23
-fomc-corpus,1981,I see. You just repressed demand during the period and it's going to get stronger and stronger. Okay.,22
-fomc-corpus,1981,"You have a very short comment, Mr. Black?",11
-fomc-corpus,1981,"Mr. Chairman, I was just going to say that the people with whom I have talked would bear out what Governor Gramley suspects: That these fluctuating rates made it very difficult for them to plan. But I think the key issue, if we are successful in this experiment we began back on October 6, 1979, is whether over the longer run we really would have more fluctuation in long-term rates. My feeling is very definitely that we would have less. But I do think unquestionably that [the greater fluctuation] has affected business planning. Those are my comments.",118
-fomc-corpus,1981,"You have a short comment, Mr. Balles?",11
-fomc-corpus,1981,Two minutes.,3
-fomc-corpus,1981,90 seconds.,3
-fomc-corpus,1981,Maybe I'd better keep it for after coffee.,9
-fomc-corpus,1981,We are not going to have any coffee.,9
-fomc-corpus,1981,I'll try to do it in 90 seconds. It seems to be a tough day here! Some of you have coffee.,25
-fomc-corpus,1981,"All animals are equal, but pigs are more equal than others!",13
-fomc-corpus,1981,Some people plan ahead.,5
-fomc-corpus,1981,What we intend to do is break for lunch at about one o'clock and there will be some food here for the Committee members and the staff.,29
-fomc-corpus,1981,"In Steve's summary of the key findings of this study, one of the points he made was that should the Committee desire closer monetary control than we had, let's say, in 1980, one of the prices that will have to be paid for that is greater interest rate volatility. We've been doing some work, which if it continues to hold up under the test of actual experience, would offer a more hopeful outcome. Dave Lindsey referred to the San Francisco money market model; during the lunch break I'll distribute a short 4-page memo that summarizes some of its key findings. I'll just give a thumbnail sketch of it here. Our model in effect provides some evidence that we would not get as much interest rate volatility as conventional money demand models would indicate if we were to aim at closer monetary control. The reason, of course, is that the conventional models all have money demand as being quite interest inelastic and demand for bank reserves the same way. Hence, we have to move interest rates over a wide [range] in order to get some results. What we have done is to plug in the behavior of banks into this model, and bank demand for reserves is based on their own profit-maximizing actions. In seeking to finance their loans in the least costly way they will adjust offering rates on managed liabilities; in their dealings with the public in doing this, transaction deposits are affected. The bottom line is that we find that the demand for money and also the demand for bank reserves is more interest elastic than the conventional models would show.",307
-fomc-corpus,1981,Inelastic did you say?,6
-fomc-corpus,1981,More interest elastic.,4
-fomc-corpus,1981,"Elastic, yes.",4
-fomc-corpus,1981,"The proof of the pudding, of course, is in the eating. And it did happen that in 1980 this money market model incorporating the behavior of banks gave a much better fit in predicting both M-1A and M-1B. The word of warning, of course, is one already given by Steve earlier: That models work in some years and don't work in others. So, it remains to be seen whether the favorable results we got in 1980 will hold up in 1981 and beyond. Secondly, our findings indicate that this special credit control program of 1980 and all the stern talk of Vice Chairman Schultz that went along with it--and maybe because of that stern talk--did have quite an impact on the behavior of bank loans. And, in turn, that goes a long way in explaining these volatile movements of the aggregates. Well, I think the two most important implications of our staff study are: (1) that closer monetary control, if we are right, would lead to noticeably less interest rate volatility than implied by conventional models; and (2) that many deviations of the monetary aggregates from target, which are usually attributed to a shift in the money demand function instead can be caused by money supply shocks induced by such factors as volatility in bank loans. The first conclusion suggests that we shouldn't let concerns about unacceptably large interest rate variability prevent us from responding perhaps more aggressively than we did in 1980 to deviations of the aggregates from target. And the second point suggests that we should be less willing to accommodate such deviations because they often reflect money supply shocks and not always money demand shifts. But, as I say, we'll distribute this at lunch time so you can read it and study it. I hope you will find it worth taking a look at.",361
-fomc-corpus,1981,"I think we ought to turn to the policy issues. There are a lot of issues that can't be covered in a study of this sort. Mr. Gramley points out that we get just as good control, according to all these studies, by manipulating the federal funds rate. The operative question may be whether we are willing to manipulate the federal funds rate in that way. I think the main reason we went to another technique is that we probably are not. The other point I would observe is the one that Mr. Balles was just talking about. I don't know about his model, but there seems to be a lot of evidence that there's a pretty good tradeoff here between interest rates and stability in the money supply. Now, Governor Wallich has often made the point that 999 out of 1,000 people--or maybe 999,000 out of a million--are looking at interest rates and not deviations in the money supply when they are concerned about stability or instability. How we approach that problem is an interesting one. Let me just ask a question to see whether we can dispose of some questions or not: Should we have a debate about going to a different control technique? I don't know how to go to total reserves or even the monetary base under the current institutional setting. But we could do it nominally, anyway. I say I don't know how we can do it in the current institutional setting because we don't control discount window borrowing under any of these proposals in the short run. That is a question to which I will return. But, can the discussion proceed on the basis of working within the framework of an immediate nonborrowed reserve technique with an eye on total reserves, leaving the question of emphasis open? Or do we [want to discuss] going back to federal funds or take another step toward some other kind of aggregate? Is there anybody who wants to argue the case for any of these extremes?",385
-fomc-corpus,1981,"I'd like to argue the case for going back to the federal funds target, not because I think the Committee is likely to agree with me or go in that direction but because I think the value of using that technique needs to be kept in mind when we ask ourselves what we are doing with the present technique or how we are going to improve it. First, we have to recognize that the way we communicate our [policy actions] to economic activity today is through movements of interest rates. Interest rates are the cutting edge of policy. We have eliminated almost completely the changes in credit availability that were so important in years past. And I think one could argue that it's unconscionable for the central bank not to be concerned about the cost of credit, the cost of money, when that is what is communicating its effects to the real economy. Second, I would argue that increasingly over time in recent years we have found that instability of money demand has become a very, very large problem in an operating technique of this kind. I'm not at all sure that that is going to go away. It may well be a characteristic that's endemic in a system in which there is so much inflation that interest rates get to a point where people are moving assets from one area of the financial markets to another and where financial institutions are innovating to make this possible. We may find that five years from now we have problems every bit as large as we face prospectively in 1981 in trying to interpret what is happening to the narrow money measures. Third, as I mentioned, I think under present institutional arrangements we can operate to control the growth of money quite as precisely with the federal funds target procedure as we can with reserve targets. Finally, I think it is important that this technique we adopted does indeed communicate a lot more of the variability in interest rates in the short-term end to the long-term end. And, although we can't measure it, it does have some adverse effects on investment proceedings. Even if people could hedge this interest rate risk, they are going to pay to engage in this hedging transaction. Mr. Chairman, I think you are right--and this is what we need to keep in mind--that there really is only one reason why we should have abandoned the federal funds target procedure to go to the reserve target. And that is because if we operate on federal funds, we explicitly take responsibility for what is happening to interest rates and then this becomes a very, very difficult world to live in. But we need to keep that in mind. If that's the reason we are on this new strategy and no other, then we can go about conditioning how we apply the new strategy in ways to take advantage of the economic aspects of operating on a federal funds target.",550
-fomc-corpus,1981,"Let me restate perhaps somewhat differently a couple of points you made. As to your first point regarding our concern about interest rates, I didn't mean to eliminate that in saying we would eliminate the question for consideration. We can do that with either technique. I think you mean that you are interested in the broad movements of interest rates when you make that point, and that remains a relevant consideration whatever technique we use. And it bears upon how hard we press on nonborrowed reserves at a given time. The money demand shift is a valid technical point. If that indeed is a big problem, the [unintelligible] point has been made. I do think the last point you made is a point of some concern. There may be something in our present technique, merely because of the uncertainty it generates about interest rates when we don't take responsibility for them, that makes the market react more sharply to a short-term change in the federal funds rate, let's say, than it would otherwise react. Now, I don't know what that mechanism is, but one gets a little suspicious when we sit here and communicate no conviction at all about what the short-term rate should be. The long-term market jumps more strongly in either direction than it otherwise would because market participants are trying to figure out themselves where [the short-term rate] is going to go, and father isn't telling them. That may be an important deficiency in the present technique as it is now operated. And it may be the [main one], as I see it. Well, the money demand shift is a technical argument; [the issue is] how important it is, I guess. Mr. Balles was just saying the opposite. But this last point does bother me a bit. Does anybody else want to comment?",356
-fomc-corpus,1981,"If the procedure has had a defect, in my mind it has been the excessive volatility of interest rates. Given the biases that I have, I've been more concerned about the rapid decline [in rates] in the second quarter of last year than about the way they got up to 20 percent on two occasions. And now that I hear from Mr. Axilrod that apparently the sharp drop in the second quarter didn't have much of an economic repercussion--that the quick revival of the economy was largely the work of the real sector and perhaps the credit control removal, not the drop in interest rates as I had thought--",124
-fomc-corpus,1981,"He didn't quite say that, did he?",9
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,He just said there was no special drop in interest rates due to the new control technique.,18
-fomc-corpus,1981,"On variability, day-to-day and week-to-week.",11
-fomc-corpus,1981,"Well, I think the reason rates dropped so sharply clearly was due to the new techniques. And had we stuck by the new techniques firmly and stuck on the path, rates would have dropped a good deal more.",42
-fomc-corpus,1981,"I think you are making an assumption that he didn't make. That may be true in practice, but he is saying if we had moved the federal funds rate as much as would have been indicated, given the decline in the money supply, we would have gotten a similar result.",55
-fomc-corpus,1981,"Well, also more particularly, given the decline in real GNP.",14
-fomc-corpus,1981,"Well, given the decline in the real GNP.",11
-fomc-corpus,1981,It was not out of line with what normally happens.,11
-fomc-corpus,1981,"We may not in fact have done that under the old technique; but if we had, there wouldn't have been much difference I think is what he said.",31
-fomc-corpus,1981,"Okay. Well, in that case I have to say that, in my opinion, we wouldn't have moved from 20 percent to 10 percent in that quick succession any more than we would have moved up from 12 percent or so to 20 percent. So I think what we need is more observation of interest rates. But I'd be more concerned about sudden drops than about the increases we have had so far. Of course, we could have increases that would worry one. But the way I look at interest rates, as you know, is that they are not really high after taxes.",118
-fomc-corpus,1981,In real terms.,4
-fomc-corpus,1981,"[Yes]. Now, as a technique improvement, I would say it would be worthwhile to go to a contemporaneous reserve--",25
-fomc-corpus,1981,"Well, let's get to that later and just stay on this other more general subject.",17
-fomc-corpus,1981,"I would say that we should not go back to the old technique of targeting on the funds rate because I've seen us not do enough or not act on a timely enough basis in the past. The technique we have now forces our hand. I would add that we might be well advised to publish our directive immediately under the new procedures, but I guess that's a separate topic also.",75
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"This is partly a question, Steve, if I could. Let's say we stayed where we are now in an operating mode, recognizing the interest rate/money supply variability tradeoff. Could we buy any materially greater amount of stability in interest rates if we significantly widened reserve carry-forwards and permitted carry-forwards of both deficiencies and excesses, maybe even up to 5 percent or something like that, and let financial institutions put a much greater cushion in there to absorb some of these rate effects that we might otherwise get?",104
-fomc-corpus,1981,We might. I'd have to think it through more carefully. It's sort of like opening the discount window.,21
-fomc-corpus,1981,That's right. It has the same effect.,9
-fomc-corpus,1981,I suppose it could buy some week-to-week interest rate stability at some cost in terms of the multiplier.,21
-fomc-corpus,1981,That's what is not clear to me. Is there a real cost there?,15
-fomc-corpus,1981,I'd have to think it through; my instinct is that there might be. But how big I'm not sure.,22
-fomc-corpus,1981,Could it not go either way? Could it not be destabilizing as well as stabilizing?,19
-fomc-corpus,1981,"Well, my instinct is--",6
-fomc-corpus,1981,Suppose it all went in one direction in one week. Does it not have the same kind of effects we might--,24
-fomc-corpus,1981,"Well, if we did this kind of thing, we'd have to have it work both ways. There would have to be some kind of penalty; it wouldn't be a freebie.",36
-fomc-corpus,1981,I wonder whether we can try to stay on the more general questioning and comments on the broad approach. I think this comes under a modification of existing techniques. Mr. Roos.,36
-fomc-corpus,1981,Do you mean just on whether to go back to interest rate stabilization or--,15
-fomc-corpus,1981,"--or go to something else, like the reserve base or something.",14
-fomc-corpus,1981,"I think there are several fundamental things that we ought to consider in charting our course. First of all, it's important that we recognize that we have to do something that will be convincing, not just to those of us sitting in this room but to the broader body politic in the world in which we live. I will start from a conviction that, right or wrong, most people who have observed what has happened since October 1979 are far from convinced that it was as much of a success or as satisfactory as maybe some of us would like to think. There is a certain degree of disillusionment that we didn't achieve as effective control of money and credit as we announced in 1979 we were going to seek. Under the present political conditions we face, to try to explain away in a convincing manner whatever shortcomings last year had is almost impossible to achieve. Secondly, I think it follows that to say we will continue as we did in 1980 but will do the job a little better, without announcing or without agreeing upon certain changes from that procedure, will be less than convincing to the people who are watching us. Politically, if you want to put it that way, and without acting irresponsibly, I think we have to say that we are going to make some changes. The world knows that we have conducted this study. The world, or at least those who are interested in what we are doing, is going to be anxious to see the results of this study and what we do about it. So, I don't think we can get away with either trying to say that 1980 was an unqualified success or that we drew a poor card because of certain extraneous factors. And I don't think we can get away with just saying we are going to do what we did and do it better. Ideally, Mr. Chairman, if we could press a button, I would say that we should announce that we are going to move the discount rate to a penalty rate more frequently in order to avoid the problems that we had in that regard last year. Ideally, we should seek contemporaneous reserve accounting. I think we should announce--and this may require longer-run action--that we will seek greater uniformity of reserve requirements. I think we have to bite that bullet; we have to say that we will do that in order to achieve steadier control of credit and money. I think we are going to have to say openly that we will permit interest rates to fluctuate more freely. We can't have it both ways. And I happen to believe that if we explain [what we are doing] as effectively as you did yesterday on ABC--and I would compliment you, sir, because I thought you were superb on that program--that we have the ability to tell people what we are going to do. If we told people that we were going to do this, I believe we would have less volatility in interest rates than some people might think. Short of achieving these ideals, I think it's absolutely essential as a bare minimum that we change our procedures and move the discount rate more frequently to a penalty rate and also that we restore contemporaneous reserve accounting. We have people out there who are aware of these issues. People in the Administration--the Stockmans and the Sprinkels--are going to watch us like a hawk, and we're not going to be able to bluff our way through this. I think we have to show that we are doing something, and try something new. It would be a tragedy for the Federal Reserve to move back to interest rate stabilization, even though it might be theoretically desirable; it will not fly in the political climate in which we're living. That's my point of view, Mr. Chairman, in a nutshell.",753
-fomc-corpus,1981,"Well, we'll get to these more detailed suggestions. On the general point are there any other comments? Governor Partee and Mr. Morris next.",29
-fomc-corpus,1981,"I would stay with our present arrangement. I come from where Lyle comes from, really. I would like to be able to control the mechanism by specifying the funds rate. And I think we could; but the trouble is we won't. We won't because we won't change the funds rate as much as it ought to be changed. There is an interesting piece of work done by Peter Tinsley which says in effect, if I understand it correctly, that in getting toward our targets if we change the funds rate 3 percentage points at the beginning of the period, we get about as much result as changing it 6 percent over the whole period. Well, that's fine, except who today is going to say: ""We are running a little low on the aggregates so let's drop the funds rate 3 points today."" Nobody will ever say that. And that's the whole trouble with it; we just don't move it enough. If it weren't for that, I would prefer the funds rate because there is a fuzziness to this other approach in the multiplier and in the changes of the nonborrowed targets and so forth that bothers me. Of necessity we have to put more of this onto the staff than it is good for this body as a policymaking body to do; and it's because of the fuzziness and the intricacy of the arrangements we have. But I would stay with it because I don't think there's anything better. As I believe Steve suggested in the summary report, given our experience of the last year, I would opt to be freer to change the nonborrowed path in order to offset what is happening in borrowed reserves more than we have done. That's because I rather agree with Larry that people just can't quite understand why the aggregates were so much more volatile in the year after we changed to this experiment that was to stabilize them than they were in the year before. I think that is a practical problem we have and, indeed, it probably has contributed to some of the economic instability. I wouldn't agree with Henry who seems to say let's keep interest rates high or with others who say let's keep them low. I wouldn't talk about an interest rate target in a longer-run sense, because what we do then is just substitute our own predilection for what the market is trying to tell us. I think that in a longer-range sense we have to have [some] volatility in interest rates; they've got to go high and they've got to go low, and they have to do it in response to changes that we see developing in the economy and in the performance of the aggregates. And when we are all done with it one might say--I'm sure most people around this table would say--it's too bad rates dropped that far last summer. But last summer we didn't know what we now know. And that's always the difficulty. Some might say it's too bad that they have gone as high as they have now. But we don't know. Maybe it's just right that they have gone as high as they are now. So, I would say that we should try to be objective and not substitute our judgmental predilections as to what the statistics are telling us.",633
-fomc-corpus,1981,"Mr. Morris. Any other suggestions on the present technique are in the next agenda item, not this one.",22
-fomc-corpus,1981,"Well, I come out about the same way Chuck did except that I don't have any nostalgia for going back to controlling the federal funds rate. I sat around this table for eleven years watching us always moving too little and too late. And even though 1980 was not a model year of any kind, it seems to me that it was inherently a year in which any approach to monetary policy was going to run into serious problems. If you tell me that we are going to have a year in which we have a one-quarter recession where the economy is declining at a 10 percent real rate, I can tell you that there is just no way we are going to avoid interest rate volatility. So, I view the past year as a success story only because I think it was a success relative to what would have happened if we had stayed with the old procedure.",172
-fomc-corpus,1981,Mr. Black.,4
-fomc-corpus,1981,"Mr. Chairman, I think conceptually we can control the rate of growth in the aggregates with either a federal funds handle or with a reserve handle of some sort. However, it's not only the unwillingness to move the federal funds rate that makes it an impractical way of doing it, but also that we don't know how much we ought to move it. The federal funds rate that is compatible with some reasonable rate of growth in the monetary aggregates somehow defined is not a single level; it's a pattern of rates over time. And I just despair of ever knowing that, so I think we ought to stick with more or less our same procedures. I would like to suggest at the appropriate time a couple of modifications that I think would improve the procedures. The problem with the [funds rate] to me is that we don't know how high or how low it ought to be at any time; and I know nothing in past experience, either empirically or in theory, that would give any basis for selecting that level.",204
-fomc-corpus,1981,I'm not sure we know how high or how low nonborrowed reserves should be; that's the problem.,21
-fomc-corpus,1981,"Well, I'm going to take care of that in the next exercise!",14
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"I essentially agree with Chuck Partee on the reasons for staying with nonborrowed reserves as the operating target. In practice we simply didn't or weren't willing to move the funds rate around. The additional comments made on that same subject by Frank Morris and Bob Black I find myself in agreement with, too.",60
-fomc-corpus,1981,Anybody else have any comments? Bob Mayo.,9
-fomc-corpus,1981,"I would just add briefly that I took great comfort in Steve's analysis. I think all of us agree that even 15 months is a terribly short period; nevertheless, Steve told me not that this had been a great success, using Frank Morris' word, but that it was not a failure. And I think we owe it to ourselves to pursue it further with whatever refinements we can do.",80
-fomc-corpus,1981,"I agree in that the lesson I got from the past 12 months is that we couldn't pick up judgmentally when the rate should go up or go down. There's a distinct advantage to this and, in contrast to Henry, I think they should go down as well as up. But it has to be an equally up and down elevator. I think the main point that comes out of a great deal of this is that we really shouldn't try to control the money supply on a rigid growth rate basis. We should aim for it, but the forces in the real economy are going to swing that money growth rate around and we should be prepared for it and try to interpret the misses that we make as a reflection on our projections and what is going on in the real economy. To try to make money grow at an absolutely steady rate in a fluctuating real economy will create such horrendous fluctuations in interest rates that it will defeat what we're doing. Also, as Lyle says, we have to keep an eye on the general level. We can get rates so high that they choke off economic activity, and that's not really what we're aiming for. So, I would stick with the procedure, but I would put in perhaps a more fluctuating target in terms of where we want the money supply to go in light of what we know is going on in the real world.",273
-fomc-corpus,1981,"If no one else has any comments, I will declare it the consensus that we will work in the general framework of our existing techniques. We will now discuss modifying them. I do think there is basically a tradeoff here, if nothing else, of the desirability of escaping responsibility for discretely moving interest rates. A number of people have said that in ten years of experience we didn't move very far because we don't like to do that. But [our new procedure] has exacted a price in terms of generating more instability throughout the interest rate structure, which may pass. If you want to be an optimist, you say that people will learn enough through the experience, and long-term rates will no longer fluctuate so much. But they certainly fluctuated in disturbing proportion to the fluctuation in short-term rates in the past 15 months. Now, we've only been through two, or not even 1-1/2, interest rate cycles, I guess, so people haven't had much chance to learn from that. Maybe as they get through another one or two, these reactions will be less. Let's hope so. Let me turn now to modification of the technique, which has obviously already been touched upon in a number of comments. I'm inclined to reverse [the order]. Well, let's not reverse it; they're somewhat inter-related, I guess. Let's just discuss both together: the speed of the nonborrowed reserve adjustment--another way of saying the speed of the total borrowing adjustment--and the handling of the discount window or the discount rate. The latter has already been touched upon on a number of occasions. I think there is a difference between moving the discount rate more frequently and moving it automatically. I continue to be of the belief, and I have heard nothing to dissuade me, that if we are operating on the present technique and tie the discount rate to market rates--whether you call it a penalty rate or whatever you call it--we would have an explosive short-term situation either up or down that I find impossible even to contemplate. The present situation is awkward and is imposed upon us partly, but not entirely, by lagged reserve accounting. When things are tight we don't have a penalty rate and we can't have a penalty rate, and it looks as if we're subsidizing the banks to some extent. If I could minimize that appearance and reality, to the extent it's a reality, I'd be very pleased. I don't know how to do it. We tried to fool around with the surcharge, but those are the kinds of problems I see. That does not mean we cannot move the discount rate more frequently. But then as a matter of judgment, I think we also--and it may be good or bad--are going to get more instability in market rates.",558
-fomc-corpus,1981,"One thing that hasn't been studied by the staff--and maybe it's worth studying in answer to the specific point that you just made--is how to avoid as big a component of subsidy and the criticisms, which may mount further as we get into the thrift institutions discount window situation. It seems to me that we might consider having a surcharge--a frequency surcharge as we do now, although the timing could change--but that the size of the surcharge should be equal to the difference between the basic discount rate and, let's say, the average of the 3-month CD rate over the previous four weeks. We wouldn't get as big a ratcheting effect from that and banks that come in too frequently would have their subsidy eliminated. I think that might be worth some study.",153
-fomc-corpus,1981,Good point.,3
-fomc-corpus,1981,I agree. It's certainly worth study.,8
-fomc-corpus,1981,I don't know how you get rid of the ratcheting effect but that--,16
-fomc-corpus,1981,I think you reduce it.,6
-fomc-corpus,1981,"Well, it depends. You reduce it to the extent you open up the time between now and when they actually have to pay the penalty. But you have a pretty high--",35
-fomc-corpus,1981,"Paul, I'm not sure. You've made this point a number of times about the mechanical connection between the way the [window] works and the rest of the procedure, but given the complexities of the dynamics that Chuck was hinting at, I'm not sure it's that simple. It could blow up in our face; I'm not saying I swear I know that it wouldn't--",73
-fomc-corpus,1981,"Well, it wouldn't blow up indefinitely. If you get rates high enough so that the money supply adjustment is forced, it then goes down the other way.",31
-fomc-corpus,1981,"Yes, you overshoot; that's the trouble.",10
-fomc-corpus,1981,"Well, whether or not you do, that's why I'm interested in what Mr. Balles was suggesting: That more and more people are saying that this is not so automatically volatile; that there is some kind of damping mechanism that may come into play to save us. Granted, it's a policy risk to test it, given the uncertainty of the theoretical dynamics of it. On the side of arguing for trying it, a couple of things have popped up that really bother me about the way we operate the discount window. One is the subsidy. It has been mentioned that it's perceived that we are giving away money to the banks. Another thing about it is the difference between the way we operate our window and the [way the Home Loan Banks lend to the] thrifts. We're all aware that Congressman St Germain is conducting a hearing the thrust of which, as I read it, is to say: ""Hey, let's allow the thrifts to come in and borrow and forget about this [problem of] exhausting their other [sources of funds]."" In that connection, we've been looking at how they operate at the NCUA and how the Home Loan Banks operate their windows. I'm sure you know that they operate their windows basically by offering their members a variety of loan options based on maturity, more or less keyed to the yield curve that they have to deal with when they go out to raise money to fund the loans. I'm not saying that that's ideal for us, but the fact is that as we interact, if we allow the difference between what it costs to borrow at the Fed window to be vastly different than, say, at the Home Loan Bank window, sooner or later we're going to have to face the political realities and the heat that Congressman St Germain is generating.",355
-fomc-corpus,1981,"Look, we have all these problems; the question is how to avoid them.",16
-fomc-corpus,1981,"Well, the obvious thrust is to move toward their system of going more toward--",16
-fomc-corpus,1981,"They're not creating reserves when they are lending. We just agreed to stay on this technique and I'm assuming the current institutional setting involving a reluctance to borrow at the discount window [is not changed]. [As for] forcing the banks in the aggregate to borrow, I'm just telling you the opposite of what you tell me. A bank is not going to borrow [from the window] unless the market rate is above the discount rate. So, when we force the banking system as a whole to borrow, we can't keep the market rate below the discount rate because they won't individually borrow to come up to the total we're forcing them to borrow. It's just as night follows day in the short run with this technique, and we can't escape it. Now, we can change other institutional settings, but there's no use sitting here saying we're going to force the banks to borrow and we're going to move the discount rate above the market rate. If anything isn't possible, that's it.",192
-fomc-corpus,1981,"No, it has to be accompanied by modifications of this technique that we use here; you're right.",20
-fomc-corpus,1981,"Now, you can go to the other extreme and say we don't care about banks borrowing. We just open up the discount window to anybody who borrows and then the discount rate will become a ceiling. And we can have a penalty rate and all the rest; but we've got to make all the other consequent changes in our present technique.",67
-fomc-corpus,1981,It's tantamount to getting back to setting the funds rate.,12
-fomc-corpus,1981,"Right. Doing that has precisely the same economic effect as getting back to controlling the federal funds rate. But now it is being done through the discount window instead of through open market operations. That is, it's just going full circle and going back to where we started. Now, I'm stuck here because if we force them to borrow, there's just not going to be a penalty rate. If there's not a penalty rate, it looks as if we're subsidizing them. That's my [dilemma]; you tell me how to get out of that box.",110
-fomc-corpus,1981,"I think what we have to do is go toward some rationing system. Given that we need to have the banks borrow X amount of reserves, the second problem is: Which banks are going to be borrowing X amount of reserves? And it seems to me a rationing system, which we open to the thrifts as well as the commercial banks, could be designed to feed in that level of reserves; at least we know week-after-week that it wouldn't be the same banks that would be demanding that--",101
-fomc-corpus,1981,I suggested [basing] it on a capital ratio.,12
-fomc-corpus,1981,"Well, in general terms, the stricter we are in lending through the window, presumably the lower the level is that we would need to adjust the nonborrowing path to facilitate this. But if we go in that direction, we would get less borrowing. In that sense, we would have less subsidy. But the market rate then presumably would be even higher depending upon what formula we use relative to the discount rate. But [the window] would be used much less frequently; it wouldn't make much difference. That is one way we can go.",110
-fomc-corpus,1981,Doesn't it follow from what Steve was saying before that we also get that result if we take the position that we're only going to use the discount window for real emergencies?,34
-fomc-corpus,1981,"Well, that's the extreme of that policy.",9
-fomc-corpus,1981,But that's not really a policy that we can live with.,12
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,"The one thing to keep in mind about any significant change in the administration of the discount window or the arrangements by which banks and other institutions can come to borrow is that if we want more monetary control precision, we're much better off to stay where we are than to introduce a system that is going to take six months to a year to figure out.",69
-fomc-corpus,1981,"There are a lot of traditions surrounding the discount window; it has been more or less the same for decades and decades. When you change something like that, you get a big educational problem in the short run. And then if we decide we don't like it after we change it, we've got a heck of a problem going into something different I think. These are the constraints that have left us where we are now. That doesn't say we're in a perfect position, but it's very hard, I think, to change this in a fundamental way.",108
-fomc-corpus,1981,"Paul, I'd agree certainly with your conclusion that, especially given lagged reserve requirements, there's no practical way to get to a penalty rate. But having agreed with that, I'm not at all certain that we--",42
-fomc-corpus,1981,"Let me just put in as a footnote that, of course, this only happens when borrowings are high. When the money supply is running low and borrowings are low, you'll get a penalty rate.",42
-fomc-corpus,1981,"But having agreed with that, I'm not convinced, as yet at least, that we need to have as big a gap as we see presently or have seen in recent months between the discount rate and the funds rate. Maybe, especially with the benefit of hindsight, we ought to dwell on whether it would have been feasible to close the gap somewhat. I think that's a rather practical question because as we look back on 1980, in a technical sense, most of the misses on the aggregates came from overshoots or undershoots of borrowings that were not quickly or fully offset in the nonborrowed reserve path. To some extent a more active discount rate policy of keeping at least closer in touch with the market might have headed off some of that. I raise that as a question rather than a conclusion.",163
-fomc-corpus,1981,"The last two times we raised the discount rate, it went right through to the market rates. It didn't close the gap at all. The moves were undertaken with the idea of trying to close the gap and the gap just moved ahead of us.",49
-fomc-corpus,1981,"And the gap has been widest in the last eight weeks, John, when we've had shortfalls in the aggregates.",23
-fomc-corpus,1981,"I think this discussion could be seen a little more systematically if we look first at what modifications [we could make] in the way we set the initial borrowing requirement, what modifications [to make] to the nonborrowed reserve path, and then see what residual kind of change, if any, is needed in the operation of the discount window. The point you made is quite relevant. We know that there is a tradition here and it disconcerts people if we keep changing things very frequently. We achieve some of the same effect through the first two alternatives. It would seem to me that we might give more weight in setting the initial borrowing requirement to what level of borrowing is needed or, in other words, what level of nonborrowed reserve path is needed to achieve the intermediate target and less emphasis to smoothing the post-meeting funds rate. I've been as guilty as anybody else, or maybe more so. And if we are going to try to come closer to the path, then maybe we can't afford the luxury of that kind of smoothing emphasis in setting the initial borrowing requirement. I think that's worth talking about anyway.",224
-fomc-corpus,1981,"Well, it's clearly a kind of tradeoff. But if you're suggesting going in the direction of more rapid reductions when we're overshooting in the nonborrowed path, we're going to get more borrowings in the very short run anyway and it's going to increase the discrepancy between the market rate and the discount rate, if that's important to you. Now, this discussion already took place in part. We could also raise the discount rate more rapidly; in the very short run it's probably not going to narrow that discrepancy between the discount rate and market rates very much, but we would have taken two actions to get the money supply back on course more quickly at the expense of more interest rate volatility and not done much with this appearance of subsidy. But that doesn't end up saying it's wrong because--",156
-fomc-corpus,1981,"I understand the implications of it. But I find myself in a very curious situation in that I happen to agree with Larry Roos that in the broader sense of the term the politics require some demonstration of a further improvement in the procedure. Unfortunately, the only further improvement I can think of is trying to track the money supply more closely even though it probably means more interest rate volatility. I don't have the bottom line magical, mystical, faith that some people do that when we get this money supply tracking very closely, for some reason interest rate volatility is going to be reduced. But even though I don't have that, I don't see any other way to go; the whole [prospect] of improvement seems to me to lie in that direction. We can't make a partial regression toward more emphasis on the fed funds rate without looking foolish. So, even though I don't like the bottom line, the dynamics of the situation are taking us in that direction. Similarly, along with a more realistic initial borrowing requirement, I also would support the implied recommendation--maybe it's implicit enough in Steve's summary paper--that the nonborrowed reserve path be adjusted more promptly and more sharply. Right now I don't know how to handle it. Do we leave this entirely to the discretion of Steve and Peter, checking with the Chairman? Or are there some parameters or some guidelines--it's very hard to conceive what they would be--that the FOMC would want to give to the Desk and the staff on the size of the adjustment of the nonborrowed reserve path? It seems to me that these are the areas we ought to try to reach a consensus on first and then see what's left.",334
-fomc-corpus,1981,"Well, they're very much interrelated. And we could do the opposite. We can do what you're suggesting in the nonborrowed reserves--[by moving] the borrowings more rapidly either at a meeting or between meetings depending upon what happens--without changing the discount rate or even the discount window administration. That's an interesting question. Would we conceivably get more impact on the money supply per basis point of interest rate change because we put the banks into debt, which worries them and forces adjustments in banks that may not be fully reflected in interest rate movements in the market because of nonprice considerations?",120
-fomc-corpus,1981,"This idea that was brought up about the politics of the situation requiring some improvement in procedure seems to me very much a Catch-22 idea. I think we have created expectations that are beyond what we can basically deliver in terms of the precision of hitting money supply targets, given this idea that aiming for zero is [as likely to result] in +10 as -10. If we refine [our procedures] further, which I think we ought to do, then we just heighten those expectations even more. It seems to me that we're always in that kind of jam. Therefore, I would not make changes because we think doing so is going to improve the political situation. Whatever refinement we make, [what we can deliver] is still going to be far from the expectations that have been created.",159
-fomc-corpus,1981,"Well, it would be a mistake to make changes for the sake of making changes. We ought to make changes for the sake of perhaps doing a better job. Almost any change we make may suffer from the defect that people will read more into it than it's really worth. But it's a little dangerous to make a change because somebody wants us to make a change and then the change doesn't produce the result that's intended.",82
-fomc-corpus,1981,"Paul, I'd like to follow up on your analysis and Tony's and ask Peter and Steve a question. What were the factors that led to not adjusting the nonborrowed reserve path more quickly last year? In other words, was it a conscious policy that caused you not to move as quickly as you might move this year under this new point of view or was it a concern about the effect on interest rates? And if the latter was the case, wouldn't you still have that concern in the back of your head starting next Monday?",106
-fomc-corpus,1981,"We had a rule of thumb, as Steve has mentioned--I don't know how religiously we followed it--that we would move the nonborrowed path by about half of the undershoot or overshoot. But that was conditioned at times by other factors. When the Committee indicated in the adoption of its objectives that, say, the objective was 4 percent but it wouldn't mind if that were a little faster or a little slower because of where we were coming out vis-a-vis the annual targets at that point, that was the conditioning factor in whether we pressed for more or less adjustment.",118
-fomc-corpus,1981,"If, in order to eliminate the problems we had last year, this Committee made a broad request of you to move it a little more quickly than you did last year, what would that mean in terms of what you would do starting next week?",49
-fomc-corpus,1981,"Well, I'd have to work that out with my colleague, Mr. Axilrod. In my own view, there is room for more of that kind of adjustment. Certainly one can look at some periods last year, like the August-September period, and say that we surely should have moved the path more. I think one can come to a different conclusion about last spring when the adjustments were on the other side. Some regular upward adjustments of the nonborrowed path might have helped us restore [monetary] growth more rapidly, but that could have sent us into even stronger growth by the third quarter and perhaps would have been unwise in retrospect. So, it's not clear that on all occasions more rapid adjustment would have been the answer.",150
-fomc-corpus,1981,"I suspect that during a good part of last year we were influenced by projections of the money supply, which we've now learned were totally unreliable. Each month during that autumn period all the projections said it was going to level off this month.",47
-fomc-corpus,1981,"Another factor to consider with respect to the spring is that we were literally stopped from raising the nonborrowed reserve path. Total reserves were weak because there was no borrowing; and if we had created a substantial amount of excess reserves, the funds rate would have gone close to zero. So, in some sense the lower limit of the funds rate range was a stopper there. The Committee, of course, gradually lowered that limit, but that was an effective stopper. And when you're lowering the nonborrowed [path], one of the advantages of lowering it in a sense, is that often it will require a Committee meeting. That's because to lower [the nonborrowed path] means we're probably going to hit the upper limit of the funds rate range, and it might mean we'll get there faster and that will require a Committee meeting to get beyond it.",170
-fomc-corpus,1981,"But you still had hovering in your mind a concern about the effect on the fed funds rate, right? I thought I just understood that.",28
-fomc-corpus,1981,I think we had an awareness [of that effect] but I don't think that necessarily stopped us from adjusting--,22
-fomc-corpus,1981,It's only a stopper in a sense when we hit the upper limits or the lower limits. Then you'd have to have a Committee meeting.,27
-fomc-corpus,1981,"May I make a comment, Paul, just on this question? I agree with the idea that we need to adjust the nonborrowed [path]. It may be that it's not so much the size of the initial adjustment that we make in response to an overshoot, particularly, or perhaps an undershoot, but rather that there ought to be some concept of scheduling more and more adjustments as the duration [of the miss] extends. That is, you might start with adjusting the path for half [of the deviation], but then if it persists for a second week you might take another bite out of it and in the third week you might take still another bite. It's a way to get a time factor into it. Now, we'd have to fool a lot with the numbers to figure out what kind of decision rule we might have, but that seems to me a possible way to go that I'd like to see explored. In any event, when we do this, the chances are that borrowing is going to be bigger than it was before because there will be some lag time before the market begins to adjust; so as we do this, we'll have more borrowings. I agree with you that we have to have a spread; and I agree with Nancy that we've certainly seen, when conditions were tight at least, that every time we changed the discount rate the spread re-established itself by the funds rate going up as much [as the discount rate] and sometimes a little more. That does create the perception of subsidizing the [borrowing] institutions, and I guess there's no way of avoiding that level of borrowing and that differential in rates. So the question really ought to be: Who ought to get the subsidy? I guess if I were a thrift, I would say that I have never been permitted to get the subsidy; only the member banks have. My observation is that it's the big member banks that get it and, therefore, I think that leads one to some kind of rationing system that gives the public perception of a high rate out there for somebody or other. And that does make it possible to spread the subsidy around. Perhaps the price of that will be a bigger differential than now exists because of the inefficiency of the market in having smaller institutions see their opportunity. So, I like Tony's suggestion or some variant of Tony's suggestion as a way of spreading the subsidy around.",479
-fomc-corpus,1981,"Isn't it the truth--as opposed to the perception in the market that the subsidy goes to big banks--that the subsidy goes to the little banks? It seems to me [true] by definition, with the surcharge.",45
-fomc-corpus,1981,"Well, take a look at January and let's find [out in] February and we'll see who has been borrowing and how many pay the surcharge.",29
-fomc-corpus,1981,"But the fact is that the size of the subsidy the bank gets depends on whether or not they pay the surcharge; and the smaller the surcharge, the more the subsidy.",34
-fomc-corpus,1981,True.,2
-fomc-corpus,1981,"The other element is that while this discussion is leading us toward credit rationing of some sort at the window, we're reacting to a public perception which is technically not the truth--which is that the subsidy goes to the big banks. There is a subsidy for all the banks but the biggest; the subsidy is for the ones under $500 million, item 1. The second thing is the way we administer the window. If I understand it, in doing the rationing now, which we may want to change as you say, in some sense liability managed institutions should not get in. Maybe I'm making this too strong--",124
-fomc-corpus,1981,That doesn't exactly work out that--,7
-fomc-corpus,1981,"But you are sort of saying we should not have to be aware of what they are doing to qualify. And we all have heard the horror story about the guy who comes in and admits that he's managing his liabilities, seeking to maximize his subsidy, and he's the one we throw out. It's that kind of thing that I see as being--",68
-fomc-corpus,1981,"Well, Bill, when I said rationing, I didn't necessarily mean a rate control system that would be based on administration. I think we can ration by having a more elaborate price schedule. The price schedule might be associated with duration and there might be more than just one surcharge. There might be rules of the game. We could do what Fred suggests, except that would mean technically that the institution whose surplus is dropping to zero will pay the highest amount of borrowing so that--",95
-fomc-corpus,1981,We'd have to differentiate between emergency and adjustment borrowing.,11
-fomc-corpus,1981,The most effective thing we can do to affect bank behavior is to kick them out of the discount window on an individual basis; otherwise they just don't give a damn. They'll go on making all the loans they want to make.,45
-fomc-corpus,1981,"But at any rate, we could have a price schedule. It doesn't have to be--",18
-fomc-corpus,1981,"One thing I think I see--but I don't have any research to prove it--is that the multibank holding companies seem to send in their subsidiaries, many of which qualify for the biggest subsidy of all, on a rotating basis. As a banker, from a profit maximizing standpoint, that's the ideal thing to do if you're worried about your shareholders' interests. That's another aspect to [discount window] administration: these different games that people are definitely playing with us at the window. That frustrates me so much about the present system that it leads me to question whether we don't have to modify this procedure significantly in order to get away from these games. The alternative is some form of rationing at the window that at least is more honest than the present one.",153
-fomc-corpus,1981,"By the way, if they send bank A in to borrow, how do they get those reserves distributed around their holding company system?",26
-fomc-corpus,1981,They can move anything they want. They can make the loans or the deposits show up wherever they want.,21
-fomc-corpus,1981,"So, they may do it through the loan portfolio. If they do it by interbank lending, [the Reserve Bank] is supposed to tell them they have violated our rules.",36
-fomc-corpus,1981,"Yes, but try to track that in reality when you're talking about banks that have 30 or 40 subsidiaries and geniuses to manage their balance sheets, which we don't. We couldn't keep up with that, could we?",45
-fomc-corpus,1981,"You have heard about fungibility, haven't you?",10
-fomc-corpus,1981,"The conflict I see here, again, is that the way to handle the perception and the reality of the subsidy in the administration [of the window] is to make it easier to borrow with no upper limit. If we make it easy enough, the subsidy will go away. But that works against the short-term control of reserves and the money supply. The more we work in the direction of short-term control of the money supply, the more the discrepancy will appear. And I don't know how to get out of this box.",105
-fomc-corpus,1981,It's a Catch-22.,6
-fomc-corpus,1981,We might as well accept it.,7
-fomc-corpus,1981,"I think, though, that we can reduce to some degree the size of the box, or the criticism that comes from being in the box, if we move to some arrangement whereby the bank that comes in the second or third time in too short a timeframe has to pay the--",56
-fomc-corpus,1981,"Well, of course that is precisely what we did with the surcharge. I guess we have some question whether the surcharge doesn't become in market practice the effective rate, so it just moves above the surcharge and makes it look even worse against the basic rate. What would happen if we moved the basic rate to 16 percent now? I don't know whether that would have a market impact or not apart from the psychological one. What do you say?",88
-fomc-corpus,1981,"Yes, it would have a market effect. Well, very few banks are borrowing at the surcharge now.",21
-fomc-corpus,1981,"Well, the fact that they're not paying the surcharge means that the rationing can work because there's this reluctance to take the surcharge even though the surcharge rate is still way below the fed funds rate. So, I think we have this new problem in that I at least don't believe that we're going to be able to have for long a different lending standard for the thrifts than we do for the commercial banks. And, therefore, I think we've got to give high priority to figuring out how to go about rationing on a different basis than we customarily have at the discount window.",117
-fomc-corpus,1981,"I've been thinking that probably the best rate for an extended credit program for the thrifts would be the 3-month CD rate so that they get some earnings support but they're still paying a market rate. If we move on the adjustment credit program to having a surcharge that was a lagged average of the 3-month CD rate, then we would also have something that seemed to make more sense for the rate on the extended credit programs. It seems a little more rational, anyway, and less arbitrary.",100
-fomc-corpus,1981,"Doesn't that get right into the same thing that Paul was talking about: the logic of the system? Because, in effect, that's partially moving to trying to peg the rate to the market to the extent that those borrowings are a significant portion of the whole amount of borrowing. Once again it is attempting to go to a market determined rate at the discount window and then we're back into the box that Paul was talking about; we're trapped if we buy the current system of control.",96
-fomc-corpus,1981,I was talking there about the extended--,8
-fomc-corpus,1981,"But you're not, if there's a reluctance on the part of the bank to borrow at the higher rate, which I think will be the case.",30
-fomc-corpus,1981,"But, Tony, if we're going to hold to the idea of a basic discount rate of, say, around 13 percent [as it was] through the whole fall and the CD rate runs up to 21 percent, as it did, and we tie the extended rate to 21 percent, we're not going to be able to get away with that. When the institution--say, one of your savings banks in New York--borrows because it is in such difficult circumstances and we say we will lend to them at one point under the CD rate and that's 20 percent and the basic discount rate out there is 13 percent, they're going to cry bloody murder.",135
-fomc-corpus,1981,I'll take 90--,5
-fomc-corpus,1981,If we have some way of showing them that some frequent borrowers are paying 20 percent also--,19
-fomc-corpus,1981,"We're not going to solve all the problems of the discount window and discount rate at this particular forum. We have to go to eat in a second, but the other two questions that just occurred to me in terms of techniques--there may be others--are the management and the handling of these interest rate bands that we have and, finally, as a number of people have mentioned, the issue of contemporaneous reserve accounting. Are there other issues that should be surfaced here?",94
-fomc-corpus,1981,I think the excess and deficiency carry-forwards are worth thinking about. It does seem to me that having some kind of an arrangement where we provide more flexibility there with a penalty on deficiencies and a penalty in reverse on excesses--,46
-fomc-corpus,1981,I don't think we're going to be able to handle that one today. That may be something we can look at in the future. I gather there is some sense--I'm not quite sure what it means because it runs counter to the concern about the discount window --about what would amount to forcing the banks more rapidly into more debt when the money supply is excessive. I think there are advantages in that approach. It's going to bring more instability in the very short run; it might help in the long run.,101
-fomc-corpus,1981,What about this 50-50 rule about getting back on the reserve path? Chuck made the point that there is a lot of delegation to the staff. This seems to me to be one area where the Committee might be able to make it more than 50-50 or less than 50-50 percent on--,64
-fomc-corpus,1981,Or have it scheduled.,5
-fomc-corpus,1981,"Well, that's all in that general framework there.",10
-fomc-corpus,1981,"There is one additional thing that is proposed legitimately and that's the question of whether, in the operating procedure, the reserve path should be adjusted if M2 is growing significantly out of line. At one FOMC meeting we did suggest that the Desk place more emphasis [on M2] but in practice that is not really factored in to the way the reserve path is drawn.",76
-fomc-corpus,1981,"We did the same thing with bank credit, too, early last year. That was certainly part of the thinking.",23
-fomc-corpus,1981,"Well, I think these are--",7
-fomc-corpus,1981,"There are two ways of doing it. One is to give 50 percent weight to M1 and 50 percent weight to M2, which in effect means that we're giving a much smaller weight to the nonreserveable deposit components of M2. But it's a clear arithmetical way. Another way is simply to instruct the Desk that when M2 growth rates are deviating, a qualitative [adjustment] is [to be] made in the reserve path, leaving it to their judgment how much, but indicating that we do want a correction in the reserve path.",116
-fomc-corpus,1981,"Well, this is a relevant question, particularly right now when we don't know what M1 is. But let's return to this subject unless somebody else wants to put something on the agenda.",37
-fomc-corpus,1981,"I want to reformulate one of these [questions], if I may. On the question of whether we should make an adjustment to the nonborrowed reserve path in a different way than we've done before, I think that could be addressed most fruitfully by saying: What sorts of responses should we try to incorporate into the operating procedures that push the money supply back toward the target level when it drifts off? I say it this way because I think one can conceive of this as being done in two different ways. One is to adjust the nonborrowed reserves between meetings more; and the other is to have the Committee focus on where we are at each meeting and where we want to be. And the latter will give us greater Committee involvement, I think.",152
-fomc-corpus,1981,"Well, there's a general question of whether we want to be systematic at all. If we're off course in [hitting] a target by plus or minus 10 percent, how fast can we get back, apart from the technique of how we get back there.",53
-fomc-corpus,1981,We can address this in 1 or 2 percent--,12
-fomc-corpus,1981,"Paul, could I suggest a topic--probably not a very popular one? I suggest we consider whether we want to publish the directive immediately.",28
-fomc-corpus,1981,"What's the argument for that, Henry?",8
-fomc-corpus,1981,I'm very much impressed by the continual criticism in the press and the market that we have changed our policy. They say the Fed has eased or the Fed has tightened and actually we've done nothing at all. I think we could defuse that by stating it in the policy record right away instead of 30 days later when nobody reads it.,67
-fomc-corpus,1981,I'll add another one: Shall we publish the money supply figures weekly?,14
-fomc-corpus,1981,You do have the contemporaneous accounting on your list now?,12
-fomc-corpus,1981,"Yes. We have quite a few on the list; I'm now up to H. We're not going to be able to resolve all of these, obviously, but we may get some sense on a couple of the key ones. Let's return after lunch and concentrate on this for an hour or so.",59
-fomc-corpus,1981,The lunch is here?,5
-fomc-corpus,1981,Yes. [Lunch recess],6
-fomc-corpus,1981,"[Unintelligible] there is a certain amount of duplication that is unnecessary. And I would like to delegate to President Solomon the task of giving us some recommendations as to how we may maintain a detailed record for members of the Committee and otherwise without excessive duplication. If you would give us recommendations at an appropriate time in a coming meeting, President Solomon, I would appreciate it.",76
-fomc-corpus,1981,Amen.,2
-fomc-corpus,1981,Just one more blow we're going to strike in favor of deregulation [or] simplification. Okay.,21
-fomc-corpus,1981,"Right. Now, I don't want to take all afternoon on this subject that we are on, if we can avoid it. We have to get to the business outlook and the long-range targets. The first two subjects on my check list that we have been discussing are nonborrowed reserve adjustments and the discount window--its administration and the rate. I get some sense that the feeling is that perhaps a little more rapid adjustment on the nonborrowed reserve [path] might be appropriate. I don't think we can sit here and write a formula for it today. It may be desirable or not to have a formula at some point. The discount window and discount rate, of course, are explicitly a responsibility of the Board of Governors in any event. But I was not encouraged by the discussion that we had this morning that anybody has an ideal solution for getting out of the box that we are in. And it occurred to me just at lunch that this is not a new box either. Under the old operating technique we could have maintained a penalty rate and we never did during these periods; and the discrepancy got extremely wide every time we had a tight money period. So, it's not exactly a new visual problem or real problem. But it is a problem. In any event, I suggest that we have had enough discussion of that at this point, knowing that we have to come back to the nonborrowed reserve issue anyway in connection with the explicit decision at this meeting and subsequent meetings. And maybe we can do a little work on a formula. But I think there may be some dissenters; I don't know because they haven't spoken.",326
-fomc-corpus,1981,This would be a movement back more rapidly to the nonborrowed [path] within the interest rate confines?,22
-fomc-corpus,1981,"Yes. I'll get to the interest rate confines, but at this point it's apart from that. I must say this: The logic of this strict money supply control leads one in this direction. I'm a little nervous about it probably for the very reason that we haven't done it more rapidly in the past. We always get nervous I guess, which is why we're on this technique at all, when we are rather consciously [moving] the interest rate structure a tick. And that's what we're doing when we [adjust the nonborrowed reserve path]. But let me leave it; we'll come back to that quite explicitly in terms of the particular decision today. We may want to say something about it in general terms. As things now stand, I probably would say in my report to the Congress that this is something we probably will be doing. But that would not be quantified.",173
-fomc-corpus,1981,This is a general question: Are we going to publish those studies?,14
-fomc-corpus,1981,"My current thinking was to publish something like Steve's summary, which is marked preliminary, with appropriate modifications for clarity or whatever, as part of the Humphrey-Hawkins Report. I haven't made a decision about publishing the rest of it. The rest of it may be a bit uneven. I don't know whether it's--",64
-fomc-corpus,1981,We're obviously going to word this to make it available for public use as soon as possible. There's a great deal of interest in it; there's a lot of good material. I think it does credit to the staff and to the Board. I think it really goes a long way in answering many of the criticisms.,62
-fomc-corpus,1981,"Well, part of my problem--I just don't know the answer to this--is whether the authors themselves think it is in a form that it is really ready for publication, given the speed with which it was done and so forth.",47
-fomc-corpus,1981,Do you mean the summary or the rest of it?,11
-fomc-corpus,1981,"No, the rest of it. I'm not talking about the summary.",14
-fomc-corpus,1981,"Well, I would view the rest of these as virtually final, but semi-final drafts. I would like--and I think also the authors would like--one more opportunity to review them carefully for technical problems.",42
-fomc-corpus,1981,"Yes. Well, I suspect, without even having read them, that given the rate of speed with which they were written the authors need at least another crack at them before we would want to distribute them.",41
-fomc-corpus,1981,"But even if we did some more editing, I agree with Lyle that this is the sort of information that should be made available to the public.",30
-fomc-corpus,1981,"Oh, yes.",4
-fomc-corpus,1981,"How would the disclosure of which of these options, if any, the Committee agreed upon become public? Would that be in your testimony to Congress?",29
-fomc-corpus,1981,"Yes, I think my testimony will have to touch upon all the things that we are now discussing. I don't know what we would say about the discount window--maybe not much other than that it's a problem and that we're continuing to look at it. At this point I would be inclined to say that there is a question, which is in the summary, about the speed of the nonborrowed reserve adjustment. Our tendency probably will be to lean toward faster adjustments rather than slower. I can make that kind of comment without being very precise about it. I'm judging that this reflects the Committee's sentiment at this point.",123
-fomc-corpus,1981,"Mr. Chairman, on publication I should mention one thing. The summary memo, if we put that out, has a list of the staff studies. So, if it's put out with the list of staff studies, people will write in and ask for them.",52
-fomc-corpus,1981,"Well, I don't know whether we'd want a list or not, but we'll look at that. I don't see anything the matter with it particularly. Certainly if we're prepared to put them out, there's nothing the matter. But we can probably delay publication anyway.",51
-fomc-corpus,1981,"Paul, after we go down the laundry list, if there's a certain amount of indecision on things that some of us think should be reacted to more explicitly, procedurally would we express ourselves here and so be recorded? Or [are our views] not going to be recorded? We're not going to have a vote, I assume, on any of these things, right?",76
-fomc-corpus,1981,"I'm not sure any of these take a vote per se. My thought now is that there would be a qualitative statement about the speed of the nonborrowed reserve [adjustment]. The discount window would be pointed to as a problem, but [I would say that] we're not ready to propose anything explicit as a change. However, there ought to be a frank recognition of the fact that there are problems in that area. The next thing I have on my list is the question of interest rate bands. I think it is fair to say, explicitly or implicitly though maybe more implicitly, that the speed of the nonborrowed reserve reaction time--and in fact the handling of the discount window can be looked at it the same way--reflects some concern about overshooting one way or the other on interest rates and the fact that that is undesirable. The interest rates bands--everybody has his own view--I don't think have been terribly important. The closest they came to being important was last spring. Every other time we reached [the limit of the interest rate band] we changed the band. And we probably would have changed it last spring if we had reached the limit more forcibly, but we teetered on the edge for a while. But I think that is consistent with some implicit coloration in our minds of not wanting to overshoot on interest rates too much; that is a factor in how these other things are set. [Steve], this interest rate band question isn't one on which you made any particular proposal pro or con in your summary, is it?",314
-fomc-corpus,1981,"No, only indirectly. At the end we suggested that to the degree the Committee thinks the federal funds rate target has any validity, it means narrower bands. Of course, I ought to say that all the model work [assumes] unconstrained interest rates. With unconstrained interest rates, as President Balles mentioned, their model gives a little less interest rate volatility than ours does.",77
-fomc-corpus,1981,"Well, it seems to me that the really operative question here, since I don't view these bands that we have had as having constrained anything much, is whether anybody wants to have narrower ones and actually have them be constraining. I suppose it means--",50
-fomc-corpus,1981,"Well, I was certainly opposed to raising them and then taking them off this last round. Sure, we have moved them up but we haven't moved them down to the bottom number; nevertheless, we haven't hesitated to take the top off. I think it's well known that we could have gotten the same degree of restraint without having to go to 21-1/2 percent interest rates. So, I'd be more interested in seeing that the bands stick rather than that they become elastic.",97
-fomc-corpus,1981,"I'm not quite sure how we would have gotten the same degree of restraint. It may have been excessive, but it wouldn't have been the same I don't think at that [unintelligible].",39
-fomc-corpus,1981,No. [Unintelligible] it was excessive at 21-1/2 percent.,20
-fomc-corpus,1981,That's a little different from saying--,7
-fomc-corpus,1981,"I think the fact that the Committee has to get together once we run into the upper or lower end of the range is a useful procedure, even if the Committee decides ultimately to raise or lower [the band]. It requires careful thought and another round of decisions, and that's the sort of thought [process on] interest rates that I think is important. The Committee ought not absolve itself of responsibility for what is happening in the credit markets. Though I think probably lowering the ranges would not be a good idea in terms of public--",106
-fomc-corpus,1981,You say lower. Do you mean narrowing the range?,11
-fomc-corpus,1981,"Narrowing the range, I'm sorry. I wouldn't want to lower interest rates at this time, as a matter of fact. I don't think narrowing the range is a good idea, but I wouldn't want to widen the range because I do think that Committee review is a useful function.",57
-fomc-corpus,1981,"I think it's a particularly useful function at times of extremes. It seems to me that most of the time the band doesn't make much difference. We don't pay too much attention to it. It's easily changed. But there are times when it ought to bring forth some very serious discussion. Last spring it did bring forth some serious discussion on whether we should allow [the rate] to go lower. We probably ought to have had those discussions earlier. And in the last month or two it has been of some importance to think about the level of interest rates. It seems to me that most of the time it makes more sense to have the emphasis on the money supply, but there are times when the interest rates get to be well worth considering because they have a tendency to go to these extremes.",157
-fomc-corpus,1981,"I think the main disadvantage of the band is that it gives some people a justification for saying that we're really targeting on interest rates. Since I don't believe that that's the case, I think that's a wrong criticism. But I think the usefulness of the band exceeds the advantage of defusing their criticism. If one were to defuse it, there would be some other criticism.",74
-fomc-corpus,1981,"Well, we could take care of that, though. We could have in the directive a standard phrase that says the Manager will inform the Chairman if it appears that the cumulative movement in federal funds since the time of the meeting is likely to exceed 300 basis points, at which time the Chairman will decide whether or not to call a meeting. That way we would never have a stated band that people would look at. What we would have is a plus or minus 300 basis points from where the funds rate started. So maybe we could improve our public posture.",112
-fomc-corpus,1981,"Well, that's an interesting suggestion.",7
-fomc-corpus,1981,"If I may, Mr. Chairman, I'd like to go on record as favoring total elimination of the interest rate bands. From the conversation throughout this morning and in the studies and comments that have been made and things that are thought--although who knows what things are thought--I think there is an implicit awareness of explicit and implied interest rate constraints. I believe that acts in a contrary manner to achieving our aggregate targets. If we're interested in consulting frequently on interest rates, I guess we should also be interested in consulting if the money supply seems to be functioning in an unpredicted manner. I think there's a very basic contradiction in trying to control interest rates explicitly or implicitly and achieving our monetary target objectives. And I would express myself as favoring the total elimination of any specification regarding interest rates.",159
-fomc-corpus,1981,"Well, I find that hard to accept. We're getting to the point where we're transmitting very volatile [short-term] interest rates into the long-term market. Even though we haven't been able to detect it in the past 15 months, that has to be something that is going to disturb all sorts of things over a longer-term period. I think we're just abrogating our responsibility if we say we're not going to pay any attention at all to the interest rates.",93
-fomc-corpus,1981,"Well, Nancy, I agree with that. But at the same time I recognize that the main volatility that carries into long-term interest rates comes from inflation and not from our procedures because it is very implausible that we should be changing our policy from month-to-month even though that gets written up in various market comments.",64
-fomc-corpus,1981,We had the inflation before we changed our procedure and it wasn't showing up to that degree in the long-term rates.,23
-fomc-corpus,1981,It hasn't been so bad either.,7
-fomc-corpus,1981,"If we were to move to adopt new recommendations immediately, then I think Chuck's formulation would make more sense.",22
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"I'm not sure, but--",6
-fomc-corpus,1981,"Well, the trouble with Governor Partee's suggestion--it's good if you want to achieve the result that you want to achieve--is that other people may have a real concern about [the level]. If they are more concerned about a rise of 300 basis points from 21 percent than they are from 15 percent, you have a problem.",70
-fomc-corpus,1981,Then we'd have to say 200 basis points. That would be something to do.,17
-fomc-corpus,1981,I don't think so.,5
-fomc-corpus,1981,"Yes, that kind of defeats the--",8
-fomc-corpus,1981,I'm not quite sure how plus or minus 300 basis points from the current level differs from the range of 600 basis points around the current level.,30
-fomc-corpus,1981,We simply avoid saying what the range will be.,10
-fomc-corpus,1981,But we haven't always been in the middle of these ranges. Both in the spring [of last year] and just recently we've been around the upper end of the range that we set.,37
-fomc-corpus,1981,We'd have to put it in the center.,10
-fomc-corpus,1981,"I'd like to say, Mr. Chairman, that I am intrigued by Governor Partee's suggestion. I hope it will get some serious consideration. I would not be in favor of dropping the range altogether, and that would be a way of getting out of the appearance of having a range. I think it would give us a great deal of flexibility and we could make the decision meeting-by-meeting as to whether the [checkpoint] should be 300 or 200 or 400 basis points.",99
-fomc-corpus,1981,"From one meeting to the next? May I ask for a clarification? Are you saying that whenever we have a meeting, we state the monetary aggregate targets and then always have a proviso to the Desk that the Manager will tell Paul any time we're going to move 300 basis points plus or minus from where the funds rate was when we left the meeting? And that would call for consultation on the subject of whether we would want to let the rates go?",91
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,And then we could change the 300 to a different number if we wanted.,16
-fomc-corpus,1981,"If you change it, then I think you'll really be detracting from the basis--",17
-fomc-corpus,1981,"I have in mind having a standard of 300 basis points. But in an exceptional case, such as Nancy referred to when rates are at a very high level, we might want to constrain them.",40
-fomc-corpus,1981,"Since we meet on average every 5 to 6 weeks--I'm just trying to remember the history of the market [rate movements]--that would have triggered a discussion on couple of occasions, right?",41
-fomc-corpus,1981,"It seems to me, however, that the market is going to interpret your suggestion in a very different way. If the fed funds rate on the day of the Committee meeting is 17.42 percent and we say 300 basis points on either side, the newspapers would say that they have figured out that the Fed's range is 14.42 to 20.42 percent. It makes a lot more sense to say it's 14 to 20 percent. I think that's what they're going to do. Then if we start playing games and say we're going to narrow the range down to 200 basis points on either side because we don't want rates to go up too far, they're surely going to say we are playing the rates instead of the money supply.",152
-fomc-corpus,1981,I don't know how important all of this is.,10
-fomc-corpus,1981,Is it important?,4
-fomc-corpus,1981,"Well, I think it could be. We could vary on it. What scale are you on here?",21
-fomc-corpus,1981,My basic position is that I think we ought to widen the range.,14
-fomc-corpus,1981,"My position is that we ought to stay away from a mechanical approach. That's what gives us the most trouble. If we don't retain some elements of judgment in what we do, I think we're in trouble.",41
-fomc-corpus,1981,I agree.,3
-fomc-corpus,1981,I'd just hate to get hung up on any of these mechanistic kinds of solutions. I don't think any of them work.,25
-fomc-corpus,1981,"I agree with that. There clearly is an inconsistency in trying to control money and interest rates. But it seems to me it is the job of this Committee to resolve the inconsistency. And I think we ought to have ranges. Chuck's idea is an interesting variation, but I would favor maintaining a range. If it has to be raised or lowered, it seems to me that's what this group gets paid to do, whether it's by a mechanism or--",92
-fomc-corpus,1981,"Well, I would suggest that when we write this report it should say that on balance the Committee wants to retain interest rate bands. I would emphasize in the reporting that these bands have not really been constraining, but in a number of instances during the past year they have served as occasions for the Committee to consider what it wanted to do. And the report should note that virtually every time this happened, the range has been changed. I think it has been changed every time.",95
-fomc-corpus,1981,Not the bottom of the range.,7
-fomc-corpus,1981,"Well, did we ever have a consultation and not change it? I don't think so. On that bottom, I don't read that experience quite the way you do. We flirted with a conflict, but we never really had it. Just about the time when we would have had to have a meeting, interest rates began going up. We may have had a meeting and not changed it but I don't know when.",83
-fomc-corpus,1981,"The fed funds rate is a constraint. I certainly approve of your saying this in public, but I think we need to recognize that it's a constraint.",30
-fomc-corpus,1981,"Well, I don't know what you're saying because I disagree with you in terms of these bands. We've changed them every time we've come [to the limit of the band]. Now, I think it is a constraint implicitly in our behavior in terms of rapidity of movement. But I just flatly disagree with you that these outside limits have been a constraint. I just observed that when we met and said we had a problem [with respect to the interest rate constraint], the constraint has been changed.",99
-fomc-corpus,1981,"Paul, when we discussed before the problems of adjusting our reserve paths more quickly, it was specifically said that one of the costs--to those who view it as a cost--is wider fluctuations in interest rates. So, maybe we can convince ourselves within this room that interest rates aren't a factor, but I think they lurk in the back of Peter's mind and--",74
-fomc-corpus,1981,"Now, wait a minute. They do lurk in the background, and I don't deny that in terms of rapidity of [adjustments]. All I am saying is that these bands themselves--I ought to be in as good a position to know as anybody--have not constrained [our actions].",60
-fomc-corpus,1981,"Well, they do at 8 and 20 or 8 and 21 percent.",18
-fomc-corpus,1981,I don't know what would have happened. What happened when we ran into 21 percent? We removed [the limit].,24
-fomc-corpus,1981,"Well, at some point we might not.",9
-fomc-corpus,1981,"Well, that's why they're there. At some point we might not.",14
-fomc-corpus,1981,On the down side wasn't 8 percent a constraint?,11
-fomc-corpus,1981,That's debatable on the down side.,8
-fomc-corpus,1981,"I'd have to agree with you anyway, but--",10
-fomc-corpus,1981,The closest we came certainly was on the down side.,11
-fomc-corpus,1981,"Instead of lurking in the background, they have lurked in the foreground.",15
-fomc-corpus,1981,We were right on the edge. That's the clearest case when it could have been a [constraint].,21
-fomc-corpus,1981,"May I ask, Mr. Chairman, whether you're inferring that in your view we could get along without a range then?",25
-fomc-corpus,1981,"No, frankly, I think it's a good idea. I would even question whether we should have removed it every time we did. But we did.",30
-fomc-corpus,1981,"Well, if I may comment on Governor Partee's statement that the range ought to be widened: It seems to me that if we're going to issue a report on changes in monetary policy for the next year compared to last year, and if one of the things we're going to say is that we are going to move faster against movements off the path on reserves, there has to be a logical symmetry in that we have to say something that is consistent with that on the other side. Either widen the band or make a stronger statement that we will adjust right away.",112
-fomc-corpus,1981,"Again, I think the constraint has been more an implicit one in that we have not wanted to move too fast in the short run. And that is true whether we had a lot of room within the bands or we didn't.",45
-fomc-corpus,1981,"Yes, in that sense it has been a constraint, because we knew that a rapid adjustment in nonborrowed reserve paths would affect the funds rate.",30
-fomc-corpus,1981,"Well, that is true without question; but I'd say that is true whether or not we're near or away from the--",24
-fomc-corpus,1981,"Well, I think there is consensus that we all want a meaningful discussion when--",16
-fomc-corpus,1981,"Well, we don't all.",6
-fomc-corpus,1981,"With a few exceptions. Well, I said a consensus. I think it's a minor question as to whether to word it in the traditional way or to word it as in Chuck's approach.",38
-fomc-corpus,1981,Yes it's minor; I think there's a little change in emphasis.,13
-fomc-corpus,1981,"Well, I think there is a real difference. It would happen rarely, but there would have been a difference last spring and summer and right now when in a sense a lot of people would want it asymmetrical. Your presumption is that it would be more symmetrical. I detect that we do not have unanimity but a consensus. [The next topic is] contemporaneous reserve accounting.",78
-fomc-corpus,1981,"Mr. Chairman, may I make a statement on that?",12
-fomc-corpus,1981,You may.,3
-fomc-corpus,1981,"It seems to me that all these points we've been making have a good deal of merit under the lagged reserve accounting system. Anything we can do to make the volume of borrowing more predictable within reason is certainly to be desired. I think it's important that we adjust our nonborrowed reserve target more promptly, as we agreed, to offset unexpected changes in borrowing. And I would say we have to be prepared to use a pretty wide federal funds rate range. But all of these things certainly seem to me still to engage us in the very difficult practice of trying to produce a demand curve and trying to say something about what the nature of that demand curve for money really is. And I don't think we are going to be able to do that very successfully. So to me the only real solution out of our dilemma, if we really want to control the aggregates, is to move toward contemporaneous reserve requirements. There is a way I think that can be done--and this is just a tentative thought--that would be palatable to our constituents. That would be to make the period about one month but still require them to report their deposits daily. That would reduce some of the burden of shifting from the lagged [accounting], which is certainly easier for them to handle. And it would also make it easier for us to control the total supply of reserves because then our deviation in the volume of borrowing could be offset more easily, particularly if it occurred in the first part of the period. So, I think that's really something we ought to move toward.",310
-fomc-corpus,1981,I don't understand.,4
-fomc-corpus,1981,"I'm not sure I can think this through. Let me ask Mr. Axilrod and it will give me time anyway. If we lengthen the reserve averaging period--let's say it went from a week to a month--and said it was contemporaneous, it seems to me we would end up at the end of the period just where we are now.",73
-fomc-corpus,1981,"Well, I was trying to think that through. I think that would require yet another one of our studies of these various proposals.",26
-fomc-corpus,1981,"Just accept it on faith, Mr. Chairman!",10
-fomc-corpus,1981,"I do think it results in the problem of delaying reaction into the third or fourth week [with the banks thinking] maybe the Fed will come and save them finally. But I would have to think through whether that is not reproducing, in effect, a two-week lag or something like that. We would just have to analyze that carefully.",68
-fomc-corpus,1981,"Well, I think it makes it possible to hit a total reserves target. And if we're going to control the aggregates, I think we have to be able to do it. We really can't do it as well as I would like under lagged reserve requirements, although I think we can do better than we have been doing. And I say this as somebody who was involved in introducing lagged reserve requirements; I have a bias in favor of keeping them. But I think we now have a situation where we can give the banks something that's almost as palatable and not have a bad public relations effect and at the same time improve our control.",128
-fomc-corpus,1981,"I must say my concern about this is not any public relations effect or difficulties with the banks. We can make the banks do what they have to do. My concern is that the logic is probably to do this, but the logic may not be very strong. And we may in a sense be promising [too much]. People will say we made a great change and it may be that not much is different after we've made the change except that we've complicated our own life a little as well as the banks' lives. And we could get an adverse reaction because nothing much has changed. That's the only thing that really bothers me about this.",127
-fomc-corpus,1981,"Well, there are a couple of positive things. One is that I think we've tended to hide behind lagged reserve accounting sometimes and used that as an excuse for not really pursuing our aggregate targets very actively. I'd like to eliminate that little temptation, which I think we all share. The second thing is that if we did this, we'd get the monetarists off our back on that particular issue and maybe they could then make some positive contribution toward improving the control mechanism.",94
-fomc-corpus,1981,"Yes, but I think that's--",7
-fomc-corpus,1981,That'll be the day!,6
-fomc-corpus,1981,I wish I thought it worked that way.,9
-fomc-corpus,1981,How about 100 percent reserves?,7
-fomc-corpus,1981,Mr. Ford.,4
-fomc-corpus,1981,"Well, you're right to be concerned about the problem it creates for the banks--especially for a large branch bank system--because I was involved [as a banker] in researching this when it was discussed as a possibility by the Fed some time ago. We have to give them warning if we are going to do this.",64
-fomc-corpus,1981,"Oh, I think we have to assume that we will have to give them substantial warning if we do this.",22
-fomc-corpus,1981,"I know that. But having said that, if we give them warning, there's no question that the banks can gear up to provide [the data]. As to the theoretical arguments on things like the discount window and so on, there is disagreement among the theoreticians as to how much goes toward getting us out of the box that you and I were discussing earlier. But there's no question about the direction. To some extent it does get us out of the box. Some people say a lot; some people say a little. Therefore, given my concern about the absurdities of the discount window operations with thrifts thrown in and everything else that is happening in that area, I feel it's only logically consistent. I am a strong advocate of moving, with proper notice to the banks, toward contemporaneous reserve accounting but not overselling it, though, because I think you're right that if we oversell it, it could hurt us.",185
-fomc-corpus,1981,The logic is in that direction; it's just a question of how much. It may be fairly trivial. That's my concern.,25
-fomc-corpus,1981,"Will you feel a need to move that quickly, in view of the fact that we're still trying to iron out the reporting problems and the inconsistencies?",30
-fomc-corpus,1981,"Well, I assume if this is done, it's going to have to go out as a proposed regulation for comment. Now, Bob Black raised another question, which is a relevant question. If we're going to make this change, should we consider any other change in the reserve period or the carryover, and put it all out at the same time? If we're going to do that, it's going to take a couple of months to prepare the regulation, I suppose, because we would have to debate these other issues too.",104
-fomc-corpus,1981,Yes. And a complication might arise if we're now allowing some of them to report quarterly. Could that complicate it?,24
-fomc-corpus,1981,"Yes, it does.",5
-fomc-corpus,1981,I think the assumption would be that we would just go on contemporaneous reserve accounting for the bigger banks.,21
-fomc-corpus,1981,Okay.,2
-fomc-corpus,1981,Sure.,2
-fomc-corpus,1981,It has been asked whether we're thinking about bigger banks and contemporaneous reserves literally or with a one-day lag.,22
-fomc-corpus,1981,A one-day lag.,5
-fomc-corpus,1981,The one-day lag.,5
-fomc-corpus,1981,Are we going to have more revisions or more errors as a result of this move?,17
-fomc-corpus,1981,"Well, we will have errors with that, which is a complication for us. We have estimates of errors on required reserves, which we don't have very much of now. But as soon as we go on contemporaneous reserve accounting, we're going to have lots of errors in our own estimates of required reserves.",61
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,Is this going to cause major operating problems at the Reserve Banks?,13
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Yes. We need time just like the commercial banks.,11
-fomc-corpus,1981,A lot.,3
-fomc-corpus,1981,There's a long lead time. MR. CORRIGAN(?). And a lot of programming.,20
-fomc-corpus,1981,"That's what Milton Friedman calls ""bureaucratic difficulties.""",11
-fomc-corpus,1981,That's because he doesn't know the facts of life.,10
-fomc-corpus,1981,"Milton Friedman would argue that we should impose the least cost on the private sector, too, except in this case.",24
-fomc-corpus,1981,"It seems to me, Mr. Chairman, that if we did this, we wouldn't have to go through the process of trying to estimate what the demand for money looks like, what it's shaped like, and all those things. We would make our best estimate of the reserves it takes to give us the [desired] growth in the aggregates. And what happens is that the demand for money, whatever the shape [of the curve] is, will determine the level of the federal funds rate.",98
-fomc-corpus,1981,"Well, that implies that there's no slippage either in our estimates or in the linkage. And we just had this plus or minus 10 percent a month slippage.",34
-fomc-corpus,1981,"No, I'm not ruling that out; I recognize that there are slippages. But I think we'd come very close to hitting a total reserves target, particularly on a monthly basis. And I don't mean a flat, identical percentage increase each month. I think we would have to adjust that total reserves figure for the non-monetary liabilities and what they used up or released in the way of reserves. We'd have to construct the target path very much as we do now. But we wouldn't have the problem of the banks being able to borrow and [raise] the reserve targets.",116
-fomc-corpus,1981,Sure we would. They can still borrow.,9
-fomc-corpus,1981,"Well, they wouldn't [raise it] all that far, though, because--",16
-fomc-corpus,1981,That's an expression of faith on your part. How do you know?,14
-fomc-corpus,1981,"Well, I think they could [raise it] to some extent. But just the lengthening--",20
-fomc-corpus,1981,"Well, this is the whole argument. What difference does it really make? The logic goes in your direction, but I don't know why you think it's quantitatively important. Banks don't determine the money supply; an individual bank doesn't. It sits there and sees what deposits it has today and it will come up with those reserves tomorrow. Under CRR what we would be doing is that we would make them come up with those reserves tomorrow, or at least in the present week, instead of two weeks later. But why do you assume from that a vast difference in bank behavior?",115
-fomc-corpus,1981,"Well, the point that you frequently make is that the banks are going to get the total reserves that they need that are based on deposits two weeks earlier. And in this case, if a bank is hell bent to make loans because it has loan demand, it's going to go ahead and probably borrow some at the window. But we can offset that during the period because we can cut the nonborrowed reserve part of that. And that's going to set in motion a process regarding bank credit that is going to reduce required reserves during that period. There's no way we can reduce them under lagged reserves.",120
-fomc-corpus,1981,"Yes, the increase in borrowing will set in process a motion, but we can get that same increase in borrowing if we have the intestinal fortitude to do it. I think at the present the main thing that would change, frankly, is that the market would be making more of these judgments about what the level of borrowing was because we wouldn't have the information fast enough to do it. So--",79
-fomc-corpus,1981,"Well, doesn't the borrowing begin two weeks earlier under this system so that the adjustment comes faster?",19
-fomc-corpus,1981,"Yes, all things equal.",6
-fomc-corpus,1981,"Well, one week earlier.",6
-fomc-corpus,1981,One week earlier.,4
-fomc-corpus,1981,"It's one week because of the way we operate. That is, we don't wait. If deposits are running high and borrowing has to be high for that four- or five-week period, we immediately put that in. So, it's only if it happens the very next week instead of waiting two weeks when the required reserves are technically higher [that we] wait until the deposits are higher in that week. So the effective lag is really cut down from two weeks to one week by the way we operate.",100
-fomc-corpus,1981,"Well, it all goes in that direction. But it's just a question of magnitude.",17
-fomc-corpus,1981,"Yes, I know. It's a matter of degree. And I think we can operate under lagged reserves; I never would have advocated that originally if I hadn't thought so. But I believe we can do it a good deal better under contemporaneous; and I think the longer period gives banks a chance to do some arbitrage over time that might iron out some of the interest rate fluctuations that are of concern to a lot of us around the table.",90
-fomc-corpus,1981,"Well, why did we change in the first place? Didn't we originally--",15
-fomc-corpus,1981,"It was a bank relations move, basically, Tony. We conjured up a lot of reasons.",20
-fomc-corpus,1981,Now you no longer feel the need to accommodate the banks?,12
-fomc-corpus,1981,"Not to the same extent. We were also operating on a net borrowed reserve target, too. And we could hit that more precisely [with lagged reserves]. It didn't have the same meaning, to be sure, because required reserves had been determined on the basis of deposits two weeks earlier. But it was easier to hit it. But the basic reason was that it was very difficult, as Bill Ford said awhile ago, particularly for the large banks with branch systems to know what their required reserves were even by the end of the period. So they estimated. And it's still--",115
-fomc-corpus,1981,"But the Fed did this in the late '60s, right?",14
-fomc-corpus,1981,It was done for bank relations purposes mainly.,9
-fomc-corpus,1981,"Yes, but now it should be a lot easier to go back to it technically because more of the banks are moving toward being on line with their branches in terms of their EDP operations. So it should be a lot less painful if we reinstate it now than it would have been with the same--",61
-fomc-corpus,1981,"Well, I don't really understand. I can understand those of you who want to impose these extra burdens on the banks because you think it's a major improvement to [monetary control] but [not] those of you who think it's a very minor one. I don't quite understand why we're so concerned about not increasing the burden on the banks in other areas but in this area it's okay. We're going to get very minor monetary policy--",87
-fomc-corpus,1981,"There are some of us who do feel that way, Tony.",13
-fomc-corpus,1981,"Well, it's a dilemma. We can say that we've got all the instruments now to achieve the degree of money control that we really want, say, over three months, so why improve the techniques? But I think this is a speeding up. It may reduce interest rate variability because certainly in the absence of an action by the Desk it seems to have been econometrically demonstrated that there is more instability of interest rates when we're up against fixed reserve requirements than when we're up against requirements that we can modify slightly during the week in question. If that continues to hold--and I don't know if that's still the view--then I think there is quite a payoff.",132
-fomc-corpus,1981,I'm not sure I understood. You were saying we get less interest rate variability with contemporaneous reserves?,20
-fomc-corpus,1981,"[Yes, under] contemporaneous because, in the lagged case, there's a given amount of reserves that the banking system must get if the Fed doesn't supply them. Then the excess reserves have to be worked down to zero, in effect, and carryovers are created. Whereas if the banks are able by reducing their reservable liabilities to reduce the amount of reserves required--",75
-fomc-corpus,1981,"I don't think that brings lower interest rates, Henry. An individual bank can't reduce its reservable liabilities. It can do something on the assets side that reduces some other bank's reservable liabilities. But that would be accompanied by more pressure on the market.",51
-fomc-corpus,1981,"What Henry is saying, I think, is that for any given degree of precision of monetary control, we will have less variability of interest rates. Or, for any degree of variability of interest rates, we get more precision of monetary control. In other words, what is going to happen to the demand for reserves is that under present circumstances the demand for reserves has elasticity which depends only on the elasticity of demand for excess reserves. What this is going to do is to introduce into the overall demand for reserves an elasticity which comes from the demand for money. So overall demand for reserves will be a little more elastic with respect to interest rates than it was before.",131
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,"What we get is a quicker change in interest rates and, therefore, it doesn't have to be as large. It's a special case of the general case that has been well postulated in [unintelligible].",43
-fomc-corpus,1981,"There is an offset to that, I think. That's in the intermediate run, as I was trying to say earlier. We might get a little less variability because the process might start a bit sooner. In the very first week banks extinguish some deposits instead of borrowing all the money so there is a little less interest rate [effect] than if we had to wait until the second week or the third week. But in the very short run we might get more up and down jiggles because by our mechanism now we sort of eliminate those by estimating the demand for borrowing and spreading it over the weeks [of the reserve adjustment period]; so we're accommodative to the up and down jiggles in deposits. We will know those up and down jiggles in deposits under contemporaneous reserves and thus we're likely to get more up and down jiggles of the funds rate with contemporaneous reserve accounting, I believe.",180
-fomc-corpus,1981,Anybody want to--,4
-fomc-corpus,1981,And there are some who believe that those swings would be rather extreme.,14
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,"Well, they may be.",6
-fomc-corpus,1981,Is there anybody around the table who remembers how things worked prior to 1968 with regard to the jiggles?,23
-fomc-corpus,1981,We were setting fed funds rates then and [experienced] no problems.,14
-fomc-corpus,1981,"When we're setting the federal funds rate, it won't make any difference. That's right.",17
-fomc-corpus,1981,"Part of the problem in terms of pre-1968, too, is just the amount of churning in the banking system then as opposed to now. The Fed-wire didn't even work prior to the--",41
-fomc-corpus,1981,"Well, I think we were essentially on a variety of targets, but the way to describe them all was ""the tone and feel of the market.""",30
-fomc-corpus,1981,"No, I mean just the turnover of financial assets in the [banking] system.",18
-fomc-corpus,1981,"Yes, and we'd smooth that out. It was less jiggling in some sense because the Desk was tending to offset the jiggling.",29
-fomc-corpus,1981,"As I recall the theoretical discussion--some of the staff members may be able to enlighten me on this--one of the factors that keeps us from getting a big payoff for going to CRA is the difference in reserve requirements among different size banks. Isn't it right that that is another source? And with the new law, that tends to smooth those differences. Maybe that, too, would help reduce the noise that comes with moving to CRA.",88
-fomc-corpus,1981,I don't think there's any doubt about that.,9
-fomc-corpus,1981,"Isn't that right in terms of the theoretical arguments? Yes, but why doesn't CRA give an immediate linkage?",22
-fomc-corpus,1981,"Well, that would make a difference. But I think the biggest single source of slippage is going to remain the discount window. Nothing in going to CRA says that they can't borrow.",37
-fomc-corpus,1981,But we can squeeze them by cutting the nonborrowed reserves.,13
-fomc-corpus,1981,Sure we can.,4
-fomc-corpus,1981,Do you think we can't really do that now?,10
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,We've got to let them have the total reserves they need to meet their requirements.,16
-fomc-corpus,1981,"Yes, but we squeeze them by making them borrow more. And that has been the limitation on our operations now. We didn't want to go very fast. Now we can go faster within the week but I--",42
-fomc-corpus,1981,"There's nothing in this procedure that would preclude putting in a range on the federal funds rate if we did not want to offset the borrowings that the banks would have the option of entering into. We would not have to do that fully. I'm just saying that we could do it virtually 100 percent over a monthly period if we wanted to. Now, that might involve more volatility in interest rates than a lot of people would like to see. But at least the mechanism is better because we don't have to fool around with trying to estimate the demand for money, which I just don't think we're ever going to be able to do. The appetite in the short run for money is just unpredictable in my judgment. And to me the necessity of doing that--coming up with a federal funds rate that would tell us what the borrowing is going to be--is a key part of the present processes. And we've been notably unsuccessful in that. I think we can improve it, but I don't think we can ever be terribly successful with it.",206
-fomc-corpus,1981,"Mr. Chairman, I think I should add--because it comes out of President Black's comments--that we have a heck of a time predicting the demand for money. But we have [difficulty]--and that was one of the results of the research--predicting the supply factors that are affecting what money is going to be, such as deposit mix, demand for borrowing, and things like that, given interest rates and GNP and money. Contemporaneous reserve accounting might strengthen that linkage but there are a lot of other factors that would argue for permitting the borrowing to do some of the work, which would tend to offset the misestimates on deposit mix and things like that. So, I wouldn't think that going to contemporaneous reserve accounting would automatically mean we're going to be better off because we can chase borrowing up and down. A certain amount of borrowing seems necessary to offset our own multiplier misses, so to speak.",186
-fomc-corpus,1981,But doesn't your--,4
-fomc-corpus,1981,"I agree with that, Mr. Chairman; I didn't mean to suggest otherwise. And I didn't mean to suggest that a one-month period was absolutely right because we haven't had a study on that. But under the present procedures, we have to estimate a demand and a supply function for money to operate, if I understand correctly. Under CRR, all we have to do is estimate the supply. We have eliminated the most difficult estimating problem. But far be it for me to say that the estimating problem would not still be difficult. I think it would be, but I think it would be more manageable. It takes a lot for me to eat crow on this because I was involved, as some of you may remember, in this [move to] lagged reserve accounting. And I now think we probably were wrong on it. But it was done to make things easier for the banks, basically.",180
-fomc-corpus,1981,Is the reason we don't have to estimate the demand function that the volume of the money can adjust during the period?,23
-fomc-corpus,1981,"That's right. We figure out what volume of reserves we think it would take to get the growth in the money supply we want and put out that volume of reserves. There are things that can offset it, as we all know. Borrowing can go up and we'd have to offset that; or we could have an unexpected change in the level of float and we'd have to offset that. I don't mean to suggest that we can hit it with perfect precision. But if we do [go to CRR], it seems to me that the demand for money basically determines the level of the federal funds rate. I recognize, as I said earlier, that some might want to put a constraint on that. But we could certainly--",144
-fomc-corpus,1981,We've just been talking about that.,7
-fomc-corpus,1981,"Yes. Not everybody wants to do that; I'm just saying that some want to put a constraint on it. But we could do that, which means that we would not pursue the supply of reserves as actively as, say, Larry Roos would like or as I would like. We would at least tip our hat toward what this procedure was doing in the way of creating volatility in the federal funds rate. We would diminish the ardor of our pursuit for a while in deference to what it was doing to interest rates. I think that's perfectly compatible and a person can argue for that. As I admitted to Lyle a while ago, I think these large gyrations we've had in interest rates have been very upsetting to businessmen who are trying to plan, and I would like to see those gyrations eliminated. The best way to eliminate them is to do what we've said we wanted to do: Get the aggregates down to a lower rate of growth so that we get rid of some of the inflation. I think that will do more to remove volatility in long-term rates than anything else. That's something I can't prove empirically but it certainly seemed to be true in 1960-64 when we did have a relatively low rate of growth in the aggregates.",251
-fomc-corpus,1981,"Let me just ask about the extremes. I'll ask [for you views] symmetrically, but I have to start with one extreme first. Who feels very strongly that they would like to go to contemporaneous reserve accounting? [Secretary's note: Messrs. Black, Ford, Roos and Winn raised their hands.]",65
-fomc-corpus,1981,And the next question is who is not at least strongly--,12
-fomc-corpus,1981,"Well, let's have the other extreme now. Who feels strongly that we should not? [Secretary's note: Mr. Gramley raised his hand.]",30
-fomc-corpus,1981,On the basis of cost to banks alone.,9
-fomc-corpus,1981,Very strongly or just strongly?,6
-fomc-corpus,1981,The same amount of strength that I asked on the other side.,13
-fomc-corpus,1981,I'll join Lyle.,5
-fomc-corpus,1981,I think I will too. [,7
-fomc-corpus,1981,I will also.],4
-fomc-corpus,1981,I'm on the margin between moderately and strongly opposed.,10
-fomc-corpus,1981,"Yes, I'm with Tony. If he's going to raise his hand--",14
-fomc-corpus,1981,Wait a minute. We may be--,8
-fomc-corpus,1981,I hope none of you will tell [Irv] Auerbach how I voted!,18
-fomc-corpus,1981,"You have listened to the discussion, including the point that Bob Black made that if it turned out that we had an excessive amount, however defined, of instability in the federal funds rates from day-to-day that we might want to change our techniques and constrain that more directly. Now let me ask: Given all the discussion, who would favor going in this direction enough to want to make the change? That includes the people who want very strongly to do it.",91
-fomc-corpus,1981,When?,2
-fomc-corpus,1981,With an announcement?,4
-fomc-corpus,1981,We assume this is with time for everybody to get their acts together?,14
-fomc-corpus,1981,"Yes, with adequate time and all the rest.",10
-fomc-corpus,1981,I don't understand this.,5
-fomc-corpus,1981,I don't know what we're voting on.,8
-fomc-corpus,1981,"Considering the disadvantages and how you appraise them, you are voting--whether you feel strongly or weakly--on whether on balance you'd make the decision to go [to CRR].",37
-fomc-corpus,1981,In due course.,4
-fomc-corpus,1981,"Well, on balance, if we did something with deficiencies and so forth, I'd go.",18
-fomc-corpus,1981,"Yes, but you just voted in the opposite because it says--",13
-fomc-corpus,1981,"No, no. Just [on changing] the lagged reserves regime itself. But I think if we did some adjustments--",25
-fomc-corpus,1981,"Well, all right, just on [changing] lagged reserves then. Put your hands up once more. I just want to get some sense of how many. [Secretary's note: Messrs. Balles, Black, Boehne, Ford, Guffey, Morris, Partee, Roos, Wallich, and Winn raised their hands.] Okay, let me ask the opposite; it should be all the rest. On balance, who would not go, either strongly or weakly?",102
-fomc-corpus,1981,Isn't somebody going to be undecided?,9
-fomc-corpus,1981,"Yes. Actually, I'm just indifferent. We've argued we will proceed with--",15
-fomc-corpus,1981,It puts you in the perfect position.,8
-fomc-corpus,1981,"Well, all right; you're permitted to be indifferent.",11
-fomc-corpus,1981,Can we vote for indifference?,7
-fomc-corpus,1981,We have a majority who would like to go for it. The next question would be--,18
-fomc-corpus,1981,When?,2
-fomc-corpus,1981,And how? And would you raise all these questions about the reserve averaging period and the--,18
-fomc-corpus,1981,The Board has already announced it is thinking tentatively about doing it by September of this year.,19
-fomc-corpus,1981,I know.,3
-fomc-corpus,1981,"Yes, in principle.",5
-fomc-corpus,1981,I understand.,3
-fomc-corpus,1981,"But, certainly, the carry-forward and carry-back would have to be a part of all that.",20
-fomc-corpus,1981,"If we got into operating that way, we really would need to look at the whole ball of wax.",21
-fomc-corpus,1981,What do we gain in terms of what you want for monetary control? That's why we're doing this.,20
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"If we go ahead and lag it all over the place with carry-forward and carry-back, the whole purpose of considering reserve requirements--",26
-fomc-corpus,1981,"Yes, absolutely. We'd have to weigh the pinch-points. I'm not arguing that we would do so much carry-forward.",25
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,But it would do away with the whole effect.,10
-fomc-corpus,1981,"No, it just provides another safety barrier.",9
-fomc-corpus,1981,But we are going to have to study the question to see whether they are pinch-points.,19
-fomc-corpus,1981,"You did a memorandum on this a year ago, didn't you?",13
-fomc-corpus,1981,We've had several on this subject of carry-forwards and carry-backs.,15
-fomc-corpus,1981,I'm trying to remember. Do we have any study in the various studies on contemporaneous reserve accounting that brought these together?,24
-fomc-corpus,1981,Do you mean the carry-forward and carry-back?,10
-fomc-corpus,1981,"The carry-forward, carry-back, and the change in the reserve averaging period. MR. AXILROD(?). Mr. Lindsey?",28
-fomc-corpus,1981,"We considered all those issues, except for lengthening the reserve averaging period, in a memo that went to the FOMC about nine months ago.",30
-fomc-corpus,1981,"But we could put all this together again, and we certainly would, prior to further discussion by the Board. That would be the intention, I assume.",31
-fomc-corpus,1981,"Steve, if we lengthen the carry-forward/carry-back, doesn't that increase your difficulty of estimating reserves at any one point? Doesn't your estimating procedure get more distorted?",34
-fomc-corpus,1981,"We have never been able to convince ourselves on that. It's a fine point as to whether widening those offsets the advantages of going to contemporaneous accounting, if you think the advantage is better control of the money supply in the short run. CRR does tend to make our multiplier a little less loose, clearly.",62
-fomc-corpus,1981,"Mr. Chairman, I want to argue for not doing everything at once. It seems to me that it makes a lot of sense to move more rapidly on nonborrowed reserves. I thought I heard practically everybody say they wanted to do that. MR. WALLICH(?). Not me.",58
-fomc-corpus,1981,"Well, I said practically everybody. I could have said everybody who counted, but I was trying to be nice!",23
-fomc-corpus,1981,I'm wounded!,3
-fomc-corpus,1981,"If we throw all these other changes in there all at one time, I'm not sure that we're going to know what the heck is doing what.",29
-fomc-corpus,1981,"The posture we are in now, if I recall it accurately, is that we have said we don't want to do this right away because of the Monetary Control Act. And, if we ever do it, we will give the banks a lot of notice and all the rest. We are seriously contemplating it but we haven't made up our mind.",68
-fomc-corpus,1981,That's right. [The announcement of the Board's tentative posture] had a slightly positive cast rather than a negative cast in it.,26
-fomc-corpus,1981,"Yes. Among other things, this is a Board of Governors decision. But I'm just trying to figure out how we can advance the ball or kick the ball back in terms of what we say in connection with the Humphrey-Hawkins report. We can put a more positive cast on it and say an appropriate regulation is being drawn up, which the Board would have to agree to subsequently. We can say we are considering these other things and we plan to publish a [proposed] regulation but it's short of an absolute decision. We can put a much more positive cast on it, but we can't say we absolutely have decided on it anyway if we're going to put it out for public comment.",139
-fomc-corpus,1981,We will have to publish a [proposed] regulation.,12
-fomc-corpus,1981,But there was a flavor [in our announcement] that we wouldn't consider it until September.,18
-fomc-corpus,1981,"I would assume that if we began right now to consider it, we'd have to consider some of these other matters and couldn't do it short of six months anyway.",32
-fomc-corpus,1981,"Yes, that's what I had--",7
-fomc-corpus,1981,But we have to get comment [from] the banks and give them time to get prepared.,19
-fomc-corpus,1981,I think Governor Schultz has come up with a sensible suggestion for most of us. Going with what he said is all we can do for a while anyway. We could not switch to this any time soon.,41
-fomc-corpus,1981,"Well, just to pick a round number, I think we're not talking about [making a decision] before six months.",24
-fomc-corpus,1981,"No. But in the meantime, I would favor doing what he suggested as an interim step. And if things turn out better, then maybe we don't need to do it. I have long had a bias in favor of lagged reserve accounting, but--",51
-fomc-corpus,1981,What are you going to tell your critics next year if you're going to take care--,17
-fomc-corpus,1981,This would be lowering requirements.,6
-fomc-corpus,1981,"We on the Board will discuss this against this background [discussion]. One possible outcome is, in effect, announcing that we are going to publish a regulation for comment and consideration.",35
-fomc-corpus,1981,"May I make one observation? In countering what Fred said, I don't think this is a matter of our throwing everything at them at once. If you recall--and maybe I'm hung up on this--the President, the present Secretary of the Treasury, Mr. Stockman, and others coming into this Administration specifically suggested that we free interest rates and that we go to contemporaneous reserve accounting. In other words, they [listed] a number of the things we are talking about. Now, we certainly are independent of them. If, as a result of this effort today, when the Chairman goes up to Capitol Hill all we do is say that we are going to try to adjust our nonborrowed reserves a little more quickly, it will be awfully obvious to people who are aware of the several things that were suggested that we really haven't moved on any of them very emphatically. So, I think we're going to catch more flak if we merely do that one thing than be in any possible danger of being accused of throwing too much at them at once, if that makes any difference. In the minds of the financial press, or portions of it at least, as well as the incoming Administration, there are rather specific views that the two or three or four changes that we are discussing today are necessary for the Fed to conduct monetary policy in a brave new manner. And I think the omission will be as obvious as throwing in too much. This is just said in a friendly way to give the opposite point of view.",306
-fomc-corpus,1981,If it works.,4
-fomc-corpus,1981,I would remind you of the recent interview that Newsweek had with Bill Martin in which he ended up saying that he doesn't know much about monetary policy but he knows a lot more about it than most other people and he spends most of his time trying to combat simplistic solutions. And it seems to me that there are an awful lot of simplistic solutions being offered. I'm not convinced that those who are criticizing what we are doing know more about it than we do around this table.,94
-fomc-corpus,1981,Mr. Chairman?,4
-fomc-corpus,1981,If I may move to item E.,8
-fomc-corpus,1981,"Could I say just one fast word? When the Board does consider this matter, I hope it will give serious consideration to Bob's proposal. Among other things, it certainly would eliminate the frantic settlement dates that we would have under a one-week reserve period. That would greatly diminish the burden on both the Reserve Banks and the reporting banks, if we could get what are said to be the advantages of CRA. I view them as being moderately promising. But to do it on the one-month basis rather than an every week basis I think has an awful lot of merit. It certainly deserves more consideration in my view.",122
-fomc-corpus,1981,"Well, the only thing that strikes me about that offhand, without having thought it through, is that all the adjustments get delayed until the end of the month, and there would be a tremendous crunch at the end of the month. That would be worse. But we'll look at it.",58
-fomc-corpus,1981,I think the Committee has had some experience with this.,11
-fomc-corpus,1981,But they have a one-month long lag.,9
-fomc-corpus,1981,"Next on my list is: Which target do we emphasize? We have a particular problem--and I don't know how far we can carry this outside of the specific decision we have to make about targets this year--when, for institutional reasons, we don't have as good a handle on what M1 is doing as we might like. Who would like to address themselves to this subject of which target? I suppose we could say the general question is: How many targets do we announce?",96
-fomc-corpus,1981,"I've become increasingly disenchanted with M1 [in its various forms] as a monetary policy target, starting back in the fall of 1978 when for six months it was giving us misleading guideposts to monetary policy. It seems to me that what we're trying to control with monetary policy is nominal GNP and that, therefore, we ought to use as our target something that is more closely related to nominal GNP. I think the broader aggregates are more closely related. So, I'm in favor of getting away from M1 because of its short-term instability--because the noise factor is so much louder in M1 than in the other aggregates. And I think the fact that we have this NOW account problem this year provides us with an ideal opportunity for chucking M1.",156
-fomc-corpus,1981,"I understand everything you're saying. M1, very recently anyway, has [not] been very closely correlated with nominal GNP. But how do you answer the fellow who says: ""That's fine, but we can't control M2""?",47
-fomc-corpus,1981,"Well, sitting around this table today, we have heard discussions to the effect that we really don't control M1 with reserves--that we control it with interest rates. If that's the case, it seems to me that we can control M2 or M3 as well with interest rates. I am not persuaded that the broader aggregates are less controllable, in fact, than the narrow ones.",78
-fomc-corpus,1981,They're mostly controllable by controlling the economy.,9
-fomc-corpus,1981,"Well, so is M1 fundamentally.",8
-fomc-corpus,1981,You know there is the result--,7
-fomc-corpus,1981,With M1 I think--,6
-fomc-corpus,1981,I would have thought M1 had some independent impact.,11
-fomc-corpus,1981,"But even if we aimed for M2, our control mechanism lever is still M1. It has to be.",23
-fomc-corpus,1981,Why?,2
-fomc-corpus,1981,"Well, if M2 overshoots the only thing we can do is lower M1.",19
-fomc-corpus,1981,Haven't there been studies that have shown there is a much closer relationship between the narrower aggregates and nominal GNP than the broader aggregates? May I ask that question of my friend on my right?,40
-fomc-corpus,1981,"Mr. Axilrod now tells us that one can produce a study to show anything, I guess.",21
-fomc-corpus,1981,I think Mr. Davis has.,7
-fomc-corpus,1981,The fact is that I asked my staff to give me a chart of M3 velocity compared to M1 velocity.,23
-fomc-corpus,1981,"Well, just to clarify this: If you just look at the simple relationship with no lags, it is clear that M2 has a much closer relationship. I think everybody would agree with that recently. But you're saying that if one makes a complicated enough equation with lags and so forth and interest rates, yes--",64
-fomc-corpus,1981,"Well, with regard to a predictable relation between money and GNP, the velocity of M2 has shown very little change in the last couple of years. But [the problem] gets very hard when one puts oneself in another world of controlling [M2]. Then, what are the relationships? In the present world in which we live, the interest rates that are available on the instruments in M2 move very easily with the market. They have been designed that way. When you start controlling M2 and market interest rates go up, the [depository] institutions raise their interest rates; In my mind--and I may be wrong--if we really actively control M2, I fear that we'll get much more interest rate volatility out of that than one might think. When you are looking at a world where we weren't trying to do that, M2 sort of goes along with the more moderate movements in interest rates relative to GNP that we were having. So I think it's much more complicated than just looking at the past history of these relationships. I'm probably not being clear, but--",218
-fomc-corpus,1981,"Well, I think I understand what you're saying. Nonetheless, the image in the public mind and in the mind of the Congress of what monetary policy did in the last year, for example, is closely identified with the tremendously erratic jags in M1. We got some undulations in the broader aggregates, but we didn't get anything like that kind of movement. To stick with a target that has as much noise as M1 does is not a very rewarding exercise.",94
-fomc-corpus,1981,"May I just make one final point, Frank? I don't want to bore the Committee, but what I'm trying to say is that M2 in 1980 didn't vary quite as much as M1 did. But [what would have happened] if we had been trying to keep M2 from doing what it was doing? Then we would have had, I think, even more interest rate variability because the market would have had an easier job working to offset [our actions] because the [depository] institutions could change the interest rates on the deposits in that aggregate. If we had worked policy your way, that might have generated a lot more interest rate variability and, for all I know, a lot more money variability. The reason is that to reduce M2 growth sufficiently we would have been putting most of our pressure on demand deposits because institutions would have been raising their interest rates to get more of the other deposits [in M2].",188
-fomc-corpus,1981,"Well, I would be more inclined on the broader aggregates to use M3 than M2.",19
-fomc-corpus,1981,"Well, for either one, I think that's the issue that it tends to bring up.",18
-fomc-corpus,1981,"I wouldn't want to do anything too shocking about this, Frank, until I understood more about the British experience. They have had something like a 22 percent increase in M3, about twice their guideline. But M1 rose 6 percent last year, which is much more consistent with what was happening in the economy.",64
-fomc-corpus,1981,"Yes, but I'm not sure you can make that comparison, because they had--what do they call it--the corset?",26
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Well, they had some other things and I just don't know--",13
-fomc-corpus,1981,"Well, they haven't been [unintelligible] overshooting.",14
-fomc-corpus,1981,"Yes. But it's very possible that there might be a tendency for people to move out of long markets and into short markets for both borrowing and holding financial assets. It would have the effect, within the context of a particular increase in total credit, of being more in the form of M3. It could be the corset or anything else that would occur. And that would be totally uncontrollable by us. I think the only way we could control it, as Steve says, is by reducing the growth of narrow money to the point that we got interest rates high enough to have to turn them off to short markets as well.",126
-fomc-corpus,1981,"Steve, didn't you have an experience when you were trying out the different control measures that as you moved the control from one of the instruments to the other, in effect, what it did was to move the variability to the instruments that were uncontrolled?",49
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"So, we are not getting rid of the variability by changing our target; we're just moving it to some other instrument.",24
-fomc-corpus,1981,"That's what led me to try to put controlling M2 in those terms because that might be shifting whatever variability we had in M2 somewhere else, so to speak. It would be in demand [deposits] then, with possibly even more variability in M1 and, as a result, even more variability in interest rates than we are observing.",70
-fomc-corpus,1981,Didn't I see somebody speculating on the British experience that they might have had slower growth in M3 if interest rates were lower?,26
-fomc-corpus,1981,"Well, the thought there is what was referred to as ""a perverse elasticity."" The work that we've done on that suggests that there is not. That was something that was looked at as we were redefining the aggregates to see whether there was a sufficiently perverse elasticity. It's possible that there is some, but that has not been found yet.",70
-fomc-corpus,1981,"It seems to me, as a minimum, that we need to ask the staff to take out the components of M2 that are not in M-1B and subject them to some analysis of their cyclical pattern. What does it look like? How sensitive are those components to rates of interest and so on? There are some things that go in opposite directions.",73
-fomc-corpus,1981,I think we did that once before and we found that the non-M1 components in M2 did not contribute anything to the relationship of M1 and income.,32
-fomc-corpus,1981,That's right. [Unintelligible] we did in that committee you'll remember. And there was no improvement in controllability by moving from M1 to M2.,34
-fomc-corpus,1981,When was this?,4
-fomc-corpus,1981,"Oh, a year or two years ago maybe.",10
-fomc-corpus,1981,"Well, we heard Frank expressing one point of view on one side. Are there those who are 180 degrees away and say we ought to forget about M2 and M3 and bank credit and so forth?",42
-fomc-corpus,1981,"Do we know anything more, Steve, about where NOW account money is coming from?",17
-fomc-corpus,1981,Let's get into that later.,6
-fomc-corpus,1981,"Well, I don't know. Was Frank arguing that? I'm not sure I understood. Were you arguing that we ought to target on M2 and--",30
-fomc-corpus,1981,Or M3.,4
-fomc-corpus,1981,"--M2 or M3 and that we ought to replace the single variable of M-1B that we're targeting on with another single variable? And are you going to the extent of saying that we just publish that one? If so, I can agree with you partly. I think the Kaufman idea that we need to look at much broader [aggregates] and that we need to look at credit makes some sense. But there are all kinds of problems in that. It seems to me that we can't do very much better than to target on the M-1B that we're using now and look at the other aggregates, including bank credit, as judgmental factors.",135
-fomc-corpus,1981,I think 1981 is going to be a year when none of us is going to have the faintest idea what M1 really means.,29
-fomc-corpus,1981,We'll get back to that in a minute.,9
-fomc-corpus,1981,I understood Frank to say he wants to target on M2 or M3.,16
-fomc-corpus,1981,Or M3.,4
-fomc-corpus,1981,"Just in terms of a more general sense of the meeting, if I detect it correctly, the view is that we will remain rather eclectic on this as a matter of principle but that some M1 measure continues to have a particularly heavy bearing as an operating matter. We may modify that in the light of the particular decision we have to make now. M1 is particularly [distorted]. But as a general principle--though we had one on one side and one on the other side--I assume everybody else is in the middle, which is the view I just attempted to express.",116
-fomc-corpus,1981,"At previous meetings, I had taken Frank's position. But I've been thinking it through and I believe it's a little dangerous to target on M2 or some other broad version of [money]. I think people will still be looking at the M1 components of the M2 number. And we're still going to have to be open to much criticism. Also, I'm impressed by Steve's earlier point: It is a cumbersome variable to target because we can only operate on part of it. So, my instinct would be to go ahead and target the same Ms that we did last year and adjust the targets for the NOW accounts. We'd be publishing only the raw data and then periodically we would make a--",139
-fomc-corpus,1981,"We'll get into the specifics of what we will do [with the targets for this] year in a minute. You wanted to say something, Bob?",30
-fomc-corpus,1981,"Yes, I just wanted to say that I think one of the brightest things this Committee ever did was to start the targeting procedure not only with ranges but with a family of targets. And this is absolutely the worst time in the ten years I've been here to abandon that and to seek, as some people on the Committee want to do, a single aggregate that is better than the others. They are only marginally better or marginally worse. [I don't care] if someone wants to say that it's cowardly to seek refuge in a family of aggregates with disparate movements and admit that we are feeling our way in this; I think that is the honest approach.",132
-fomc-corpus,1981,"Well, I think you are citing a general opinion. It's clear enough, subject to any change we have to make this specific time because of the confusion about M1. But we'll get to that later.",41
-fomc-corpus,1981,"Particularly in 1981 it would be pretty risky to bear down on just one aggregate. But could we perhaps consider simplifying the family? I'm not sure, for example, whether as we go into 1981 it will still be necessary to track M-1A. We know there are going to be some very massive shifts out of it because there already have been at least some. It's going to look really weird to set up a target abstracting from changes, given what may show up in reality.",102
-fomc-corpus,1981,"Let's go to that when we look at 1981. I think it's a relevant question. Anything else on the general principle? We are remaining eclectic. A question arose in the course of these studies; it doesn't need to be systematized, but somebody may want to say something about it. The staff detected, as a matter of empirical research, that the targets that the Committee set tended to move one-third of the way back toward where they were supposed to be per month. Am I expressing that correctly?",103
-fomc-corpus,1981,I think that's right.,5
-fomc-corpus,1981,For the long term?,5
-fomc-corpus,1981,Back to the midpoints of the long-term ranges.,11
-fomc-corpus,1981,"I don't think this was consciously thought out or very explicitly thought out. I may be overstating this, but did I understand that the staff judgment that emerged, considering the implications for interest rates and all the rest, was that that did not seem, for better or worse, an unsensible way of doing it?",63
-fomc-corpus,1981,"That's right. Looking at the monthly money market model simulations, that was kind of a tradeoff. If you tried to get back faster than that, the assurance of hitting your long-run target wasn't all that much greater [and that needed to be weighed against] the probable increase in money market rate volatility.",61
-fomc-corpus,1981,"Well, I don't really think this requires any decision because we can always make it at any particular meeting, as we have in the past. But I thought it was interesting to convey this sense of what presumably we had been doing subconsciously. I don't know if anybody wants to raise a question about it or systematize it or whatever.",68
-fomc-corpus,1981,Isn't there some conflict between that and adjusting the nonborrowed reserve target to a larger extent and perhaps more frequently? VICE CHAIRMAN SOLOMON(?). No.,35
-fomc-corpus,1981,"Well, I don't know. What do you say to that, Mr. Axilrod?",19
-fomc-corpus,1981,"I'd say that the first thing had to do with the Committee's targeting procedure. The second had to do with the success of hitting it, which wasn't all that great.",34
-fomc-corpus,1981,And they weren't too closely related?,7
-fomc-corpus,1981,"The Committee targeted fine, but the aggregates didn't behave quite as targeted. If they had, we probably would have had more interest rate volatility.",28
-fomc-corpus,1981,"Just to rationalize those two things, Mr. Black, what we have to be saying is that it may have been logical to set the target to move a third of the way back. But we didn't change the nonborrowed reserve [path] fast enough to support the actual numerical target that we had set.",63
-fomc-corpus,1981,"Yes, I see the distinction. I was somewhat confused on this.",14
-fomc-corpus,1981,"It's rather natural that we would end up trying to get a three-month correction, isn't it, simply because of the way we look at these, which is to see where we come in at the end of that quarter and then to try to get back on path?",53
-fomc-corpus,1981,"I think that's why we did it, yes.",10
-fomc-corpus,1981,"Yes, there were some times when it might have been six months, but it was--",18
-fomc-corpus,1981,"I don't think we have to sit here and decide we're going to have a fixed policy or that it should be different. But apparently this was systematic enough in our unconsciousness so that it could be commented on, if anybody wants to comment on it.",50
-fomc-corpus,1981,"One of the things that bothered me about that was this: The report made the argument that we didn't, through our actions, build in a cyclical pattern of money [growth]. That is, the things that we did didn't create their own cycle. I just had some trouble rationalizing that three-month lag, [given] the very low interest elasticity of money demand in the short run, with the conclusion that the practice itself didn't help to generate the cycle. If we only adjust--",97
-fomc-corpus,1981,"Well, the thing that bothers me the most, as just a simple observation of last year, is whether we were generating a cycle. That is the question we're now raising. And when I don't probe too hard, the staff tells me that we weren't. But I don't know whether I feel comfortable with that.",62
-fomc-corpus,1981,I don't.,3
-fomc-corpus,1981,"Again, those two things, the one-third type reaction coupled with the very low short-run interest elasticity of money demand, seem to me to reinforce the casual observation that maybe we were creating--creating is too strong a word--contributing to that cycle of money growth itself.",55
-fomc-corpus,1981,"Well, what's the alternative policy?",7
-fomc-corpus,1981,"We ran [the model] a variety of ways. If you run it holding money growth constant so there's no cycle, you tend to get some cycles in interest rates. That's possible. But if you tend to hold interest rates constant, you might get some movement in money growth related to GNP. But we didn't succeed in getting cycles in both, if my memory serves me.",76
-fomc-corpus,1981,Let me ask the question differently. I only saw the summary; I'm not sure what you drew the conclusion from. Is that where you were going?,30
-fomc-corpus,1981,Which [conclusion]?,5
-fomc-corpus,1981,The conclusion that our own techniques didn't in some sense create or contribute to the cycle of money.,19
-fomc-corpus,1981,"[There was a] sharp drop in money in the second quarter; the models would have projected a higher amount of money in that quarter--much more money--even with the weakness in GNP. So we interpreted the sharp drop in money, even at the interest rates that developed, as reflecting a sharp drop in money demand at that point. We weren't creating the money demand; that was the public's reaction to what interest rates [were doing]. The San Francisco interpretation puts much less stress on the sharp drop in money demand and would stress instead that there was a temporary deviation in money supply in some sense because everyone was paying off loans. And viewing loans as a supply, the amount of money dropped. They wouldn't tend to interpret it as money demand. But again, there was an exogenous factor, that credit control program, unrelated to our operating procedures. The big variations were coming out of that. And that's essentially the basis for saying that.",190
-fomc-corpus,1981,"Let me ask the question differently, then. In any of that material, was there an effort made to estimate the lag between, say, a change in the nonborrowed path and its ultimate impact on money? [Was there any analysis of] how long that process takes?",56
-fomc-corpus,1981,"I'm not sure. I did ask the question: If we held the nonborrowed path, however constructed, and put in more money, however that comes about, which gets more borrowing, would we ever get back to the path? I don't know whether you're asking that question.",56
-fomc-corpus,1981,"No, it's a slightly different one.",8
-fomc-corpus,1981,"The answer to that is: No, we don't get back to path. We would have to lower the nonborrowed path.",26
-fomc-corpus,1981,That's the question I'm asking.,6
-fomc-corpus,1981,The question has to do with the lags. The question is: What is the lag structure from a change in monetary policy to the effect on observed money supply? I think that's what Jerry is interested in.,42
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Well, again, that has to be answered somewhat indirectly. Working through the money market model, which has explicit interest elasticities and demand for money and lags, if you want to hit that total reserves badly enough in a one-month period, and you're running a couple of hundred million ahead on total reserves, meaning you're running ahead on money by whatever the multiple is--10 or something like that--then you've got to lower the nonborrowed reserves a heck of a lot more than $200 million if you want to get on path that week. I've forgotten the exact numbers that I got out of this; I got them a year ago October when we started this and kept getting them lately. That month you've got to lower them, say, $1 billion, because you get an offset in borrowing of $800 million or something like that, even under contemporaneous reserve accounting. So you generate massive interest rate pressures. Now, we don't have evidence that if you generate those massive interest rate pressures, you're going to start cycling money. Our evidence is pretty clear that you'll get interest rate cycles or interest rate up and down movements, but not money cycles.",231
-fomc-corpus,1981,"That's where I get stuck. I don't see how you can get the up and down interest rate movements without in turn getting an up and down movement in money, because the interest rates presumably are what cause the--",42
-fomc-corpus,1981,"Well, that's a technical question. The lags are, on average, six or seven or eight months at the longest and [most of the effect is] done in about three or four months. You have to start comparing the effects of this month's drop in interest rates given that [sort of lag]. It takes most of its effect three or four months from now.",74
-fomc-corpus,1981,I'll have to look at that paper.,8
-fomc-corpus,1981,"My [memory] is that it could be four, but maybe a little more vigorously--",18
-fomc-corpus,1981,"My instinct, though, is that the way we operate could very well produce those results.",18
-fomc-corpus,1981,"Well, one of the things that continues to concern me a bit about this is this simple relationship, and maybe Mr. Ford can enlighten us about it, that we're attempting to control the economy through bank service charge practices. Corporations hold a large percentage of the money supply; their required balances are related to their activity in the prevailing interest rate [environment] with an indeterminate lag of several months. We push up interest rates; the banks all send out notices to the corporations that they can keep lower balances next month. Interest rates go down, so the money supply declines. And because interest rates have gone down the banks send out notices to their customers that they now have to keep higher balances.",140
-fomc-corpus,1981,"There is that perverse dynamics. Are you asking whether, as the interest rate cycle evolves, bankers change the balance requirements? Is that the question? Sure they do.",34
-fomc-corpus,1981,How fast do they do that?,7
-fomc-corpus,1981,No faster than they have to.,7
-fomc-corpus,1981,"Oh, heavens. That varies so much from bank to bank.",13
-fomc-corpus,1981,The saving grace here is probably that the bank practices vary in this respect enough so that it doesn't have any cyclical movement to it.,27
-fomc-corpus,1981,"For a long time, the Fed did a survey of lending [practices] and it supposedly covered that. When you read the results of those surveys and talk to corporate lending officers and listen to the policies dictated to them by their senior managements, there's a vast [unintelligible]. You learn nothing from the survey. What you have to do, actually, is an audit of collected balances--not just what the bank says the corporate customer has to have but what it actually is getting out of the corporate customer. I think it would show, as Paul suggested, that when things get tight the bankers try to come down on them harder. But as for how much they do, I've never seen any good evidence for all the banks. I know how it works in two or three banks that I'm familiar with, but not all of them.",171
-fomc-corpus,1981,"Steve, actually, we were trying to get back on the path in two specific instances. One was the drop in April; and then we were moving back up to the path over a three-month period. The other one was the ratchet up in July--or August, I guess. We were reacting mainly to two almost discrete occurrences. Did that in any way affect the rate at which we tried to get back? It's not as if we continuously drifted off in one direction or the other. We just took some tremendous ups and downs that we were trying to correct.",115
-fomc-corpus,1981,"Yes. Well, it affected our deviation, I think. That is, we were so far off a couple of times that it made our average deviation bigger than it otherwise would have been. I don't remember exactly how the Committee targeted in those periods; I don't remember whether the goal in that period was to get back fast--",65
-fomc-corpus,1981,"As I remember it, you gave us the option of getting back in three months or getting back in six months.",23
-fomc-corpus,1981,That's right. And I just don't remember how it came out. But the misses there certainly affected our average absolute deviation. The year was very much affected by those two occurrences. Another year may not be. We might end up looking a lot better in another year because of that.,56
-fomc-corpus,1981,"Henry has raised a question of publishing the directive, which was not on my agenda. But do you want to make your case, Henry?",28
-fomc-corpus,1981,"Well, we're under challenge to prove that we're sticking by our guns. It seems perfectly obvious to us that we are. We announce our targets a year ahead; we meet only every five or six weeks and we then publish a record so anybody who wants to inform himself can see clearly that we haven't changed our targets. Nevertheless, if you read the market reports--I try to read as many as I can and the most troublesome that I know of is Eric Heineman's of Morgan Stanley--they continually say that the Fed once more has given up on inflation. Three months later he finally discovers that the Fed seems to have decided that they will fight inflation after all. That sewage flows into the--",140
-fomc-corpus,1981,"Remember, we can't go back to--",8
-fomc-corpus,1981,How do we prove that we haven't changed our mind?,11
-fomc-corpus,1981,Do you think he'd write a different newsletter if we did publish [the directive immediately]?,17
-fomc-corpus,1981,"I think somewhat different, yes. For one thing he always uses existing material, including our policy record and the discount rate proceedings in full detail. He reprints them to fill about half of his letter. And he's not the only one who for need of something to write says that the Fed doesn't know what it is doing, or doesn't know what it wants and changes policy almost continuously. I think we could do something to defuse that. I recognize that the cost of this is quite considerable. For one thing, we might get much more of an immediate reaction from the Congress, for instance, to anything that looks like a rise in interest rates. For another, it's only on this technique--if we don't emphasize interest rates--that we can publish immediately. Under the old technique, with [emphasis on] the federal funds rate, we would have tipped off the market on what we were going to do over a month and the market possibly would have taken it to the next stage. That danger still exists with a [federal funds rate] band if they see the band is not now 12 to 18 percent but 11 to 17 percent. They might say the midpoint has moved and so the funds rate is going to move and they might do that right away. So, I see a considerable cost, but I still think it's worth considering, and I lean toward doing it.",280
-fomc-corpus,1981,"Even on the funds rate, Henry, they found [what our new rate was] by noon on Wednesday [after the meeting] anyway.",28
-fomc-corpus,1981,Some [did].,4
-fomc-corpus,1981,"Henry, the last time we published, we had a directive that specified a funds rate range of 15 to 20 percent, I think. And when we did that, I've forgotten just exactly where the actual funds rate was but it was right close to 20 percent.",55
-fomc-corpus,1981,It was about 19-1/2 percent.,11
-fomc-corpus,1981,"Now, what do you suppose would have been the effect (a) on Eric Heineman and (b) on the market if that afternoon we had published in the Committee's directive a funds rate range that has 5 points of downward room in it but no upward room at all? I think you'd get the same story from Heineman in spades. And I think the market would have assumed--I'd say it's like shooting fish in a barrel--that the funds rate wouldn't go over 20 percent and it could only go down. That would have had an effect on all the variables. Whether it would have been good or bad, I don't know. But publication of that particular directive would have had an effect.",145
-fomc-corpus,1981,"I wish to reinforce that. The market participants whom I respect the most are saying that it's important to maintain uncertainty in the minds of the market participants to the maximum degree possible. They say that the Fed move to a 6-point band created a healthy tone in that market. I agree with Chuck that there are times when we'd be publishing a fed funds range that would reduce that uncertainty, and I think that would tend to produce unfortunate results in the markets. In a certain sense it would focus more attention also on the fed funds rate band if we published immediately.",112
-fomc-corpus,1981,"Certainly, once we began doing that, we couldn't stop. And if we ever wanted to put something in the directive such as some qualified statements about if this happens something else might happen later on--as we did last month, though not on the federal funds band--",53
-fomc-corpus,1981,"I just think there are times--I've seen them periodically--when we want to put a constraint on [interest rate movements]. And if we had to announce that constraint right away, I think it would hurt.",42
-fomc-corpus,1981,"Also, when we have conference call meetings and raise the rate, presumably we would have to announce that immediately, too, which is--",27
-fomc-corpus,1981,"Well, just so that Governor Wallich isn't left to drift alone, I agree fully with what he says. I think there is much unnecessary volatility in the financial markets as a result of some perceived signal from the Fed that it is going to do something that it indeed isn't going to do. The more we tell them and the more we play our cards openly, the better everybody will be able to adjust to what we're trying to do. So, I would endorse what you said, which may have eliminated the last vestige of success for it, Henry!",111
-fomc-corpus,1981,[Unintelligible] chance of success.,10
-fomc-corpus,1981,"Well, look at what other central banks do.",10
-fomc-corpus,1981,"He said ""Roosfully.""",7
-fomc-corpus,1981,"We are very much on the defensive. We operate, as it were, trying not to show our hand. The Bundesbank, which is a very strong central bank, calls a press conference every time they've done something worth talking about. They explain very clearly what they are doing.",56
-fomc-corpus,1981,[Unintelligible].,6
-fomc-corpus,1981,"Well, it has worked well for many, many years. And I don't think it has to do with their present problem. They're not afraid of their government and they're not afraid of their legislature. And they do inform the market.",46
-fomc-corpus,1981,How could that be?,5
-fomc-corpus,1981,"Well, I guess they are an independent central bank.",11
-fomc-corpus,1981,I don't really understand the notion that uncertainty is desirable. I always thought when we were discussing volatility in long-term rates before that we said uncertainty compounds volatility; it is an economic cost. It has to be either that uncertainty is bad or it's good. I think it's bad.,55
-fomc-corpus,1981,"Uncertainty in markets' behavior is absolutely a sine qua non. Take the foreign exchange markets. If you don't have people betting on both sides, you're going to have [in]stability in markets or movement in one direction. Now, if you're going to have a government controlled market, fine. It seems to me that that is not what you're talking about.",73
-fomc-corpus,1981,"Well, there's a difference between uncertainty and ignorance. You want to give the most information, but it will still leave the distant future uncertain.",28
-fomc-corpus,1981,"Yes, but you do have to have two-way markets. Without differences of opinion, you will have no markets. I think that's what Tony was referring to.",32
-fomc-corpus,1981,"Yes, but these might both be well-informed opinions. They could still end up being different.",19
-fomc-corpus,1981,"Henry, if we had contemporaneous reserve accounting and no limit on the federal funds rate, I'd be with you 100 percent.",26
-fomc-corpus,1981,"Yes, I think that makes a big difference. To tell with no constraint on federal funds rates--",20
-fomc-corpus,1981,"[With no such constraint,] we really wouldn't be telling the market anything. They would know as much as we know; we wouldn't know which way rates--short-term rates anyway--were going to go on that basis.",45
-fomc-corpus,1981,"I detect no upsurge toward a majority for this opinion. The last question I have here is a similar one, which we certainly don't have to resolve here. It's not the responsibility of the Committee, but I wonder where opinions stand on publishing the money supply data. I got a letter from Senator Garn and Senator Proxmire the other day raising the question of whether we shouldn't stop publishing weekly figures.",81
-fomc-corpus,1981,"We can't do it under the Freedom on Information Act, can we? Period.",16
-fomc-corpus,1981,We can if we switch to M2 and M3 because [we don't have weekly data].,19
-fomc-corpus,1981,We can stop publishing the data; we could not resist a specific Freedom of Information Act request for the data if they are compiled and used. But there is no requirement to publish them.,37
-fomc-corpus,1981,And in fact we'd get [requests].,8
-fomc-corpus,1981,"Well, that's dancing on the head of a pin. If it's there, it's there.",18
-fomc-corpus,1981,"There would be a delay, though.",8
-fomc-corpus,1981,"Well, maybe for a time we don't have to compile the data for the public.",17
-fomc-corpus,1981,And presumably we could ask Congress to change the law if they thought seriously about it.,17
-fomc-corpus,1981,That's what you're asking? Is that what they're asking us? Do we want the Act changed?,19
-fomc-corpus,1981,"No, they didn't specifically ask that. I forget whether they made any reference to it or not. They made some reference to the fact that they understood there might be a question under the Freedom of Information Act. I think that is the way they worded it. I don't think they volunteered to change [the Act], but they didn't say they wouldn't.",71
-fomc-corpus,1981,Send them back [a request] to change the Act.,12
-fomc-corpus,1981,That would be one of the advantages of switching to the broader aggregates where we don't have weekly data.,20
-fomc-corpus,1981,But they'd still request them.,6
-fomc-corpus,1981,We don't have it.,5
-fomc-corpus,1981,It would cut down the reporting [burden].,10
-fomc-corpus,1981,But we can't stop collecting it.,7
-fomc-corpus,1981,It has occurred to me--though I'm not ready to propose this yet--that we may have legitimate grounds for not publishing seasonally adjusted figures because the seasonal adjustment factor is so bad. We would tell the public that we don't trust it and we're not going to--,53
-fomc-corpus,1981,We cannot create one internally without also making it available under the Freedom of Information Act.,17
-fomc-corpus,1981,Let's do away with it since it's no good.,10
-fomc-corpus,1981,"Well, that's fine. But then we probably will have to go to Frank's procedure of targeting on M2 because we won't have anything that is a weekly number.",33
-fomc-corpus,1981,How about successive estimates of the monthly seasonally adjusted numbers?,12
-fomc-corpus,1981,That's the bureaucracy at work. Our alternative then is to publish a new set of figures on our evaluation of noise.,23
-fomc-corpus,1981,I won't prolong this any further.,7
-fomc-corpus,1981,"In the staff material I think there are some good comments on that. They point out that if we publish the raw data, without the seasonal adjustment, everybody is going to be making their own seasonal adjustments. And then they're going to be watching other things to get a clue as to what Fed policy is and will pay more attention to the fed funds rate.",71
-fomc-corpus,1981,"There is no question about that. Mr. Kichline. MESSRS. KICHLINE, ZEISEL, and TRUMAN. [Statements--see Appendix.]",36
-fomc-corpus,1981,"Thank you for your happy comments. I think we ought to discuss the outlook, probably for most of the rest of the time we have [left today] anyway. In that process, you will recall that you recently provided some [individual] forecasts, which presumably will have to be summarized for the Humphrey-Hawkins testimony. Not all the assumptions were the same on the monetary side. I forget: What have we done in previous years about getting commonality in the assumptions if not the forecasts?",100
-fomc-corpus,1981,We did not [have uniform assumptions]. You're asking in terms of this exercise?,16
-fomc-corpus,1981,Yes. We didn't [specify] any assumptions I don't think. Did we ask people when making their forecasts to use the same assumption or not?,30
-fomc-corpus,1981,"We specified the midpoint of the ranges. On this one we asked that the forecast be accompanied by a statement as to what the assumptions were. So, the assumptions did vary.",35
-fomc-corpus,1981,We have given [Congress] a Board forecast in the past.,13
-fomc-corpus,1981,We gave them a forecast that [generally encompassed] the views of the [individual] Committee members. But I can't remember whether we asked everybody to make a forecast on the basis of the same monetary and fiscal assumptions.,45
-fomc-corpus,1981,Last time was the first time that the entire FOMC participated. We asked for forecasts on two bases: in terms of fiscal policy assumptions and with the basic money stock assumption we ultimately [adopted]--,43
-fomc-corpus,1981,So everybody presumably had the same money supply assumption?,10
-fomc-corpus,1981,Presumably.,3
-fomc-corpus,1981,Not this year.,4
-fomc-corpus,1981,It was different this year.,6
-fomc-corpus,1981,"Well, in these preliminary forecasts [the assumptions] were different anyway. I just don't know what the right procedure is here. It's logical for everybody to use the same assumption. But if somebody violently disagrees with the assumption, it seems a little artificial to force that person to use it.",58
-fomc-corpus,1981,"Well, in terms of the basic thrust of the Humphrey-Hawkins exercise, the assumption might relate somehow to what we thought the Administration economists were going to do with fiscal policy, which leads one to various indeterminate states at this time. But there's nothing we can do that is going to be clean-cut in terms of the overall purpose of the [exercise].",73
-fomc-corpus,1981,"Well, it seems logical that one should make as good a judgment as one can. And that really implies also as good a judgment as one can of the policy outcome, not the policy intentions. The forecast here in the Greenbook is severely constrained by what may well be an unrealistic outlook. And we have a chance here to be as realistic as we can.",72
-fomc-corpus,1981,"Well, that's the dilemma, and I'm not quite sure how--",13
-fomc-corpus,1981,"Well, not for reporting under Humphrey-Hawkins. You certainly don't want to be all that realistic, do you?",25
-fomc-corpus,1981,I try to be realistic.,6
-fomc-corpus,1981,Really?,2
-fomc-corpus,1981,"Conversely, the Greenbook may be [biased] by unrealistic assumptions on money.",17
-fomc-corpus,1981,"Well, all I would say at this point is that we have a considerable amount of time before we have to publish this, and we haven't even decided what we're deciding. Maybe we can defer that question until after the meeting tomorrow and then ask if anybody wants to redo their forecast; perhaps we can at least narrow the range of assumptions from what we have.",71
-fomc-corpus,1981,"I would note that the forecasts in the Humphrey-Hawkins report would naturally be related to a range on the monetary aggregates. So there is room within a range concept to accommodate, I would think, a large number of the members of the Committee.",51
-fomc-corpus,1981,I suppose that's a reasonable compromise: To ask people to make assumptions that are at least within the range of what the Committee is talking about.,28
-fomc-corpus,1981,Especially if you're going to be called--,8
-fomc-corpus,1981,"We have a summary here of all your forecasts, which could be distributed after the meeting for whatever use it may be. But we will not consider this a final forecast until we complete our work. Who wants to talk about the outlook? Mr. Boehne.",53
-fomc-corpus,1981,"I agree with the staff forecast in general. But it does seem to me, as one goes about talking to people, that there are some real disparities in peoples' outlooks and I think that has some implications. For example, a majority of businessmen even in the Third District, which has been an area of slow growth, are really much more optimistic than this forecast. [That includes those in] high technology, energy development, business services and that kind of thing. On the other hand, if you talk to businessmen who are doing very, very, poorly--those in auto and auto-related industries, small businessmen who have to finance inventories, and thrift institutions--[it is quite different]. While we have been used to regional disparities, it seems to me that the disparities among business types are much sharper and much stronger than in previous recessions. And I think the true picture of the economy is quite different. If we have this outlook of slow speed ahead, on average, I think we are going to have a minority of businesses that are really going to be pushed to the wall, even though on average it looks as though we're just going slow speed ahead.",233
-fomc-corpus,1981,"I think that is a relevant comment, that we have a two-tier economy or something. Half of it you can't keep down and the other half is in depression. I don't know what to do about it. It makes it more difficult [for us] for the very reasons you suggest.",58
-fomc-corpus,1981,"It's consistent with low, slow growth.",8
-fomc-corpus,1981,"Well, it may be consistent with low growth overall, but the pressures, financial or otherwise, [are concentrated] on the half that isn't doing anything--even now.",34
-fomc-corpus,1981,[Unintelligible] the stock market.,10
-fomc-corpus,1981,Who else wants to comment? You're all speechless!,11
-fomc-corpus,1981,"What were those permits figures, Jerry?",8
-fomc-corpus,1981,They were down 24 percent. Do you have that number?,13
-fomc-corpus,1981,Is that all?,4
-fomc-corpus,1981,"They were down 24 percent in January; this is based on the first two weeks of data and it's a sample. There is a good deal of disparity between single-family and multifamily. As you may know, the multifamily starts have been exceptionally strong recently but in January permits for multifamilies declined 39 percent and for singles 14 percent. So it's quite weak.",76
-fomc-corpus,1981,"Permits are at what--around 900,000?",12
-fomc-corpus,1981,"940,000.",4
-fomc-corpus,1981,"940,000 compares to 1.2 million in December.",13
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Well, looking at this array of numbers here, I see that I am very much on the high side in terms of [the forecasts].",28
-fomc-corpus,1981,The Minneapolis Bank is--,5
-fomc-corpus,1981,"The Northwest is getting to me, I guess! My projection is on the high side and may be the highest in terms of real GNP. I'd like to have a nice, scientific, neat explanation as to how I arrived at that conclusion, but I don't. Basically, a lot of what I have put into my own forecast does reflect quite strong growth in the second half of the year, keyed to the assumption that there will be a major spending cut that has a strong and positive psychological effect coupled with the tax [cut] programs.",108
-fomc-corpus,1981,We understood rational expectations in the--,7
-fomc-corpus,1981,"That's not rational; that's irrational, I think. But that's the catalyst in terms of the forecast as I have put it together here. Obviously, with the kind of forecast I have, the weight of risk is on the down side. And we do have many of these vulnerabilities in the financial system and not just in the thrifts in my mind. I'm still not sure where we're going to be on oil prices. What is your [estimate] of the average oil price for 1981, Ted?",101
-fomc-corpus,1981,The average is $38.,6
-fomc-corpus,1981,That's the annual figure?,5
-fomc-corpus,1981,"Right. Most of it we get, as I said, in the first part of the year. So, we will be essentially at that point by midyear.",33
-fomc-corpus,1981,"Anyway, we have all those risks that we've talked about before. The other side of the coin is that, whether it's housing or autos or just about anything you can think of, there's a tremendous residual of underlying demand, if we can ever get the right conditions in place where the right kind of demand can flourish rather than be surpressed and frustrated as a lot of it is now. But in a nutshell, basically the driving force behind why my numbers are on the high side is my assumption about fiscal policy and the way that's going to affect the psychology in the short run.",115
-fomc-corpus,1981,Mr. Morris.,4
-fomc-corpus,1981,"Our forecast for the year as a whole is not so much different, but it's different in shape. That is, we're more pessimistic for the first half. Sitting here a year ago, we had all this financial restraint in place and we were wondering when we were going to see some response. When we did get a response, we got a pretty big one. I don't think it's going to be that big this year; I think we're close to another peak in economic activity, with a shallow recession coming in the first half. That's what I would look for.",113
-fomc-corpus,1981,Governor Teeters.,4
-fomc-corpus,1981,"When I looked over the staff forecast, what really struck me most was how sensitive it was to the inflation rate. Given the monetary assumptions that we adopted in July, we already have the velocity to a point that if there's any increase in inflation over what the staff is forecasting, real growth could shoot down to the point where it is negative all year long. It seems to me that if there is any risk in this forecast, it is that we'll get more inflation and a comparable decrease in real growth. So, we could have a year-long recession based on the types of assumptions we're making. That would indicate to me that instead of trying to lower the monetary target ranges, which we just barely got within [last] year, that we'd be well advised to stay with the ones we had this past year and try to come in at the center of them rather than to lower them progressively and run what I think is an increasing risk of missing them on the top side. My forecast--I'm obviously the bottom one among the governors--is that we're going to have less real growth and somewhat more inflation. And [my view is] that we probably won't have higher interest rates either or we'll miss our monetary targets for the rest of the year.",247
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"Well, I guess differences of opinion make stock markets, horse races, and forecasts. I lean toward the side of being a little more optimistic than the Board staff, showing a bit more real GNP growth and a bit less inflation for the year. But [the differences] are certainly within the normal range of judgmental things that have to go into these forecasts. I was mainly interested in asking Jim what he would consider the greatest point of vulnerability in this forecast. Do you share my misgivings about any forecast now in view of the ongoing uncertainties about the new Administration's economic program and what it might do both on the spending side and the tax side? Is this forecast of yours, for example, very sensitive to significant changes in the tax rates or [government] spending levels? I don't know myself how to do a solid forecast in view of those uncertainties.",173
-fomc-corpus,1981,"Well, we've done a number of simulations and experimented with the impact of alternative fiscal policy assumptions, assuming the same rate of growth of M1. In general, [much hinges on] whether you take an approach that incorporates the three stages of the Kemp/Roth bill, which we have not assumed--we've only taken the first one. If you assume that expenditure control [presents] a bit more difficultly to the Administration and they don't meet the targets that we have assumed in the forecast, the result is somewhat more real growth, but not a great deal more, in part because of this intractable inflation problem. If you hold the same money growth path, interest rates get kicked higher and some other expenditures get squeezed out. Of all the experiments--and I think one can argue about the interest rate pattern--we get somewhat more real growth, but what we're talking about is a plus or minus 1 percent at an annual rate, so it's not a big difference. I would say that one of the areas in this forecast that is clearly very uncertain is the fiscal side; one can very much argue about the expenditure cuts that we have in the forecast or about what will happen to defense spending, the size of the tax cut, etc. And it does matter. But given where the economy is and with the level of interest rates that we have, our own analysis suggests that potential demands in the private sector are very strong but are being restrained. If you dump in a more expansive fiscal policy and you get higher interest rates, that squeezes out some private funds. That does not kick up the economy to significantly higher real rates of growth.",331
-fomc-corpus,1981,"The one thing that I find rather scary is the possibility that the tax reduction will come well in advance of the expenditure cuts, if the cuts come at all. On that matter, the very first chart in the final set of charts that you presented shows federal borrowing relative to GNP. Could I just ask whether the assumptions underlying the lower half of that chart assume tax cuts and expenditure cuts or what? And does it include the off-budget items?",89
-fomc-corpus,1981,"That includes Treasury borrowing, which would include financing the unified budget as well as the off-budget items. It does not include federally sponsored borrowing; it's just the unified and off-budget items. It's consistent with what we have built into the forecast. In 1982 we would be running with a deficit of about $80 billion on the unified budget; you'd have to add about $20 to $23 or $24 billion for off-budget items. For Treasury borrowing that's in the area of financing more than $100 billion in 1982. But that does imply significant expenditure restraint.",115
-fomc-corpus,1981,I noticed that Dr. Burns in his testimony to the Budget Committee added in several other things; he added in the guaranteed borrowing of those agencies that are federally sponsored. Could you have somebody give us a breakdown on that as to what goes into those categories and what your estimates are? I noticed his estimate was around $141 billion.,66
-fomc-corpus,1981,You're talking about right now?,6
-fomc-corpus,1981,"No, no. I didn't mean right now.",10
-fomc-corpus,1981,"Well, the one difficulty in this area is that there are obviously many ways to calculate federal borrowing requirements and what the impact will be on markets. One can throw in the federally sponsored agencies--for example the Home Loan Banks, the Federal Land Banks, and Banks for Cooperatives. In our flow-of-funds accounting here we view those as financial intermediaries. We can go through this and give you alternative calculations. We can get the size of the borrowing lower or much higher. If you throw in the financial intermediaries for the credit side of the budget, you get very large numbers.",118
-fomc-corpus,1981,"Especially if you put in the guarantees, which are obviously in our private sector.",16
-fomc-corpus,1981,"Oh, yes.",4
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"We basically came out with more optimistic results practically all across the board. We are in the outlier category in some instances, but I think our deviations were essentially based on the 5-1/2 percent M-1B assumption used, rather than a lower monetary growth assumption apparently used by the staff and most of our colleagues. So, if we look more out of line than usual, it's because of that, and after tomorrow's meeting we will try to adjust it accordingly.",97
-fomc-corpus,1981,"You did have a little higher, but not terribly high, M-1B assumption compared to the staff. You have a low price number. Does that mean that your [forecast] suggests that the restraint that has already been exerted plus [restraint for] another few months produces lower prices?",60
-fomc-corpus,1981,This is essentially the product of our model. This is what it spewed out and I'm merely parroting to some extent.,25
-fomc-corpus,1981,"In your model, prices ought to begin going down some in terms of their rate of increase.",19
-fomc-corpus,1981,"Yes sir, even at a 5-1/2 percent M-1B growth rate we would see that rate of reduction because that [rate of] growth would be a significant reduction from the 6-1/2 to 7 percent growth rate of this year. In fact--I guess we'll discuss this tomorrow--we think that a more abrupt reduction from the rate of aggregate growth that occurred during 1980 could bring much more severe shocks to the real economy. Even on that basis of 5-1/2 percent we are more optimistic in terms of the price level reduction.",120
-fomc-corpus,1981,Who is next?,4
-fomc-corpus,1981,"Well, I made my projection on the expectation of some overshoot of M1, whichever we choose, because while a shift in the demand function is perhaps probable, it may not be so large and it certainly is not assured. Even so, I think it will imply very considerable restraint. We wouldn't overshoot unless interest rates were pressing us very hard, so I arrive at a rather adverse conclusion on the real GNP. On inflation, traditionally we have undershot our probabilities. So, given that during the year some bad things surely are going to happen--more food problems, more oil problems--and no good things, one has to expect not a further rise in the CPI but probably a rise in the deflator. On unemployment, although it's a very unhappy projection to make, I think unless unemployment is high, price increases aren't going to slow and wage increases aren't going to slow. We have no magic way of getting from a low growth of the money supply to lower wages and lower prices, except via low capacity utilization and high unemployment; and, of course, that in turn is achieved by high interest rates. These all are very unpleasant things to contemplate and that's why I decided I'd put them down. I think I am among some of the excluded outliers here.",255
-fomc-corpus,1981,You prefer to have a lower target and overshoot or a higher target? What is the implication?,20
-fomc-corpus,1981,"I would rather have the lower target and at least have a chance of making the right effort. But I would remind the Committee that we probably will have base drift. I don't know what we're going to base the range for 1981 on, presumably on the fourth quarter of 1980. If so, I have the impression that that includes for all but M-1A base drift of about 2-1/2 percentage points. Now, that's a very substantial step-up. Maybe I've done my numbers wrong, but I think we have to add that to the level of the aggregates as stated over the year in order to see what they really would be if we had started a year ago--that is, at the end of 1979.",152
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"I don't have any basic disagreement with the staff projection. But if you look at what is likely to happen over the course of the four quarters this year and to fiscal policy in the latter half of the year, it seems to me that we face the real possibility that aggregate demand in the latter half of the year will be considerably stronger than the staff anticipates, at least in nominal terms. And that will put considerably more pressure on prices and considerably more pressure on interest rates. I say that because if you look at the staff projection of the high employment surplus or deficit, it switches from a $19 billion surplus in the first and second quarters to a $22 billion deficit in the third and a $14 billion deficit in the fourth. In other words, virtually all of the effect of that fiscal policy on the tax side goes in immediately but the effect of the budget restraint is much delayed. Of course, what will be happening at that point is that no one will really know whether these intentions on the expenditure side are in fact being realized if the tax cut goes through. So, I could be one of those outliers at this table on the price side. I think we're going to be looking at a GNP deflator that has not shown any signs of deceleration during the course of 1981 and a CPI which might well be accelerating again as a consequence of the effects of both rising interest rates and some pickup in economic activity. At some point during the course of 1981, we're going to have to ask ourselves how long we can stick with a policy posture that is simply not doing any good whatsoever in bringing down the underlying rate of inflation because the fact of the matter is that what we have done so far has done no good at all. I'm not saying we ought to quit, but I think we as a Committee are going to be facing a very, very grim set of economic statistics with no real hope that the underlying inflation rate is going to improve.",395
-fomc-corpus,1981,You say it has done no good at all. Are you excluding the possibility that [our policy] prevented it from getting higher?,26
-fomc-corpus,1981,"No, I would certainly agree with that. It has prevented the underlying inflation from accelerating. It would be somewhat higher today--not much, but somewhat. It moves glacially, not in large amounts. And if we like, we can take credit five years from now for preventing the underlying inflation rate from having gone up to 15 percent instead of 12-1/2 percent. But if the unemployment rate at that point is 10 percent or more, I'm not sure how long we can persist.",103
-fomc-corpus,1981,How do we know five years from now?,9
-fomc-corpus,1981,Are there any more optimistic comments? Mr. Winn.,11
-fomc-corpus,1981,"The forecast falls out from our model and I think the question we need to ask is: How good are the assumptions? One of them, as I understand it, is that you have assumed that there is no real change in the international situation. I'm not sure that's a fair assumption, although I'm not predicting as Henry is that it's going to fall apart on us. But that's one assumption. Second, I think we've overlooked a rather basic change, which Ed Boehne referred to, and that is the change in psychology that has occurred in the last month, which may turn out to be false expectations. I would mention the fact that advertising sales are really quite high. The television chains report that they have sold out for the first quarter, which is really a rather surprising development given the pessimism in certain areas. That has been a pretty good leading indicator in the past; it may not prove to be this time. But if you talk to business people whom you would expect to be distressed and depressed, they're fairly optimistic. Whether this is based on the psychology of a change in government and what is going to come out of that, and if it doesn't quite work out that way we will get disappointment in reaction, I don't know. But the first half of the year could turn out to be a lot stronger than any of us expects. Automobile sales could be stimulated by the [higher] energy costs rather than depressed, for example. So, I think one could make a case for a somewhat stronger outcome than the model.",305
-fomc-corpus,1981,"You know, we have a certain bashfulness today.",11
-fomc-corpus,1981,We're weary.,3
-fomc-corpus,1981,Humility has set in.,6
-fomc-corpus,1981,"When you give the Humphrey-Hawkins testimony, do you have to say anything about what we expect the public sector borrowing requirement or the unified budget deficit to be in fiscal 1981-82? Do you explain that as one of your assumptions?",51
-fomc-corpus,1981,"Oh, not very rigidly anyway.",8
-fomc-corpus,1981,But you're likely to be asked.,7
-fomc-corpus,1981,The Reagan Administration so far is talking about a $29 billion unified budget deficit for fiscal year 1982.,22
-fomc-corpus,1981,But that's all based upon a much more optimistic business outlook.,12
-fomc-corpus,1981,"Exactly. They have 3-1/2 percent growth in real GNP. I think you are going to get yourself into a very strange situation there because one has to make some really heroic assumptions to get [the deficit] down [to that level]. In fact, I think real GNP growth at 4 to 4-1/2 percent is needed to get that and one has to assume that inflation is down substantially.",88
-fomc-corpus,1981,"Well, I don't think the general problem will be one of estimating the budget; it just falls out. But we don't have to make a forecast for 1982. If we accepted the staff forecast, we're certainly going to have a difference between our forecast and the Administration's.",56
-fomc-corpus,1981,You don't think they'll project an $80 billion deficit?,11
-fomc-corpus,1981,I don't think they'll project whatever we have for 1982 in the forecast we just heard.,19
-fomc-corpus,1981,It's $81 billion.,5
-fomc-corpus,1981,"No, I'm thinking of the GNP. Do you have a comment on the outlook beyond that?",20
-fomc-corpus,1981,"No, our view is not that different. I'd say it's a little on the gloomier side. But I would agree with Lyle that we're unlikely to get any improvement in the rate of inflation unless we see some unexpected developments in fiscal policy, to a degree that I don't think is realistic.",59
-fomc-corpus,1981,By unexpected developments you mean what? No tax cut?,11
-fomc-corpus,1981,"No, I'm not talking about the receipts side; I'm talking about the spending side. I'm sure we'll have a tax cut. But I can't conceive that even by fiscal 1982 we will have the kind of spending cuts that will change expectations and interest rates [unintelligible] of the nominal GNP that our monetary policy [unintelligible]. So, I don't see anything but a long slide ahead. On the other hand, it may very well be that after another year or so of this, the Administration will accomplish a little [unintelligible]. I think the fallout of all this, in terms of a recommendation for the targets, is that the amount of flak we would get if we didn't go ahead with a 1/2 point reduction [in the M1 ranges] would be enormous; and we live in a [unintelligible] type world. None of us knows exactly what the results of this would be, so I don't think we have any real alternative, even though I think Lyle is right that we're not going to be able to show, at least in the next twelve months or so, any reduction in the rate of inflation.",239
-fomc-corpus,1981,"Well, the critical thing here is that it is absolutely clear that monetary policy [alone] just can't do this job. If we don't hold on to the monetary aggregates, inflation gets worse; if we do hold on to them, all we do is put all the pressure on certain sectors of the economy. And [the result is] a very difficult economic situation unless the government gets out of the way and lets credit demands come down some. These people who are going around saying that monetary policy can do the entire job of getting inflation down are just terribly destructive. I don't know how in the world we can get that point over; monetary policy [alone] just won't do it.",136
-fomc-corpus,1981,"I know, but you saw the House Banking Committee study. It said that the Federal Reserve was entirely to blame for inflation and that the Treasury deficit had no impact.",33
-fomc-corpus,1981,I don't understand that.,5
-fomc-corpus,1981,Who else? Does anybody else want to comment on the outlook and the dilemmas for monetary policy? Mr. Ford.,24
-fomc-corpus,1981,"I'll make a very brief comment. We're more optimistic than your staff because we are more optimistic about the results of your preaching. By the end of the year we're not outliers on any of these measures that have been tabulated here. But we are on the lower end [of the range of forecasts] for both unemployment and inflation because we think there is a chance with the new Administration coming in that we will avert a recession during the first half of the year, contrary to the staff forecast. That assumes that the Fed does its job on the monetary aggregates and further that eventually there is a change in spending and tax policy on stream that will have some favorable effects on the economy in real terms. And we think that by the end of the year the economy won't be booming but will be going along reasonably well, below the long-term growth path but in a positive vein generating growth of about 3 percent on average in the last two quarters with a reasonable unemployment rate and a lower level of inflation than we have right now. That [assumes] that we do what we say we're going to do on the aggregates and that people take seriously the need to reduce spending to keep the deficit under control. And we are assuming that they will.",247
-fomc-corpus,1981,Mr. Mayo.,4
-fomc-corpus,1981,"Coming from what with due humility we consider to be the lousiest performing District--economically speaking we have a recession--what surprises me is that we don't have more difference with the staff forecast for the national economy. Actually we are right in the center of the range here, which I guess I can attribute to our native optimism that somehow some of this is going to work out all right or, to put it the worst way, that our bad performance this year in the Chicago District will somehow be offset by Jerry's great efforts in the great Northwest, Bill's down in the Southeast, and John's in California. We are just going to have to muddle through on this. I think it's too early to come to Lyle's conclusion that we haven't really accomplished anything. We have set in place a lot of things and, although I'm usually the one who is more despairing of what the Reagan Administration is going to be able to do in the next year, I find that some of the comments here today are just too pessimistic for me. If his initial effort looks too small, I think the President is going to have to get into entitlements and he'll figure that he has three years to reelection and will swallow some sort of change in the indexing provisions now. It's the only way out. Unfortunately, our very vigorous new Budget Director got off on the wrong foot by starting off with proposed big cuts in foreign aid and, bang, he ran right against the new Secretary of State. I submit that he picked the wrong horse to start his campaign. I think it would have been better if he had started on the domestic side, even though there is always a tendency for a Budget Director to start on foreign aid because it has no voting constituency. Anyway, I think he can get some spending down; I hope by as much as the staff forecast shows. I would say that is fairly optimistic on spending cuts.",384
-fomc-corpus,1981,Heartfelt comments from an old Budget Director!,9
-fomc-corpus,1981,"A safe thing to work on, Bob, [in] the deficit is the [debt] servicing [cost]. That could be cut.",29
-fomc-corpus,1981,You mean interest rates.,5
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Sure, it's only $100 billion! It's up to what--16 or 17 percent of the [total budget].",24
-fomc-corpus,1981,John Balles.,4
-fomc-corpus,1981,"Well, I'll just provide a quick little interesting piece of perspective here. My staff checked some recently published forecasts by a number of major nationally known outfits such as Wharton, Evans, Michigan, UCLA, Townsend-Greenspan, DRI, and Chase. I was surprised to find out--maybe you guys already knew it--that our Greenbook forecast is at the pessimistic end of the scale. That is not to say that it's wrong, but it does show the lowest real GNP and the highest inflation.",104
-fomc-corpus,1981,"We have taken a look at that. We don't have calculated medians for all of those services. I do have the numbers for four of them. Let me just pick DRI, which I think exemplifies the problem. It's especially true for 1982. DRI has 13.7 percent nominal GNP growth for 1982. They have real GNP of nearly 4 percent--it's 3.9 percent--and the staff has a little under 1 percent. They believe that to be consistent with bill rates that are lower in 1982 than they are today. I think 13-3/4 percent nominal GNP growth doesn't very easily go with 3-3/4 percent money growth and declining bill rates. So, I think the nub of the problem in many of these outside forecasts is that at least implicitly, if not explicitly, different monetary assumptions lie behind them.",184
-fomc-corpus,1981,I would just note that I happen to get Burt Cox's forecast for Merrill Lynch economics. I am very much afraid that the Secretary of the Treasury may be looking at that one because it's much more optimistic than yours. And I think therein lies part of the problem.,53
-fomc-corpus,1981,"Well, I have that one. That's a very interesting one because it has a 1982 forecast of 13 percent for nominal GNP growth and the interest rates in that Merrill Lynch forecast go down from 14 percent in the current quarter to 6-1/2 percent.",57
-fomc-corpus,1981,To 6-1/2 percent?,9
-fomc-corpus,1981,"Yes, to 6-1/2 percent in the fourth quarter of 1982.",19
-fomc-corpus,1981,What is that nominal GNP?,7
-fomc-corpus,1981,"Nominal GNP is 13 percent, real GNP I believe is 6.1 percent, and the GNP deflator is 6-1/2 percent.",36
-fomc-corpus,1981,I believe they raised the interest rate level lately.,10
-fomc-corpus,1981,"Well, this was done this week. I don't know what their forecast is.",16
-fomc-corpus,1981,That's the problem with this stuff floating around: It doesn't bear much relation to reality.,17
-fomc-corpus,1981,"Does anybody else have a comment? If not, we are not going to get very far into these long-range targets tonight. It's clear that we have a difficult decision, as always, but a philosophic choice tonight, if I interpret the comments I have heard correctly. We are looking at a gloomy business forecast; one view is that it's constrained by money so we could unconstrain the forecast by increasing money. The other view is that we should go ahead with monetary restraint on the basis that the forecast is really going to turn out better or that we need it anyway in terms of the ultimate need to eliminate inflation. It's a little hard for me to see that we can adopt the ""give up"" alternative, if I may term it that, at precisely this stage in our economic evolution. I try not to be overly optimistic, and I don't know if I'm being overly optimistic, but I personally think that the Administration is probably going to try harder on the spending side than most of the comments around this table suggest. What actually is going to be accomplished, I don't know. I don't have any number and I don't have any precise information of this sort. The kind of number that the staff put in for 1982 must be on the order, anyway, of what they are thinking. And they are aiming for considerably more than that I am sure by 1983. I also sense that they are going to try to get a vote on a big spending package before they do anything on taxes or do it in the same vote in some maneuver. Whether that can be done, who knows? But there is a certain amount of sentiment in the Congress to do something. And if this can be maneuvered in a way so that everybody doesn't have to vote one by one on each particular program--if they find some way of packaging it so that when it comes to a vote in the Congress as a whole everybody can vote in favor of expenditure restraint and not against a particular program--there may be some possibility [of passage]. Whether that can be done or not, I don't know. I also suspect that, if anything, the tax reduction will come later than the staff has assumed. I don't think it's going to come any sooner. But that all remains to be seen. When I look at our targeting exercise for the next year and realize that I have to explain it, I will tell you that I am in trouble for more reasons than the difficulty of making up a target. I can barely understand what we are doing in terms of the adjustments that have to be made to last year's [M1] figure in one way or another! I thought it might be useful in the little time we have left [this evening] to go over the problems as I perceive them so that hopefully we can talk on more or less consistent grounds tomorrow. That may be more than I can hope for because I keep getting confused by this every time I go through it myself. Let's look at something like the numbers--and I'm just basically worried about the M1 numbers--on page 6 [of the Bluebook]. I am sure that Mr. Axilrod will be listening carefully to me and will tell me that I am confused by the time I get finished. For either of the M1 numbers the Bluebook shows the target ranges for '80 and the tentative target ranges for '81 that we had adopted in July before we knew they were off course or internally inconsistent. There are some alternative target ranges for '81, which presumably are on the same basis as those tentative target ranges. Then it shows as a memo the actual growth in '80, which I don't think conforms to any of those targets. As a taking off point, so to speak, it seems to me that we have to think about this in one of two ways. And I just boggle at both as I think about explaining this when I go before the [Congressional] committees. One is that we could think of adjusted ranges for '80 that we presume economically are the same as those targets that are listed here. These are the shadow cones, so to speak, that we had. In that case, we would be taking off--it's the same target presumably, and the same economic substance--[from a point] consistent with the actual results. That is something like 2-1/2 to 5 percent for M-1A and 4-1/2 to 7 percent for M-1B. Is that roughly right, Mr. Axilrod?",912
-fomc-corpus,1981,"That's right. Yes, [it's an adjustment of] about 1-1/4 points for M-1A and .5 or .6 for M-1B.",36
-fomc-corpus,1981,"If you think of that assumption in your head and you know what change in the target is appropriate--whether you want a reduction or unchanged or whatever--you make the assumption that the relationship between M-1A and M-1B was the same as last year. That's just a base point for starting. It is not going to be the same. But just to keep straight in your mind what you are talking about, I think you would have those targets in mind that I just gave orally and then you would talk about a target that was unchanged or [up or down] 1/2 or 1 point or whatever you thought [appropriate] from there, on the assumption that the relationship between M-1A and M-1B was the same as it was last year. Alternatively, if you wanted to talk in terms of targets like we had last year, then I think you ought to mentally adjust that memo of the actual growth figure and add to M-1A this unexpected transfer out of M-1A. You get something like 6-1/4 percent, which is what it says in the footnote. For M-1B you have something like 6-3/4 percent. Those numbers are then consistent more or less with the targets on the left hand side of the page. Now, in fact, what we are going to have this year, of course, is something quite different from any of these. It's not only going to be different but, because of what went on in January, it is quite clear that in a sense it is going to have a big dogleg in it. We had a big decline in M-1A in January and that probably is proceeding to some extent in February and then will return to some normal [pattern], while M-1B is going to have a dogleg to the right. I'm just looking at the charts on [subsequent pages], where M-1B is going to be exaggerated in January and February and then resume, presumably, some kind of normal growth. Those doglegs bother me a little because if we just show a cone without the dogleg, it immediately shows figures that are way off the cone and just adds another element of confusion. I would suggest--I don't know whether we can conform to it or not--that we have to make clear what we are talking about in terms of citing whatever targets we think are appropriate. I'd suggest in the first instance that we forget about the impact of NOW accounts and the institutional change this year just so that hopefully we can keep the communications among ourselves straight. I played with the idea in my mind that that should be the target we give them, saying that we are not going to give them a target adjusted for NOW accounts until the January-February business straightens itself out, after which we will give them [an adjusted] one, beginning maybe from February just so we avoid this dogleg problem. But, really, one idea is as bad as another. I don't think there is a good way of doing this. In any event, we will have to tell them that the cone or channel or whatever we have that tracks the actual figures as reported over the course of the year will be subject to change as the year progresses--maybe every three months or so--as we evaluate what the actual NOW account impact is.",679
-fomc-corpus,1981,Is it feasible to ask the staff to take this table on page 6 and run off a little supplementary table we can use based on whatever we are going to talk about tomorrow?,36
-fomc-corpus,1981,"Maybe you could put it down both ways, if that's possible, Steve. Just put down the targets the way you have them but with the figure you cite [in the Bluebook] as the adjusted figure for last year. Then do it the other way with the ranges for last year adjusted retrospectively, with the actual results last year. I was going to suggest that there is a third way to do it, but the third way is very similar to the adjusted actual figure, I guess. Steve's adjusted actual figure still assumes that there is some modest trend shift between M-1A and M-1B that is going to persist forever more or less; but it's a very vague estimate, which is part of the difficulty. I think it might be helpful to put those figures down those two ways. I'll make one more comment: Either way we adjust this, the M1 figures come out very close to the top of the range. And we could think of taking off from the top of the range instead of from the actual number, if you wanted to. There's not much difference; in a sense one could call it base drift or not; it's not a drift outside the cone that we had. We can't quite do that with M2, I don't think, because M2, which doesn't have all these other problems, ended up 3/4 of a percentage point above the cone. Presumably we have to call that base drift, I suppose, or whatever you want. But we can't blur it because they are not virtually the same numbers.",313
-fomc-corpus,1981,Isn't base drift from the midpoint and not from the edge?,13
-fomc-corpus,1981,"Well, I think that's purely semantic. If you think of it from the midpoint, we have base drift under any definition. If we don't admit that it's base drift because growth was within the cone, we don't have it. It depends; different people have different views of these cones. Some people say the midpoint is the right target and any deviation is [measured from] the midpoint. Other people say that [the cone itself provides] the elasticity one allows oneself to adjust through the year and we shouldn't consider ourselves off course if we're within the cone. I don't think one way is right and one wrong. It all depends upon how one looks at it.",132
-fomc-corpus,1981,"I think monetary policy is going to be restrictive as hell. Without making the problem any worse for yourself, even though I realize you are only talking about a quarter point in the case of the two aggregates--",41
-fomc-corpus,1981,"Well, I'm not really suggesting it for M2; there's virtually no difference because they are so close to--",22
-fomc-corpus,1981,You get this problem--,5
-fomc-corpus,1981,We just make a different estimate of the target when we make it identical.,15
-fomc-corpus,1981,"You're creating a precedent, and it involves accepting the base drift. What I'm afraid of is that the projections on interest rate levels may be right. If we are going to be talking about interest rates levels as high as are projected here, or current levels, and then we make [our range] somewhat tighter, we may find that we can't stay the course any longer.",74
-fomc-corpus,1981,"Well, I'm not necessarily arguing for one or the other. I suggest this as a possible method of presentation, if we want to take it. It does create a precedent; some people may think the precedent is good and some people may think it's bad. I think we'd better quit for the evening at any rate. If we could have a different piece of paper, it might facilitate [our discussion].",80
-fomc-corpus,1981,Just make that table for M-1A and M-1B?,15
-fomc-corpus,1981,"Yes, I think that's all.",7
-fomc-corpus,1981,It's very simple.,4
-fomc-corpus,1981,"[We will resume at] 9:30 tomorrow morning. Session held on February 3, 1981",23
-fomc-corpus,1981,"We can come to order and turn to the long-range targets. Mr. Axilrod has prepared a little table in accordance with the instructions yesterday, which I hope is as ""crystal clear"" [as] he described it. It is a difficult thing to keep in mind. It's conceptually simple but somehow--",64
-fomc-corpus,1981,"It's the table, which should be in front of you, entitled ""Long-run Targets on Alternative Bases."" Probably the best thing to do is for me to go through it stage by stage. The panel on the left-hand side says ""Abstracting from shifts to ATS/NOW accounts."" That gives the target ranges for 1980 for M-1A and M-1B that the Committee adopted in February of last year and reaffirmed in July. There is a 1/2 point differential [between the ranges for M-1A and M-1B]. The best way to conceive of it is that it reflects some higher trend growth in M-1B relative to M-1A and some small residual amount of shifting [to ATS/NOW accounts] we expected to occur at that time in New England, New York, and Pennsylvania; we were unable to [isolate the separate effects of those two developments]. That's how that 1/2 point differential gets in there. The second panel says ""Reflecting shifts to ATS/NOW accounts in 1980."" That means the shifts that occurred beyond whatever little residual we thought was left--[beyond] that 1/2 point. As you can see, we divided those shifts up, assuming two-thirds came from demand deposits and one-third came from savings and other time accounts. That would have lowered the M-1A target to 2-1/4 to 4-3/4 percent and would have raised the M-1B target to 4-1/2 to 7 percent if the Committee had known in advance what those shifts would be and had stated its target that way. Now, it is those ranges to which it is more proper to compare the actual growth in M-1A and M-1B for the year. As you can see, that was 5 percent and 7-1/4 percent, [respectively], roughly 1/4 point above the tops of those ranges. Shifting back to the first panel, the adjusted numbers, one can look at that in another way. One could say: If I want to compare the behavior of M-1A and M-1B to their ranges, I can either adjust the ranges or I can adjust M-1A and M-1B. In the first panel you can see that if you take the actual growth in M-1A of 5 percent and add 1-1/4 points to it to represent the demand deposits that were shifted out into ATS and NOW accounts, you get 6-1/4 percent; and if you take the actual growth of M-1B of 7-1/4 percent and subtract from it the 1/2 percentage point that represents the NOW accounts and ATS accounts that came in from savings deposits, you get an M-1B growth of 6-3/4 percent. In both cases, you can see that growth is 1/4 point above the top of the range. You can view the ranges and the growth rates in two different ways; [either way growth is] 1/4 point above.",643
-fomc-corpus,1981,"If I may just inject here, all of this is based upon the assumption that Steve mentioned of a two-thirds/one-third shift. Unfortunately, I think that's a rather weak assumption. We don't have much direct evidence during this period. That is inherent moving forward from this point as well as looking backwards, and it's a ballpark figure. That's all one can say about it.",76
-fomc-corpus,1981,"But the two-thirds, Paul, is implicit both in the range and in the growth figures, is it not?",23
-fomc-corpus,1981,"The same assumption is used for both. You can see that either way you look at it, growth in 1980 came out 1/4 percentage point above [the ranges]. It's just a different way of looking at the 1/4 point.",52
-fomc-corpus,1981,"If we used one-half and one-half [instead of two-thirds and one-third], both the ranges and growth rates would be adjusted by those relevant amounts.",31
-fomc-corpus,1981,"Steve, the actual growth figures were 5 and 7-1/4 percent last year. Those are the only ones the public has available?",30
-fomc-corpus,1981,That is correct.,4
-fomc-corpus,1981,That's right. I'm not sure if the Chairman didn't say in some testimony recently--,16
-fomc-corpus,1981,"Well, the published figures are the 5 and 7-1/4 percent. In testimony we gave the public those ranges shown in the right-hand column--that top part. We've never given them the adjusted figure, although it's a mirror image, I think.",54
-fomc-corpus,1981,"Now, focusing for a second on the left-hand panel, line 1 there says ""Target ranges for 1981 with a 1/2 point reduction."" That simply is going down 1/2 point from the target ranges for 1980. Carrying on the 1/2 point differential by this time reflects whatever we felt was going on in 1980 and continues in 1981. Line 2 is a 1 point reduction, simply going down 1 point. Then the next line says ""Expected adjustment to target ranges to reflect actual shifts to NOW accounts in 1981."" Of course, that reflects our expectation of the actual shifts at this moment. Our estimate is that M-1A would go down 7-1/2 percentage points more to reflect the demand deposits going into NOW accounts and that M-1B would go up 2-1/2 points more to reflect the savings deposits or other assets going into NOW accounts. That's on the present thought that there will be a sharp slowing in growth of these accounts beginning pretty much immediately and that the shift instead of being four-fifths from demand deposits and one-fifth from savings works its way down to two-thirds and one-third. That averages out to about three-fourths, given the extent of the shift that occurred earlier in the year, though that could, of course, vary. In any event, with that assumption, to get the adjusted ranges to reflect the actual shifts to ATS and NOW accounts, you have to take that 7-1/2 points off of the M-1A range, which gives you minus 4-1/2 percent to minus 2 percent. And you have to add the 2-1/2 points to the M-1B range, which gives you 6 to 8-1/2 percent. Shifting over to the second panel and focusing on that ""Expected adjusted line,"" the reason the minus 7-1/2 percent becomes minus 6-1/4 percent and the plus 2-1/2 percent becomes plus 2 percent is that we are carrying forward in the second panel the actual extent of shift that occurred in 1980. That is, if the Committee specified its target for M-lA as down 1/2 point from the adjusted range to 1-3/4 to 4-1/4 percent and its target for M-1B as down 1/2 point from the adjusted range to 4 to 6-1/2 percent, then it is carrying forward in those ranges the shifts that occurred in 1980--not the 1/2 point differential between M-1A and M-1B but what turned out ultimately to be a 2-1/4 point differential. That is being carried forward as if it were going to occur in 1981. Therefore, the expected adjustment you have to make is less. In the case of M-1A it's less than 7-1/2 percent; it's 6-1/4 percent. In the case of M-1B it's 2 percent. Of course, if you add those in, as you can see in the bottom lines, you get exactly the same numbers in the right-hand panel and the left-hand panel.",677
-fomc-corpus,1981,It's all crystal clear!,5
-fomc-corpus,1981,I'm sure the public will very easily grasp this!,10
-fomc-corpus,1981,I think it is clear.,6
-fomc-corpus,1981,"Well, you may now understand why I have doubts that anybody can explain this. I have great confidence in my ability to explain, but...!",29
-fomc-corpus,1981,"But the $64 question, Paul, is: How are we going to state our ranges and what will be published?",24
-fomc-corpus,1981,"That's right. That's the question I want to raise here now. I suggested tentatively yesterday that we may not want to indicate the bottom line here. I don't know whether it's a good idea; maybe we should. Of course the bottom line is the same, whichever way we [describe it]. If we do state the bottom line, it's going to have to be stated in an exceedingly tentative fashion; we will have to say that we are prepared to change this every quarter or whatever, depending simply on an analysis of what is going on. One of the difficulties we have is just that the shifts are so big. We have a reasonable appraisal of where this money is coming from at the moment in January. But the actual growth rates are very sensitive to the assumptions one makes. We do think it's in the ballpark of 75 to 80 percent or a little more [from demand deposits]. We will have a little finer judgment when we get some more thrift institution survey data. But when we are not having big shifts, it is exceedingly hard to tell what fraction is coming from where because it doesn't distort the other figures enough to permit a fine judgment. The inherent problem is that when things are shifting, one can measure it. When things are in a more steady state and people are building up NOW account balances, let's say, they are not actually shifting from demand deposits; they are just holding a NOW account. The NOW account goes up and we don't know whether it's going up because people are holding more transactions balances of the traditional type or whether it is because there is very little difference--or none in the case of commercial banks--in the interest rate, and thus money they might otherwise have put in a savings account ends up in a NOW account. It's just very difficult to judge; it's a bit of a shot in the dark as to what the adjustments last year imply about what that proportion is. There's just no way to cross-check it, really, I don't think.",396
-fomc-corpus,1981,"There's also a problem that when it's a big adjustment, even the skeptics recognize that these screwy numbers are a result of the adjustment. But when it is a very minor adjustment, then the skeptics are going to say we are trying to fudge the figures on the growth [of the aggregates].",60
-fomc-corpus,1981,"That's right. We have the question of whether we want to give people those figures on the bottom. In one sense, this is a substantive problem but not a presentational problem. They are the same both ways, although there is a psychological problem in that they look distorted. The other question in trying to explain how the devil we got there or not even giving those bottom numbers at all is: Should we think in terms of giving them the kind of ranges on the left-hand side or the right-hand side of this table? It depends upon where your starting point is. What little foundation has been laid is that the public has no actual figures other than 5 percent and 7-1/4 percent. They have been exposed a little to the idea that those targets last year were mutually inconsistent and should have been revised, as shown on the top row [of this table]. Just proceeding on that basis, I think the presentational problem we have is that the actual 1/2 percentage point reduction in the M-1B range happens to be the same as the range that they are familiar with for last year. When you look at it at first blush--and maybe it's fifth blush--it looks as if we haven't changed the range, although we are insisting that we have lowered it. Economically, we have lowered it; but we may have a helluva time convincing people that we have lowered it when we cite the figures. On the other hand, if we use the other figure, then we have to say that this is a range that is consistent with an actual figure that we never gave you. It is [consistent with] an adjusted actual figure, which we are now going to give you--the growth in M-1B last year was not 7-1/4 percent but 6-3/4 percent--and we will have to go through all that rigmarole. More importantly perhaps at this stage, I don't think it makes any difference which way we look at it and present it in the end, so long as we are straight in our conversations today when somebody is citing a range whether they are working from the right-hand or the left-hand side of this table.",444
-fomc-corpus,1981,"I think we would be better off using the right-hand side. Those numbers, the 5 percent and 7-1/4 percent, are in existence and in the public domain.",38
-fomc-corpus,1981,That's the great advantage of using that side of the table.,12
-fomc-corpus,1981,It seems to me that we would be better off trying to explain the change in the range than we would trying to adjust the existing numbers.,28
-fomc-corpus,1981,"I wonder if it wouldn't be helpful also, to reduce the confusion as much as possible, to focus exclusively on M-1B as the number for narrow money and to think about dropping M-1A altogether.",43
-fomc-corpus,1981,"Eventually I think we want to do that. I would assume that we would do it next year if we don't do it this year. In my mind, the problem with doing it this year is that because we are getting switches that expand M-1B artificially in a sense, it helps in terms of perspective if we also give the M-1A range, which shows a decline. If [critics] keep saying we haven't reduced the range, we tell them to look at the whole [picture, showing both M-1B and M-1A] and it's obvious that we have. That's the one advantage of keeping both of them.",131
-fomc-corpus,1981,"Well, Paul, one of the interesting mathematical outcomes of Steve's table is that the average of M-1A and M-1B is the same; whether one takes the target ranges adjusted or unadjusted, it comes out to 4 to 4-1/8 percent. Now, whether that helps you any or just confuses the issue--",73
-fomc-corpus,1981,Which one are you looking at?,7
-fomc-corpus,1981,"I'm looking at the right-hand figures exclusively. I'm looking at the 1/2 point reduction, which says 1-3/4 to 4-1/4 percent for M-1A and 4 to 6-1/2 percent for M-1B.",58
-fomc-corpus,1981,But they're not the same.,6
-fomc-corpus,1981,"If you take the midpoint of those two ranges, it's 4 percent. If you do the same thing with the adjusted figures on the next to the last line in the table, the arithmetic mean is 4-1/8 percent. I don't know whether we can use that to advantage in explaining that basically this is merely a switch within the M1 concept, [regardless of] what is M-1A and M-1B; I think it's rather interesting that it comes out to that.",102
-fomc-corpus,1981,"It comes out close, as I guess you said, not quite the same. It would come out the same if the shift were 50/50.",31
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,"We cannot say that the shift was not 50/50 last year, because we just don't know. If it was 50/50, it just lowered the one range by as much as it raised the other.",44
-fomc-corpus,1981,"While it sounds like a statistical gimmick to explain it that way, it does indicate the basic transference between the two to explain the adjusted versus the unadjusted ranges.",35
-fomc-corpus,1981,"Steve, in terms of the estimate, 50/50 sounds as though it might in fact be closer to what is happening.",26
-fomc-corpus,1981,"Well, we don't have any evidence that that's what is happening.",13
-fomc-corpus,1981,Are you talking about what happened last year or now? There is pretty strong evidence that right now the shift is at least three-fourths. But our assumption is that that's very much a transitional thing during the first stages of this.,46
-fomc-corpus,1981,"Well, that's one of the things I wanted to ask about. I don't know to what extent it's representative, but at least in the Ninth District virtually all of it is coming from ATS accounts.",39
-fomc-corpus,1981,"These are net shifts, so [a shift from an ATS to a NOW account] doesn't affect this. Both ATS and NOW accounts are in other checkable deposits, so that doesn't lead to an increase in other checkable deposits.",46
-fomc-corpus,1981,"My question is: What happens to the original savings account, the second leg of the existing ATS account? At the precise moment in time that the switch is effected, the balance has to be in the demand deposit part of the ATS account, but that's only at that precise moment. The day before or the hour before it was in a savings deposit.",70
-fomc-corpus,1981,Which is counted as other checking.,7
-fomc-corpus,1981,"Well, that's what I'm wondering.",7
-fomc-corpus,1981,"Yes, sure. If it was an ATS account and we got the data from a bank that was reporting accurately, we added [it to] other checkable deposits.",34
-fomc-corpus,1981,"Yes, the shift from an ATS account shouldn't affect this, if everything is being reported correctly.",19
-fomc-corpus,1981,"Okay, I guess that's my question. And you are as comfortable as you can be [about that]?",21
-fomc-corpus,1981,"It's clear, I suppose, once there are a lot of NOW accounts, that to whatever extent people made use of a savings account before they are going to put their savings in a NOW account for a while instead. So, eventually, we assume that this will be a much more complicated animal to evaluate; it's going to move not just as a transaction account but as something that's a mix between a transaction and a savings account.",85
-fomc-corpus,1981,"That's the real trouble, I think. Once the NOW account has been created, it will inherently have some characteristics of a savings account and not the old style transaction account.",34
-fomc-corpus,1981,"Well, the average balance says that.",8
-fomc-corpus,1981,Will we ever know for sure what the shifts were?,11
-fomc-corpus,1981,No. Nothing is for sure.,7
-fomc-corpus,1981,"Well, we won't have any information on this.",10
-fomc-corpus,1981,We asked the banks early in January and we had asked them at one point last year--I forget exactly when. The results last year were not inconsistent with the two-thirds/one-third proportions that we had derived from past experience. But it couldn't be proved one way or the other.,57
-fomc-corpus,1981,"We can ask a bank where the shift comes from. We may not get an accurate answer, but at least we can ask it.",27
-fomc-corpus,1981,They don't know.,4
-fomc-corpus,1981,"In some cases they think they know, but the answers are pretty much all over the lot. It is at least a concrete question to ask them. Once the shift has taken place and we ask them why their NOW accounts have gone up, they don't know what the motivation of the customer is.",59
-fomc-corpus,1981,"Even those banks that try to monitor it only have partial information about where the money going in [came from]. I would say you are very right to be concerned about our vulnerability for surprises on the M-1B range adjusted, whichever one we choose. We have done in depth what you are suggesting with some S&Ls and some banks. We asked them what they expect. The very limited feedback I get is essentially that the S&Ls are just delighted by how all their projections are being overrun; they are not sure how much of it is coming out of [banks]. On their own internal accounts they can track some of the switches from one account to another, but on the net inflow of funds to NOWs they don't know exactly.",151
-fomc-corpus,1981,"We had people from the National Savings and Loan Association in here the other day and they had done some kind of a survey. This is the smallest part; most of the shifting is in the commercial banks. But for what it is worth, they said their survey showed 60 percent was coming out of their own accounts, which meant basically savings accounts; 40 percent was coming from elsewhere. They couldn't identify where ""elsewhere"" was, but they assumed it was mostly from commercial bank checking accounts. But that's one survey of the S&Ls. Now, the banks have given us the surveys that you people made and had tabulated, weighted probably incorrectly. That showed more than 80 percent of it, in this first blush, coming out of their own checking accounts. So, these figures reflect some casual weighting together of the relatively small thrifts and the relatively big commercial banks at over 80 percent. For the thrifts I don't know whether to assume 50/50 and then come up with something like 80 percent for the combined total for these weeks. But they expect, as Steve said, that this will decline when we get over the initial shift.",234
-fomc-corpus,1981,This assumes what--that $13 or $16 billion out of $40 billion for the whole year is already behind us?,25
-fomc-corpus,1981,"Yes, that's the monthly average [for January]. Effectively, it's $20 billion going in from then, so it's almost half.",27
-fomc-corpus,1981,"Looking at the numbers, my feeling is that the assumption that in one month we already have half of the full year's shift is where we are most vulnerable.",31
-fomc-corpus,1981,"Yes. That is why I think we have to retain the right to change these [ranges]. Let me say that we not only have survey data now, for what it's worth, but that these shifts are so big that it does not appear that we can explain a large part of the shift by an exceptional decline in savings accounts. Savings accounts have been declining pretty fast, but they were declining pretty fast in December. And money market funds are going up very rapidly now. So, if you make some allowance for how much is going out of savings deposits into money market funds, there isn't all that big a residual left to explain what is going into NOW accounts. That tends to confirm that most of it came out of checking accounts on the first blush.",150
-fomc-corpus,1981,"Well, Paul, the fascination of this arithmetic that I was just doing is that basically averaging the two--M-1A and M-1B--neutralizes the transfer evaluation problem. All one is doing in that way is just isolating what smaller part of this may have come from M2 into one of the M1s. It seems to me that perhaps part of the defense we could use when people say our figures are no good on these transfers is that it really doesn't matter if one looks at M-1A and M-1B together.",113
-fomc-corpus,1981,It literally does not matter if you could make an assumption that it is coming half and half; you would get mathematical precision in that answer. But it does throw it off as soon as you depart from that assumption.,43
-fomc-corpus,1981,"Well, now wait a minute. I don't think the half and half has much to do with what I'm saying. I am only saying that we are neutralizing; it doesn't matter whether it's half and half or two-thirds or three-fourths. This averaging says how much is coming from M2 or somewhere outside of the M1 concept.",68
-fomc-corpus,1981,"Well, the averaging gives a nice low figure. That's all one can say.",16
-fomc-corpus,1981,I'm not sure I follow your averaging.,8
-fomc-corpus,1981,"Well, I don't want to take time here.",10
-fomc-corpus,1981,"Well, in fact, we are never going to know in the end how much came out of M2 and M1.",25
-fomc-corpus,1981,"The more we can make the transfer issue a subsidiary issue, the less trouble we are going to get into on that.",24
-fomc-corpus,1981,"The other way of handling it is the way Governor Teeters suggested last time: Add savings deposits. The trouble with that is that it's quite evident right now that savings deposits are declining very rapidly for entirely extraneous reasons, so that doesn't give any satisfactory answer.",52
-fomc-corpus,1981,The reasons aren't entirely extraneous. If we put on monetary restraint--,14
-fomc-corpus,1981,"Well, extraneous to these shifts here. I think all we have to do at the moment for purposes of our discussion now--we have presentational problems--is decide whether we want to talk off the right side of the sheet or the left side of the sheet.",54
-fomc-corpus,1981,"The left side is easier because those are the figures we have used in the past. It seems to me we have to recognize that there will be a period of adjustment. I feel more comfortable using the left side, not that I don't think we could adjust to either one. But in your testimony last year, for example, you talked about 4 to 6-1/2 percent for M-1B; and our Bluebooks and our actions last year were all based on the figures as shown in the left column. I'm just a little more comfortable with them, but we can use either one if we stick with it.",127
-fomc-corpus,1981,"The really important thing is that we keep in mind in our comments which one we are talking about. We can talk about both of them, I guess, and decide the presentational issues afterwards. Let me just say one other thing, which I didn't say yesterday. The President is going to make a speech on Thursday; he's going to present a State of the Union Message or some kind of long message outlining his economic program on the 18th. I think that is the current schedule. It's always possible that that is going to slip. At the moment my testimony is scheduled for the 19th. That probably will be delayed for that reason and, with the agreement of the [Congressional] committees, we will submit the report after the statutory deadline so that we have a chance to write the report in the light of what the President says. I don't mean delay very long. It would be, say, Tuesday of the following week instead of Friday the 20th of the previous week. It is more likely than not that the whole schedule will be shoved back by several days in the light of the President's schedule, although I can't be certain of it. There is a substantive problem, to the extent it's relevant, that conceivably knowing what the President has to say might shade our own judgments here. I only say this because I don't know that we have to be absolutely conclusive today. I'd like to come as close to it as possible and make at the very least a tentative judgment; but we can reconfirm it between now and whatever date [the report is made]. What is today's date? Today is the third, so we're talking almost three weeks before we actually report. We may or may not want to make use of that [interval].",354
-fomc-corpus,1981,"We may also want to shift [the ranges] in July, which we haven't done for the past two years, because we will have a better idea of how much of the program is going to pass Congress. The shape of the program may be very different from what has been proposed this month.",59
-fomc-corpus,1981,"Yes, we may be able to take some account of that, but we won't know how Congress will react. We won't know a lot of things, so there will be some continuing uncertainties. The only other thing I would say as a preliminary point--in terms of psychology, imagery, and substance in the light of what we have said in the past--is that I don't see how we can avoid some reduction in some or all of these targets, properly interpreted. I'm not saying just what the arithmetic is going to look like, but--",108
-fomc-corpus,1981,"We are going to have to move M2 up, Paul.",13
-fomc-corpus,1981,"Well, let us discuss it now at this point. Who would like to comment?",17
-fomc-corpus,1981,We'll have some base drift anyway over two years that at least offsets or more than offsets the reduction--,20
-fomc-corpus,1981,"Well, let us proceed. Who would like to comment? Mr. Morris.",16
-fomc-corpus,1981,"I'd like to suggest, Paul, if we do go ahead with M-1A and M-1B guidelines for 1981, that we state the guidelines abstracting from shifts in NOW accounts. In other words, I'd eliminate this bottom section because, with all due respect to the quality of our staff, I don't think they can possibly come close in estimating the shifts. The prima facie case is the fact that they were off by $13 billion in the first week. And the idea that we are going to see half of the total annual adjustment to NOW accounts in one month goes against the grain of all prior experience. I just don't believe it.",133
-fomc-corpus,1981,I don't think there is any doubt that the staff or anybody's staff or any member is incapable of making a reliable judgment at this point on how big these shifts are going to be. The only issue is whether to give a figure and say we are going to revise it freely or not to give a figure at all. But I fully accept what you say about the impossibility of [accurate estimates].,81
-fomc-corpus,1981,"The problem with giving a figure is that that is what the press and the market will be taking as our target. And to the extent that we deviate from it, they are going to say that we are again not meeting our guidelines. It puts us in a very vulnerable position to establish guidelines on the basis of estimates that could have a margin of error of plus or minus 100 percent or maybe more.",82
-fomc-corpus,1981,"That is the advantage of keeping M-1A. If we have to raise the M-1B range later, it will show up as a reduction in the M-1A range, so we could show our--",45
-fomc-corpus,1981,"Not necessarily. Right now, with the ceilings the same on demand deposits and NOW accounts, it seems to me that it would be in the interest of any banker to say to a customer: ""Look, if you want a NOW account, fine; but let's please close your savings account because there is no point in having two accounts."" Maybe shifts out of savings haven't been so great in the first week, but that doesn't mean that they can't be great later on.",93
-fomc-corpus,1981,"Of course, what really bothers me is not only that we cannot estimate this shift now but that we won't be able to estimate it very accurately after the year is over. Do you want to comment on the substance of where the target--whether shadow or otherwise--should be?",55
-fomc-corpus,1981,"Well, no. I think the important thing is that whatever targets we establish be ex NOW accounts.",20
-fomc-corpus,1981,"Do you think that's easier, Frank? If we put our targets [that way], when the money supply figures come out they are going to be different from our targets. The average person in the public doesn't understand all of these things. And anybody who does try to look at the money supply figures--though I guess that's not the average public to start with--will see that we publish target ranges and then the numbers that come out are outside of these ranges. Isn't it better--",96
-fomc-corpus,1981,That's why my position is that we should have no M1 targets but simply have targets for the larger aggregates.,22
-fomc-corpus,1981,"Just so that the discussion can proceed, let's try to resolve how we present the targets after we decide what they should be, recognizing that there is an issue there. Your position is that we shouldn't have an M1 target at all.",47
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,I just can't agree with that.,7
-fomc-corpus,1981,"Well, you are going to have plenty of time to say whether you agree or not. What M2--or M3--target would you like to have, Mr. Morris?",37
-fomc-corpus,1981,"I would take the lower ones, alternative II.",10
-fomc-corpus,1981,You'd actually raise them from this year's?,9
-fomc-corpus,1981,"Well, I would rather not raise them from this year's; I'd like to have the staff explain to me why we apparently must do that. Obviously, I'd prefer to have a somewhat lower range.",39
-fomc-corpus,1981,Let's have a staff exegesis of that point.,11
-fomc-corpus,1981,"I don't think it's a matter of ""must,"" but essentially it's because last year growth in M2 was almost 1 percentage point above the target of 6 to 9 percent. We don't have much evidence of significance in the past two years that velocity of M2 rises or falls much. What seems to be developing is that, because of institutional changes, we now have assets in M2 on which the rates offered by institutions vary with market rates. So, the spreads between the active part of those assets and market rates don't open up to the extent they used to and we don't get large shifts in and out of those deposits to the extent we used to. Therefore, it doesn't seem unreasonable to think that we wouldn't get much change in the velocity of M2 this year. In fact, we have assumed about a 1 percentage point increase in velocity because we have a GNP projection of 9-1/2 percent for the year and alternative I assumes an M2 growth of about 8-1/2 percent. So, in our projection of what is consistent with M-1A and M-1B we are allowing for about a 1 percentage point increase in the velocity of M2. Another factor to consider, of course, if you look at it from the credit side and not from the side of the public's demand for assets, is that M2 except for the large CDs that are in M3 is essentially institutional credit. And given our estimates of the amount of mortgages and consumer loans and so forth that have to be financed at banks, we think banks are going to have to bid for a certain amount of funds to meet those demands and to maintain their place in the market. So, those are the factors that get us to this estimate, which is higher than the Committee's tentative range adopted in July. I would say also that at midyear we were assuming that M2 growth was going to be high in the Committee's range for 1980 or even [above it]. We never expected it to be down toward the midpoint of that 6 to 9 percent range for 1980. Those are essentially the reasons.",435
-fomc-corpus,1981,Just as a little aside on the precision with which these figures are calculated and the weight put on small deviations from the target range: M2 got benchmarked 0.3 of a percentage point higher based upon a one-day observation on call data of RPs for nonmember banks in March.,59
-fomc-corpus,1981,I thought it was only one or two tenths.,11
-fomc-corpus,1981,"Well, after that explanation, Mr. Chairman, I think I would stay with the tentative guidelines for M2 and M3 we established last year.",30
-fomc-corpus,1981,"You mean 6 to 9 and 6-1/2 to 9-1/2 percent, in other words?",27
-fomc-corpus,1981,I mean 5-1/2 to 8-1/2 percent for M2 and 6-1/2 to 9-1/2 percent for M3.,38
-fomc-corpus,1981,Wait a minute. You are going from these down to where?,13
-fomc-corpus,1981,"Steve says that he would expect [M2] to be coming in at the upper end of the range, but that our GNP projection is compatible with 8-1/2 percent on M2. If you want to make that 9 percent, that would be all right with me. We can make it 6 to 9 percent for M2 and 6-1/2 to 9-1/2 percent for M3. If there's ever a year when we ought to have a tight monetary guideline, it's this year.",111
-fomc-corpus,1981,Okay. Who else? Mr. Black.,9
-fomc-corpus,1981,"Mr. Chairman, I think your comment a while ago provided a good backdrop for the statement of these guidelines. We have to show some lowering in the ranges. Trying to get at how much that ought to be is a very difficult question. It's helpful if we go back and look at what we got in 1979 and 1980. I'm not sure I have the right figures on this, because I'm not sure exactly what the NOW account adjustment should have been for 1979. But as best we can estimate--Steve, you can correct me if this is wrong--it looks as if M-1B was running about 6.5 percent in 1979, abstracting from NOWs and that sort of thing, and came out at about 6.8 percent in 1980. Comparable figures for M-1A would have been 6-1/2 percent--although I'm not quite certain of that one--for 1979 and 6-1/4 percent for 1980. On M2, we don't have that adjustment problem; M2 grew 9 percent in 1979 and 9.8 percent in 1980. So, in general, we could say that there was a small deceleration in M-1A and there was a small acceleration in M-1B probably.",272
-fomc-corpus,1981,"If I may just interrupt you, Bob: On what page in the Bluebook are these past annual figures?",22
-fomc-corpus,1981,They are not in there.,6
-fomc-corpus,1981,"It's page 5, but we don't have the adjusted figure for M-1A in there.",20
-fomc-corpus,1981,"What we did--and I'm not sure we are right--was to construct that, but the latest information we had was that about 45 percent was assumed to have come [from] savings. I wouldn't put too much stock in the figures I got; the main point I am trying to make is that there has been either no deceleration or comparatively little.",72
-fomc-corpus,1981,"Well, it's an interesting point. I was just wondering, Steve: Do you have any rough figures?",21
-fomc-corpus,1981,I don't have them with me but I can get them. I'll get them and report.,18
-fomc-corpus,1981,"I don't think that changes my point, but I would like to know those figures and would welcome having them. Anyway, there hasn't been a whole lot [of deceleration], so I would opt for alternative II. One could argue that that's too much deceleration, but another point--the matter of base drift, which I think our critics are going to raise on this--is that lowering the range by 1 point in a sense compensates in large part for that upward drift in the base for both M-1A and M-1B since the ranges in alternative II would encompass a 1/2 percentage point downdrift in our [tentative] '81 targets, using the midpoint of the fourth quarter of last year as the base. For example, if we came out right at the midpoint of the target I'm suggesting, it would involve actual growth of M-1B from the fourth quarter of 1980 figure of about 3.2 percent, which would be within the range of 3 to 5-1/2 percent. But to a large extent it's to get rid of that base drift that we advocate this. I don't think we could really say that we want to raise the rate of growth expressed from that midpoint. That just doesn't make any sense. We are up here somewhere and we can't say: Well, the targets start down here. But in choosing how much we want them to come down, I think we have to consider that. So far as what we publish for the public, that is a devilishly difficult question. I reached a point that is somewhat of a compromise of what Larry Roos said in that I think in choosing our targets we have to abstract from the NOW accounts. But in expressing these targets, I can visualize all the close Fed observers out there setting up megaphones in charts like those in the lower tier of the ones in the Bluebook and putting in the figures as they come in. And unless we give them those ranges at the bottom, with all the caveats that ought to go with them, they are going to have problems fitting the figures into anything like this. I think we ought to say one further thing, which relates to something I believe you were trying to get at as we closed yesterday: That we think this is loaded heavily on the front end. That is, we expect to have excessive growth in M-1B early and then to see it come back within the target, we hope; similarly, we expect very weak growth [in M-1A] in the first part of the year and we are going to be outside our range but hope to be in [by year-end]. I don't know of an easy way to do it. It's going to be awfully confusing. But on balance that seems to me the best way to do it; I think it is what Nancy was advocating.",582
-fomc-corpus,1981,"Let me just get clear where you are. If you were working from the left-hand side of the sheet handed out this morning, you are talking about 3 to 5-1/2 percent for M-1B?",46
-fomc-corpus,1981,"That's right, yes sir.",6
-fomc-corpus,1981,You have 2-1/2 to 5 percent for M-1A. What about M2 and M3?,26
-fomc-corpus,1981,"I would just accept the ranges that the staff has worked out as compatible, as indicated in alternative II.",21
-fomc-corpus,1981,You are not unhappy about going higher?,8
-fomc-corpus,1981,"No, I don't really have any insight that would lead me to suspect their figures. I'd rather trust theirs than ours. If it were not for the base drift, I would opt for alternative I. I think that would be sufficient deceleration. It's not implausible to argue [for a deceleration] since we overshot. In a sense, we can't get away from that and we shouldn't slow it down too fast. But I do think people are going to raise that matter of base drift; and unless we can say we somehow considered it, I think we are going to have some problems on that from the public. This seems to me an easier way of doing it because the only kind of growth rates that are going to make sense to a layman are the growth rates from where we ended up. That's about all I believe any layman is going to understand. Tomorrow, I'm not going to understand!",184
-fomc-corpus,1981,"May I ask Jim a question about this? The whole business is just so unclear to me. If President Black's recommendation were accepted by the Committee, would that be a tighter monetary growth target than you assumed in the Greenbook? He's opting for the 1 point [reduction]--that is, alternative II, with M2 and M3 the way they are specified here. Would that be tighter than your assumption in the Greenbook?",89
-fomc-corpus,1981,"We would perceive it to be tighter; we view either M-1A or M-1B to be more closely related to developments in the economy than M2. So, as I understand it, [Mr. Black's recommendation] would be a 1 point reduction on ranges for the narrower aggregates, which is 1/2 point tighter than we had assumed.",75
-fomc-corpus,1981,"So you keyed in on alternative I, in effect. Is that right?",15
-fomc-corpus,1981,They keyed to the midpoint of that. I don't know whether it implies necessarily--,16
-fomc-corpus,1981,It's 8-1/2 percent on M2.,12
-fomc-corpus,1981,What would this do to your nominal GNP growth?,11
-fomc-corpus,1981,"Well, it would be down a little. I must say that I would treat all of this with a great deal of caution.",26
-fomc-corpus,1981,Who else? Governor Wallich.,7
-fomc-corpus,1981,"Bob Black to some extent has made my speech for me because I, too, think that the seeming severity of these targets is somewhat modified by the base drift. Now, the base drift could be figured from the midpoint. Then it would have been, I think, 1-1/2 points for M-1A and M-1B; I was wrong yesterday in saying it was 2-1/2 points because I didn't take into account the revised numbers in the footnote. On M2 I think it's 2-1/4 points, if you start from the edge of the band, assuming that we allow ourselves leeway at least up to the edge of the band. There's still a little leeway, 1/4 point, on M-1A and M-1B, and 1 percent on M2. So what we do in the way of pulling down under either alternative I or II we undo by this base drift. It's true that this is money that went into the economy in 1980 and it isn't going to go in hereafter. But Chuck Partee yesterday made the point that getting back on track really means running below track for a while if we have been above track. So the Partee integral, as it were--money under that curve--is stabilized. By the same principle, I think we have to look at the overshoot. I am somewhat encouraged by reading that on our new money demand function these projections really involve an upward shift of the curve, even though they involve an expectation of a downward shift on the old curve. In other words, we would have a fair reason to expect that shift for M-1A and M-1B. I'm not happy with M2, and I would suggest pulling that down. It's true that we really can't control it very well; maybe controlling the economy is the only way of controlling M2. But I fear that it's going to be our one reliable guide if M-1A and M-1B behave peculiarly because of the adjustments; and there is the possible acceleration of growth in M-1B as savings accounts are transferred into it. The levels of M2 proposed here under either alternative I or II allow for fairly good growth of nominal GNP, so that actually looks to me like a fairly comfortable target; if we believe that there's some tendency for V2 to rise, it's excessive. To come down to choices: First, in stating the numbers, I would leave out the recent shifts--they're too uncertain--and modify the numbers later; second, I would go to alternative II; third, in alternative II, I would modify M2 a little and take it to 6 to 9 percent instead of 6-3/4 to 9-3/4 percent and I would pull M3 down accordingly. But I haven't really thought M3 out, and I'm quite flexible on that. Thank you.",597
-fomc-corpus,1981,I'm not quite sure what you are saying about the targets we should state for M1.,18
-fomc-corpus,1981,I meant to say the left side of the sheet without the--,13
-fomc-corpus,1981,Without the bottom row?,5
-fomc-corpus,1981,"Yes, without the bottom because that then gives us comparability. I understand what Nancy says: The figures the public knows about are those on the right-hand side. We will have to supply continuous translations of the visible figures into the target figures.",49
-fomc-corpus,1981,Mr. Guffey.,6
-fomc-corpus,1981,"Thank you, Mr. Chairman. The discussion that is taking place around this table this morning suggests that there's enough confusion, and we should not confuse the public further by your testimony late in February. With that premise, it seems fairly clear to me that we have no choice, as you stated earlier this morning, but to publish growth ranges for the year 1981 that are lower than what we had in 1980, even though we didn't achieve them. Thus, I would opt for alternative I, the straight 1/2 percentage point reduction in the M-1A and M-1B ranges from the published ranges of 1980 without the bottom line that's on the left-hand side. With respect to M2 and M3, I'm inclined just to adopt ranges that are 1/2 percentage point below what we established for 1980 as well, with a caveat or an explanation when you testify that at the time of the required July testimony you will reveal all of these shifts, believing that most of the shifts in NOWs will have taken place by that time. You would describe then what happened in 1980 and 1981 but with the assurance that we're moving toward a bit more restraint in 1981 than we had in 1980.",257
-fomc-corpus,1981,Mr. Solomon.,4
-fomc-corpus,1981,"I basically agree with what Roger Guffey has suggested: the 1/2 point reduction on the M1 ranges. We might consider a somewhat different approach on M2 and M3, however. It seems to me that you could say to the [Congressional] committee that, given the uncertainty with regard to the new instruments and the structural and transitional shifts, we want to widen the range. We could widen it symmetrically and make it 5 to 10 percent instead of 6 to 9 percent. Or, if we feel there would be too much criticism of the widened range, then I would say that we are keeping it at 6 to 9 percent but we will have a clearer fix on it in July. Therefore, we are putting the committee on notice that we can't assess the effect of these structural shifts and these new financial instruments completely and that in July the numbers may be different and the targets for the rest of the year may be different.",197
-fomc-corpus,1981,"But those shifts wouldn't do much to M2, would they?",13
-fomc-corpus,1981,I'm not talking about the NOW accounts here. I'm talking about the developing financial instruments--the money market funds or six-month money market certificates.,28
-fomc-corpus,1981,"Oh, I see.",5
-fomc-corpus,1981,"It seems to me that even though one can borrow against a six-month money market certificate, at least at Citibank, some of the components of M2 such as that, which are growing fast, are much closer to investments than to money in the transactions sense. Now, I know one can write a check on a money market fund but, even so, the people I see and speak with are considering these things and the rates paid on them to be much closer to Treasury bills, for example, than to passbook savings. So, we're getting into a new area with this kind of instrument and it seems to me we can argue either for a broader range for this year or for temporarily keeping the same range and then reporting on it in July.",151
-fomc-corpus,1981,Mr. Schultz.,4
-fomc-corpus,1981,"Well, abstracting from the Partee integral and the Wallich differential and given my lack of confidence in the forecast and estimates of velocity and inflation, I have a very unscientific proposal. I think we ought to lower the M-1A and M-1B ranges by 1/2 percentage point from the ranges of last year and keep M2 and M3 where they were last year. It seems to me that we knew in the middle of last year that the relationships between the M1s and M2 and M3 were not right. We probably should have changed those ranges in July, and I don't think we're going to catch a lot of flak by not changing them now. I do think that most people still look at M1, particularly M-1B now, so I feel it's important to lower that by 1/2 percentage point. But it seems to me that, given the uncertainties, that's about the best we can do.",196
-fomc-corpus,1981,What would you do about the bottom row?,9
-fomc-corpus,1981,Bank credit?,3
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,"Oh, you mean how to present it?",9
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Well, I agree with Nancy that it's easier to talk in terms of the actual money supply data than to try to [adjust] the money supply figures as they're coming out week-by-week [in order to] abstract from [the shifts] every week. I think it's easier to try to explain it one time rather than every week, and that's what we'd have to do. So, it seems to me better to go ahead and make the changes in the target ranges and try to explain it and do it one time. To have to go through that process each week when the figures come out would be much more confusing than to try to tinker with the targets. Either way is lousy, but the one is lousier than the other.",149
-fomc-corpus,1981,Fred assumes that he can survive [without] impeachment! The [Congressional] committee--,18
-fomc-corpus,1981,"Well, sometimes Chairmen are expendable.",9
-fomc-corpus,1981,Mr. Boehne.,6
-fomc-corpus,1981,"There is a two-part process to this target business. One is the setting of the targets and the other is the hitting of the targets. Today, setting the targets is uppermost in our minds but, as the year goes on, hitting them becomes important. I think the realities of the economy, given what we see for nominal GNP and the outlook for fiscal policy, are such that we'd be very lucky to hit even the upper end of alternative I, let alone the midpoint, or even [the upper end of] alternative II. Even with a reasonable effort, we'd be lucky to hit the upper end of alternative I. But I favor alternative I and I would key on M-1B. I think that's what most people look at, and I would emphasize the 1/2 percentage point reduction there. I would make the other Ms compatible with that, and I think that means that we do have to raise the M2 and M3 ranges. As far as the presentation, I would drop the bottom half of the chart; the top half is confusing enough.",216
-fomc-corpus,1981,Governor Rice.,3
-fomc-corpus,1981,"Well, Mr. Chairman, nearly all of the economic forecasts indicate little or no growth for this year. Our own forecast, of course, indicates almost no growth, at 0.1 percent for 1981. I would prefer to see the targets set at a level that would permit some real growth during the year. But we appear to be committed to this 1/2 percentage point reduction in the target ranges. I hope we're not committed to a 1/2 point reduction every year hereafter, but we do seem to be so committed this year. It seems to me that any pulling back from that would be interpreted as backing out of our commitment to monetary restraint. So, I would go along with what almost everyone has recommended so far--alternative I. I would take the target ranges specified under alternative I for M-1A and M-1B as well as for M2 and M3. I take it that the ranges suggested for M2 and M3 are those thought most consistent with the 1/2 percentage point reduction of the M-1A and M-1B ranges. I'd just like to add something else. I would normally not want to take political considerations into account, but it seems to me to be an especially bad time to risk any kind of political confrontation. The Administration is seeking some real economic growth. While it calls for a policy of monetary restraint, it also emphasizes the need for a steady monetary policy. The word ""steady"" appears in all of their pronouncements about monetary policy. It seems to me that increasing monetary restraint at this time is not a steady monetary policy. So, any increased restraint beyond what we have previously committed ourselves to--for example, [going] to a 1 percentage point reduction--I'm sure would be seen as not very steady. So, the ranges that have been proposed under alternative I would be the most restrictive, consistent with any possible growth at all.",391
-fomc-corpus,1981,What would you do about the bottom row?,9
-fomc-corpus,1981,I would throw that out. I wouldn't try to explain that.,13
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"Yes sir, Mr. Chairman. I'll be brief but please don't interpret my brevity as an inability to go through much of what has already been said. I would opt for alternative I. I believe we are committed to a policy of steady restraint with a gradual reduction in the rate of money growth in order to have an impact ultimately on reducing the core rate of inflation. Intellectually, especially recognizing that a rather overly expansive growth of money might have occurred last year--we were a bit above the top of our M-1B range--to jam that down too abruptly could have serious effects on the real economy. I think a 1/2 percentage point reduction in the M-1B range and a commensurate reduction in the ranges for the other aggregates is in order. It maintains consistency with what we announced last year. I agree with what someone else said that the real key is our ability to achieve our targets. I don't think our problem in the past few years has been one of setting incorrect targets; it has essentially been our inability to achieve those targets. We talked about that yesterday, and I expressed my reservations. In sum, I would opt for alternative I, omitting the bottom portion of it.",246
-fomc-corpus,1981,I'm not sure I understand. What would you do with M2 and M3?,17
-fomc-corpus,1981,I would go with alternative I.,7
-fomc-corpus,1981,All the way down the line?,7
-fomc-corpus,1981,"All the way down the line, recognizing that in our peculiar way of looking at things we will concentrate on M-1B. But I certainly would not be unhappy with [that].",37
-fomc-corpus,1981,Mr. Mayo.,4
-fomc-corpus,1981,"My first fascination, Mr. Chairman, was with the M-1A and M-1B ranges of alternative II on the grounds that it helped get over any problems you might have in testifying with regard to base drift. The longer I thought about that, the more I came to the conclusion that the base drift isn't significant enough, at least in thinking it through myself, to cause you that much trouble. As a practical matter, I think we're better off with alternative I after all. It retains the promise of a 1/2 percentage point [reduction] and I think we might be risking more economic stagnation with a 1 percentage point promise. I find it congenial to go right down the line on alternative I. I don't think we need to worry about the M2 problem. The 7 to 10 percent looks higher; it is higher than our old 6 to 9 percent, again because of the farther drift that we have from the aggregates that we can control. I would have a very minor qualification if the Committee were to accept alternative II for any reason, and that is that I'd get rid of those quarter points. We're boxing ourselves in too closely using quarter points; it's better to have either 6-1/2 to 9-1/2 or 7 to 10 percent than to try to split it into quarters. I think that's foolish precision. So, I would come down with alternative I. I wish I could agree with Fred Schultz that we could explain this once and not have to go over it every week. But as long as we have weekly money supply figures, I'm resigned to our fate of having to explain this every week. We're going to have to be prepared to use publicly both sets of figures; we should decide on the emphasis, though, right off the bat and then gear it each time to remind people who only look at these for 20 minutes on a Friday afternoon or whenever they pick up their papers. They will say: ""Oh yes, I remember something about that."" And then they will come back the next week and have forgotten all about it and we will have to say the same thing over again. I think we will have to do that. Even though it may seem to add confusion, I think it actually will add some clarification in the public mind.",471
-fomc-corpus,1981,"Bob, do you mean that each week you would publish a figure abstracting from NOW accounts?",19
-fomc-corpus,1981,I don't think we can do that.,8
-fomc-corpus,1981,"I don't think we would do that, but we should indicate our caveat every week--the principle that's involved here.",24
-fomc-corpus,1981,"Would it be feasible, Mr. Chairman, in view of the problem we will have in the next few months, to use that as a hook to suspend temporarily the publication of the weekly figures? Is there any sense in that?",46
-fomc-corpus,1981,"Well, let's not raise that subject right now. You're saying, Mr. Mayo, don't give these bottom row targets?",24
-fomc-corpus,1981,"I don't think we need to go to the extent of giving the precise figures, but we should give some qualitative caveat every week when we publish the data as to what they mean.",37
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Mr. Chairman, on the presentational part, I think we have to try to get as much emphasis focused on the right-hand part of that table as we can. I agree very much with Governor Schultz on that point. On the substance, I come out for alternative I basically, partly because I'm not too concerned about this base drift either. After we get through, no one will be able to tell what it is. Also, I think alternative II really runs a risk of wrenching the [economy] too hard. I am a little concerned about the larger numbers on the ranges for the broader aggregates. I just wonder whether we couldn't look at M2 and M3 as 7 to 9 and 7 to 10 percent. That is a little narrower on M2, but I'm not sure that's all bad if Steve is right about the things that are happening there. I'm most concerned about bank credit because, given what is happening in the economy and given that so many of our big firms are continuing to lose money and all the rest, there is going to be a lot of lending activity in banks [this] year. So, I would not be allergic to putting bank credit at 7 to 10 percent either. In sum, I would have the M1 ranges as they appear in alternative I; I'd take a chance on 7 to 9 percent on M2 and 7 to 10 percent on M3 and bank credit. As for the presentational part, if I were you I might even be willing to go a bit further and come fairly close to committing to going back [to Congress] as early as April to try to explain what has happened and what these numbers might mean. If you do that, this idea that Bob Mayo had earlier might have some merit in the [period of] transition. That would be to try to use an average of the right-hand column for M-1A and M-1B--not as a firm target, but as a talking point. You could then say without a great deal of difficulty in communication that basically we're shooting for the average of M-1A an M-1B to grow within a 3 to 5 percent range during this period in which the transitional problem is the greatest. The 3 to 5 percent average, I think, does encompass the range of possibilities that we're thinking of in terms of the shift. And they are convenient numbers because even the upper end falls below the numbers that everybody has been looking at in terms of actual growth in the narrow aggregates for the past year. I don't know how it would work out in precise terms, but I for one would not be allergic to trying to use that handle as a way to get over the worst part of this transition, leaving open as I said the possibility of going back up there as early as April.",577
-fomc-corpus,1981,Governor Teeters.,4
-fomc-corpus,1981,"I'm not really enthusiastic about lowering the ranges at all. We've been concentrating on page 6, but if you turn to page 7 it shows that the implied interest rates are extremely high. If we had to publish our projections of interest rates, we might have a different attitude toward this. Even with a 1/2 percentage point reduction, the economic outlook is extraordinarily bad. We've used every gimmick we could to get [the economy] not to decline, including shifts in demand for money and higher rates of velocity. All sorts of things could go wrong, and there's no room for any slippage at this point in that projection. But I see I'm all alone in not wanting to lower the ranges, so I could go along with taking them down the 1/2 percentage point. I would strongly support Governor Rice in saying that I don't see anything in this system that says we have to take the ranges down year after year. There is a certain amount of money growth that is necessary in this economy. If we keep this up, we're going to get to zero [money growth] and we're going to have five years of total stagnation if we commit ourselves to that course. So, I would support alternative I as stated in the Bluebook. If my memory serves me right, last year we didn't like the ranges on M2 and M3 that were said by the staff to be consistent with our range on M1, so we lowered them. And we missed them. I think the best judgment as to what are the most consistent numbers is that being provided by our staff. Even though [lower ranges for M2 and M3] look cosmetically nice, we could be sitting here a year from now with the same result: That we had cosmeticly nice looking ranges and then missed them by the amount that the staff said we were going to miss. So, I strongly suggest that we take alternative I as specified.",388
-fomc-corpus,1981,Is that what we did last year?,8
-fomc-corpus,1981,"Yes. What we did was to take the M-1A and M-1B choice but we didn't like the looks of [the associated] M2 and M3 ranges, so we lowered them. And then we missed them. We didn't take the staff's judgment as to what was the proper relationship between the M1 ranges and those for M2 and M3.",76
-fomc-corpus,1981,I don't remember what happened a year ago on that. That may be the case. It certainly was the case in July that we were saying [M2 and M3 growth] would be a little higher than the Committee expected. I don't remember [the circumstances last] January.,56
-fomc-corpus,1981,Did we miss M2 by more than we missed the narrower aggregate?,14
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,What was the [miss] again?,8
-fomc-corpus,1981,We got 9.8 percent on a 6 to 9 percent range for M2 and 10 percent on a 6-1/2 to 9-1/2 percent range for M3.,44
-fomc-corpus,1981,We'll improvise. [Unintelligible] if the figures are any good to start with.,20
-fomc-corpus,1981,"I would also say that we ought to concentrate on the right-hand side of the page, as I said earlier. We have a tremendous public relations problem. There are an awful lot of people with sharp pencils out there; the more we tell them what we know and explain to them where our uncertainties are, I think the better our credibility is.",69
-fomc-corpus,1981,Are you saying announce the bottom line?,8
-fomc-corpus,1981,Announce the bottom line. And I'd tell them just how uncertain we are about that bottom line. We could even put the calculations all on one side and show them where we made the assumptions and what the changes are.,44
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"Mr. Chairman, I'd like to pick up on the thought that Ed Boehne laid out: That we ought to focus very, very carefully not just on the original perceptions that the public has of whether or not we've lowered our targets and your problems--and you're going to have plenty explaining this to the Banking Committees--but also on the perception of policy as the year develops. If we think we faced a credibility problem in 1980, we have seen nothing yet. It's going to be potentially 10 times as large in 1981. Consider, if you will, what will happen if we publish a range of 3-1/2 to 6 percent for M-1B. The first month of the year we had growth of 16 percent. It was 16 percent the first month! Furthermore, our expectation is that if we hit the midpoint of that range, the fourth quarter-over-fourth quarter increase will be 6-3/4 percent. If Ed Boehne is right--and I strongly agree with him--we're much more likely to end up at the upper end than the lower end of that range. So the public is going to look month after month after month at an M-1B number that is growing, let us say, at 8 to 8-1/2 percent on average, while the upper end of the target range is 6 percent. I just don't think that's viable. The same argument in reverse is true with regard to M-1A. So, if we're going to put out ranges, we really have to go for the bottom line. We have to tell the public these ranges are enormously uncertain but are our best guess of what we think actually will happen this year. This isn't just a matter of public perception. It is, as you indicated, a fact that we are going to be terribly uncertain ourselves as to what these numbers mean. And how the heck we can conduct monetary policy sensibly with monetary aggregates, when the monetary aggregates are just literally off the wall, I do not know. But it seems to me that Frank Morris has a good suggestion. As a minimum, we should put principal emphasis on the monetary aggregate that is least disturbed by these transitional phenomena that we're dealing with, which would be M2. I don't think we can drop M-lA and M-1B. I wouldn't go that far; I think we have to have some narrow money figures. But I would go for using M2, announced as our principal target. I think we ought to go with the staff range for that on page 6, and I would go for alternative I rather than alternative II. Looking at history, we find that broad money as presently defined in M2 has a rate of increase that tends to be 3-1/2 to 3-3/4 percent on average above the narrow money numbers. So I think we can justify that upward movement in the range for that reason. Additionally, when we're going into a period in which the attractiveness to the public of one element of M2--NOW accounts--is increased, that is going to attract some funds from elsewhere into M2, so we can justify it on that grounds, too. So, I would go with an M2 range of 7 to 10 percent, using that as the principal one, and using the ranges for M-1A and M-1B in alternative I with a statement at the bottom of the page instead of in the middle of the page. And I would use the left-hand side rather than the right.",728
-fomc-corpus,1981,"How we are going to get a consensus out of this, I don't have the faintest idea.",20
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"Well, like almost everyone else who has spoken here, as far as the takeoff point I certainly would use the actual growth rates for M-1A and M-1B that we achieved in 1980 and not try to correct for base drift. With respect to M-1A and M-1B, alternative I is what I would support. It does give credence to that very important perception problem that you've mentioned: We at least have in mind, abstracting from shifts, a 1/2 point reduction on those two ranges. I share Jerry Corrigan's misgivings about the M2 and M3 ranges being a little on the high side under that alternative I. As I look back on a table here showing the differences month-by-month and cumulatively between M-1B and M2 for last year, it turns out that there was a 3 percentage point spread, bottom line, net. It did fluctuate over the year; it bulged in the spring and since August the difference has varied between 2 and 3 percentage points. I'd be prepared to be generous, based on last year's experience, and allow M2 to grow by 3 points more than M-1B. Adding 3 points to the M-1B alternative I range would bring that to 6-1/2 to 9-1/2 percent versus the figures shown under alternative I for M2 of 7 to 10 percent. I'd be fairly strongly inclined to reduce that a bit. It would have one advantage, among other things, of adding some credence to our gradual slowdown in the sense that if we specify a range of 6-1/2 to 9-1/2 percent as compared to the actual growth of 9.8 percent last year, at least the upper end of our range would be a touch under what we actually achieved in 1980. For much the same reason, I would reduce the M3 range by 1/2 point from the 7-1/2 to 10-1/2 percent shown under alternative I. In terms of how to display the actual results versus the results we would announce, abstracting from [shifts], I think the first point is absolutely viable--that we do have something comparable to last year. As for how we get a translation device [for explaining] what is actually going on versus these ranges, abstracting from changes, it seems to me that some possibilities have been offered. I'm not prepared to recommend this yet without some more staff study and some comment on feasibility by Steve, but in the Bluebook there are two very interesting charts following page 9, which simply give the ranges abstracting from changes and those including changes. Based on my conviction that a picture is worth a thousand words, I'm simply suggesting the possibility as we go down the road month-by-month of showing those kinds of charts to the public as a means of explaining how to get from our announced ranges to the actual reported numbers. I'd put the actual reported numbers in the context of the sort of chart device that is used in Charts 1 and 2 following page 9 of the Bluebook.",644
-fomc-corpus,1981,Governor Partee.,4
-fomc-corpus,1981,"I'm reminded that many years ago, after a difficult staff presentation, Bill Martin sometimes would say to the Committee: You better watch out or you may catch statisticitis! I'd say we've caught it. We have it in spades today. I really don't know how it will all work out. I don't want to direct myself to the presentational question because we're all over the lot and I really think what to do is your choice, Paul. I do think we ought to keep in mind two points. One is that we have said, and it will be expected, that we want to make some further progress in reducing growth in the monetary aggregates. Now, if you look at our progress, it hasn't been very rapid. And I see no great reason to expect that it will be rapid this year either. So, to follow up on our promise, I think what we ought to provide is minimal progress in reducing our expected growth rates. The second point that I think is terribly important is one that Ed Boehne made. And that is that we are going to be judged by how we're doing relative to the targets that we've put out. As the year goes on, there will be more and more emphasis on how we're doing and less and less emphasis on how we picked the targets in the first place. So, I'm inclined to go pretty much with Fred Schultz. I think we ought to declare that in the interest of making further progress we are going to reduce the growth ranges 1/2 point. Then we would have to say that there are lots of adjustments because of all these complications that are occurring, so we are going to have to tell you what a 1/2 point is. And the 1/2 point reduction ought to be restricted to the M-1A and M-1B categories. Jerry's idea, or I guess it was Bob's, of averaging the two to give a sense that we haven't really given away the ballgame on this is probably a useful concept to employ. On M2 and M3, I really do think we have to raise our ranges some. We can't go along with 1/2 point reductions there. The reason is simply that the relationship between the narrow aggregate and the broader aggregates is going to be determined by interest rate relationships among other things and there will be higher interest rates than ever were contemplated when we first specified this relationship a year ago. I would go halfway and make it 6-1/2 to 9-1/2 percent on M2 and 7 to 10 percent on M3. And I agree with Jerry: I don't see any reason to risk being low on bank credit; nobody pays that much attention to it. So, I'd make that 7 to 10 percent also because it's reasonable to think that it might be about the same as M3, which is the broadest of the institutional aggregates we have. But the main point is that we ought to declare that we are reducing our objectives. And we ought to do it in a way that gives us maximum opportunity not to go outside the ranges as the year goes on.",629
-fomc-corpus,1981,Declare that we're reducing them but not reduce them?,10
-fomc-corpus,1981,"Yes. Well, who was that guy who said we ought to back the troop ships into Vietnam and declare we won, and leave?",27
-fomc-corpus,1981,Mr. Ford.,4
-fomc-corpus,1981,"I would come out as follows, which is basically where Fred Schultz came out: First of all, I'd speak in terms of the unadjusted targets without all the [unintelligible] and I'd declare that we are going to make a further reduction in the targeted growth rates for both M-1A and M-1B as under alternative I. I frankly am not fully convinced that the rest of the adjustments in [alternative I] that the staff suggested tentatively would have to be made are really valid. On the face of it, they make it appear that we're not undertaking a reduction. And given all the questions about it, I think Nancy's point [is valid] that we would be running the risk of running the economy into the wall. I would make the opposite assumption looking at page 7, because I don't understand how the staff comes up with a reduction in the inflation rate and an increase in every interest rate, including the mortgage rate, as we go through the four quarters of the year. Going from the present high level of real interest rates, that means that real rates get even higher. That's why I think we have to take account of Nancy's concern, but not on the basis of the table on page 7. I'd be more inclined to think we might have better luck than that. If we actually do reduce the inflation rate, by the fourth quarter I think the rates on page 7 would be lower than in the first quarter rather than higher based on the notion that interest rates reflect inflation. So, to make me feel a little less worried about crashing the economy into the wall, I'd go with what Governor Schultz said about M2 and M3 and use 6 to 9 percent and 6-1/2 to 9-1/2 percent. Finally, with regard to the explanation, you obviously have to go with however you feel most comfortable rationalizing it. I would consider one other alternative for explaining just how crucial this estimating procedure is and that would be a very simple form of sensitivity analysis. I would run it something like this: I'd say that in the first month of the year we had something like a $15 to $20 billion shift into NOWs. Our best guess--and I would call it that--is that this [total] will double over the rest of the year. We could be off by a factor of over 100 percent in the growth of NOW accounts very easily. In other words, instead of going to $40 billion, they could go to $60 billion or even to $80 billion. That would mean that you, the public, and you, the Congress, will be seeing horrible M-1B numbers that could scare the heck out of you but not reflect a real change in what we're trying to do. I'd put it that way and then take the best idea that I think has come up around the table--the idea that Presidents Mayo and Corrigan mentioned--that if something horrible like that were to happen, people would recognize that it would bring a big drop in M-1A and a big pop in M-1B and that we'd still on average be tightening. If I had to explain it tomorrow, that's the way I'd do it. But you have to do what you're comfortable with because you're the one who's going to be under the gun.",675
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"Well, you have quite an expository problem. The only advantage I see is that now instead of targets [unintelligible] the Shadow Committee [unintelligible]. I think continuity in exposition requires that we keep our numbers in line with last year as a starting point. The only thing we can do honestly is to promise adjustments and information as it develops. I think we have to give them, for instance, what the adjusted range would be at the moment in order to compare it with the figures as they are published because that's what people are going to judge them by. And I think we have to be on record as recognizing that these targets are on the old basis--I don't see any way we can avoid that--and then promise that as adjustments and information develop you will be back to indicate what that means. To me the difference between alternatives I and II is really not as important as is the recognition that we still are faced with the problem of trying to reduce the ranges. I find alternative I acceptable. Because of the continuity and exposition problem, I'd reduce the M2 and M3 ranges at this point. We might have to go back and change that, however, as things unfold. So, I'd be inclined to start with alternative I [for M-1A and M-1B], with 6 to 9 percent and 6-1/2 to 9-1/2 percent on M2 and M3. For bank credit we probably have to raise the range a little in light of market developments.",311
-fomc-corpus,1981,"Mr. Boykin, you're left.",8
-fomc-corpus,1981,"Yes, Mr. Chairman. Earlier in the meeting Governor Partee expressed some confusion. This being my first meeting, I hope you'll appreciate the dilemma I find myself in! If he's confused--",38
-fomc-corpus,1981,You'll get more confused as you go on! Governor Partee has been around here for a while.,20
-fomc-corpus,1981,"I have some sympathy for alternative II, much along the lines expressed earlier by those who were opting for that. However, I also think alternative I would be the better position to take, particularly given the uncertainties about what really is going on. It does indicate our willingness to continue the effort for restraint. So, I would be satisfied with alternative I and I would probably be willing to take the ranges the way the staff has proposed them all the way through. I also would stay to the left side of the table and I would associate myself with Willis Winn's comments on how to try to explain it.",120
-fomc-corpus,1981,"Well, this morning we have a little coffee and orange juice.",13
-fomc-corpus,1981,"Hear, hear!",4
-fomc-corpus,1981,We need it!,4
-fomc-corpus,1981,We're going to need more than that!,8
-fomc-corpus,1981,How about a little scotch this morning?,9
-fomc-corpus,1981,You better provide something to sniff now!,8
-fomc-corpus,1981,"It's conceivable to me, since we're not yet at the short-term targets, that the meeting may continue after lunch a bit.",25
-fomc-corpus,1981,Are we going to eat here?,7
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,Where are our absentees?,7
-fomc-corpus,1981,They're going to a shadow meeting of the Committee!,10
-fomc-corpus,1981,"I will accept the injunction to a considerable degree that the presentational problem is going to have to be decided by the Chairman when he testifies. I don't think there's any readily soluble way. The more I think about it, the more I think we have to give the public some indication initially, however tentatively, of the way the real numbers might or might not come out, just to give some flavor. The fact that they are way off--the jog at the beginning of the year--I am worried about. It makes the charts such as those in the Bluebook look not very good because we're so far off [target] right off the bat. Maybe we can defer being even halfway decisive about it, but I think we've got to give [the public] some indication. That is my current conclusion on that. I certainly think we have to show some reduction in the ranges, as I said at the beginning. But I guess I do look at these targets differently than some of you, or maybe all of you, look at them. I think we accomplished two things this morning. In the decision we will give some flavor of the general direction in which we want to go [in setting the ranges in the future]; and that has to be down, consistent with everything we've been saying. But maybe more importantly in terms of how we come out in the remainder of the year, once having stated the ranges, they become something of a discipline on us. I'm not one who thinks that we have the capability of necessarily reaching all these targets all the time, not only on a month-to-month basis but even by year-end. You know, there's nothing magic about the final quarter of a year. We cite these targets and tend to look at them fourth quarter-to-fourth quarter. Last year we happened to have had a high fourth quarter. If we looked at an average for the year as a whole, we came out within the target ranges; but since the focus is on the fourth quarter-to-fourth quarter period, they look a little high. It is quite possible, the way the figures are going now, that if one looked at it from the fourth quarter of '79 to the first quarter of '81, we would look comfortably within the targets that we set. Well, maybe not comfortably, but within anyway. It depends upon what happens for the next two months. So, I think we can exaggerate our control and the importance of being precise with the ranges. But I don't think there's any question that there is a discipline. That discipline operates, in my opinion, when we're in the vicinity of the upper end of the target range; the rest of the target range doesn't make much difference. The way I observe what I've seen going on here for the last couple of days--I hope not completely unfairly--is that we were presented with a gloomy economic forecast by some standards. I could imagine a considerably more gloomy one, in fact. The staff doesn't have a real recession in this forecast but I don't think we could discount having something that would be called a real recession. That's not the only forecast one could have; one could obviously have a more ebullient one too. There is a general question, which I guess is the most important question, of how serious we are about dealing with inflation. I got a little feeling, as I listened to the conversation, that we're like everybody else in the world on that: Everybody likes to get rid of inflation but when one comes up to actions that might actually do something about inflation, implicitly or explicitly, one says: ""Well, inflation isn't that bad compared to the alternatives."" We see the risks of the alternative of a sour economy and an outright recession this year. So, maybe there's a little tendency to shrink back on what we say we want to do on the inflation side. I don't want to shrink back very far; that is my general bias for all the reasons we have stated in our rhetoric but don't always carry through on. The history of these things in the past, as we all keep telling ourselves, is that when we come to the crunch, we back off. In a general sense the question here is whether we should back off. In terms of the general setting that we have, my own guess would be--and I suppose it can't be anymore than a guess--that almost any range we set that shows a reduction will be readily accepted by the Congress and the Administration and everybody else because we've said we're going to do that. Everybody has [understood] this little lesson that we've got to reduce the ranges in order to deal with inflation, and we're not going to run into a lot of flak in the short run about anything we're talking about or what has been set before us. I obviously can't be sure of that, but that would be my assumption. The only question I might get is: Why did you tentatively reduce the ranges only by 1/2 percentage point? I have not yet gotten the question: Why did you reduce them at all? I'm not saying that these people have thought this all through; I'm not suggesting that at all. But that is the common impression. Now, in fact, what we're going to be doing is fighting the upper side of the range; talk about the midpoints and the lower end of the range may not be very relevant. But I'm not sure that fighting the upper end of the range isn't right where we should be if we're going to have a sour business outlook. People are going to be complaining about Federal Reserve policy. It is not the worst position in the world to be in to say: Look, our only risk is that we're exceeding our range, not that we're down at the midpoint or below. If we're in the low part of a range or at the midpoint of the range and the economy is sour, we're sure to have everybody telling us that we have to ease up because we're not even exceeding our own ranges and the economy is awful. So, I do think there is an element of internal discipline and external explanation in assuming that the relevant part of the range will be the upper part of the range and not the midpoint or, certainly, the lower part of the range. The lower part of the range in my conception of the world is something we'd accept if some of these relationships go off; our instinctive judgment is that we wouldn't want to be all that easy in an ordinary sense despite the fact that the [monetary growth] figures were coming in low, given what is going on in the economy and what is going on in interest rates or whatever. We have a safety valve so we can say we're not below our range. But we will only be down there if [the economy is performing] in a ""satisfactory"" way. So, the crucial number here is the upper part of the range, and the forecast is based upon the midpoint. I don't sit here and assume, frankly, that we're going to be at the midpoint if the economy is going to be as bad as the staff has projected, much less if the economy is worse than projected. Indeed, if the economy is better than they projected, which implies a whale of a lot of pressure on interest rates, we'll probably also be at the upper part of the range. So, that's the relevant number we're talking about, not the rest of the range, unless something unexpected comes along and these numbers for some institutional or other reason happen to come in low when interest rates are declining and everything is going along more or less swimmingly. We have a great preponderance of opinion for alternative I and for looking at it from the viewpoint of the left-hand side of the sheet that was given us, leaving aside the question of how it's actually presented. That gives us an upper end of the range of 5-1/2 or 6 percent, depending upon which one we look at, compared to an actual outcome last year of 6-1/4 or 6-3/4 percent. It's a reduction of something like 1/2 or 3/4 percentage point, depending upon which one we look at. I guess that's where we are. I would, if anything, make it lower than that rather than higher, again based upon the assumption that we're going to be flirting with the high ends of the ranges and not the low ends. I am somewhat comforted, on balance, but I don't know whether I'm more comforted than discomforted by the fact that we won't be able to tell with much precision where we are anyway, so far as the M1 figures are concerned. That does make M2 or M3 potentially more important, as a number of people have said. Let me assume that the staff forecast is more or less right about the relationship [between M1 and the broader aggregates], although there's bound to be a good deal of uncertainty about that; the amount of confidence one puts on that estimate is not enormous. But let me assume that's the reasonable assumption as to the consistency between the two. If I convert that into my own feeling that the more relevant issue is being at the upper end of the range rather than at the midpoint, that in itself makes me willing to go toward a tighter stated range in order to make sure that it is disciplining enough. We have the presentational problem of whether to raise one or both of those ranges. It's a purely psychological problem regarding what that does in terms of the imagery we are portraying at the moment. The staff's best guess on M2 is that 8-1/2 percent is consistent with the midpoint of M1 in some sense. But at least with 8-1/2 percent you're saying that's your best guess consistent with the nominal GNP forecast, which is more relevant.",1970
-fomc-corpus,1981,"Well, if you look specifically at the flow-of-funds data, it might come out to something like 8.8 percent. We've squeezed it down to 8-1/2 percent rather than up to 9 percent.",47
-fomc-corpus,1981,"So, it's really close to 9 percent.",10
-fomc-corpus,1981,But it's consistent with the GNP forecast; that's more important than the M1 forecast in that respect.,21
-fomc-corpus,1981,And the base drift in this is 2-1/4 points?,15
-fomc-corpus,1981,On the M1s it's 2-1/2 points; on M2 I don't know the base drift. We don't really have that.,30
-fomc-corpus,1981,"I don't even know what the definition of base drift is. It depends upon whether you thought you were really aiming at the midpoint of the previous year and there's an error in that. Anyway, for the reasons I suggested, I would go below the 7 to 10 percent and 7-1/2 to 10-1/2 percent [shown under alternative I]. I'm not sure we want to go above where we were last year, but for the psychological or presentational reasons I don't like going as high as stated there. But I have no great compunction about announcing that we expect to be at the high end of the range--that we would be disturbed about being over the range but not at all disturbed about being at the high end of it--and that the low end of the range is only to take care of totally unexpected developments that might for some reason reduce the attractiveness of money market funds or whatever. We could get a development in the thrift industry such that they don't become more eager competitors for money market certificates, so that [lower end] was expressed for a variety of other contingencies that conceivably could develop. We have a pretty mixed view on this, I think. The Committee is pretty well split down the middle in the initial comments between a 7 to 10 percent group and those who prefer something less than that. There is a slight majority--seven--for less than 7 to 10 percent, just using the M2 number. The only other comment I would make is that we will be announcing these targets a few days after the Administration is announcing its program. I don't know what that's going to be. I assume it's going to include Kemp-Roth for three years. I'm not at all sure it's going to include--my guess is it is not--a beginning date of January 1, 1981. I think it will be some time after that. And I do think they are probably going to have a bigger expenditure reduction number in the proposed program than conventional wisdom has assumed--conventional wisdom now and perhaps conventional wisdom after they announce it--is at all possible. But I suspect they are going to have a very big number in there and put a lot of emphasis on the importance of the changes they are trying to make in the structure of the budget and, therefore, in the American economy. The question is how our money supply numbers will play in connection with that tune--whether it will sound like we're doing business as usual or supporting the program or whatever. I don't know quite how that will play, but it is a psychological question. I guess what I am saying is that if it's the great predominance of opinion that we go substantively, however presented, for what is alternative I in the Bluebook, I would suggest that we reduce the M2 and M3 numbers to some extent. The presentation would suggest that we would be near the upper end of the ranges. That is what I would propose. Presentationally, I think we have to give at least a tentative view and try to avoid getting it written in indelible ink in any way; I'd give a penciled-in tone for how the actual number may look. You know, we're going to have to report what the actual numbers are; and I think we have to give a target at some point relevant to the actual numbers rather than say that we can somehow adjust the actual numbers when we don't have a good enough handle to adjust them on a week-by-week basis. By the same token, we don't have a good enough handle to adjust the target on a week-to-week basis either. But I think that can be a little vaguer concept than a number we actually have to publish every week in print. Sooner or later we will be forced into giving a target that allows for the shift. My main reluctance about doing that at all decisively right now is that there's such a jog in the actual pattern of the numbers that come out right away. But I would, as I feel now, do it that way. I've been playing around with just how we might present this and give some sense of continuity. There is a possibility. The problem is impossible, I hasten to say, because we really have three sets of numbers. We have numbers based upon what we were estimating last year, where we are now, and with further shifts [this] year. To give some sense of continuity in terms of the M1 numbers anyway, I was wondering whether we could take the cone we had last year, which is the conventional way to express these things, and adjust it for what actually happened to the numbers. That means that the actual figure is very close to the cone for the fourth quarter. We could take the top of that cone and extend it by whatever percentage we have decided on here. It would be extended in the case of M-1B by 6-1/2 percent--we'd have to go off the right-hand side of the sheet--and by 4-1/4 percent for M-1A, if [alternative I] is the decision we make. Then we would extend the bottom part of the cone by the same percentage and we would have created a channel which is consistent with the 4 to 6-1/2 percent target or the 1-3/4 percent to 4-1/4 percent target. But the cone would coincide with the channel by the fourth quarter. Thus we would have established a channel in which to operate with exactly the same upper end of the line as the cone. But the bottom end of the channel starts from last year's target rather than where we are at the moment. It's the same information; it's just presented in a different way so that we can link the one target to the next. I don't know whether one would call that base drift or not. It creates the same channel we had last year.",1195
-fomc-corpus,1981,Everybody who understands that raise their hand!,8
-fomc-corpus,1981,That means basing [unintelligible] base drift. You're basing it on last year's targets and linking it up with last year's terminal points of the cone?,34
-fomc-corpus,1981,"That's what you do, yes.",7
-fomc-corpus,1981,"Yes. If you draw a channel for last year and a new channel for this year, that will not be a straight line. There will be an angle where they join.",35
-fomc-corpus,1981,"That is true. One of the difficulties with this portrayal is that there is an angle where they join. The angle is so small it is not perceptible to the naked eye. I don't know that it's worth lingering over this; it's a presentational matter. If we literally attached it to the cones with the current estimates that we're using, the actual is 1/4 percentage point above the cone. If we did it this way and we wanted to get in the channel, our effective target from the actual is 1/4 percentage point lower than the target itself would suggest. VICE CHAIRMAN SOLOMON(?). But how do you explain it technically in words? It's a simple-looking cone I can see, but how do you put words around it?",154
-fomc-corpus,1981,He just did.,4
-fomc-corpus,1981,"Well, I'm not sure it's a good idea. One can go that far and it's fairly simple. I think I can explain that much very, very easily. What gives me pause is that then I'd have to say: ""But that new channel I just gave you isn't the right channel because now we're going to get more shifts into NOW accounts."" That's the real problem. This much can be explained simply.",81
-fomc-corpus,1981,It sounds in fact more like 6-1/2 than 6-1/4 percent. Is that what you're saying?,27
-fomc-corpus,1981,"[Yes], if we literally did what I just described and did it from the cone instead of the actual and took the present estimates of the cone--we could change them--but if we accepted that one-third/two-thirds split instead of a 50/50 split. If we took a 50/50 split, it comes out that the actual is just about on the cone; if you take the one-third/two-thirds split, it is not. So, it would imply that we're going to make that up during the year and it would reduce the ranges effectively by 1/4 of a percentage point.",125
-fomc-corpus,1981,You mean it will reduce the target by 1/4 percentage point?,15
-fomc-corpus,1981,That's right. It would reduce the upper end of the target by 1/4 percentage point.,20
-fomc-corpus,1981,"Yes, it doesn't reduce the lower end.",9
-fomc-corpus,1981,That's because the implication is that we would come back within the channel.,14
-fomc-corpus,1981,"Mr. Chairman, if I understand what you're saying, it's what we originally thought about presenting to this Committee and decided it was so complicated we couldn't explain it.",32
-fomc-corpus,1981,"No, you took off on the midpoint, I think. This is a little different.",18
-fomc-corpus,1981,"No, I'm not talking about what I said here.",11
-fomc-corpus,1981,Oh.,2
-fomc-corpus,1981,"What we originally thought we would do in the way of presenting charts is what you said, I think. I have some sympathy for it, but we decided we couldn't explain it to the Committee. But maybe we can explain it to the public. The public could--",53
-fomc-corpus,1981,"Well, there's nothing very hard about explaining it to the Committee if it wasn't for that last step. And what may make it impossible is that when you get finished with the explanation, you have to say this isn't the right channel anyway. That's really the problem; but any presentation has that problem. That's what makes the whole presentation impossible.",67
-fomc-corpus,1981,Maybe you could go into the second stage with a shaded area added.,14
-fomc-corpus,1981,That's right. We would have to put another shaded area on here. That's exactly what--,18
-fomc-corpus,1981,"At least we could do it for M2 and M3, Paul.",15
-fomc-corpus,1981,"Well, with M2 and M3 I don't think we can do it because they're too far out of the target.",24
-fomc-corpus,1981,What you have is a kinked two-year megaphone.,13
-fomc-corpus,1981,That is it exactly. Right.,7
-fomc-corpus,1981,"But you can't do it, I don't think.",10
-fomc-corpus,1981,"With a dogleg. CHAIRMAN VOLCKER Well, that's a problem, too. But that is a presentational problem. If we presented it this way, we might end up deciding--this would have to be a decision--that we'd be willing to have a 1/4 point lower implied target for the M1s if we drew last year's cone with the one-third/two-thirds distribution. Am I right that if we do it 50/50, we're right on the cone?",101
-fomc-corpus,1981,"That's what I was just figuring out. Yes, it comes out that the rates of growth are exactly equal to the upper ends of the ranges.",29
-fomc-corpus,1981,"Well, without worrying about the presentation--anybody can have second thoughts--the substance, however it's presented, is that the majority opinion at least was that we should be 1/2 percentage point lower on the M-1A and M-1B ranges. Let's just look at that part of it first. Just what I would say, I'm not quite sure. But my opinion is that we're going to be near the upper end of whatever range we pick. That is, as I said, much more likely than anything else. In thinking about the ranges myself, I don't consider that a problem. I don't consider that a miss in any sense of the word and I assume that's what we're talking about. I'm not saying we couldn't be at the lower end if things evolved in a different way than the economic forecast suggests, with much lower interest rates or whatever other permutations and combinations might develop in the real world. I am simply saying that we would be satisfied to be around the upper end of the ranges with an economic forecast of the kind presented. Let me just confine myself to M-1A and M-1B. As I say, my concern is that that's too easy, not that it's too tight. Do we have a consensus on that?",254
-fomc-corpus,1981,Do you want a show of hands or something?,10
-fomc-corpus,1981,"I am troubled by M-1A and M-1B and more troubled by M2. It's not that I want to speak up now, but in combination it becomes very, very troublesome.",40
-fomc-corpus,1981,"Well, we'll approach this by partial differentials or something. I take it that people are willing to live with that 1/2 point reduction on the M-1A and M-1B ranges, with reservations depending about how we come out on the other parts and how it all fits together. We recognize that in the end it might be presented as on the right-hand side of that piece of paper, but someplace it's going to be presented both ways, I'm sure. I don't know whether we have to deliberate over the difference between M2 and M3. Let's assume that whatever we say for one applies to the other. There I would feel even more strongly that we're more likely to be flirting with the upper end than anyplace else and that the higher we put the upper end, the higher in fact we might be, given the kinds of problems that we foresee. How many do we have for 6 to 9 percent, which is precisely where it was last year? I better just take a poll of Committee members. Six. Who do we have for 7 to 10 percent? We must have a couple in the middle. Well, I would encourage a moment of discussion by somebody other than me--somebody who wants to be persuasive one way or the other.",259
-fomc-corpus,1981,"I would like to be persuasive on staying where we were last year. It seems to me, given all of the uncertainties, that we might as well get hung for a sheep as a goat here. This 1/2 percentage point doesn't seem to me to make that much difference, and if we go up from last year, I think we're going to get a lot of criticism. We will say: ""Well, we're going to go down 1/2 point on M-1A and M-1B."" And they are going to say: ""Aha! But you're going up on M2 and M3."" I just don't think it's that crucial; we are looking at a whole family [of aggregates], which I think is important. If we get outside the range on M2 and M3, that does exert some additional discipline. Most people continue to [focus] on M-1B, and I think that is the more crucial number; I don't think we help ourselves very much by going to, say, 6-1/2 to 9-1/2 percent on M2 rather than 6 to 9 percent. We would lose a lot in the presentation. I do think that the perceptions are crucial at this particular point in time, just as I think the perceptions of budget-cutting are crucial in the fiscal area. So, I would make an argument for 6 to 9 percent on M2 and 6-1/2 to 9-1/2 percent on M3, understanding that we're not only going to be at the upper end but that the relationships may be such that it's very difficult to stay below that upper end. I still think we're better off that way.",351
-fomc-corpus,1981,"The thing is that we were over [our M2 range by] quite a bit this past year--by 0.8 percentage point if the figure is right--and we're going to be over this year because, after all, we do have within that aggregate two pretty dynamic competitive instruments: the money market funds and the money market certificates. And the MMCs have some potential for further development as a market tool. I might also say that we're in the hands of the DIDC because it could change rate relationships. Then who knows what might occur? I rather agree with you that it may not be worthwhile to confuse things. On the other hand, I think this is the one time when we can say: ""Look, we have the relationships wrong between these aggregates growth rates; we had them wrong last year. We can't set each growth rate independently because they have complicated relationships with each other. Recognizing that and recognizing the close correspondence between M2 and GNP, and seeing that people are thinking in terms of a 9-1/2 or 10 percent increase in nominal GNP this year, we think we better have a range that would encompass what might occur. That's why we have a higher range."" But I'm sympathetic with your point of view that a 1/2 point difference isn't much.",264
-fomc-corpus,1981,"And I'm sympathetic with your view, too.",9
-fomc-corpus,1981,"I'd take up on Ed's point. After all, we're not only setting ranges for perception. A year from now we have to figure out where we came in, and we ought to set something that we have some chance of achieving. In a presentation of foreign targets about two or three weeks ago, I noticed that the French did very well but they had an 11 percent target. I think it's better to be honest and to say, as Chuck is saying, that we misspecified these. Then we would have some chance to make it rather than put out a number that is too low, knowing that we're not going to make it.",128
-fomc-corpus,1981,"Well, 6 to 9 percent in a longer-term context is quite rich because we overshot the upper edge of the band by 0.8 percentage point, as someone said. That means we overshot the midpoint by 2-1/4 percentage points. That makes 11-1/4 percent the upper end, in effect, of the 6 to 9 percent. That's more than the nominal GNP growth that the Board staff projects. I grant you that anything can happen to M2. But there is going to be a temptation to rely on that very heavily because of the uncertainties surrounding the [narrower] aggregates. It seems to me that this is just giving the economy what it wants, like demand feeding. A more scholarly person, Bob Black, said it was the real bills doctrine: We just supply the money that the nominal growth of GNP demands. We ought to have some restraint built into this.",191
-fomc-corpus,1981,"May I take up on that point? The staff forecast with the 7 to 10 percent range for M2 is for an increase in nominal GNP of 9.6 percent and a decline in real GNP of .8 percent. Now, I think it's a question of whether we want to aim as our central point for -0.8 percent, or essentially -1.8 percent, for real GNP growth in 1981. Both of those imply restraint. The question is not whether we have restraint but how much. I too think, as Nancy said, that inevitably we're going to be leaning more on M2 as the year goes on to guide ourselves and to explain to the public what we're doing because M2 is the one aggregate that's going to be most robust under the kinds of institutional changes we're looking at. If we can get away with the presentational problem initially, I think we should go up to 7 to 10 percent as a more meaningful number for M2 if we lower the narrow aggregate ranges 1/2 point. We'll regret it later on if we don't.",223
-fomc-corpus,1981,But 7 to 10 percent really means 9 to 12 percent or a little more than that.,22
-fomc-corpus,1981,"No, because we've already had the rest of it, Henry. You assumed in your discussion that we properly specified it a year [ago] and there's no reason to think we properly specified it. We know it has a very close velocity correspondence to nominal GNP, and it tracked it pretty well last year. It will track it again pretty well this year.",72
-fomc-corpus,1981,"But the staff's forecast assumes the 8-1/2 percent midpoint. It seems to me, along with the Chairman's suggestion, that the 9 percent ceiling would certainly be--",38
-fomc-corpus,1981,The 9 percent encompasses the staff forecast.,9
-fomc-corpus,1981,"Just barely, by 0.2.",9
-fomc-corpus,1981,By 0.2.,6
-fomc-corpus,1981,But that is assuming essentially no rise in velocity. We could have a decline in M2 velocity for the year because of what is happening to the MMCs and the money market mutual funds--the increased attractiveness of this particular aggregate relative to market securities because of NOW accounts. There are all sorts of reasons for thinking that might happen.,66
-fomc-corpus,1981,Tony is trying to suggest that we widen the range.,11
-fomc-corpus,1981,"As I suggested, I would widen the range by a point on each side, if we feel we can get away with it, in order to look neutral. If not, then I would have to come out for the 6 to 9 percent.",51
-fomc-corpus,1981,"Well, I think 5 to 10 percent is too wide. Maybe we can take 6 to 10 percent, but 5 points is an awfully wide margin. And we don't really expect to be below 6 percent, not with the possible accounts in that [aggregate].",58
-fomc-corpus,1981,"My experience with that Congressional committee is that Fred Schultz is 100 percent right. What they're going to say is: ""Look, you've lowered it a half point here and you've raised it a half point there; if you average them together, you haven't really done anything.""",54
-fomc-corpus,1981,That's the problem.,4
-fomc-corpus,1981,"But we've known since last July that the specification was wrong. If we have to change all these other specifications as drastically as we do, we better get this one right. Otherwise, we'll come up next year and say that we specified M2 wrong for two years running and now we're going to confuse the waters by re-specifying M2 in its proper relationship.",72
-fomc-corpus,1981,"I'm not entirely clear on this point that it is fundamentally misspecified. I think the numbers that John Balles was ticking off before work at least a little in that direction. Now, it's probably true to say, given everything in M2 and the fact that half of it is positively related to interest rates and the other half is negatively related to interest rates, that it should be more stable. If anything, as I said before--although I really don't think it's necessary to do it--that might suggest that the band can be narrower and that we can more reasonably assume that it will come out somewhere near what the staff forecast implies. But I'm not entirely persuaded that it is structurally that far off the mark.",143
-fomc-corpus,1981,"If you take the past 10 years, the average annual growth rate of narrow money is 6 percent; the average annual growth rate of M2 is 9-3/4 percent.",39
-fomc-corpus,1981,"Well, if we misspecified last time, why not adjust both?",14
-fomc-corpus,1981,"But we've already corrected for it; we did all these redefinitions and things. We built a lot of that right back in. If you looked at it as you went along, you wouldn't find that.",41
-fomc-corpus,1981,"Not every year, no. It's awfully hard to argue that this year we ought to see a substantially narrower range of growth between M2 and the adjusted M1s.",35
-fomc-corpus,1981,"Well, if this NOW estimate that the staff is making here is right, maybe that's true. But if the NOW estimate is a lot higher than that--i.e. more comes from savings-type instruments, as Frank Morris suggests--then I think it works the other way.",55
-fomc-corpus,1981,It won't reduce M2.,6
-fomc-corpus,1981,"No, but it will narrow the spread between--",10
-fomc-corpus,1981,"Yes, it will raise M-1B.",10
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Well, what we do about this depends upon what emphasis we put on the fact that we expect to be in the upper part of the range. One way of approaching that, I suppose, is to narrow the range instead of widening it.",48
-fomc-corpus,1981,Or not have a bottom.,6
-fomc-corpus,1981,"Yes, or not have a bottom and just put down a number. We could say we don't want to see it exceed thus and so. But we could narrow it; I hate to have narrower ranges but I don't think we're going to hit the bottom of this one anyway.",55
-fomc-corpus,1981,"That's what we thought last year at this time, too.",12
-fomc-corpus,1981,"Paul, does the President's program, which ostensibly is going to put money back in the hands of consumers who are going to save it, give more credence to the continuation of a 10 percent figure?",43
-fomc-corpus,1981,"Yes, he said half or more will be saved.",11
-fomc-corpus,1981,He said half to two-thirds will be saved. We've got to accommodate that.,16
-fomc-corpus,1981,"You know, I hadn't thought of that. I don't know whether we have any rationale that this great increase in savings is going to push up--",29
-fomc-corpus,1981,He's going to have a program by the time you go up [to testify]. Do you agree with it or don't you agree with it? I don't know.,32
-fomc-corpus,1981,It will be soaked up by the increased deficit.,10
-fomc-corpus,1981,It has one chance in 100 of being true.,11
-fomc-corpus,1981,"I'm afraid you're right, Frank.",7
-fomc-corpus,1981,Then it gets us in the awful box of indicating that the FOMC agrees with that kind of number. We have some hard data on it now. A recent survey that was taken indicated that 26 percent of the people said they would save.,50
-fomc-corpus,1981,"They did that one time on a refund, too, and every bit of it was spent.",19
-fomc-corpus,1981,Are they going to save anything?,7
-fomc-corpus,1981,Will we know?,4
-fomc-corpus,1981,Even that is a low number.,7
-fomc-corpus,1981,"If you took this decade's relationship of 3 percent [as the differential between M1 and M2] and we're setting an upper limit of 5-1/2 percent for M-1B, M2 comes out at 8-1/2 percent, which is within the 6 to 9 percent range. I would not suggest a 6 to 9 percent range if we thought M2 growth was going to end up at 7-1/2 percent because that is in all likelihood considerably too low. My problem is that I want this range to be a constraint on the up side.",125
-fomc-corpus,1981,But the staff forecast is so close to 9 percent already that it means we're going to start constraining almost immediately.,24
-fomc-corpus,1981,"Well, if you think there's a really big advantage--I don't think there is--I'm prepared to vote for 6 to 9 percent and assume we'll exceed it.",34
-fomc-corpus,1981,"Well, before we get there, let me ask a question. If you had to guess, as a technical matter, between M2 and M3 which is more likely to be exceeded?",38
-fomc-corpus,1981,"I do not have a good guess on that. In the old days, one would have said the broader aggregate. But now institutions can compete actively in either aggregate. We have money market funds in M2 as well as M3. And we have money market certificates in M2.",57
-fomc-corpus,1981,"The difference is basically negotiable CDs and Eurodollars, [which are in M3], right?",21
-fomc-corpus,1981,That's right. And in both aggregates there are [instruments] that institutions can offer aggressively or less aggressively depending on conditions. Equally likely would be my answer; I can't tell which.,38
-fomc-corpus,1981,Equally likely.,4
-fomc-corpus,1981,Or equally unlikely.,4
-fomc-corpus,1981,Do you think you're splitting--,6
-fomc-corpus,1981,"Well, they're already split. It's just a question of how much they are split. The staff has M3 1/2 percentage point higher. I don't know whether it's worth it, but we can compromise the position by moving one down more than the other.",53
-fomc-corpus,1981,Then we would be forced to say something about what we expect to happen because of large CDs.,19
-fomc-corpus,1981,"I think there is an argument--it's not a very strong one--for saying that M3 might be the stronger, simply because the prospects for a fair amount of term business borrowing are pretty strong. When you look at the auto industry and the steel industry and so forth, there's a lot of term big business lending going on. I think banks are more likely to try to fund that with CDs. That is compatible with some risk that M3 and bank credit could be toward the high side, as I suggested earlier.",104
-fomc-corpus,1981,"Actually, we exceeded M2 by more than M3. We could put them both the same.",20
-fomc-corpus,1981,"Well, last year we did.",7
-fomc-corpus,1981,"If we get a tax cut for business and it's retroactive to the first of the year, it's going to provide businesses with funds to finance their capital investment, and the mix of borrowing will shift toward government.",42
-fomc-corpus,1981,"If they stay with the idea of accelerated depreciation--I don't know if they will or not--the numbers I've seen on cash flow on that in the first year, even if it's retroactive, are pretty small because of the nature of the tax change. It's not the same as a change in income tax rates in terms of the cash flow effect.",70
-fomc-corpus,1981,"I think it will turn on the amount of bank lending, but I'm a little hesitant to predict whether that's going to be exceptionally big or small.",29
-fomc-corpus,1981,"It depends on what kind of budget cuts we get. If the market looks at the budget cuts favorably, we could get a situation in which corporations would be able to come to the capital markets to a greater degree. And, boy, they would do it! They're really sitting at the ready there.",61
-fomc-corpus,1981,"Going back to something that Fred suggested earlier, we could have 6 to 9 percent now but say that given the institutional changes it might very well be that in July we would want to revise that on the up side.",45
-fomc-corpus,1981,We're not notable for changing things in July.,9
-fomc-corpus,1981,Maybe we should change that; maybe we should be a little more changeable in July.,18
-fomc-corpus,1981,Chances are that the only way to change in July is up and we'll go through the same argument about how awful it looks.,26
-fomc-corpus,1981,At this time of high inflation.,7
-fomc-corpus,1981,"Don't forget, we're going to have a first-quarter CPI number that's possibly going to scoop the markets right out of their minds again. I think we're going to find it impossible to raise our targets after we've had, say, a 16-1/2 percent increase in the CPI in the first quarter.",61
-fomc-corpus,1981,I don't think any of us would be arguing this so strongly if we didn't all have a feeling that we will be focusing on this much more--that this is somewhat of a precursor to the kinds of debates we're going to be having at all the meetings.,51
-fomc-corpus,1981,"Let me be a little picky about this. We could have 6 to 9 percent now and then, assuming the tax cut takes effect about midyear--and as a matter of fact the staff has a higher personal saving rate for the second half than for the first half--we could then say that because we have had the tax cut we want to make a little allowance for that and we're going to raise the M2 range when we look at it in July. It might be--",98
-fomc-corpus,1981,We assume that it's going into savings.,8
-fomc-corpus,1981,The easiest time to do it is right now in expectation of that tax cut and to do it accompanied by a reduction in the narrow money ranges.,29
-fomc-corpus,1981,I think Lyle's right on that.,9
-fomc-corpus,1981,Because we're surely not going to be cutting narrow money.,11
-fomc-corpus,1981,"I think Mr. Mayo's argument is an excellent one. It's a really good excuse. It's the best one, or the only one, I can think of. It's a stroke of genius. We have a tax cut coming along and it's expected to add to savings; and we've made allowance for it.",61
-fomc-corpus,1981,Any port in a storm!,6
-fomc-corpus,1981,"Certainly that's not inflationary, is it? More savings? We're all for it.",17
-fomc-corpus,1981,"Well, my problem is this: I think 10 percent is too high. It's higher than we had last year, and I assume we're going to be near the top. Now, one can say 9-1/2 percent is a nice number, and in some ways it is a nice number. Is it worth it for a 1/2 percentage point to present a higher target than last year? That's my problem.",87
-fomc-corpus,1981,The answer is no.,5
-fomc-corpus,1981,The answer is yes.,5
-fomc-corpus,1981,"But we have all these excuses for changing them now, given the relationships.",15
-fomc-corpus,1981,Let's save them all up and use them later.,10
-fomc-corpus,1981,M2 has not received much focus.,8
-fomc-corpus,1981,"No, that's right; but I think it will receive more and more after this.",17
-fomc-corpus,1981,Over time it will. But I think we can sneak in an increase in the M2 range now if we lean on the savings argument.,28
-fomc-corpus,1981,"We're talking not only about M2 but also M3. And in the popular view, we would be raising two out of the three targets.",29
-fomc-corpus,1981,I don't think we can do that.,8
-fomc-corpus,1981,"Mr. Chairman, I don't know whether it's helpful but, in answer to Governor Teeters's question, we looked back at last year. The Committee essentially took what the staff had down for M2 and M3. It wasn't until midyear that the staff said the specifications were off.",58
-fomc-corpus,1981,"Just because it's interesting, do you have those numbers that Mr. Black was asking about earlier? This is really M1, but it's interesting. What page are those on in the Bluebook?",39
-fomc-corpus,1981,"Yes, they are on page 5. I can read the numbers as we have them adjusted for the so-called shifts. For M-1A for 1978, we have 7.8; for 1979, 6.5; and for 1980, 6.2. For M-1B, we have 8.0 for 1978; 6.9 for 1979; and 6.7 for 1980. Essentially for 1979 that reflects the shifts to ATS accounts and for 1978 some rough and ready adjustment for a sense of differences in trend of those two.",132
-fomc-corpus,1981,Wait a minute. I didn't follow why you adjusted 1978.,14
-fomc-corpus,1981,"Well, it's a bit obscure as to whether one should or shouldn't, so I wouldn't make too much of that.",23
-fomc-corpus,1981,Okay.,2
-fomc-corpus,1981,It's much more clear in '79 and '80.,11
-fomc-corpus,1981,We didn't make much progress last year on those numbers. We redistributed the progress that appears in the unadjusted numbers. That doesn't change--,28
-fomc-corpus,1981,It's really better. I'd like--,7
-fomc-corpus,1981,"Well, it's pretty close. The weighted average is a little better on the adjusted, about 0.1 better. Well, we have to make up our minds. We can try the 9-1/2 percent number. I think the real question is whether it's worth going to 9-1/2 percent, which in some ways looks better; but it is going to show an increase in two out of the three targets.",89
-fomc-corpus,1981,"How about leaving M3 at 9-1/2 percent? Have M2 and M3 the same at 6-1/2 to 9-1/2 or 7 and 10 percent, but leave them the same on the grounds that we just don't know how they--",60
-fomc-corpus,1981,"I thought you just mentioned that S&Ls are going to be selling CDs up to $100,000.",22
-fomc-corpus,1981,They can certainly try unless there is a set of questions about the solvency of the insurance corporations.,20
-fomc-corpus,1981,"Mr. Chairman, did you say two out of three of the numbers would be higher?",18
-fomc-corpus,1981,"If we go up [on M2 and M3]. I'm assuming at this point that we do with M3 anything we do with M2. When I say two out of three, I'm assuming both the M1 ranges are essentially one range. We could call it two out of four or two out of three. Well, how many like 9-1/2 percent?",77
-fomc-corpus,1981,Better than what?,4
-fomc-corpus,1981,Better than 9 percent.,6
-fomc-corpus,1981,This is for what--M2?,8
-fomc-corpus,1981,For M2 and the equivalent number for M3.,11
-fomc-corpus,1981,"Better than 9 percent, not preferable to 10 percent?",13
-fomc-corpus,1981,Better than 9; that's right.,8
-fomc-corpus,1981,But not better than 10.,7
-fomc-corpus,1981,"I understand. Not better than 10 percent in some people's view. How does that leave me? How many prefer 9? Seven and one. Well, the 9s clearly have it. That only leaves me with the question of whether we can attract more support by fiddling around here somehow. Let's assume we have 9 percent for M2, but not do exactly the equivalent, which I was implicitly assuming, for M3. Let me try 6 to 9 percent for M2 and 7 to 10 percent for M3.",112
-fomc-corpus,1981,There really isn't a lot of usefulness in having an M3 target that's higher than M2.,19
-fomc-corpus,1981,"Yes, I think that's right.",7
-fomc-corpus,1981,"If the staff forecast is half right, over the next year the growth of business loans is going to be held down severely by the lack of inventory investment. That's in the approximate sense the most important thing that affects business loans. Without the business loans, the banks aren't going to borrow unless there's a very big difference between the prime rate and market rates, and that's not very likely.",76
-fomc-corpus,1981,"Mr. Chairman, for purposes of impacting the economy, is it important that we specify an M3 range?",22
-fomc-corpus,1981,"In a sense, basically that's a vote for a 1/2 point reduction in M1 and a full percentage point reduction in M2; and if we do the cones we get another 1/4 point off on M1. So, if you're going to vote for 9 percent, you might as well take a full percentage point off the M1 range. That's essentially what we are going to have to do in order to keep within the target for M2 because our only leverage is to push down on the M1s in order to retard M2.",115
-fomc-corpus,1981,I don't think that's right.,6
-fomc-corpus,1981,How are you going to get 1/2 point off M2?,15
-fomc-corpus,1981,"Well, it depends on whether you're looking at the midpoint or not. I'm not looking at the midpoint, frankly.",23
-fomc-corpus,1981,"No, Nancy means: It went up 9.8 percent last year, so why will it go up only 8.8 percent this year?",31
-fomc-corpus,1981,"Now we're talking about moving the M2 figure from 6-3/4 percent, where it was on this adjusted basis?",26
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,--to 5-1/2 percent presumably if we're at the top; it's down 1-1/4 percentage points.,27
-fomc-corpus,1981,That would be moving it down. That's a full percentage point. We're going from 6-3/4 to 6 percent--that's a 3/4 point reduction in M1--on the left side.,44
-fomc-corpus,1981,What is nominal GNP?,6
-fomc-corpus,1981,"About the same as M2, about 9.9 percent.",14
-fomc-corpus,1981,"Mr. Chairman, I don't think we will accomplish anything by tinkering with M3, by differing that relationship 1/2 percentage point.",29
-fomc-corpus,1981,I'm not going to attract anybody else?,8
-fomc-corpus,1981,"I don't think it holds together intellectually at all. If we fight the battle on the 6 to 9 percent, the 6-1/2 to 9-1/2 that means [unintelligible]. I don't know why that should please anybody particularly.",56
-fomc-corpus,1981,"Well, it doesn't hold together intellectually now. If we're going to take a percentage point off M2, then the 1/2 point down on M1 isn't consistent.",35
-fomc-corpus,1981,I don't read it that way.,7
-fomc-corpus,1981,"You're implying more accuracy in the staff forecast than I think they can bear. Well, I think we ought to review this anyway. It's very likely that we might want to have a review if anything I consider really important happens that we don't know about at this point. We'd do that some time before February 19th, but I think we ought to have a tentative vote, which could be a final vote. If I interpret this correctly, we are voting on what is essentially alternative I for the M1s, presented however I deem appropriate at the time it's presented. And consistent with those changes, 6 to 9 percent on M2 and 6-1/2 to 9-1/2 percent on M3. On bank credit, Mr. Corrigan reflected some suspicion; I don't think it's too important whether we move that up 1/2 point or not. I don't know whether that makes anybody happier or sadder. Is there any feeling about that one?",199
-fomc-corpus,1981,I ought to point out that that's the one range that was hit last year.,16
-fomc-corpus,1981,"Well, we might as well leave it then.",10
-fomc-corpus,1981,"I disagree with Mr. Corrigan's argument. My heavens, the likelihood is that the great need in the economy will be to reliquify. And any opportunity [corporations] get to go to the credit markets and get out of the banks, they're going to try to take, even at interest rates that are somewhat higher than they have been historically. So, I would feel comfortable about that bank credit number, Jerry.",86
-fomc-corpus,1981,I'm not uncomfortable with it.,6
-fomc-corpus,1981,"So, the proposal is to leave the M2, M3, and bank credit ranges the same as last year and reduce the M1 ranges by 1/2 percentage point, with a definite explanation in the presentation that we expect to be near the top ends of the ranges on the M2 and M3 numbers. It would be encompassed in the explanation that those ranges are biased or asymmetrical.",82
-fomc-corpus,1981,Why don't we do like the British do and just say we're going to exceed it?,17
-fomc-corpus,1981,They didn't say that in advance.,7
-fomc-corpus,1981,Does that statement imply that we'll be looking for the midpoint on M-1A and M-1B and the upper end on M2 [and M3] or the upper end of the range on all four of them?,46
-fomc-corpus,1981,"Well, in fact, we're probably going to be near the upper end of the range on the narrow aggregates, too, but I'm not sure I would state that quite so clearly.",36
-fomc-corpus,1981,"It seems to me that you could state your point on M2 a little differently and say that if in fact we get a significant volume of savings coming out of the tax reduction, it may well be that M2 would go up.",47
-fomc-corpus,1981,"I'd be willing to say that, too, but there's a difference in my mind. I think, in fact, that we probably will be near the upper ends of the ranges on the M1s. But their relationship with GNP is likely to be more erratic than the M2 relationship, and I would just point that out. M2 does track [GNP] more certainly; the velocity of M2 is probably a less uncertain animal than the velocity of M1, and that would be the excuse for making the statement. I would not exclude the possibility, certainly, that we'd be near the upper ends of the ranges on the M1s.",133
-fomc-corpus,1981,"For the [Congressional] committee's perception or the public's perception we would be still looking at the midpoints of M-1A and M-1B, although we may know around this table that it's not too [likely].",48
-fomc-corpus,1981,"I would want to put some emphasis on the fact that if we were near the upper end, that would be in no sense a failure on M1. There's a difference between it being in no sense at all a failure if growth is at the upper end of the range and, in the case of M2, having an expectation that growth is a little more likely to be at the upper end of the range. That is the distinction I would make. Is that proposition clear? If no one has any further modifications to suggest, we might as well vote. The vote is subject to possible reconsideration.",121
-fomc-corpus,1981,"Chairman Volcker Yes Governor Gramley Yes President Guffey Yes President Morris Yes, with a proviso that I do not want to have any guideline for M1.",35
-fomc-corpus,1981,It will be noted.,5
-fomc-corpus,1981,"I will accept the guidelines for M2, M3, and bank credit.",16
-fomc-corpus,1981,You're not going to dissent from the decision?,9
-fomc-corpus,1981,"No, can't we just have a footnote?",10
-fomc-corpus,1981,"I would prefer to put it clearly in the record that some people accepted it in general, but didn't like the idea of a guideline [for M1].",31
-fomc-corpus,1981,The Act requires it.,5
-fomc-corpus,1981,The record would state that others preferred to target the M1s and forget about M2?,19
-fomc-corpus,1981,Mr. Altmann will reflect all these views.,10
-fomc-corpus,1981,"Governor Partee Yes Governor Rice Yes President Roos Yes Governor Schultz Yes Vice Chairman Solomon Yes Governor Teeters Yes, if I get a proviso in the opposite direction that I think the M2 range is unrealistic.",43
-fomc-corpus,1981,You would prefer a higher upper limit for M2?,11
-fomc-corpus,1981,"Well, there is no problem in reflecting those views in the record, but they won't be associated with individual names that way.",25
-fomc-corpus,1981,"Governor Wallich No President Winn Yes The vote is eleven for, one against.",16
-fomc-corpus,1981,"I want you to know that if the Mafia comes after me, I want you on my side!",20
-fomc-corpus,1981,"We're going to turn to the short-term decision, and we'd better turn to the exchange markets and do that part of our job. I don't know whether we can get these preliminaries out of the way before lunch. It looks as if we will indeed run after lunch unless you want a very late lunch. We might be able to finish by 2:00 p.m.; I can't see us finishing before that. Would you rather eat or try to finish by 2:00 p.m.? UNANIMOUSLY. Eat.",107
-fomc-corpus,1981,I understand what the relative priorities in this group are! Mr. Pardee.,16
-fomc-corpus,1981,I will try to be brief. [Statement--see Appendix.],13
-fomc-corpus,1981,Comments or questions?,4
-fomc-corpus,1981,Is this the first time the Germans have intervened in the dollar market?,15
-fomc-corpus,1981,"They've been intervening in bits and pieces all along when the rate moved sharply. But they have made a decision that they will act vigorously both in the exchange market and the money market to counter the selling pressures, and I think the market has sensed that. But we'll see how their follow-through is.",61
-fomc-corpus,1981,"Have the Germans exported as much of their unemployment as they can, as they used to?",18
-fomc-corpus,1981,"No, I'm afraid this time most of the unemployment has [not] been exported. They didn't bring many people back. These are Germans who are unemployed now.",32
-fomc-corpus,1981,I thought Ezra Solomon had the best comment I heard about that when he was talking about Switzerland. He said the great advantage the Swiss have is that when they run their economy into a brick wall they have a foreign employee in the front seat.,48
-fomc-corpus,1981,The attitude of the Germans is that they can send the women back into the kitchen.,17
-fomc-corpus,1981,"They probably still have about 2 million foreign workers in Germany, the more permanent ones.",18
-fomc-corpus,1981,Two million foreign workers still?,6
-fomc-corpus,1981,Around that or somewhat less than that. The peak in these numbers that I have here was 2-1/2 million in '73.,29
-fomc-corpus,1981,Any other comments?,4
-fomc-corpus,1981,"Well, normally I would be suggesting that we at least raise the authorization because we only have $300 million left and it's a turbulent market. But I think some discussions are needed with the new team at the Treasury to get their views. I'm not quite sure of the legalities of this. If we have that discussion and they are sympathetic to our raising it, can that be done by a telephone call?",81
-fomc-corpus,1981,"It's only an informal limit, but presumably we would need a telephone call. It would take the Committee's concurrence, but we haven't had a formal vote on this, if I recall correctly. We'll get into this in a minute. Let me just see if there are any other general comments or questions.",60
-fomc-corpus,1981,There seems to be a market view that the dollar can't fall and that that's why it's safe to take advantage of high interest rates. Do you see that continuing at these levels?,35
-fomc-corpus,1981,"I don't know. The dollar dropped almost 2 percent today and almost 1 percent in 45 minutes; I think we may lose that feeling very quickly. But, as I say, there has been this euphoria and a very strong feeling that everything the Germans were doing was wrong and everything we were doing was right. These attitudes can change very quickly.",72
-fomc-corpus,1981,"Yes, they can change very quickly.",8
-fomc-corpus,1981,"It's a very, very psychological market we're dealing with right now. It's very reminiscent of some of the things that we've seen ourselves when the dollar was weak.",31
-fomc-corpus,1981,The CPI in Germany went up what--a full 1 percentage point last month? I think the wholesale index went up 1.4 percentage point.,31
-fomc-corpus,1981,It was 1.4. They're getting the vicious circle element.,14
-fomc-corpus,1981,"The official forecast on the rate of inflation is simply that it's going to go up to about 4-1/2 percent, but the markets don't particularly believe it.",34
-fomc-corpus,1981,"I've heard 6 percent, but not officially.",10
-fomc-corpus,1981,"Inside the Bundesbank they're talking about a 6 percent rate, but the official [forecast] is 4.5 percent.",26
-fomc-corpus,1981,"Any other general questions or comments? Well, we are within $300 million of [our informal] limit. I would be inclined to take a holding action and say--. Is that limit $1-1/2 billion or $2-1/2 billion?",54
-fomc-corpus,1981,$2-1/2 billion.,8
-fomc-corpus,1981,"I'd stick another quarter billion dollars in there just to give us a little operating leeway. I don't know in any definitive way how the new Administration will feel about the Treasury's participation in this, but they haven't [expressed] any objection to what we have been doing. They are informed, and they haven't wanted to change it, presumably, at this stage. Whether they will or not, I don't know. But they haven't yet and it may be useful while we're meeting today to add another $250 million leeway. Let me propose that. Do I take silence as acquiescence?",119
-fomc-corpus,1981,"Well, it seems hard to resist it when the rate is 2.15 and I didn't vote against it when it was 1.90. I didn't like it at 1.90, but I really do think we are going to be a product of a vicious circle here, too, if we don't watch out.",66
-fomc-corpus,1981,We or the Germans?,5
-fomc-corpus,1981,"""We"" because we will find that the rate just won't go back down.",15
-fomc-corpus,1981,"Well, it's more of a Thatcher syndrome in that we seem to be getting impatient that it isn't going down by the virtuous circle that we ought to be getting. But we are getting a 10 percent reappreciation of the dollar and I wonder what is going to happen to our exports here. If you're indifferent, I would have thought maybe a half billion dollars would be a better expression.",80
-fomc-corpus,1981,"Well, I said $250 million simply because, without going very far, [we ought to] let the Treasury consider it at some point.",29
-fomc-corpus,1981,"We have $300 million leeway, is that right?",12
-fomc-corpus,1981,"We have $300 million now, so that's--",10
-fomc-corpus,1981,So what we're really talking about is about a half billion dollars in operating leeway.,17
-fomc-corpus,1981,"It seems to me a reasonable operating leeway, that's all. If there are no objections, I will take that as an increase in the informal limit of a minimal size simply to provide operating leeway for the time being.",45
-fomc-corpus,1981,Could I ask another question? Do the Germans have plenty of dollars to intervene with?,17
-fomc-corpus,1981,"Oh, yes. They have all those reserves they've amassed over the years. And they've been picking up dollars from SAMA. Every time SAMA wants marks, they go directly and--",37
-fomc-corpus,1981,SAMA?,3
-fomc-corpus,1981,Saudi Arabian Monetary Authority.,5
-fomc-corpus,1981,"We've had the odd situation in which both central banks were increasing their reserves at the same time over the last few months. The Germans are very worried about the 30 billion mark current account deficit they expect for this year and how much of that they might finance out of their reserves. But they've been amassing reserves, as I say, until today when they really hit the market very heavily.",78
-fomc-corpus,1981,Does it show up as a reduction in their domestic money supply when they intervene to support the DM?,20
-fomc-corpus,1981,"Today's operation, yes. But they're doing so many other operations with the money supply that it's hard to say what the net effect would be.",28
-fomc-corpus,1981,Do you have any other recommendations?,7
-fomc-corpus,1981,I have no other recommendations now that we're clear on this one.,13
-fomc-corpus,1981,We have to ratify the transactions.,8
-fomc-corpus,1981,Let me just mention something in response to Tony's comment. I got a call from the Bundesbank in which they wanted to stress that they had not changed their policy relating to the provision of liquidity that you might have in mind as the counterpart to the intervention. It had to do with the ending of an earlier liquidity scheme of larger size; it was not to be understood as a change in their policy.,81
-fomc-corpus,1981,Do I have a motion?,6
-fomc-corpus,1981,So moved.,3
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,Without objection. We'll go to Mr. Sternlight who is going to have a short report before 1:00 p.m.,26
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,"Before I forget, maybe we ought to ratify the transactions right now.",15
-fomc-corpus,1981,So moved.,3
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,"Without objection, they are ratified. Are we going to have a lot of questions on this? Who knows? Let's spend five minutes and see whether we can dispose of comments or questions in that time. Who has a comment or question?",48
-fomc-corpus,1981,"With that kind of entrance, you may get by with none at all!",15
-fomc-corpus,1981,"Well, it was an interesting period. I don't mean to shut off discussion. Is everybody satisfied? Well, we will come back from lunch and have Mr. Axilrod present the short-range targets. I wonder if we can get back here by, let's say, 1:40 p.m. [Lunch break]",65
-fomc-corpus,1981,I have a poem [about] what could easily make it all wrong: Let's rely on the broader definitions While eyeballing the level of rates And pray that the economy does not suffer The worst of all possible fates.,44
-fomc-corpus,1981,What I don't understand is why you read that to those of us who are here. You should have read it to the ones who weren't here. Punish them!,33
-fomc-corpus,1981,"We have carefully observed, as I said earlier, everybody's arrival time. Mr. Schultz was not among the early ones! We've already made the decision, but I wanted to note that this is Bob Mayo's last meeting and he has rendered valued service through the years and we're [unintelligible].",61
-fomc-corpus,1981,The highlight of my career at this table was summarized by Mr. Gramley in his inadvertent remark this morning that I had made a remark that was that of a genius. And I'll go home with that thought!,43
-fomc-corpus,1981,"I understand that you're going to be here at the time of our next meeting--if not at the meeting, in the surrounding area--and we will duly note the occasion. Mr. Axilrod.",41
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,Just to make sure we're clear. All these numbers you're talking about are not real numbers. They're numbers that exist in your head.,26
-fomc-corpus,1981,"Well, they have a certain reality in that--",10
-fomc-corpus,1981,Insofar as your head does!,8
-fomc-corpus,1981,I won't give you my wife's comments on that!,10
-fomc-corpus,1981,"But they are adjusted numbers, as best one can adjust them from the estimates we have of the shift. The actual numbers will look different from this.",30
-fomc-corpus,1981,That's right. The actual numbers are charted and are given in parentheses in the detailed tables on page 10 of the Bluebook.,27
-fomc-corpus,1981,But the actual numbers themselves rest upon particular assumptions about shifts.,12
-fomc-corpus,1981,"That's right, assumptions about the amount of shifts and the percentage of shifts. The assumptions are that in February the amount of shift will be something on the order of $1-1/2 billion and in March about $750 million and that the percentage out of demand deposits is something like 70 or 75 percent.",64
-fomc-corpus,1981,"We're obviously now in a difficult period where assessments have to be made about the amount of shifting to track these figures at all, so far as M1 is concerned. But apart from that difficulty I suppose the question that is raised is one of tactics. That is, are we relatively satisfied for a while with a shortfall from the target that was just established in the interest of a better possibility of hitting that target for the year as a whole in whatever contour [emerges] in connection with tax cutting programs or whatever. As with the economic projection, there is also, I would think, some consideration of the fact that in the last two quarters we overshot by a significant margin. And any undershoot from the annual target has to be assessed not only in the light of what we want to do next year but in the light of the overshoot in the most recent period.",176
-fomc-corpus,1981,Which one of these alternatives is built into the economic forecast?,12
-fomc-corpus,1981,"Well, the economic forecast doesn't rest on these quarterly figures that we have.",15
-fomc-corpus,1981,"No, it doesn't. There just are no significant differences in the first quarter that really matter. Our forecast is built on the four-quarter path for the year.",32
-fomc-corpus,1981,"I think ""C"" would make a difference. I don't see much difference between ""A"" and ""B,"" but ""C"" would imply significantly higher interest rates in the short run.",38
-fomc-corpus,1981,I wonder a bit. Nobody knows about the interest rate forecast associated with any of these numbers. There seems to be some tendency for interest rates to decline during the period when money supply growth on balance has been negative.,43
-fomc-corpus,1981,"I'm surprised at the difference in the fed funds range between alternative ""B"" and alternative ""C."" There is only a 1-point difference, given a rather substantial difference in the target.",38
-fomc-corpus,1981,"Those are differences in [end] points. I think within the ranges we'd expect it to end somewhat differently. We didn't really center these exactly; that is, in ""A"" the funds rate is already at 17 or 17-1/2 percent and could go down a bit from there, although we are a little skeptical about that. In ""B"" it looks to us as if it could go up a bit, and in ""C"" we think it could go up much more toward the top of that range. So, those are just notional and they weren't precisely centered.",120
-fomc-corpus,1981,"Well, in accordance with our earlier discussion, I think we should have a little discussion of what these targets mean for where we're setting the operational nonborrowed reserve target--or looked at the other way around, the immediate figure on borrowings and in the light of any movement in these numbers how we might react. With all that preliminary, would someone like to say something?",75
-fomc-corpus,1981,Are we going to get the initial borrowing assumptions that are compatible with these three alternatives?,17
-fomc-corpus,1981,"Well, let's talk about the alternatives first and then talk about the borrowing assumption.",16
-fomc-corpus,1981,"My initial feeling would be something between ""B"" and ""C."" I think that to some extent we should accept the shortfall, but I don't think we now have to accept it completely. My guess is that we would have a better chance of keeping interest rates roughly constrained and not going any higher if we had something between ""B"" and ""C."" I think we are showing enough restraint, and that would give us a little safety margin for later in the year.",95
-fomc-corpus,1981,"If I understand correctly what is in the Bluebook on page 14, both ""B"" and ""C"" could likely result in some upward pressure on interest rates, though ""C"" more so than ""B."" And I don't see why we would want to adopt an alternative at this point that would result in upward pressure on interest rates, given the anticipation that the monthly pattern of economic activity will be weakening in the course of the first quarter.",90
-fomc-corpus,1981,The only problem with that is that I don't believe that forecast; I have reservations.,17
-fomc-corpus,1981,"I'm not certain about it, but it's close to my own prior view of where the economy is going to go in the first quarter.",27
-fomc-corpus,1981,"The interest rate forecast is derived from some quarterly forecast, isn't it?",14
-fomc-corpus,1981,It's a quarterly-average forecast.,6
-fomc-corpus,1981,In essence what we're saying is that we'll have a very substantial velocity [increase] in the first quarter on average and that it looks as if that would require pressure on rates.,35
-fomc-corpus,1981,"I understand that, but it seems to me that whatever velocity increase we're going to get we've already gotten, so to speak, if we look at monthly figures.",32
-fomc-corpus,1981,"Well, the only answer to that--it may not be convincing--is that there's a lot of money that was in effect taken out of the economy in December, so there's some sense that you have to put that back on a month-by-month basis. But [what is put back] doesn't give us very much on a quarterly average, or as much as it seems, because so much had been taken out in December.",85
-fomc-corpus,1981,"In response to Governor Teeters's question, the explicit path built into the forecast is 3 percent for the first quarter, which is very close to ""A"" or ""B."" But in terms of economic effects, since we are constraining the forecast to 4-1/4 percent over the whole year, if it's lower in the first quarter we assume that will be made up later on so that we don't get substantial economic effects for the year in total.",94
-fomc-corpus,1981,"Why is it, Steve, that the aggregate targets are so [disparate]? Ordinarily when we look at alternatives ""A,"" ""B,"" and ""C,"" we see something close to an equal distance between them. And in this case the difference between ""B"" and ""C"" seems extraordinary, particularly in view of the interest rate ranges.",70
-fomc-corpus,1981,"That's because what I did with alternative C, Governor Partee, is to say that this is what the Committee adopted last time from December-to-March, a 4-1/4 percent rate for M-1A.",46
-fomc-corpus,1981,"Oh, I see.",5
-fomc-corpus,1981,"It's an option that says: Forget about the December shortfall and then just go ahead with that target. The base fell rather radically. What alternative C in essence does is to forget about that sharp drop in the base. The other two, in effect, make up for the drop in the base, though not entirely because they're based on the midquarter. But they get you back to the midpoint of the longer-run range you adopted. Alternative C was just taking literally the percentage increase, forgetting about the December shortfall and asking: Where does that leave you?",112
-fomc-corpus,1981,Last time we did say 4-1/4 percent or less basically.,16
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"There's another explanation there, Steve, in that alternative B relates to alternative II, which had the lower ranges. We did not adopt those ranges. So you're talking about something between ""A"" and ""C,"" but not ""B"" as consistent with what we adopted on the long run.",58
-fomc-corpus,1981,"Well, alternative A gets to the midpoint of the ranges you've adopted. We constructed alternative B to be at the midpoint of a tighter [set of ranges], and alternative C had the rationale that I mentioned. But the Committee's decision today doesn't have to be based on those rationales, of course; it could be based on an idea that you might want to be short or not.",77
-fomc-corpus,1981,"In response to Governor Partee, though, ""A,"" ""B,"" and ""C"" are not consistent numbers. ""B"" relates to alternative II, the tighter one.",36
-fomc-corpus,1981,They had divergent rationales. They weren't done in the usual way where here's a midpoint--,18
-fomc-corpus,1981,"Yes, right.",4
-fomc-corpus,1981,Does anybody else have a suggestion here? Mr. Boehne.,14
-fomc-corpus,1981,"I find ""C"" too restrictive for my taste, given the implications for higher interest rates. I'd like to drag my heels some, though, in terms of getting back to the path alternative A implies. So, that puts me in the neighborhood of ""B."" But I agree with Steve in that I don't think the Ms mean very much in this period. They have some marginal value. So, I would have a federal funds range of 15 to 20 percent in the directive, start the period about where the funds rate is now, and if it looked as though the funds rate would have to go outside a 16 to 19 percent effective range, then I'd have a consultation.",139
-fomc-corpus,1981,"But one of the problems we have here is that those six months are when we're going to get the most fiscal restraint; we will be getting the full impact of the windfall [from lower prices on] oil plus the sharp increase in social security taxes. If the tax cut comes through, it would seem to me that we'd want our restraint more in the second half of the year than in the first half when the economy is already headed down. I find the upper limits of these ranges very unacceptable anyway. But given what we know is going on, it seems to me that we should be somewhat looser during the first half than we are in the second. That would lead me to alternative A with a lower funds rate range, maybe 13 to 18 percent.",154
-fomc-corpus,1981,Who else?,3
-fomc-corpus,1981,"I think I'd go for ""B"" just as it is. MR. SCHULTZ I think I would, too. But my feeling is that if we do ""B,"" a funds rate range of 14 to 20 percent rather than 15 to 21 percent is going to be more--",61
-fomc-corpus,1981,I agree with that.,5
-fomc-corpus,1981,"Well, I don't really have any way of judging that, Fred. After all, we are going to be providing reserves on a schedule for the market. It seems pretty close to an even position right now; that is, we have a hint that there may be a decline but we don't have much evidence. It could be reversed and in the meantime prices are going to go up faster, so nominal GNP could be pretty strong. I think there's about as much chance that the aggregates will come in stronger than our path as that they will come in weaker, so essentially it would be a fairly neutral option. With the funds rate at 17-1/2 percent now, one could argue for 15 to 20 percent, as Ed did. I wouldn't constrain it, though, with a telephone call because we're only talking about a 2-1/2 percentage point move one way or the other from where we now are.",188
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"In this wonderful world of exposition that we're faced with, are you troubled by the imaginary targets that we're setting out and then an imaginary short-term target that's above the ranges that we prescribed? That seems to me to become a difficult problem.",47
-fomc-corpus,1981,I worry about it literally.,6
-fomc-corpus,1981,"That's why I'd like to come in at least between ""B"" and ""C."" I'd put a restraint on the funds rate being over 20 percent instead of--",33
-fomc-corpus,1981,We're well below target at the present time. We're well outside of the range.,16
-fomc-corpus,1981,You say we're well outside of the range. Where are you measuring it from? We were too high in the fourth quarter; we now look a little low only because December was low.,37
-fomc-corpus,1981,January is showing good growth.,6
-fomc-corpus,1981,Depending upon your assumption about the shifts.,8
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"I am comfortable with ""B"" or something slightly less than ""B."" But I have one question to Mr. Axilrod. When you construct the nonborrowed reserve path, you effectively will have to do that off the numbers in parentheses in Table 10, right?",56
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,"So, no matter what we pick in terms of a path, the pressures on the funds rate that we will see or not see in this interval may be more directly a function of the accuracy of these estimates than anything else.",45
-fomc-corpus,1981,"Well, when the estimates turn out to be wrong, as they did of course after December, some of the degree of error ought to be compensated for by multiplier adjustments so to speak. That is, if there is a lot more money coming from savings accounts into NOW accounts, which have higher reserve requirements, we should be adjusting the path for that so that we don't get inadvertent tightening and vice-versa.",82
-fomc-corpus,1981,"I don't think we have any alternative but to rely upon whatever estimates and changing estimates the staff may make as we go along. I don't have great faith in their estimates, but I wouldn't have any more faith in any estimates that we try to make up here. I think we're just stuck with that. It may make us a little more sensitive to wide gyrations in interest rates; we may at least want to use that to a small extent as an indicator. Governor Wallich.",96
-fomc-corpus,1981,I'd like to start the year off right.,9
-fomc-corpus,1981,"[Unintelligible]. Now we're going to get ""D!""",14
-fomc-corpus,1981,"No, I just don't want to exceed our targets with an early set [of ranges that are above them], so I'd like to come in a little lower than ""B."" CHAIRMAN VOLCKER(?). A little lower than ""B""?",49
-fomc-corpus,1981,"Yes, somewhere between ""B"" and ""C"" in other words, but with 16 to 22 percent [on the funds range]. I'm asking a great deal.",35
-fomc-corpus,1981,Just a floor.,4
-fomc-corpus,1981,"""B"" to ""C"" or sort of ""B minus.""",13
-fomc-corpus,1981,Mr. Guffey.,6
-fomc-corpus,1981,"I would join those who prefer something between ""B"" and ""C."" The problem is complicated as far as I can see because of the very sharp one-month drop in money growth in December. It rebounded in January and we had about 6-1/2 percent growth, which is above the long-run target that we just established for 1981. If you look at ""A,"" for example, the money growth that we would have to have on a monthly basis to get back to our 4-1/4 percent growth by the end of March involves very large figures. The same is true of ""B."" It seems to me that we shouldn't [go that fast]. [My prescription] represents what we have done in the past; we've tried to [make up] about one-third of the [way each month, taking three months] to get back to the midpoint. I would suggest that we get back to the midpoint by April or sometime beyond.",196
-fomc-corpus,1981,I suspect in this connection that you have worked out here someplace--these are monthly figures on page 9--what the implied quarterly average is?,29
-fomc-corpus,1981,"Well, they're all relatively low. Those numbers are in the table on page 10 on the bottom line.",22
-fomc-corpus,1981,"Right, they are low.",6
-fomc-corpus,1981,Because of the profile.,5
-fomc-corpus,1981,That's right; it's because of December being low. What we might do is think of it as an average of those two figures.,26
-fomc-corpus,1981,That would be a better way to look at it.,11
-fomc-corpus,1981,"That works out fine. [Unintelligible] the average is high, and if you look at the quarterly figure, it is low.",29
-fomc-corpus,1981,"Well, just to conclude, I have one other point. If we were to adopt ""A,"" for example, or even ""B,"" we would get back close to the midpoint by the end of March. And if we're going to hit the targets we've established for 1981, then we'd have to drop the monthly growth rate of around 6 to 8 percent--8 percent under ""A""--back to 4 or 4-1/4 percent. That would really be putting on the brakes again at the start of the second quarter. It makes more sense to me to take another month or so to get back to the midpoint rather than to try to reach it by March as represented by ""A"" or ""B."" So, I'd favor someplace between ""B"" and ""C,"" with the federal funds rate probably in a range of 15 to 20 percent. I agree with some of the comments around the table in that I have little confidence in the interest rate projections in the Bluebook.",204
-fomc-corpus,1981,Are you suggesting a funds rate range?,8
-fomc-corpus,1981,15 to 20 percent.,6
-fomc-corpus,1981,15 to 20 percent.,6
-fomc-corpus,1981,"That rule of one-third [of the divergence] a month for three months, which we did discuss at some length yesterday, is a very reasonable point, Roger. What would that mean in terms of getting back, Steve? Have you figured it out? You'd have to take a little off February and March, I presume, on alternative B. On alternative A you'd have to take a little off because ""A"" gets us back to the midpoint, right?",93
-fomc-corpus,1981,"""A"" got back to the midpoint within 3 months.",12
-fomc-corpus,1981,Taking January [M-1B growth] at 6-1/2 percent.,18
-fomc-corpus,1981,"We wouldn't want to think of that as a regular [procedure], though.",15
-fomc-corpus,1981,Who else? Mr. Morris.,7
-fomc-corpus,1981,"I'd buy going between ""A"" and ""B.""",11
-fomc-corpus,1981,"Between ""A"" and ""B""?",8
-fomc-corpus,1981,"I mean between ""B"" and ""C,"" as Roger indicated, with a funds range of 15 to 20 percent. With the economy softening, I don't think it would be suitable at this stage to indicate that we are moving the interest rate range up. The only number I understand in that is the M2 number. Assuming the economy cooperates with us, which I don't think it will, that would mean 8 percent on M2, which is not bad given the range.",100
-fomc-corpus,1981,What is the funds rate range now?,8
-fomc-corpus,1981,15 to 20 percent.,6
-fomc-corpus,1981,15 percent with no top.,6
-fomc-corpus,1981,The top is 20 percent.,7
-fomc-corpus,1981,"It's 15 to 20 percent, so we wouldn't be making any change.",16
-fomc-corpus,1981,Who else? Mr. Balles or Mr. Mayo.,12
-fomc-corpus,1981,"Just a quick question, if I may, to help me make up my mind. This is a question to the staff, Steve. Have you seen, or do you have any opinion about, the assertions in the financial press by some commentators and money watchers that the December drop was not a real drop--that financial institutions were misreporting to us? The [alleged] scenario is that both banks and S&Ls were getting cranked up to issue NOW accounts, which weren't legal until the first of the year, and were making moves internally to take things out of savings accounts but hadn't yet classified them as NOW accounts and were calling them in reports to us ""other liabilities."" I don't know whether that has any merit in reality. I'm asking you.",153
-fomc-corpus,1981,"Yes, I have heard of that. I don't believe we have noticed any substantial increase or change in the other liabilities category, but I haven't inspected that personally. We have not found any real evidence of something like that going on. But [money supply] behavior in the last two weeks of December and the first week of January was rather odd; my inclination has been to throw those three weeks out and start [comparing] recent weeks of January with where we were because they did drop sharply and then rose sharply. There was a very big increase in M-1A after adjustments.",117
-fomc-corpus,1981,I thought you might have had a chance to look at the trend of the so-called other liabilities that came in.,23
-fomc-corpus,1981,"No, I just can't answer that directly. We didn't find anything, but there is this peculiarity of the deposit data that we think is just a bad seasonal. But we have to look elsewhere.",41
-fomc-corpus,1981,"Well, with that uncertainty, I guess I would come out where several others have already, between ""B"" and ""C.""",26
-fomc-corpus,1981,"When people say between ""B"" and ""C,"" there is such a large gap between them--",20
-fomc-corpus,1981,"Let's get to that at the next stage. Do you have a federal funds opinion, Mr. Balles?",22
-fomc-corpus,1981,15 to 21 percent.,6
-fomc-corpus,1981,Mr. Mayo.,4
-fomc-corpus,1981,"Well, since I'm the oldest person around the table, I'll brag that some 50 years ago I learned for the first time that the square root of -1 is an imaginary number. It was only when I arrived at this table that I really learned what imaginary numbers are all about! I think we should repeat our humility that we really don't know what we are doing on any of these alternatives and that the best we can do is to take the staff's very loose translation here and play with it, granting that by next week there may be a different set of numbers. I think we have to do that in this particular intermeeting period; our only refuge is really the way the federal funds rate behaves regardless of how much bowing and scraping we do about the aggregates. Having said that, I come out also shading ""B"" toward ""C."" Just to start that discussion going, I'd say 5-1/2 percent for M-1A and/or M-1B, 8 percent for M2, and 14 to 20 percent for federal funds.",216
-fomc-corpus,1981,"In all this talk, which I share, that we can't interpret these figures with precision, let us not forget that we can't interpret them with precision even when the numbers are not distorted. We have a plus or minus 10 percent error anyway, so we are only slightly worse off in some sense than we ordinarily are.",64
-fomc-corpus,1981,"Well, we could vote on whether we are 10 percent or 20 percent worse off! That would be further expression--",25
-fomc-corpus,1981,Mr. Black.,4
-fomc-corpus,1981,"Mr. Chairman, I would favor ""B."" That's the alternative that would have gotten us to the midpoint of alternative II, which I favored. Since the Committee voted for alternative I, I wouldn't want to go quite to the midpoint of that. So I'd stick with ""B."" And I think there's a great deal of merit to keeping that federal funds ceiling at 20 percent. I haven't much sympathy with ceilings but I don't think this is the time to raise it.",94
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"I would lean toward either alternative A or alternative B. I don't feel strongly enough that I would be passionately opposed to ""C."" But we should remember the experience we had in the early part of last year when we permitted the aggregates to drop from a rather high rate of growth down to a significantly lower rate of growth. We had M-1B growth over the second half of last year of something like--I don't know exactly--12 to 14 percent, and we are jamming it down even with alternative A to a significantly lower rate. In my way of analyzing the effects of changes in the growth of the aggregates, I am impressed by research that we've done that shows that when we have an abrupt drop in the rate of money growth from a higher pace to a lower pace and hold it there, that does have a very negative effect on output and can precipitate a recession. And it usually does. I think we should really try to avoid unseemly fluctuations in these aggregates. I would intellectually lean toward the less restrictive of ""A"" or ""B,"" but I wouldn't go to the mat on any of these three alternatives. I do feel that the fed funds rate range, short of this Committee overwhelmingly going to a broad range of 1 to 20 percent, should be as broad as possible. I'd opt for 14 to 20 percent to keep it broad.",279
-fomc-corpus,1981,Governor Rice.,3
-fomc-corpus,1981,"I would go with alternative B. That alternative seems to be fairly consistent with the longer-range targets that we adopted, which came out to be someplace in between alternatives I and II. Alternative B promises to get us back to the midpoint of alternative II by March. So, I would go along with ""B"" and a federal funds range of 14 to 20 percent.",75
-fomc-corpus,1981,Who are we missing? Mr. Ford.,9
-fomc-corpus,1981,"I'd go with ""B"" and keeping the fed funds rate in a range of 14 to 20 percent.",23
-fomc-corpus,1981,Who else is missing? Mr. Boykin.,10
-fomc-corpus,1981,"I would go with ""B"" with the fed funds range shaded to 15 to 20 percent.",21
-fomc-corpus,1981,Somebody else is missing here. Whom did I not count?,14
-fomc-corpus,1981,"Yes, I said what I wanted.",8
-fomc-corpus,1981,I guess that's right; I don't have [Mr. Gramley].,14
-fomc-corpus,1981,"I would go with ""B."" I would be willing to live with some shading on the down side of ""B,"" if that's the way others vote. I wouldn't push interest rates down deliberately to get numbers as high as ""B,"" if they came in below that. But I wouldn't like to see interest rates go up in an effort to try to squeeze the growth rate down much below ""B.""",80
-fomc-corpus,1981,Where are you on the federal funds range?,9
-fomc-corpus,1981,The 15 to 21 percent range is all right.,12
-fomc-corpus,1981,"For the very reasons Roger suggested--and also because of the fact that we were high for about 5 months, not [just] the last 2 months--if I look at the quarterly averages, I'm not the least bit concerned about having a low quarter on a monthly average basis. I don't think we want declines in the money supply as we look ahead. We know we don't have all that close control over these things, but it would concern me if the money supply began moving into the kind of fall that it did last year, and I think we ought to respond to that. Short of that, I don't think we have much to worry about in the short run. On the federal funds rate range, a majority of the Committee wants a top limit of 20 percent or below, and that's true of almost all the participants not on the Committee. I would propose that we not put the federal funds rate range above 20 percent. [Views on] the bottom are scattered around 14 and 15 percent. I'm not sure that's too terribly vital at this point. The range is 15 to 20 percent now. I suppose absolutely the most neutral thing to do is to leave it where it is. We are right in the middle of that range now. I share the view that some place between ""B"" and ""C"" is right. I share the instinct that Governor Gramley just expressed in that I wouldn't want to make a great effort to get down as low as ""C"" or below ""B,"" if that took a lot of effort. But I would not be very disturbed if it goes there without any effort. This all bears upon where we put the borrowing number. We have to put some numbers down here. I wonder whether they shouldn't be expressed as a quarterly average. What have we been doing recently? Have we been expressing them as quarterly averages or--?",380
-fomc-corpus,1981,"They are December-to-March, for example, but not quarterly averages.",15
-fomc-corpus,1981,"The reason that occurred to me is that some of these numbers sound rather high to put down as a target when we just adopted a long-range target [with an upper limit of] 5-1/2 percent. If we suddenly put down a number that says we are starting off fresh out of the box with 6-1/2 percent, even though we can rationalize it, I don't know how many readers are going to be rationalizing it.",93
-fomc-corpus,1981,"Well, that's one reason for using 5-1/2 percent.",15
-fomc-corpus,1981,What is the target we just adopted: 3 to 5-1/2 percent?,19
-fomc-corpus,1981,3 to 5-1/2 percent.,10
-fomc-corpus,1981,For M-1B?,6
-fomc-corpus,1981,"No, that's 3-1/2 to 6 percent.",14
-fomc-corpus,1981,It's 3-1/2 to 6 percent for M-1B and 3 to 5-1/2 percent for M-1A.,33
-fomc-corpus,1981,"Why don't we use 5-1/2 or 6 percent? It's the cowardly way out perhaps, but it isn't too far from the best analysis of our staff.",36
-fomc-corpus,1981,That would suit me.,5
-fomc-corpus,1981,What are we talking about right now? I'm lost.,11
-fomc-corpus,1981,"Well, it's a round number. It's going to be either 5-1/2 or 6 percent, I guess, or we can say roughly 5 to 6 percent if we want to indicate a little less precision. One thing for sure: We won't be between 5 and 6 if we say 5 to 6 percent for a 2-month period.",77
-fomc-corpus,1981,"Nobody will ever know what the number is, Paul.",11
-fomc-corpus,1981,Nobody will ever know what the number is anyway.,10
-fomc-corpus,1981,Is this December-to-March now?,8
-fomc-corpus,1981,"I'm looking at the December-to-March numbers, yes.",12
-fomc-corpus,1981,"But in drawing up the reserve numbers, the staff needs a little [narrower] guideline I would think.",23
-fomc-corpus,1981,"Well, I suppose if we say 5 to 6 percent, they will assume 5-1/2 percent.",25
-fomc-corpus,1981,Is that for M-1B?,8
-fomc-corpus,1981,5 to 6 percent for what?,8
-fomc-corpus,1981,"Well, both of these numbers are the same. So what I'm talking about are both the M1 numbers.",22
-fomc-corpus,1981,Both of them?,4
-fomc-corpus,1981,They're both the same now.,6
-fomc-corpus,1981,"Oh, I see.",5
-fomc-corpus,1981,"They're not the same in ""C.""",8
-fomc-corpus,1981,"[""A"" and] ""B"" [don't have] a half percentage point [difference] in the numbers.",23
-fomc-corpus,1981,Why is that?,4
-fomc-corpus,1981,"Oh, don't ask.",5
-fomc-corpus,1981,We've worn Steve out!,5
-fomc-corpus,1981,"That's explained in some footnote, which I think is accurate. It has to do with where the month of December ended up relative to the quarterly average. We constructed the path going from the quarterly average to March, but December's numbers for M-1A and M-1B were divergent relative to where they were on the quarterly average.",69
-fomc-corpus,1981,You were right about don't ask!,7
-fomc-corpus,1981,"What's your explanation of why in ""C"" M-1B is different from M-1A?",21
-fomc-corpus,1981,There we just started out in December and went ahead with the normal divergence between M-1A and M-1B.,25
-fomc-corpus,1981,But why isn't it the same for the others?,10
-fomc-corpus,1981,Because we--,3
-fomc-corpus,1981,Don't ask.,3
-fomc-corpus,1981,I would gladly explain it to you after the meeting.,11
-fomc-corpus,1981,I think we are at a level of detail that isn't going to be significant.,16
-fomc-corpus,1981,"Steve, am I correct that if we go for anything less than ""B,"" then total reserves will decline over the quarter?",25
-fomc-corpus,1981,"I think that's what we have, but that's somewhat an artifact of how the averages for the weeks with lagged reserve accounting worked out. Over the next 2 months it's lower.",36
-fomc-corpus,1981,"And if we went closer to ""C,"" we'd have a rather sharp decline in total reserves?",19
-fomc-corpus,1981,There would be a decline. I don't have the exact number at hand.,15
-fomc-corpus,1981,"That's a decline related to the hypothetical numbers, though. The actual reserve numbers would be growing, reflecting a shift out of savings accounts into NOWs. If we get a large part of [the estimated shift from savings accounts], that's a lot of reserves: from nothing to 12 percent.",58
-fomc-corpus,1981,"Yes, but this is a total reserves base.",10
-fomc-corpus,1981,"Well, I don't know on what basis it is. That's what Frank is questioning. Is that a hypothetical reserve figure?",24
-fomc-corpus,1981,"No, that's a real reserve figure. Reserves decline 3 percent allegedly under alternative C, assuming all the shifts are as we estimated. I don't think what happens to reserves, of course, is as important as what happens to the money. That takes account of lagged reserve accounting, which can make for a certain artificiality.",67
-fomc-corpus,1981,"It does affect the borrowings, though. How are you going to decide on what the borrowings are?",22
-fomc-corpus,1981,"We suggest for alternative B something like $1.5 billion, which turns out to be very close to where borrowing is running this week.",28
-fomc-corpus,1981,You think it has to be that high?,9
-fomc-corpus,1981,"Borrowing in the week of January 28 was $1.8 billion. In the week of January 21, it was $1.4 billion; and in the week of the 14th, it was $1.3 billion. It has been rising recently and the funds rate has been dropping. The funds rate dropped off this week.",71
-fomc-corpus,1981,"It's about $1,350 million so far this week.",12
-fomc-corpus,1981,"And the funds rate is about 17-1/2 percent. So, we'd say $1.5 billion or perhaps a little less. We're somewhat uncertain.",33
-fomc-corpus,1981,"If anything, we have had a slightly declining trend in the money supply since the first week of January. Why would we be increasing the borrowing?",29
-fomc-corpus,1981,Nonborrowed reserves are coming down fairly rapidly.,10
-fomc-corpus,1981,"Well, it looked as if there was a sharp drop in the demand for borrowing in December. So, borrowing was low and the funds rate was a lot higher than it is now--19 to 20 percent. That's what we generally thought was an oddity. More recently it appeared that what one might have thought of as ""normal"" relationships were being reestablished. But they're being reestablished with borrowing going up and the funds rate dropping. This really reflects the fact that we don't think what we had in early January reflects, in essence, banks' demand for borrowing at the funds rate we've projected here, which in fact under alternative B--assuming the economy doesn't collapse under foot--is a somewhat higher funds rate than we now have. If the Committee believes that the funds rate should be lower either way, then I would certainly suggest to the Committee that it take a lower borrowing level.",180
-fomc-corpus,1981,"Well, I don't know where the funds rate should be. But just looking at the last few weeks, the tendency is for the money supply to decline with our current level of borrowing, and I would think the natural thing to have, until you have shown us differently, is a somewhat lower level of borrowing.",62
-fomc-corpus,1981,That would say we reduced borrowing and total reserves.,10
-fomc-corpus,1981,"Well, I don't know what the total reserves have to do with the money supply.",17
-fomc-corpus,1981,You don't think it's [unintelligible]?,10
-fomc-corpus,1981,It's increasing nonborrowed reserves.,7
-fomc-corpus,1981,"What's the borrowing figure with ""A""?",8
-fomc-corpus,1981,"In ""A"" we had it closer to what it had been recently, more like $1-1/4 billion.",25
-fomc-corpus,1981,"It's $1-1/4 billion for ""A"" and $1-1/2 billion for ""B.""",24
-fomc-corpus,1981,"Given recent experience, if borrowing in the last two weeks is anywhere near what bank demands for borrowing are, that would suggest that $1-1/4 billion would perhaps lead to a drop in the funds rate--one can't be all that certain--from around the current level. We had made that more consistent with ""A,"" where we thought the odds on a drop in interest rates were greater but not with ""B,"" where we thought the odds were less that interest rates would drop.",98
-fomc-corpus,1981,"Mr. Chairman, I sensed yesterday in our discussion that the one improvement in our operating procedures that we were willing to sign off on, as of that time, was to move our nonborrowed reserve path more frequently to follow any changes in the borrowing level. If we do that, it seems to me that it's less important that our borrowing assumption be totally accurate. If we do what I think we said yesterday we were going to do, this will be adjusted frequently. So, I'd like to suggest specifically--I hope I'm not moving too quickly into the directive but I think it's terribly important that we write this into our procedure because this is germane to what we are talking about--that we put a sentence in at the end of the paragraph of the draft directive shown on page 17 that would read something like this: ""The Committee assumes that member bank borrowings will average ___"" (fill in whatever we assume during whatever period we use) ""and instructs the Manager to adjust the nonborrowed reserve path appropriately and promptly if borrowings deviate from this assumption."" Putting that in the directive gives us what I think we agreed yesterday would be a procedural change in our operating techniques. It makes it an unmistakable reflection of what the Committee said yesterday it was seeking to do. And it puts flexibility into this borrowing assumption exercise and really makes the initial borrowing assumption less important because we can adjust on a day-to-day or every-other-day basis if our borrowing assumption proves to be a mistaken one.",301
-fomc-corpus,1981,Would you bring it back to where we had it originally by changing the path or would you drive it up or down by changing the path?,28
-fomc-corpus,1981,We would assume that it's impossible to anticipate what borrowings would be. Borrowings will occur due to forces not directly under our control. We would merely adjust the nonborrowed reserve path to what happens from moment-to-moment or day-to-day in the totals of member bank borrowing so that we don't try to anticipate or estimate what number to plug in.,71
-fomc-corpus,1981,"I don't think it works that way, Larry. Your basic idea, I think, may be useful. I'm not sure we could write the language here. The borrowings aren't totally predictable, but for the most part we make them what they are. The real question that arises is what we do with the nonborrowed reserve path when the money supply deviates and therefore generates--if we don't change the path--a difference in borrowing. But it's not exactly unanticipated; it's anticipated. What we want to end up doing in those conditions is that if the money supply is high, we'd reduce the nonborrowed reserves and increase the borrowings still further, not the reverse.",136
-fomc-corpus,1981,"If we vary the path merely enough to drive the banks back to the same level of borrowing, we are coming close to pegging the funds rate, which surely isn't what you have in mind.",39
-fomc-corpus,1981,"We adjust the total reserves. That is, if borrowing goes high, we cut nonborrowed in order to keep the total--",26
-fomc-corpus,1981,But that's not what that language says. We'd have to--,12
-fomc-corpus,1981,That's what he means.,5
-fomc-corpus,1981,"Well, that's what I mean to try to achieve--a total reserves result consistent with what we want to do and, of course, it implies a--",31
-fomc-corpus,1981,"I think the language would have to read that if total reserves went off after all our multiplier adjustments and all the rest, we would increase the borrowings, not bring them back to the initial level.",40
-fomc-corpus,1981,"Yes, that might be a better way of stating it. But the principle, I feel, is important.",22
-fomc-corpus,1981,"I think it's a mistake to lock ourselves in too precisely in terms of the directive. For example, we have never spelled out in the directive the initial borrowing assumption, even though I know Peter Sternlight would like it. There are problems if we try to lock this in. We can and have instructed the Desk that it's the sense of the Committee that we want a prompter adjustment in the nonborrowed reserve path if we begin to see misses; but I don't know of any parameter we can give for a specific concrete instruction on that. It's still going to be judgmental.",117
-fomc-corpus,1981,"Maybe we can work on this for the next meeting. I don't think the language that Larry has is technically accurate, but maybe we can get some sense of this for next time. I suspect we will be here all afternoon if we try to do it today.",52
-fomc-corpus,1981,"If we simply said ""shall vary the path in such a manner that total reserves are kept on track""--",21
-fomc-corpus,1981,That's a little strong.,5
-fomc-corpus,1981,"It's perhaps a little strong, but the point is that borrowed reserves would be varied from their original--",20
-fomc-corpus,1981,"What it says now is: ""In the short run, the Committee seeks behavior of reserve aggregates consistent with growth..."" We could say: ""In the short run, the Committee seeks behavior of reserve aggregates...and shall so adjust the provision of nonborrowed reserves consistent with growth...""",56
-fomc-corpus,1981,"I think there is a certain urgency to it because I honestly believe there's a great deal of anticipation and interest in what the FOMC will choose to do with the study that was conducted. We sort of put in abeyance many of the proposals or the options that Steve's study highlighted. But one that we didn't was this. If we don't come up with something, I think we can be accused rightfully of, [despite] the study, still conducting our business in the same way that caused us to miss our targets last year. Again, the big trick is not just choosing targets but accomplishing them in the year 1981.",130
-fomc-corpus,1981,"Well, we will say something about that in the testimony, which will be out before the directive is out.",22
-fomc-corpus,1981,"It seems to me that in the world of uncertainty in which we are living--with this very, very rapid transition from demand deposits and other accounts to NOWs--the worst thing in the world we can do is to tell the Manager and other staff to speed up this adjustment process to uncertain numbers. Let's wait until the end of the month and take a look at it.",75
-fomc-corpus,1981,"I would suggest we defer this in terms of the directive. It may be a reasonable suggestion, but we will have to mention something about this in the testimony.",32
-fomc-corpus,1981,We'll just blame it on the guy who ran the credit controls!,13
-fomc-corpus,1981,I don't mean to resurrect yesterday's discussion but it seemed to me that we did assume yesterday that there would be more rapid adjustments in the nonborrowed path. I'd like to go on record as saying that I don't happen to agree with that; I think that's what Lyle was talking about.,59
-fomc-corpus,1981,"There certainly was some difference of opinion expressed yesterday, but I think the weight, at least in terms of a majority opinion, was that we would be looking at that with a great deal of sensitivity.",40
-fomc-corpus,1981,"A majority opinion, yes. I just want to register [my disagreement with that]. CHAIRMAN VOLCKER It wasn't any powerful unanimous accolade, as I understood it.",35
-fomc-corpus,1981,"Steve, if you locked in on the volume of borrowing, wouldn't your multiplier go all over the map?",21
-fomc-corpus,1981,"If we held the level of borrowing, all the studies suggest we would get further off path than if we varied it.",24
-fomc-corpus,1981,"What we are talking about now is in which direction the risk is with regard to where the money supply will go. And nobody knows very well. My sense of it is, compared to your $1.5 billion, that [borrowing] has been declining a little. It's possible the economy is declining. Without being very fancy about it, I guess I would take the risk more on reducing the volume of borrowing from the figure you suggested than raising it from the current level, which is what is involved in your suggestion. [I say that] just as a starting point. If we get a week or two of high money supply figures, then obviously, consistent with everything we have been saying, we would change it in one direction or another.",150
-fomc-corpus,1981,"Paul, how would you respond to the question: What is going to be done differently this year than last year? You said that, hopefully, your testimony will touch on that. The public, or at least interested people, do know that we've had this study. And the study was an excellent one. How do you respond?",66
-fomc-corpus,1981,"Well, I think the primary point, and what I will try to list in the testimony, is what came out of the study. But in this sense, it seems to me the most important thing that came out of the study is that the present technique wasn't that bad.",55
-fomc-corpus,1981,"Well--and I say this with the greatest respect for all of you--if any of us tries to say that last year's performance was satisfactory, I would just have to disagree totally. I think an awful lot of people would disagree.",47
-fomc-corpus,1981,"Larry, I think the answer to your question is that we're not going to have credit controls in 1981.",23
-fomc-corpus,1981,"Well, there are other things, too. I get this [criticism] all the time, of course, most specifically from the current Chairman of the Banking and Currency Committee. I'm just using him as an example because of his institutional position. He is in a mood where he says: ""I don't give a damn where those money supply figures go, but you have too much volatility in interest rates."" Now, that is one source of criticism. Everybody can unite on criticizing us on volatility. One group comes at it from the standpoint of instability in the money supply and another group comes at it from instability in interest rates. One of the things that came out of the study--I don't know whether the study was all this strong on this point but I'd love to make it this strong--was that you can't have it both ways, boys. You can criticize us for one or the other, but not both. Now, we know what the particularly monetarist oriented people are talking about. Mr. Garn has put it quite clearly, saying: ""I'm sick and tired of all that monetarist business. I don't like these fluctuations in interest rates."" That's a--",235
-fomc-corpus,1981,"I think the volatility issue will be less of a problem for us if we don't have credit controls again. The last time [the funds rate] went from 16 to 6 percent from top to bottom and then from 6 to 21 percent. So, from peak to trough to peak, we had a 25--",66
-fomc-corpus,1981,"Also, we're going to have a nice stagnantly stable economy!",13
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,There's also a 10 percent--,7
-fomc-corpus,1981,"I have a lot of sympathy for what you're saying, Larry, because I've got to answer the questions. But I don't want to get out of one box and we say we're doing things differently for the sake of doing things differently and then find out that we're in another box.",55
-fomc-corpus,1981,"But I would hate, when I'm on my wedding bed and we're awfully close to making changes that we've been seeking for years and years, just to be lulled into sleep. That's a bad--",40
-fomc-corpus,1981,"Larry, I'm really going to miss the Open Market Committee meetings!",13
-fomc-corpus,1981,"I could think of quite a few responses to that, Larry, from which I will refrain!",19
-fomc-corpus,1981,I think you'd be better send him up to testify!,11
-fomc-corpus,1981,You've put a totally new light on our procedures!,10
-fomc-corpus,1981,"May I return to our operational decision? Steve put forward the hypothesis of $1-1/2 billion of borrowing to start with. I tell you, that makes me a little nervous as I see the probabilities. But it's anybody's guess in practice, I suppose. MR. MORRIS(?). Make it $1-1/4 billion.",70
-fomc-corpus,1981,"Was it $1.3 billion last week, did you say?",14
-fomc-corpus,1981,Last week it was higher; it was $1.7 to $1.8 billion.,19
-fomc-corpus,1981,But this week so far it's $1.35 billion.,12
-fomc-corpus,1981,"Oh, it was moving up again. That's right. It was low and--",16
-fomc-corpus,1981,It was higher.,4
-fomc-corpus,1981,Have excess reserves come down this past week?,9
-fomc-corpus,1981,They've generally been running relatively high. I don't know how they're going to come out this week.,20
-fomc-corpus,1981,"Well, does that account for the drop of the--",11
-fomc-corpus,1981,"This is a particularly confusing period. But what I'm looking at is the recent trend in the money supply--and if anything it may go too low--and the economic outlook. Steve is looking at the willingness of the banks to borrow recently. He says the money markets are relatively easy, given the amount of borrowing, so that leads him to believe that the borrowing figure ought to stay up. So, there are your choices.",85
-fomc-corpus,1981,The economy may be getting a little stronger.,9
-fomc-corpus,1981,"If that's what you think--that the economy may be a little strong and it continued--that would give weight to what Steve is saying. If the risk is the money supply being too high, you shade borrowing up and you end up where he is.",51
-fomc-corpus,1981,"Well, the banks still haven't exhausted much of their borrowing capacity for this quarter. In other words, we probably can expect them to be borrowing more in January and February than in March, given the administrative procedures.",42
-fomc-corpus,1981,"Well, I certainly would go along with a level of borrowing that's lower.",15
-fomc-corpus,1981,That's not inconsistent with the targets we have for the money supply?,13
-fomc-corpus,1981,Who knows?,3
-fomc-corpus,1981,I don't know.,4
-fomc-corpus,1981,I think it is.,5
-fomc-corpus,1981,I think so.,4
-fomc-corpus,1981,It's pretty hard to guess. We're talking about $250 million from borrowing. None of us knows the accuracy of our forecast of borrowing so we don't know who is going to be right.,37
-fomc-corpus,1981,Anybody for $1.3 billion?,8
-fomc-corpus,1981,That's a good compromise.,5
-fomc-corpus,1981,Let me assume something generally in that neighborhood. It depends upon how we want to word it. Is there any appeal to saying 5 to 6 percent as a hypothetical figure for M-1A and M-1B? I suppose we'd say 8 percent or so for M2.,59
-fomc-corpus,1981,I think it would make good sense to--,9
-fomc-corpus,1981,"I'm talking now about the directive language. We fill in those blanks by saying 5 to 6 percent for the M1s and about 8 percent for M2 and leave the federal funds range where it is at 15 to 20 percent, with the understood borrowing assumption. We did have language in the last directive implying that we were less concerned about a shortfall than an overshoot. Do you want to retain some language of that sort or not? SEVERAL. No.",99
-fomc-corpus,1981,I don't think so--not after December.,9
-fomc-corpus,1981,"We may want to help correct any misimpressions of the kind you mentioned earlier by saying ""recognizing the shortfall in December.""",27
-fomc-corpus,1981,It might be useful to get some pretty clear language--I don't know whether in the directive or not--about what this implies for the quarterly average. We'd say it implies a low quarterly average to avoid misconceptions.,42
-fomc-corpus,1981,What period exactly are you talking about: December-to-March or the quarterly average or from February?,20
-fomc-corpus,1981,"In the 5 to 6 percent figure, we're talking December-to-March. I guess it doesn't make any difference. Well, the average makes a difference. It doesn't make any difference, if I understand this, [if we use] from January-to-March.",55
-fomc-corpus,1981,"The 5 to 6 percent for M-1B is a lot closer to ""C"" than it is to ""B.""",27
-fomc-corpus,1981,"If it'll make you happy, I'll look at the January-to-March on this now.",18
-fomc-corpus,1981,It doesn't make a difference anyway.,7
-fomc-corpus,1981,What I was talking about was the December-to-March figure. For some reason it seems to make very little difference which one we're looking at.,29
-fomc-corpus,1981,Then you would put the quarterly figures in the directive?,11
-fomc-corpus,1981,I would suggest putting some quarterly figure in the directive just so people can see it in perspective.,19
-fomc-corpus,1981,Directive or policy record?,5
-fomc-corpus,1981,"I think the directive, in case anybody just reads the directive. So, that's the proposition: 5 to 6 percent for the M1s, about 8 percent for M2, 15 to 20 percent on the federal funds rate, and an understood initial borrowing level somewhere around $1.3 billion. These borrowings always mean adjustment borrowing as interpreted by Mr. Axilrod. Those are all the specifications we need. And there is no bias in the statement. Is that clear?",102
-fomc-corpus,1981,"The only thing that isn't quite clear to me at least is what the Manager will understand he's to do, if, as, and when the borrowing assumption goes considerably off from the $1.3 billion.",41
-fomc-corpus,1981,"I don't think it's if the borrowing assumption goes off; it's if the money supply trend goes off. If it goes low, he reduces it; if it goes high, he increases it.",38
-fomc-corpus,1981,The path?,3
-fomc-corpus,1981,The borrowing.,3
-fomc-corpus,1981,"The borrowing, yes.",5
-fomc-corpus,1981,What is the federal funds rate assumption consistent with $1.3 billion of borrowing?,17
-fomc-corpus,1981,Apparently Mr. Axilrod thinks it's going to decline. That's a--,15
-fomc-corpus,1981,"That's the range of uncertainty. If you believe the borrowing level of early December and early January, you might think there will be an increase. If you believe the borrowing level of very recent weeks, you might think there will be a decline.",48
-fomc-corpus,1981,"Well, our guessing hasn't been very good on this, but if I made a guess--",18
-fomc-corpus,1981,"Yes, the guessing hasn't been very good.",9
-fomc-corpus,1981,--I'd think it would drift off somewhat with $1.3 billion in borrowing.,17
-fomc-corpus,1981,"It's implicit in Steve's earlier comment that he thinks it's likely to drift off, but there's a considerable amount of uncertainty.",24
-fomc-corpus,1981,You mean it would drift off so long as the aggregates aren't coming in strong.,16
-fomc-corpus,1981,"In line with the spirit of quick adjustments on these, could we ask the Manager to incorporate in his report at our next meeting some record, as specific as possible, of what happened in terms of unanticipated fluctuations and how the Desk responded?",48
-fomc-corpus,1981,Adjustments in the nonborrowed path? We already get them now.,15
-fomc-corpus,1981,"Yes, we generally put that in the Bluebook each time.",13
-fomc-corpus,1981,Okay. Do people understand what we're voting on?,10
-fomc-corpus,1981,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey Yes President Morris Yes Governor Partee Yes Governor Rice Yes President Roos Yes Governor Schultz Yes Governor Teeters No Governor Wallich No President Winn Yes,46
-fomc-corpus,1981,That's better.,3
-fomc-corpus,1981,It was hard.,4
-fomc-corpus,1981,It was asymmetric in that--,6
-fomc-corpus,1981,Let me ask another question that occurred to me earlier. I don't think we have to make this a Committee decision. Mr. Axilrod keeps telling me that if we make the target wide enough one target we can always make--which makes people happy--is the reserve base because it's four-fifths currency and it's a fairly easy figure to predict. I'm talking about the annual targets. Do you think it would be useful to put in a statement someplace--not in terms of an operational target--that we believe this is all consistent with growth in the monetary base of such and such?,118
-fomc-corpus,1981,Sure. OTHERS. Yes.,8
-fomc-corpus,1981,"I feel there is a matter or principle involved here in that the base, in my mind, is not a defensible figure. It happens to fit. We can get a correlation with any large number that grows slowly the way currency does, but it isn't meaningful.",53
-fomc-corpus,1981,"Henry, I've compromised my principles on M-1A, M-1B, M2, and M3. You ought to be able to compromise yours on the base.",36
-fomc-corpus,1981,"We fully agreed to what you proposed, Henry, shading from alternative ""B"" and ""C.""",20
-fomc-corpus,1981,"Well, [I dissented] because of the borrowing assumption--I wanted $1.5 billion--and the interest rate. I would have been willing to settle for less than what I said, which was ""C,"" but not quite so low.",51
-fomc-corpus,1981,"Okay, thank you.",5
-fomc-corpus,1981,"A low; it was a high in the numerical sense, a low in reality. That was what--three or four weeks ago now, I suppose?",31
-fomc-corpus,1981,"Just before the Bundesbank's move, yes.",10
-fomc-corpus,1981,"Since then, it has come off that very low valley. The market has continued erratic, but I don't think there's any great judgment that there was much to be done about it. The tendency was not cumulative in one direction or another. At the same time, we've entered into some discussions with the Treasury as to what their views might be on intervention. They're going to start out, as all new [Administrations] do anyway, by not being very--let me put it the other way around--by being quite cautious on whether intervention is useful or not. It remains to be seen. I don't think there's any big question here that a variety of influences have suggested that intervention under the current circumstances is not serving a terribly useful purpose. And there hasn't been any intervention except for yesterday, for what--three weeks or so?",166
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,"The markets have been quite erratic on a day-to-day basis, but have shown no particular trend movement in one direction or another after coming off the valley or the peak, whichever way one puts it. I myself don't see any particular need for any systematic intervention, in the near future in any event. We'll see what happens in the market, but it has been rather trendless and featureless as I see it, though not featureless in the sense that there is quite a lot of short-term volatility. But that's the nature of the beast at the moment.",113
-fomc-corpus,1981,But you would still expect [the Desk] to intervene on disorderly markets?,16
-fomc-corpus,1981,What is a disorderly market? That is always the question.,13
-fomc-corpus,1981,I realize that.,4
-fomc-corpus,1981,"No, this is not a--",7
-fomc-corpus,1981,[Unintelligible] market.,8
-fomc-corpus,1981,"As with any new Administration, in terms of their own views, they are going to have to test their way in specific circumstances. We had a circumstance yesterday which was obviously of a highly exceptional character. But just forgetting about that aspect--though that's an important aspect--I myself do not see intervention as serving any particular purpose at the moment. And we haven't done any, so we haven't got a test of it. By some measures, I guess the market has been disorderly. By measures that we would have considered appropriate ten years ago, certainly, it has been disorderly. I think there's a question whether it is disorderly in the present context of things. That there is some inherent volatility here is, unfortunately, a fact of life. I'm not sure how it will settle down most easily, frankly--with an official presence or without.",169
-fomc-corpus,1981,"I don't have, possibly, a full historical understanding of the policy [that was in effect] before I was at the Treasury. During the time I was there, it was understood that the Desk had flexibility [to intervene] in relatively modest amounts to counter disorderly markets, using its own judgment, and keeping both the Treasury and, of course, the Chairman informed. And it was understood that on larger interventions there would be authorization. I don't know whether we're moving in a direction now where, even on modest efforts to counter disorderly markets, there has to be specific authorization from both the Treasury and the Chairman, even in regard just to the use of Federal Reserve resources as distinct from the joint use of Federal Reserve and Treasury resources. I don't know what the situation was prior to my joining the Treasury. Was it that clean-cut that there had to be specific authorization?",174
-fomc-corpus,1981,"I think we've gone through every possible variant and permutation and combination of this through the years. Sometimes there has been [no intervention] and [that policy] was maintained for a considerable period of time. Sometimes there has been intervention with rather specific authorization each time and sometimes there has been a more flexible view. We will try to work this out a little over the next month or two in terms of consistency with the Treasury's views. There is no definitive answer to that question at the moment, so far as they're concerned. But as a practical matter, I don't see any urgent requirements at the moment. Now, that can always change on a day-by-day basis, and that is what will give us the grist for practical judgments in working this out.",151
-fomc-corpus,1981,"Have there been periods of time, Paul, when there has been modest intervention to counter disorderly markets just using Federal Reserve resources?",26
-fomc-corpus,1981,"Oh, yes.",4
-fomc-corpus,1981,Generally in the past--,5
-fomc-corpus,1981,"I said ""yes"" hastily; I'm sure there have been.",14
-fomc-corpus,1981,"Yes. Generally in the past, until after the early 1970s, the Treasury didn't have substantial balances of its own. So, most of the intervention was for the Federal Reserve account exclusively, both in terms of building up very tiny balances and in terms of all drawings on the swap lines.",60
-fomc-corpus,1981,"I think one can find every combination in past history in terms of what has been done. But it has been exceptional to have the Treasury participate to the extent it has participated in the last four years or so. Nevertheless, the question has been a repeated one going back to the earliest days of floating [rates], when I participated from the other side [at the Treasury]. Should intervention be joint, separate, or should the Treasury do it in the first instance or should we do it in the first instance?",101
-fomc-corpus,1981,You started all this!,5
-fomc-corpus,1981,"John Balles raised this question of a study. Let me suggest a procedure, if it's satisfactory. I'm not sure whether you all are aware that some of these things were touched upon in a System study, the results of which were sent out a few months ago. Why don't you just say a word or two about that, Mr. Truman? Describe the nature of that study and its limitations for this purpose.",82
-fomc-corpus,1981,"Well, the study was actually done in connection with the special System objectives for the calendar year 1979. [The intent] was to encourage economists within the System to look again at the floating exchange rate regime and how it had been functioning. Although there was some talk of encouraging staffs at the various Banks and the Board to identify a broad range of issues, there wasn't an attempt, as is often true in such a case, to arrive at a single conclusion. The result was that a large numbers of papers--I think numbering in the 40s--were prepared by various people, and they were summarized in the paper that was circulated to you earlier this year. One important section of that paper, in this context, had to do with the question of exchange rate determination. I would argue from an economic point of view that one has to resolve that issue in one's mind before one resolves questions about the effectiveness of intervention. I think it's fair to say, based on the paper--and in fact the concluding section says this--that the jury is still out in the sense that it is not entirely clear in purely economic terms what the effectiveness of intervention would be. You will find, though, among economists within the System, that both views are supported. And there are lengthy articulations of what assumptions they make about the substitutability of assets denominated in different currencies. The paper was put together by Jeff Shafer and Joanna Gray and Mike Keran and was in a form a little different than often is done; it was issued subsequently as a discussion paper by the Board staff. But it might be instructive. In fact, one of the reasons why we put together the paper was that it did present a reasonable review or survey on these topics without trying to come to a detailed conclusion.",359
-fomc-corpus,1981,"It is extremely difficult to identify any peculiar results from intervention per se economically. Intervention serves a number of purposes, some of which are inherently immeasurable, such as cooperating with a foreign central bank and maintaining some spirit of harmony in markets, and some of which more directly affect markets, such as a psychological objective as to the intentions of the government in combination with or apart from other elements of an economic program. Against that background, what I would suggest is that you take a look at that work, which has already been done. And we can consider next time, having looked at that and refreshed our minds about what has been done, whether we can identify more precisely what additional work, if any, might be desirable. If that's acceptable, we'll have a little discussion of it at the next meeting in that context. It may be that there are things to be looked at and we should have a go at it again; or we may conclude that there isn't much more to be done. But those studies are not fresh in my mind, to say the least. In fact, I would say I have not read them and some of the rest of you may be in that same position. We have to ratify the transactions, if we're finished with this topic. Do we have a motion?",258
-fomc-corpus,1981,So move.,3
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,"Without objection. Do you have any recommendations, Ms. Greene?",13
-fomc-corpus,1981,[Recommendation--see Appendix.],6
-fomc-corpus,1981,What was that concluding comment? I am afraid my attention wandered.,13
-fomc-corpus,1981,"It was that we do not yet know whether the Riksbank will request us to renew the increase [in their swap line that was enacted last year]. In the event that they do, we probably will hear about it before the next FOMC meeting and we would like to be able at that time to recommend by wire that the renewal be approved.",71
-fomc-corpus,1981,"Well, we can take an action, if we want to. We can't wait until our next meeting, which comes [after] the expiration of the [increase in the] line. I don't know that this is a big issue; but I can just as easily wait and see whether they request a renewal.",62
-fomc-corpus,1981,We thought they might wish to talk about it at the time they repay. That is the reason we brought it up at this time.,27
-fomc-corpus,1981,When are they scheduled to repay?,7
-fomc-corpus,1981,The 23rd of April.,7
-fomc-corpus,1981,"If we renew, does this mean that the implicit takeout from some further Euro-borrowing is pushed farther away in time?",26
-fomc-corpus,1981,"I fully expect that they will repay the drawing. The question is, if there's an increase in the arrangement, whether that should also be renewed. The reason for bringing it up now, although they are two separate items, is that when we're talking to them about the repayment, we expect that they will ask for an initial reaction as to whether or not they could renew the increase in the line as well.",81
-fomc-corpus,1981,"I would think we could defer action on this, but if there's any expression of opinion that would be helpful in guiding conversations with the Riksbank, we might have such an expression of opinion at this time.",42
-fomc-corpus,1981,"Well, Mr. Chairman, everything considered, I think it would be appropriate for us to agree to [extending] the increase if they request it. They are a responsible central bank and I think it would be a little strange--we'd have to have a good reason and I can't think of what reason we would offer--to refuse such a modest increase.",73
-fomc-corpus,1981,The total amount of the line is what now?,10
-fomc-corpus,1981,$300 million; the temporary increase is $200 million.,12
-fomc-corpus,1981,"It's $300 million, so it goes up to $500 million. As I remember, when that line was increased last year there were some pretty clear understandings that it would be used--",38
-fomc-corpus,1981,As bridge money.,4
-fomc-corpus,1981,"--as bridge money to a financing, which in effect is what they did, or perhaps for other contingencies of that sort. But the obvious [purpose] was as a bridge financing to a market financing or to an IMF drawing, which was in the picture recurrently with respect to Sweden. Is that still in the picture, or do they feel so confident now that they're not thinking of IMF drawings?",81
-fomc-corpus,1981,"I think that's something, if we are cooperative with them, that we could remind them about, if the situation so required.",25
-fomc-corpus,1981,"Mr. Chairman, before the actions in January, there were some suggestions--",15
-fomc-corpus,1981,"Well, it strikes me that there are a number of reasons why, in fact, we should not make a decision right now. We can have some discussion and see what the attitude is toward these things. Assuming the attitude is favorable--and my inclination would be like Mr. Solomon's that we have the probability of a renewal [request] here--we don't have to take the formal action. We have to see the way they will present it. And we can take the action at the next meeting if it seems appropriate then, assuming they do request it. Any objection to that?",117
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,"If not, of course, we will conduct ourselves accordingly. Since we're on the subject of the foreign issues, we might as well jump to the amendments to the authorization for foreign currency operations and the renewal of the directives, which are standard material. The only [proposed] change involves what is essentially a cleaning up of the language in the authorization for foreign currency operations. Do you want to describe that, Mr. Truman?",85
-fomc-corpus,1981,"Well, part of the changes are just a cleaning up. The one issue that the Committee might want to discuss is the question you have asked the staff to address of whether we should now incorporate the informal limits on System [foreign currency] balances into the formal instruments. We looked at the question and we suggested a way in which that could be done, but we also suggested that, on balance, we didn't think it was a good idea. Therefore, we recommended that any formal limit with respect to the System's overall open position be the limit that now exists. And in that connection, we suggested as a technical adjustment that the two numbers that now appear in the authorization--one number is a footnote and one number is in the text, with the one [in the footnote] being eight times the size of the other--be combined to one number in the text and that the footnote be dropped. Assuming the Committee accepts the proposition that the informal limits be retained, we suggested that we might be able to simplify the presentation of those informal limits so that there's one overall number with three subnumbers rather than the--",224
-fomc-corpus,1981,"I'm a bit lost. What specifically, are you proposing? It's on what page of what memorandum?",20
-fomc-corpus,1981,"The memorandum from the Secretary is dated March 24th. The first recommendation, on the first page, is that the formal limit on the overall open position be encompassed in the limit [noted in the text]. The second recommendation, on page 2, is that the number be moved from the footnote to the text. Those are the substantive recommendations.",73
-fomc-corpus,1981,We now have an $8 billion limit on our open position.,13
-fomc-corpus,1981,In a footnote.,5
-fomc-corpus,1981,"But it's in a footnote, and the number in the text is $1 billion.",18
-fomc-corpus,1981,Your recommendation is to move the $8 billion from the footnote to the text?,17
-fomc-corpus,1981,"That's earth-shaking, I know!",8
-fomc-corpus,1981,And change the $8 billion to $5 billion.,11
-fomc-corpus,1981,We also suggest the possibility of changing the $8 billion to $5 billion.,16
-fomc-corpus,1981,Right. That's in the text.,7
-fomc-corpus,1981,It would give the Committee more flexibility in decisionmaking.,11
-fomc-corpus,1981,What is the open position now?,7
-fomc-corpus,1981,It's $3.2 billion as I remember.,10
-fomc-corpus,1981,"Let me just make sure I am clear on this. The substantive proposal is nothing more than moving an $8 billion limit, which is now in a footnote, to the text.",37
-fomc-corpus,1981,"Right. But the substantive proposal with respect to your charge to the staff was not to incorporate the informal limits into the formal documents. That may require a positive decision, too, or a negative decision.",40
-fomc-corpus,1981,"Mr. Chairman, the total position, which is in the document in the footnote, is $8 billion. That in some sense governs the total open position, and we would put that up in the text. The informal limits on the individual currencies we would not put in the directive.",58
-fomc-corpus,1981,"But you rewrote them slightly, didn't you?",10
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Where do the informal limits appear?,7
-fomc-corpus,1981,"They don't appear anywhere; that's the issue that we addressed. They appear in the notes or the records of the Desk [and the Secretariat], which I think is the proper way to do it, after having listened to the informed discussion of the Committee.",50
-fomc-corpus,1981,"Well, how were they appearing in the notes that is different from the way they now appear?",19
-fomc-corpus,1981,"That is listed on page 3 of the memorandum. We would suggest that the informal limit, as the Desk has it, be set at $4-1/4 billion, with sublimits of up to $2-3/4 billion in marks, $1 billion in yen, and $1/2 billion in all other currencies. That would just mean that subsequently, if the Committee in its discussion said that it wanted to raise those informal limits, any time it raised one of the three components that would automatically raise the total. It would save some time; it's a somewhat simplified procedure.",120
-fomc-corpus,1981,Items 1-A and 1-B are the alternatives; we can do B while also doing A.,21
-fomc-corpus,1981,"Yes, they are part of the basic recommendation.",10
-fomc-corpus,1981,But 1-C would be a different procedure?,10
-fomc-corpus,1981,"It is an alternative, which we do not recommend.",11
-fomc-corpus,1981,"All right, I guess I understand this. Let me repeat it. We have two proposals, basically. One is to move the $8 billion from a footnote to the formal text. Is this in the directive?",44
-fomc-corpus,1981,The authorization.,3
-fomc-corpus,1981,"Authorization. The other is not to put an individual currency limit in the formal authorization. We are now confirming an informal understanding, stated a somewhat different way, that says the total limit on the balances is $4-1/4 billion, the same as the present limitation, of which the limits are $2750 million in marks, $1 billion in yen, and $500 million in all other currencies. That is the same as we have now, expressed a little more felicitously.",98
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,What gets published: the $8 billion?,9
-fomc-corpus,1981,The $8 billion is the only thing that is published.,12
-fomc-corpus,1981,"That is the number that is now published. Both the $1 billion in the text and the $8 billion in the footnote are now published. So, nothing is changed.",36
-fomc-corpus,1981,"The way it is now, the authorization is for $1 billion and then there is a footnote that says, in effect, except the Committee decided on $8 billion. So the $8 billion is moved up to replace the $1 billion. Let's just focus on that one for a moment. Is that acceptable?",64
-fomc-corpus,1981,Is the $8 billion regardless of signs?,9
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,And the $4-1/4 billion is a plus.,13
-fomc-corpus,1981,"The $8 billion would mean that if we were long $4 billion in one currency and short $4 billion in another, the net is not zero but $8 billion. It covers our overall exposure. Is that acceptable?",45
-fomc-corpus,1981,"There is another part of the recommendation, and that is that rather than put $8 billion in the text, we would put $5 billion; it retains the language that's now in the text with respect to the Committee's authorization.",46
-fomc-corpus,1981,"We can put any number in there we want to. We got to $8 billion during the '78 operation, I guess.",26
-fomc-corpus,1981,"It was raised, I think, by $2 or $3 billion in December of 1978 and that limit has been there ever since. We never got there, but we came close.",39
-fomc-corpus,1981,"Well, to go at it another way, if I understand the recommendation, it would be to go to $8 billion in the text and delete the language that would permit the Committee to increase it.",40
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,We didn't assume the Committee needed permission.,8
-fomc-corpus,1981,"The reason for the proposal that that language be deleted is that when this document was last thoroughly overhauled, there was an express authorization with respect to the old Swiss franc debt. And the express authorization said to treat that debt, which was part of the open position, outside of the $1 billion limit. That was the reason for the language that we now suggest be deleted. It's not that we're trying to reduce your flexibility.",86
-fomc-corpus,1981,"I'm not sure how that language got in there, but it seems clear that the Committee can always change this to put in whatever number it wants to put in, either larger or smaller.",37
-fomc-corpus,1981,"Mr. Chairman, it's a good suggestion. It's strictly procedural. [But] I think it would be a mistake to change the number; the markets might read something into that if we were to change the number. I see no reason at this point, particularly with all the discussion in the markets about a policy shift in the Treasury in regard to intervention, for us to feed that.",77
-fomc-corpus,1981,"Well, we can make the substantive decision, but I think we have to have a reason for making it. If we want to reduce it, we can reduce it. But if there is a strong feeling about not suggesting a policy change here, or explaining what we are doing, the straightforward thing is just to do the $8 billion.",68
-fomc-corpus,1981,"But certainly we need to have some reason. I don't know why we have $8 billion, but I don't know why we would change it to $5 billion.",33
-fomc-corpus,1981,"Well, I think we had $8 billion because that was the guess of what might have been necessary at the time of the '78 operation.",29
-fomc-corpus,1981,I think it was a building up of several things.,11
-fomc-corpus,1981,"Well, in December of '78, [our open position] went up to $5-1/2 billion at the end of year.",29
-fomc-corpus,1981,We had increased swap lines at that point and so forth.,12
-fomc-corpus,1981,"I think it had previously been $5 billion and it was raised by enough so that, during that environment, the Committee wouldn't have to adjust it every three weeks.",33
-fomc-corpus,1981,So it is whatever is needed to keep from impeding any operations we'd like to undertake. It's a great limit.,23
-fomc-corpus,1981,The more meaningful limits are the informal limits.,9
-fomc-corpus,1981,Is $8 billion acceptable?,6
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Without objection, we will have $8 billion. Now, this other issue, if I understand it correctly, is the way it is recorded in the notes. Again, there's no substantive difference. It would be recorded in the notes slightly differently, in a simpler way, which is what gave rise to the discussion. There is a straightforward limitation on how much in total we can have and how much of that total can be in marks, how much in yen, how much in everything else. And it's exactly where we are now in substance.",108
-fomc-corpus,1981,"Is it exactly where we are now? I thought that under the way we operate now, if we changed one component, we didn't necessarily change the total. Whereas this contemplates that if you went to--",41
-fomc-corpus,1981,"Well, in effect, yes, we've been doing it that way. That was the source of the confusion during the discussion in December, though, and that's why we suggested that we change it this way. The only thing that has been changed recently has been the mark total. But since we had an overall limit, every time $1/2 billion or $1 billion was added to the mark total we had to push everything else up, especially since we were holding, and still are holding, about $250 million worth of all the other currencies.",110
-fomc-corpus,1981,But the presumption here would be that there's an automatic dollar-for-dollar lifting in the total.,19
-fomc-corpus,1981,"Well, these currencies aren't substitutes necessarily. So, if there's a reason for raising one, that's no reason to reduce another if that were to be the consequence of having a ceiling.",36
-fomc-corpus,1981,"But it's conceivable, if the Committee wished, that it could reduce the yen limit and raise the [mark or the other currencies limit]. It's not impossible to substitute among those things.",36
-fomc-corpus,1981,"Right, but it would be separately--",8
-fomc-corpus,1981,"But then the understanding would be, barring an express decision that way--",15
-fomc-corpus,1981,How much do we have now?,7
-fomc-corpus,1981,"As Gretchen said, in marks we have $2566 million, or almost $2.6 billion. We have $399 million of yen, and $260 million of everything else.",38
-fomc-corpus,1981,"So, if we approve this, it implies a leeway of approximately $200 million in marks, $600 million in yen, and $240 million in everything else.",34
-fomc-corpus,1981,I thought we had more Swiss francs than that.,10
-fomc-corpus,1981,"No, it's $257 million or something like that of Swiss francs and the rest of it is--",20
-fomc-corpus,1981,Where did I get the idea that we had more than that because we have a Carter bond?,19
-fomc-corpus,1981,"We, the United States, do; we, the System, do not.",16
-fomc-corpus,1981,That's the Treasury.,4
-fomc-corpus,1981,"Oh, I see; we've already sent it over. We bought it for them. The total position we have in Swiss francs is a little over $1 billion, is that right?",37
-fomc-corpus,1981,"The United States has $1.3 billion. It's $1.4 billion, using the historical rates, of which we have $250 million.",30
-fomc-corpus,1981,Okay.,2
-fomc-corpus,1981,"The substance of what we're saying here is that these numbers are not changed from what we now have, but there isn't much room for increasing mark balances and there isn't much room for increasing other balances. There is a fair amount of room for increasing yen balances, but we have no intention of doing so.",60
-fomc-corpus,1981,But we're going to say that a lot better than we were saying it.,15
-fomc-corpus,1981,"It says it more straightforwardly. That's right. But there isn't a lot of room here, actually, in these current informal limits for increasing [our holdings of] anything.",35
-fomc-corpus,1981,"Actually, my figures are absent the $74.4 million we sold yesterday. My figures don't include that.",22
-fomc-corpus,1981,"So, we have a little more room for increasing marks, having sold some yesterday. Is that acceptable?",21
-fomc-corpus,1981,Sounds fine.,3
-fomc-corpus,1981,"Was there anything else? [Next] we have paragraph 3 and paragraph 5. This is an attempt to have more straightforward wording again, isn't it?",32
-fomc-corpus,1981,"Right, in paragraph 3. Paragraph 5 deals with the fact that we now have a broader range of things that we invest in. Paragraph 6 reflects the fact that we no longer send out a daily call to the members of the Subcommittee. To reduce paperwork some time ago we combined that with the 2:30 call that goes to all members of the Committee along with the Manager's regular reports.",83
-fomc-corpus,1981,"I don't think any of these changes is substantive. One purpose of the change in paragraph 5, at least in part, is that we now have authority to invest in foreign government securities and, in effect, we are limiting that and making clear that these [investments] are to be in liquid form. Are these all acceptable?",67
-fomc-corpus,1981,Wasn't there some question as to whether we were going to put the informal limits directly in the directive?,21
-fomc-corpus,1981,"Well, I assume that we made the decision not to, in accepting the other alternative and these language changes. Hearing no dissent, I guess we need a motion. This is the formal [authorization], isn't it?",43
-fomc-corpus,1981,Yes. So moved.,5
-fomc-corpus,1981,Seconded.,3
-fomc-corpus,1981,"Without objection, we will adopt those. One other issue in this area is warehousing. Mr. Truman, are you going to comment on warehousing?",31
-fomc-corpus,1981,"We have had this agreement, the current one, formally since January 1977. The limit on warehousing foreign currencies for the Treasury and the Exchange Stabilization Fund is now $5 billion. The total that is now in use under that arrangement is a little over $4 billion. The Treasury would just as soon renew the authority. They may well be using some of those balances over the course of the next year to repay some of the Carter notes that come due over the period.",97
-fomc-corpus,1981,You are recommending no change here?,7
-fomc-corpus,1981,No change.,3
-fomc-corpus,1981,This [issue] comes up every year as to whether we want to continue it. There's no change [proposed]. It is being used to the extent of over $4 billion against the $5 billion authorization. Do we have a motion on this one?,52
-fomc-corpus,1981,You have a motion.,5
-fomc-corpus,1981,"Without dissent, we will approve the renewal of the warehousing [agreement]. Mr. Altmann tells me we have to approve one other thing here.",30
-fomc-corpus,1981,We need approval of the foreign currency directive and the procedural instructions with respect to foreign currency operations in which no changes have been proposed.,26
-fomc-corpus,1981,"These are the basic authority for the foreign currency operations. There are no changes. They are just reviewed every year and accepted or not accepted. Obviously, changes can be proposed, but there are no changes being proposed by the staff. This is the basic [directive] for foreign currency operations and the accompanying procedural [instructions]. They have been in effect [in their present form] for three or four years.",81
-fomc-corpus,1981,"It is noteworthy that any change in intervention policy can be accommodated within this document, no matter what we do.",22
-fomc-corpus,1981,That's very appropriate.,4
-fomc-corpus,1981,"Without objection, we will renew the foreign currency directive and the procedural instructions. That concludes all the foreign-related matters. We did ratify the transactions, did we not? I think we are finished with the foreign side. We will go now to Mr. Sternlight.",54
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,Comments? Governor Partee.,6
-fomc-corpus,1981,"Peter, going back to your comments on the path for nonborrowed reserves: Did I understand you to say that you considered the reduction in the path that was agreed to roughly at the time of that telephone conference call to be a temporary reduction and that in the most recent 4-week period you are back to the previous path?",66
-fomc-corpus,1981,"That is correct, yes.",6
-fomc-corpus,1981,"Well, I hadn't understood that that was going to happen. I can see how that would be an interpretation, but this is the first I have heard of that--that it was a temporary reduction and then the path was restored.",46
-fomc-corpus,1981,I'm not sure that's quite right.,7
-fomc-corpus,1981,"Well, that's why I asked the question. Peter seems to think so.",15
-fomc-corpus,1981,We set the path.,5
-fomc-corpus,1981,That's my understanding of what was done.,8
-fomc-corpus,1981,"That is exactly what was done after the February 24th call. The borrowing level in the last 2 weeks of the first 4 weeks of the 8-week interval--I don't know what it was in the 3rd week, but it was very low in the 4th week--would have been zero. It was understood after that call that half the adjustment would be made to keep it at around $1 billion. And in the next 4-week period, we reverted to the original path, which itself implied borrowing of around $1 or $1.1 billion at that time. I thought that was made clear at the time.",132
-fomc-corpus,1981,"It just shows how tricky this whole thing is; I hadn't understood it. I think we have to be very clear in terms of what the understandings are. Nothing happened adversely as a result of it, but I thought we had made a downward adjustment in the path that [would not be changed] until the Committee reconsidered the matter.",68
-fomc-corpus,1981,"Well, if we had made the same adjustment downward in the path that we made in that two weeks, it would have implied borrowing rising to a considerable amount.",32
-fomc-corpus,1981,"Well, this has explained something to me. In fact, I just asked yesterday: Why is the market acting the way it is? Well, it's acting that way because we have reverted to the [original] path. I had never understood that. I might have expected the rapid growth in money of the last month or so to have brought some tightness in the market and it hasn't brought very much. Now I know why.",86
-fomc-corpus,1981,"Yes, because in effect the Committee is still under its path that it adopted--",16
-fomc-corpus,1981,At the last meeting?,5
-fomc-corpus,1981,--at the last meeting.,6
-fomc-corpus,1981,But not as amended in the telephone conference.,9
-fomc-corpus,1981,"Our interpretation of that amendment was that it applied to the first 4-week interval. The second 4-week interval was leading to borrowing that seemed likely to bring the federal funds rate back up to the 15 percent lower limit, so that no further adjustments were necessary one way or the other to bring to the Committee's attention.",66
-fomc-corpus,1981,What did borrowings average in that second four weeks?,11
-fomc-corpus,1981,"They were a little under $900 million, I think.",12
-fomc-corpus,1981,"About $900 million. This week they are running higher, and the average may move up some this week. My recollection of that would be that there was flexibility, [based on] the Committee's decision, to have made some further adjustment if it had proved necessary to keep--",57
-fomc-corpus,1981,"On the down side. Yes, I agree with that.",12
-fomc-corpus,1981,"-- the funds rate from tending to slide off below 15 percent; but as it was shading up, it didn't [prove necessary].",27
-fomc-corpus,1981,"I am a bit confused at this point. Maybe the way to state it is this: That I didn't realize you were back on the original nonborrowed reserve path. Well, that's right. My understanding is the same as yours, but I suppose you could say that this may be the source of the confusion. With total reserves running low, you might have raised that path and you didn't.",79
-fomc-corpus,1981,"Well, that's right. Total reserves have been running well below.",13
-fomc-corpus,1981,That's an additional or separate conceptual adjustment.,8
-fomc-corpus,1981,[An adjustment] was not made which might in other circumstances have been made. Maybe that's it.,20
-fomc-corpus,1981,"Even though we didn't explicitly discuss a return to path in the second 4-week period, it was formulated the way Peter suggested, and Steve also, that the flexibility was for as long as necessary and that when it was no longer necessary in terms of the fed funds rate, then it just automatically made--",61
-fomc-corpus,1981,"Mr. Chairman, I'm sorry, but I'm quite sure that it was pointed out to the Committee at the time that one of the reasons for making the adjustment to keep borrowing at $1 billion was that looking ahead to the next 4-week interval, it was apparent at the time of the February 24 call that, unless something weird happened, borrowing--given an adherence to the nonborrowed path--would move up.",85
-fomc-corpus,1981,That was certainly a factor.,6
-fomc-corpus,1981,But it didn't move up much. Is that right?,11
-fomc-corpus,1981,"Well, it moved up. I don't know what the average is going to end up being; it will be something like $900 million or maybe a little higher.",33
-fomc-corpus,1981,We were looking at about $900 million last Friday as the average borrowing in the second 4-week period.,22
-fomc-corpus,1981,"Essentially, we seem to have targeted on the funds rate.",13
-fomc-corpus,1981,I'd say we have targeted on the nonborrowed path; we had to in the last four weeks. We adjusted the nonborrowed path for the first four weeks downward in order to keep borrowing in line with how it appeared to be evolving. That's how I would put it.,56
-fomc-corpus,1981,"Let me be clear about the funds rate. This is my interpretation, obviously. We made a decision on the 24th or whenever it was which, in my judgment, overrode the funds rate. We said: This is the way we are going to set the borrowing path. Now, there may be some fogginess, and I can't put myself back there. Once having set the borrowing path there, the federal funds rate came out where it came out regardless of where the limits were on the federal funds rate. The path was reset. The only question is: reset from what to what? It was reset, based upon some judgment of what the aggregates in total were doing combined, I'm sure, with some feeling in the mind of Committee members--and each one probably had a slightly different feeling--as to the implications for interest rates. But, once having made that decision, the federal funds rate was no longer relevant. We had our consultation when it moved below 15 percent. The result of the consultation was to set a certain nonborrowed reserve path, and the federal funds rate then fell out regardless of the 15 to 20 percent limit. And, in fact, it ran below 15 percent almost all that time. That was of no concern to me because in my mind the Committee had made a judgment that it would be overridden.",273
-fomc-corpus,1981,"What I meant to say is that we targeted on borrowed reserves, which is very similar to targeting on the funds rate.",24
-fomc-corpus,1981,We always target on borrowed reserves.,7
-fomc-corpus,1981,"Well, that's why we always target on the funds rate.",12
-fomc-corpus,1981,I don't think that's true. I don't agree with that at all.,14
-fomc-corpus,1981,"The reason borrowing dropped below the $1 billion we thought it would be at the time of the February 24th [telephone] meeting and [the assumption of] $1 billion we set for the next two weeks was that in the next four weeks required reserves turned out to be weaker than was thought at that time. So, borrowing dropped and the funds rate dropped. If required reserves had been what we expected at the time of the conference call, borrowing would have stayed at about $1 billion. In the event, borrowing has come back up in the last couple of weeks.",116
-fomc-corpus,1981,We start by [making a borrowing assumption] in this way; subsequently [the actual level of borrowing and thus] the funds rate [are] free to move. To make the place for that--,40
-fomc-corpus,1981,I'm trying to say we're adhering to the nonborrowed path and borrowing is fluctuating.,18
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"I'd like to address this question to Peter or to Steve. As one whose brain is not as facile as many of yours, when I sense this confusion among so many of you, would there be an easier or simpler way of conducting this to be more effective and less complex?",55
-fomc-corpus,1981,Maybe I didn't report on it clearly enough. I don't see a simpler way of accomplishing the Committee's objectives.,22
-fomc-corpus,1981,A total reserves operation wouldn't help?,7
-fomc-corpus,1981,"No, because still the question would be whether we were reducing it temporarily or reducing it for the whole period.",22
-fomc-corpus,1981,"The confusion here arises, in my mind anyway, [in that] I had kind of forgotten what the implicit path was for the next 4-week period. We certainly lowered the nonborrowed reserve path for whatever period of time was left in the then current period being used for operational purposes. That's clear. It was done against the background of a high M2 figure and the relatively low M1 figure at the time, and whatever judgments various members of the Committee had in their minds as to what was going on in the money markets. I did not remember that the new path was exactly the same as the old path. That may be true. In any event, we forewent what could have been a possible increase in that path when [borrowing was] running low. I think that was implicit in the decision. And I repeat: Once having made that decision, it was my conclusion or my interpretation of that decision that the federal funds rate limit was no longer binding. It's never binding in the way we formally set forth the directive, but we had an inconsistency, we had a consultation, and we reset the reserve path. Whatever happened to the federal funds from then on happened to the federal funds rate in the light of that path, barring any further consultation, which we did not have.",262
-fomc-corpus,1981,"Maybe we ought to have more confusion, because I think things turned out pretty well over the last six weeks! It seems to me that we did follow the spirit of the new procedure without being mechanical. There was some judgment involved, and interest rates dropped; there was an adjustment to demand factors, but we avoided a free fall in interest rates, it seems to me. This is about the way I think we would have wanted things to come out, if we could have [planned it].",98
-fomc-corpus,1981,"I don't disagree with that. We made the judgment in the reserve path. I think what is different and what will appear a little different to the market when this decision is published is that previously when we ran into the federal funds constraint, we said something about the federal funds constraint per se. This time we didn't say it openly; we said it implicitly, in my judgment. And the implicit judgment was reflected in the fact that for at least two weeks or maybe three weeks--I don't remember exactly -- the rate was clearly below the 15 percent limit.",111
-fomc-corpus,1981,"Well, one week it was 13-1/2 percent on average. Another week it was just a hair below [15 percent].",28
-fomc-corpus,1981,"Just a little below. So, one week it was way down and in only one other week was it below.",23
-fomc-corpus,1981,"You mentioned the events of the period, draining reserves because of the--",14
-fomc-corpus,1981,"Just before that February 24 telephone discussion, President Roos, when the funds rate was flirting with the lower bound--it was tending to drop down to 15 percent or lower--there was one day when our projection suggested that maybe we should be draining a little, but because the funds rate was dropping below 15 percent we drained a fairly sizable amount, more than we would have done just on the reserve numbers alone. I think that was a Friday; the following Monday, when the projection showed no need to drain, funds ran below 15 percent and we did drain that day. I'd say there were those two occasions when we were guided by the funds rate.",134
-fomc-corpus,1981,"That was a time when we were concerned about reserves growing too slowly, right?",16
-fomc-corpus,1981,"Well, reserves had been growing slowly but, also, the Committee had not held its telephone consultation. After that, as the Chairman said, the funds rate did not constrain us and it dropped down a bit.",42
-fomc-corpus,1981,"At this point, there is no floor to the fed funds rate. And it seems to me that in the future, if we continue with this operation, every time there's a telephone consultation and a decision is made to change the nonborrowed reserve path--ignoring the floor or ceiling as the case may be--then for the rest of the intermeeting period we are operating without a floor or without a ceiling.",83
-fomc-corpus,1981,We could arrive at a different decision. I think that was the decision we arrived at [in this case].,22
-fomc-corpus,1981,"We could do both, I think: reset our path and reset a floor or a ceiling. We just didn't want to reduce that floor, that's all.",31
-fomc-corpus,1981,"Well, I was a little confused immediately after the meeting until I talked with Paul a couple days later because during the consultation Paul had said--and everybody went along--that he wouldn't be particularly disturbed if the funds rate went as low as, say, even 14 percent and then there might or might not be a need for another consultation. And yet we were required to add reserves when it was down to about 13-1/2 or 13-7/8 percent. So, I was thinking that maybe we had a kind of rough floor set around 14 percent. But then I realized, after talking to him, that the way he was interpreting this was that we basically didn't have a floor.",143
-fomc-corpus,1981,"Let me say that if I had thought the funds rate was declining way down and was going to stay down, obviously, we could have had another consultation. But I didn't feel that was necessary in the--",41
-fomc-corpus,1981,You thought it was very temporary.,7
-fomc-corpus,1981,"It's also important to clarify that there was nothing mechanical here. Just because the funds rate dropped below 15 percent didn't mean that automatically the Desk was going to drain reserves. They look at the projections, both the Board and New York projections, and they look at the funds rate as an indication of what the conditions are in the market. And if the rate falls below 15 percent, then the market is saying that things are easier than the projections would seem to suggest. So, it's important that maybe there was the sense that 15 percent was regarded as an absolute floor by the Desk and the minute it went below that, then an automatic response would be triggered. That is not the case. That's not the way the fed funds rate is being used at this point in time. It is a consultation point; it is not a mechanical thing on which we target.",173
-fomc-corpus,1981,"We also now use the term ""taken over a period of time,"" which indicates that there is that flexibility you speak of.",25
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"I was obviously one who was thoroughly confused in this second four-week period. Is it not true, despite all of this, none of which I disagree with, that had we not adjusted the nonborrowed path back to where it was the probabilities are that the funds rate would have been down over that three-week period, anyway--just as a behavioral thing.",72
-fomc-corpus,1981,You're talking about the second four weeks?,8
-fomc-corpus,1981,Yes. Had we not readjusted the path back--,12
-fomc-corpus,1981,We didn't readjust it back because we had never really adjusted that second four-week part of it.,20
-fomc-corpus,1981,I'm not sure what would have happened if the Committee hadn't met on February 24th and said it was all right to lower the nonborrowed path for the last two weeks of the first four-week period.,42
-fomc-corpus,1981,Okay.,2
-fomc-corpus,1981,"The funds rate would have dropped to, say, 2 or 3 percent in that two-week period.",22
-fomc-corpus,1981,That I have no problem with.,7
-fomc-corpus,1981,"And then looking at the projections of deposits and required reserves, our numbers would have suggested that adhering to the nonborrowed path going into the next four-week period would have brought the funds rate back up to 13 or 14 percent at that time, because borrowing at the time of that February 24th meeting was projected at $937 million precisely. So, if the adjustment hadn't been made and we had just followed the nonborrowed path constructed for the first four weeks [in the] second four weeks, funds would have dropped to around 2 percent and then moved back up to on the order of 14 percent. What the Committee's action effectively did was to stop that drop down to around 2 percent.",145
-fomc-corpus,1981,I think the Committee's action did two things. I'd just forgotten all the details here. It did what you just said and it forestalled what might have been a judgmental increase in nonborrowed reserves to take account of the shortfall in total reserves.,52
-fomc-corpus,1981,"Oh, yes. Well, I was assuming that all through that period normal procedures would have meant raising nonborrowed reserves even further. And, of course, I would just assume that that was forestalled by the Committee's action.",47
-fomc-corpus,1981,"Let me ask my question differently. For that 2-week period at the end of the first four weeks, I understand perfectly what was done and why it was done. I, too, have been under the assumption, obviously erroneous, that the path that you established for the last two weeks of the first 4-week period was the same one you were going to stay on for the second four weeks as a whole. My question is: Had that been done, would we still have seen in that roughly 3-week period the funds rate below the original 15 percent floor?",116
-fomc-corpus,1981,I think it might have been to a lesser degree. I can't say for sure exactly where it would have been.,23
-fomc-corpus,1981,"We would have had $200 million more borrowing, I guess, throughout that second four weeks than we in fact had.",24
-fomc-corpus,1981,About $160 million [more] of borrowing.,10
-fomc-corpus,1981,"Well, I'm sorry. I'm not misunderstanding your question, Jerry, [but] I can't put the question in that framework. The way my mind works on this, there's something I'm missing on that. That path in the last two weeks was simply to keep borrowing at $1.1 billion for a two-week period.",64
-fomc-corpus,1981,I thought it was a new path for six weeks.,11
-fomc-corpus,1981,"Oh, no. I'm sorry, there must have been something lacking in our communication with the Committee at that time, then. No, that was not--",31
-fomc-corpus,1981,"That's all my question is. I thought it was for six weeks. And my question is: Had it been for six weeks as a whole, would we have had more borrowing and presumably a somewhat higher funds rate? And Governor Partee's and Peter's answer are the same.",56
-fomc-corpus,1981,"The question would have arisen as we looked at it, going into the next four-week period. Holding the path that we had originally constructed after the Committee meeting, if it looked as if borrowing was going to have to be very low again, then the policy decision for the Committee would have arisen.",59
-fomc-corpus,1981,I think we're saying the same thing.,8
-fomc-corpus,1981,Mr. Guffey.,6
-fomc-corpus,1981,"Well, I just want to go on record to say that I didn't understand either, and that may not be unusual. I understood the same thing that Jerry Corrigan just explained. When we dropped the nonborrowed path, I thought it was for the remaining weeks in the period before the next FOMC meeting, which would have been five or six weeks.",73
-fomc-corpus,1981,It would have been six at that time.,9
-fomc-corpus,1981,"Further, there was a misunderstanding on my part that when we took the action that the federal funds lower bound was no longer a constraint.",27
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,"I have no recollection of any discussion, either inferred or otherwise, indicating that to be true other than, I believe, Mr. Chairman, you stated--and I may have asked on the telephone what you meant by reaching the lower end--that the federal funds rate would be something below 15 percent. I asked what area you were speaking of and you would not be pinned down, as I recall. But it was also fairly clear to me at that time, apparently erroneously, that as we moved into the remaining weeks of the period the 15 percent would still be a constraint or a consultation would have taken place.",126
-fomc-corpus,1981,"Well, that is an interpretation that ought to be cleared up because my interpretation, as I stated it, was that the directive literally says that we will consult if these things are inconsistent. We consulted. And my assumption was that the decision was made and we recognized that we were flirting with 15 percent and it might go below. I think that much was explicit. And, therefore, the new reserve path was controlling. Now, that does not say as an exercise of judgment that if the rate had really gone down, we would not have had another consultation. We would have.",116
-fomc-corpus,1981,"I think I'm right, Steve, in saying that the Committee actually got a lower nonborrowed path in the second 4-week period because, in the absence of the [telephone] meeting, you would have been required to raise the nonborrowed path.",52
-fomc-corpus,1981,"Oh, absolutely. Sure, we would have been required to raise it the first four weeks.",19
-fomc-corpus,1981,"I think that's probably the source of the confusion: What you would have done in the absence of that [consultation]. I had forgotten, but technically it seems to be the case that the path was set just where it would have been set tentatively four weeks earlier. But the issue just ordinarily arises as a matter of discretion. If total reserves are running [off] enough, we raise it. We didn't do that.",85
-fomc-corpus,1981,We didn't do that in either the first four or the second four weeks.,15
-fomc-corpus,1981,I hope this has clarified things a bit.,9
-fomc-corpus,1981,"I hope it's clear. I tried to explain in the Bluebook that the sharp drop in nonborrowed reserves in February, when total reserves also declined about the same amount, reflected the adjustment made in lowering the path below where it had originally been set. And the rise then in March kind of offsets that, because we lowered it and kept the March levels. So, we get a bigger increase in March. The two months together are about right, so to speak.",94
-fomc-corpus,1981,"Well, that's just what you said yesterday when I asked precisely the same question, but we didn't focus on it this way. So I was still not communicating at that time.",35
-fomc-corpus,1981,"Yes, that's right.",5
-fomc-corpus,1981,We have to ratify the transactions.,8
-fomc-corpus,1981,So move.,3
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,"Without objection, we shall ratify them. If we could take a moment, just in logical order, we have the authorization for domestic open market operations to review. This, again, is a routine item for the [annual organization] meeting. There is no change proposed. It's the basic authorization for domestic operations.",63
-fomc-corpus,1981,Move it.,3
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,"Any discussion? Without objection, we shall approve it. Maybe we should just slip in this lending issue, too, while you have the table, Mr. Sternlight.",34
-fomc-corpus,1981,"I don't have anything to add to the short memo that went around on that. We believe that the lending operation to avert delivery failures remains a useful item in the good functioning of the government securities market and, in that sense, is reasonably necessary to its smooth operation and, thus, an aid to the conduct of open market operations. And it's a modest money maker for us. It much more than covers its cost of operation.",85
-fomc-corpus,1981,"This one seems to be a little less routine than the others. We do have to justify this in terms of promoting the ends of open market operations, I guess, and that is a matter of judgment. Mr. Sternlight has so indicated. I'm not sure that this is a business that we should be in, as a matter of routine; it really should have that justification. But we have the authorization and we've done this for how many years now?",91
-fomc-corpus,1981,"Oh, 6 or 8 years.",9
-fomc-corpus,1981,"Well, if we're going to continue to have $50 to $60 billion deficits, it's going to be an essential tool.",25
-fomc-corpus,1981,There would be a greater problem if we didn't have a deficit. We wouldn't have so many securities available to deliver them.,24
-fomc-corpus,1981,And eventually own them all!,6
-fomc-corpus,1981,"Well, I don't think the markets should use this as too much of a crutch. There is an effort--we charge a penalty rate on this stuff compared to what the market charges, don't we?",41
-fomc-corpus,1981,"That's right, yes.",5
-fomc-corpus,1981,That is at least one indication of [our objective of] discouraging it and not using it excessively. Do we have a motion on this one?,30
-fomc-corpus,1981,"Peter, on the first page of your memorandum, there is a reference to the volume of trading and that it may have put strains on your automatic clearing mechanism in government securities. Are you talking about our system or are you talking about the Street systems there?",51
-fomc-corpus,1981,"Well, I was not referring to the System's open market operations but to the volume of traffic through the System's clearing mechanism.",26
-fomc-corpus,1981,No. The clearing mechanism through the Fed?,9
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"The dealers, then, have never set up any kind of interface of their own with our system to move a lot of stuff out of ours.",29
-fomc-corpus,1981,"No, but in a--",6
-fomc-corpus,1981,I need a second.,5
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,"Without objection, we will approve this. I think that is all the authorizations and directives and so forth that have to be approved. So, we can go to the substance of our discussion. Mr. Kichline.",45
-fomc-corpus,1981,[Statement--see Appendix.] [,7
-fomc-corpus,1981,Statement--see Appendix.],5
-fomc-corpus,1981,"I will just make one preliminary comment myself: As we focus on these numbers, let us recognize that we are not [skillful] enough to hit any of them. And we are engaged in an exercise [of assessing] which way the risks go in substantial part, following a period when velocity has been way off from expectations or interest rates have been way off from expectations, however you want to state it. In fact, they have both been off from expectations. I suspect that when we sat here the last time we were all somewhat [expecting], in setting the reserve path, that interest rates were going to go up with any of the reserve paths. Instead, they came down by quite a few percentage points, which cast a quite different light on things as the period progressed. There is nothing we can do to eliminate those uncertainties. I just think we ought to be aware of them. Who would like to comment? Mr. Balles.",190
-fomc-corpus,1981,"Mr. Chairman, I would like to make a comment and ask Steve some questions. These figures on adjusted M-1B, of course, are going to be the great guessing game of 1981. There has been a lot of solid analytical work done at the Boston Bank and by the Board staff on what happened in earlier periods when NOWs were introduced and so forth. We have some survey data already. We intend to do some more surveys. Yet I, for one, Steve, end up with a feeling of a little skepticism about how much we solidly know. I'm told by my staff, whom I have had looking into this, that if we took at face value the survey data that came in from the banks and the S&Ls for January and February and assumed that about the same results prevailed in March that prevailed in February, we'd end up with something like a weighted average for banks and S&Ls together of 82 percent of the source of NOWs being demand deposits and the balance being non-transaction accounts. That is in a bit of contrast with the best judgment of the Board staff. It came out in the Greenbook, for example, that in January 80 percent of the NOWs came out of demand, and the figure for February and March was 75 percent. Using the figure that we came up with of an 82 percent weighted average as a rough estimate for the first three months of the year--and I don't say that I have complete certainty on that either--rather than the [Board staff] figures I just cited, we would come up with a 5.2 percent annual rate of gain, seasonally adjusted, for M-1B from December to March, versus your figure of 3.2 percent. In other words, it would be a full 2 percentage point difference and the level of M-1B would be $2 billion higher.",384
-fomc-corpus,1981,That's from January to March or December to March?,10
-fomc-corpus,1981,"December to March. And we would, in fact, be fairly close to the midpoint [of our target]. It's just a word of caution that, from my standpoint at least, I would feel a little safer if this Committee for its own deliberations had in mind a range of possible outcomes rather than a pinpoint figure, because at least at this point in time, I don't feel we have enough information to have a solid figure that's measurable to the extent we do for a lot of economic statistics and so forth. Having expressed my misgivings, I am turning to you, Steve, to see if you can reassure me or tell me that things are better.",132
-fomc-corpus,1981,"Since I don't know the method of calculation used by your staff, I certainly can't do much reassuring. The percentages we took were based on the surveys from banks. We asked what percent came from demand deposits and what came from other accounts. We got similar percentages out of the Michigan survey of consumer attitudes. For the S&Ls we took the percentages that the Home Loan Bank people told us came out of their own accounts versus what came from other institutions. The amount that came from other institutions we divided up in the same way as on the banks' reports and we rounded a little. We came to 80 percent for the first month and then 75 percent for the next two months. I'm not sure of the exact number, but I think it probably came out at something like 76 or 77 percent. Probably the best thing to do is for us simply to send to the Committee a note on the exact calculation method we used, and then it would be verifiable against how other people might like to view exactly the same data.",207
-fomc-corpus,1981,"Maybe I could pinpoint this a bit more. Is my understanding correct--I got this from somewhere--that you judgmentally shaded down somewhat the survey data that came in from the institutions, at least for January if not February, in terms of the percent they reported as coming from demand deposits?",58
-fomc-corpus,1981,"Well, I'm not certain of that, President Balles. I know that we tried to make allowance for the fact that the sample we used was wrong--well, not wrong, but it had more large banks relative to small banks than there are in the nation as a whole. So, therefore, we tried to weight it so that we gave more weight to small banks [in the survey], in line with their role in the nation as a whole. We didn't simply average it, so to speak, which would have resulted in a higher number because the sample had fewer small banks relative to large banks than is true nationally. Now, that could be a difference. I don't know whether, in fact, it is.",144
-fomc-corpus,1981,"The only other comment I wanted to make on this, Mr. Chairman, is that some of these fine and really well-designed analytical studies that were done, say, with respect to the New England experience, lead to a conclusion that probably about two-thirds of the source of NOWs was demand deposits and the rest was from savings and so forth. We have a feeling that that might not be applicable to the United States as a whole in 1981. We see that a very large number of respondents to the surveys, contrary to what I understand was the case in New England, are permitting minimum balances to be held in various forms of savings instruments, such as passbook accounts, money market certificates, the 30-month small savers certificate, etc. At least in the West, the largest banks and the largest S&Ls, in fact, are permitting those so-called minimum balance requirements for NOWs to be held in savings instruments, which I understand contrasts somewhat, Frank, with what had been the experience in New England. If that practice should prevail as we continue to keep this under observation during the rest of the year, it might lead to a greater proportion of NOWs coming out of demand deposits and less out of savings. So, there is the possibility that the present methodology could be understating the adjusted growth in M-1B. But I think that needs some more study.",279
-fomc-corpus,1981,"Well, I think your comments are very well taken in the vein that there is uncertainty here, which I doubt we can resolve completely, but we've got to keep looking at it. I think we just have to recognize that there is a band of uncertainty. And in that connection, we assumed in the target for the actual figures, the equivalent target, that this would pretty quickly go down to two-thirds, didn't we?",84
-fomc-corpus,1981,"Well, but we changed that assumption.",8
-fomc-corpus,1981,"You have? We haven't published a new one. The question is when we should indicate that there is a new target equivalent for the actual figures, if we change that assumption.",35
-fomc-corpus,1981,"We have postponed that two-thirds because the latest data coming in suggest that [proportion from demand deposits] remains very high, and we have stayed with the same [assumption].",36
-fomc-corpus,1981,"But at some point we will have to change that other target, won't we?",16
-fomc-corpus,1981,"Yes, that's right. But we haven't. For sure we would do it around midyear. But whether we would want to do it before then--",30
-fomc-corpus,1981,"Well, I might want to do it before then if I thought it became big enough so that it was really significant. It's the other side of saying that this adjusted figure may understate what actually has been going on.",44
-fomc-corpus,1981,"I can only speculate that the extraordinary increase in velocity of M-1B, as reported based on the adjusted figures, could not have been so big if the adjusted figures should have been adjusted higher. We get those sorts of interactions going on. So I, for one, just have to express some skepticism. All I'm doing is trying to find out how solidly we know what the adjusted results are. And, if anything, I have a hunch--and that's all it is--that perhaps we should be addressing--",105
-fomc-corpus,1981,"The answer, of course, is not very solidly, which is a matter of curiosity. It may affect how people think, if people were suspicious of this estimate we made of 75 to 80 percent, depending upon what month. If you had to guess, is it the general feeling that that percentage sounds too low, which is what you are suggesting, John?",75
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Well, we did a more comprehensive survey of institutions up in the Ninth District. While it wasn't a big survey, it was done very carefully; we did in-depth interviews with the accounting officers and all the rest. We are finding the same thing Mr. Balles was suggesting, including that for large numbers of these accounts the kicker is in what they call a ""hostage"" account, a savings account. And, therefore, there is no minimum balance to speak of at all in the NOW account itself. I'll send that to you, Steve.",110
-fomc-corpus,1981,"We will never resolve this because, even if we did it very accurately for this early period, which we can't, we just don't know how it affects the behavior from then on. And no banker can tell us because he doesn't know either.",48
-fomc-corpus,1981,I assume the purpose of this scheme is to reduce reserve requirements.,13
-fomc-corpus,1981,"Sure. They want to keep the money in the bank but in the form of an account that has the lower reserve requirements. That's why some of them, I'm told, are continuing the ATS approach, which one would have thought would have been outmoded.",52
-fomc-corpus,1981,"Well, a lot of them are not even offering NOWs but are sticking with ATS accounts because that stays in for that very reason.",27
-fomc-corpus,1981,"So, from the [market] I think what you are hearing here is--",16
-fomc-corpus,1981,"The ATS account ought to work the other way. I would think the inclination would then be just to call the savings account an ATS account, which means it's all--or a large portion of it--coming out of savings accounts. It's very difficult. Well, Mr. Ford.",56
-fomc-corpus,1981,"I wanted to ask one question, in the same vein as John's about how some of the technical work was done, on this issue that has been raised by some of the money market gurus about the seasonal adjustment: As I understand it, for the first quarter of the year it would not have made a lot of difference in the adjustments you made for December through March, but looking ahead to the next quarter of the year, there might be some problems with the big seasonal adjustment. I would like to hear, Steve, how you factored that into your projections and whether we are facing the possibility of any big surprises just due to the fact that we haven't yet been able to develop an appropriate seasonal adjustment.",140
-fomc-corpus,1981,"We will be putting out the revised seasonals in May. They are delayed this year because last year was so exceptional that we didn't feel we could run an ordinary X-11 and we were trying to do some modeling to abstract from the credit control program, which is a one-time event. But as a temporary ad hoc measure, we were thinking that what we should do is to take 80 percent or 75 percent, whatever the number is, of the other checkable deposit increase above trend in 1981 and put it back into demand deposits when we seasonally adjust. So we would not be adding it in unadjusted; and that's what the market is focusing on. I asked the fellows back in January, right after the first week was so big, to keep track of a series on that to see what difference it made. And as you suggest, it doesn't make a substantial amount of difference in January, February, and March. The growth rate in January, as we do it now, was 2.9 percent; if we had thrown the demand deposits back in, it would have been 2.0 percent. This would be partially but not entirely offset in February; where we have now a -2.3 percent, it would have been zero. And then in March, it doesn't happen to make any difference. You are quite right that when the seasonal factors get large in April, May, and June, it makes more of a difference. On our current estimates of the distribution of OCDs between savings and demand, it would lower the growth rate for April, and I'm going to round, by 2-1/2 percentage points. The growth rate adjusted ""properly"" would be lowered by about 2-1/2 percentage points. In May it would be raised by 3-1/2 percentage points and for June it would be lowered by 2-1/2 percentage points. So, they're not quite offsetting, but that would be the relationship. We have presented the targets as we're [making these calculations] now. If we had presented them in these other terms, instead of 6 percent, let's say, for April, May, and June, we would have presented under alternative B something like 3-1/2, 9-1/2, and 3-1/2 percent. April would have been low, May high, and June low. But we are presenting them on something like a straight 6 percent if you take alternative B. And as long as we measure against the target in a way consistent with how the target is set, I don't think we have troubles. We don't intend to measure it in an inconsistent way.",548
-fomc-corpus,1981,"It seems to me what you are saying, if I understand you correctly, is that one can pick any one of these alternatives and seasonally adjust it the other way, which seems more sensible to me, and the growth would be bigger.",48
-fomc-corpus,1981,The growth would be--,5
-fomc-corpus,1981,Bigger or smaller?,5
-fomc-corpus,1981,"Well, the growth would be somewhat smaller, the way it works out on these figures. The growth, by the way, from January to June evens out entirely.",34
-fomc-corpus,1981,"It would be smaller in April, bigger in May, and smaller in June.",16
-fomc-corpus,1981,The numbers I gave add up to 16-1/2 percent the other way and to a little under 18 percent the way we are doing it currently.,33
-fomc-corpus,1981,"Well, it's still smaller than the average noise factor in it.",13
-fomc-corpus,1981,"Well, that's right. Also, we think the seasonal is going to change in any [event]. And that isn't done yet.",26
-fomc-corpus,1981,"Well, it bothers me a little, because it just seems conceptually that we should seasonally adjust these things.",23
-fomc-corpus,1981,"Oh, that's right. Given the size of the shifts, we should. But this is very ad hoc. We don't know because we don't know how the OCD series is going to behave once [the shifts have] happened. This is just putting back into demand deposits what was shifted out. But once it is shifted out, combined with some savings deposits, it bears interest. Given that interest payments are made, we don't know that the seasonal behavior is going to be the same.",96
-fomc-corpus,1981,I know you don't know. But as a first approximation I would think it would be more like the demand deposit seasonal than no seasonal at all.,29
-fomc-corpus,1981,"Well, I think [that's true of] the shift. But otherwise I doubt it. When interest rates fall, I don't know what is going to happen to these accounts. Their behavior is going to be very different, I'm convinced, than demand deposits. We might be able to get the cyclical movement out, but it's going to be something of a problem. But we intend in May to get this all corrected. As of the moment, we are operating in this way. And I don't think the Committee is being misled as long as we set the target and measure against it in a consistent way.",122
-fomc-corpus,1981,Mr. Schultz.,4
-fomc-corpus,1981,"Mr. Balles talked about a range of possible outcomes. It's rather important to think along those lines because, at this point, it's easy to parade the horribles. In spite of my great respect for Mr. Kichline, I think his forecast is not likely to come to pass. If you look at what he has for budget deficits--$85 billion [in 1981 and $94 billion] in 1982--and then look where he ends up with his GNP forecast, which is for very sluggish growth, I think the proper assumption is that we have very high interest rates during that period. From my discussions with bankers around the country, I just don't think the real world is going to operate that way. I get the feeling that they're pretty concerned about the financial condition of a lot of corporations out there, and I just don't think a lot of companies can stand that kind of environment for that length of time. I don't know what it's going to be like, but I doubt that it's going to be like that forecast. Take two possibilities. One is that this M2 growth is more meaningful and that we get tax cuts this summer, which are going to be very expansionary. We [could] get an enormous surge in money growth in the last half of the year and very high interest rates, and then get socked like the devil in 1982. Or take the other way around that we are going to have a much weaker economy short term than now appears likely, so [money] growth is going to be much slower. Add to the whole problem what the House Banking Committee said--I was struck by this--which was that they could accept the upper end of the target ranges for monetary growth for 1981 provided that budget and other fiscal policies offset the high unemployment effects that the monetary policy is expected to produce. That seems to me to be a scenario for absolute disaster. If they are going to continue to look to us to hold the line, I don't think we have a choice. We've said what our path is going to be and, if we were to attempt to ease, it's pretty clear that everybody would think we had let the inflationary cat out of the bag. And it seems to me that interest rates would be even higher under those circumstances. So, I don't think we have a choice; we have to stay on our general path here. But the scenarios of what could possibly happen can be pretty wild. So, it's rather crucial at this point to try to retain what flexibility we can and to have some range of options because this is a pretty tough period we are heading into.",531
-fomc-corpus,1981,I'm not quite sure where that leaves us. Mr. Black.,13
-fomc-corpus,1981,Scared!,3
-fomc-corpus,1981,"I can't answer that question, Mr. Chairman. I had something in mind I wanted to ask and get an answer on. Bill Ford made the main point I had, but I would add that what really concerns us is the bulge that we ordinarily get in M-1B in April on an unadjusted basis. If the NOW account portion is not somehow seasonally adjusted, that bulge is going to be overstated and the psychological effects on the market concern us. We were going to suggest that we try some kind of ad hoc adjustment on that, Steve, along the lines that you were playing with, just to avoid that adverse effect. We played with it by applying the demand deposit seasonal adjustment to that portion of the NOW accounts that we thought came out of demand deposits and the savings deposits seasonal adjustment to the other portion. We estimated that in April, which was the month that concerned us, it would probably be overstated by about 3-1/2 percentage points, and that seemed to be a very bad time for that figure to be appearing because we seem to be making some progress toward our ultimate objective. We were hoping we could do something about that, although--",239
-fomc-corpus,1981,"If we seasonally adjusted it, it would be 3-1/2 percent higher than if we didn't.",23
-fomc-corpus,1981,"No. If we don't seasonally adjust the NOW portion, the seasonal will pull [it up]. April has a very high seasonal adjustment factor and if we don't apply that to the NOW account portion, then we estimated--this may not be exactly right--",51
-fomc-corpus,1981,"It's a build-up for the tax payment, I guess.",12
-fomc-corpus,1981,"--that it would be overstated by about 3-1/2 percent above what it really was in fact, as nearly as we could estimate at all. I'm well aware that we don't have all the information we need for any kind of rigorous seasonal adjustment, but that one month really concerns us. It doesn't make that much difference in what The Wall Street Journal is covering, I don't think. But it could at that particular juncture.",89
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"Mr. Chairman, I feel that we're really trapped or tripped up by our own procedures. We built in the expectation that we've lowered the ranges and yet we make no allowance for base drift in our targets.",42
-fomc-corpus,1981,"Let me just say, if I may insert a comment relevant to base drift, that I look at these targets somewhat differently. We look at these cones, which always gives us an impossible problem at the beginning of the year; because the cone is so narrow at the beginning of the year, we're always outside it. If we were to attach this cone to where we, in fact, ended up last year--and we concede that we ended up high last year--and took the targets from the fourth quarter and showed where we wanted to end up this year, I think one can argue that we are now about in the middle of the range where we should be. I am sorry that I don't have the picture with me but we're about in the middle of that channel.",154
-fomc-corpus,1981,"A longer range, sort of starting off in the beginning of '80.",15
-fomc-corpus,1981,"That's for M-1B, right?",9
-fomc-corpus,1981,"Yes. We're clearly high on M2 and M3; I'm just talking about M-1B. In other words, stated another way, we ended up the year high, so having a low quarter brings us back to where we should be.",50
-fomc-corpus,1981,That's right. That would be my point: We're in the upper end of the old range even though we're below the range for the--,27
-fomc-corpus,1981,"Or stated another way, we didn't change the target's slope much. If you just extended that target for last year, we'd be at about the middle of it now.",34
-fomc-corpus,1981,"Well, that again is where we've tripped up. If we start to adjust the aggregates for the transaction part of money market funds, that is clearly one thing. It's not the total money market funds, but we see the transfers going through on our check clearing operations, so they are being used. Second, we have RPs and Eurodollars and one can argue how much of that belongs in the picture. And if we adjust the aggregates on a real M-1B or transaction type basis, it results in a much higher figure than we're reporting. So, not only have we got our targets out of focus but the bullets [with which] we're trying to hit the targets all seem off to me. We really have two major sources of confusion for which I'm afraid we're going to get beaten over the head no matter what evolves. Add onto that a look at the economic analysis: We have inventory certainly tight or under control; we have consumers who certainly have behaved far stronger than anybody thought they would, but they're continuing to do that; we've projected construction expenditures in office buildings, apartment houses, and hotels that really are starting to jump in a very big way; and we have the stimulus from the deficit that's certainly a pretty big one. And we ought to recall that we've been projecting declines since 1979. Now, one of these times we may get that, but we're not sure we're going to get that. So we're higher in the range than we think we are. We're much higher if we adjust the aggregates. And we may have a stronger economic picture than we think we are facing. All of these factors give me pause as we start to set our objectives for the next three months.",341
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Well, Mr. Chairman, let me start with a word on the price outlook. I sense for the first time at least a few straws in the wind that are consistent with some backing off on inflationary expectations. I don't think there's much hard evidence one can point to, but I do get a little flavor of that. It's also true that we could get lucky in terms of the consumer price index toward the end of this year. Now, if the staff's estimates about mortgage rates [are right]--that they're just going to stay high--they presumably won't be adding. And I think the outlook for food prices, assuming we continue to get some moisture in the Midwest, is a good deal better than it was even a few months ago.",151
-fomc-corpus,1981,Did you get some rain in the last few days?,11
-fomc-corpus,1981,"Yes, some rain is starting to come. And the energy price outlook, I think, is also distinctly better. So, maybe there's a little ground for optimism there. On the economy, I look for a flattening out in the second quarter, but I think the potential for strong upward pressures later in the year is very real. And in line with one of Mr. Schultz's two scenarios, I think the potential for strong financial pressures in the second half of the year and strong pressures on money growth is very real. I noticed in Mr. Kichline's forecast, for example, that he has the Treasury borrowing almost $50 billion, $49.2 billion, in the fourth quarter, which is considerably greater than even the $35 billion we had this [quarter]. So, I sense that whatever problems we may have now with controlling money and interest rates are only going to get worse as the year goes along, partly because the risks are that the economy is going to be stronger rather than weaker in the second half of the year. And I couple that with my sense that M-1B is giving us the wrong signals. On this money market fund thing, for example, we did a little exercise. It doesn't mean anything, but just as an example: If you took the growth in money market funds over December to March and just added in one-tenth of the growth to M-1B, that raises the growth of M-1B for the quarter to 6.2 percent. And that, again, doesn't say anything about this other matter that Mr. Balles was pointing to earlier.",326
-fomc-corpus,1981,How would you rationalize doing that?,8
-fomc-corpus,1981,"No rationalization. It's just a guess, just a number. You just take one-tenth of the growth in the money market funds phased in at the rate at which they actually grew and add that into M-1B.",46
-fomc-corpus,1981,"But you should have taken two-tenths of the decline in savings accounts and added that in, too. You didn't do that.",27
-fomc-corpus,1981,Why should I do that?,6
-fomc-corpus,1981,Because savings accounts are transactions balances also.,8
-fomc-corpus,1981,"Well, but they're in M2. I don't think it makes--",14
-fomc-corpus,1981,So are money market funds.,6
-fomc-corpus,1981,"Well, we can dispute that, but I think this understatement of M-1B is very real.",21
-fomc-corpus,1981,I don't know.,4
-fomc-corpus,1981,"Well, whether or not it is, I think it is. It just adds further weight to the argument that M-1B is giving us some false signals here. When I put it together, in terms of policy, I would not be allergic to giving a little more weight to M2 in line with one of the points that Steve made. Also, the whole [situation], at least in my mind, argues in the direction of doing the best we can now to keep well within the targets because later on I think it's only going to get harder.",113
-fomc-corpus,1981,Governor Wallich.,4
-fomc-corpus,1981,"Looking at the situation that we have, the economy is much stronger than we had expected. Once again, we've had a recession predicted that so far hasn't materialized. As a result, the degree of slack in the economy and the pressure on prices and wages are less from excess capacity. The conclusion one is driven to is that our past policies, which we thought were quite restraining, were much less restraining. As for why that should have been, I share the views that have been expressed around the table. M-1B is probably misleading. People are probably treating their money market mutual funds and other sources of liquidity as at least a factor that allows them to use their checking accounts more actively. At the level of holders of very large liquid assets, bear in mind that the Treasury has issued an enormous amount of bills, including cash management bills, which at least go into L if they don't go into the lower aggregates. While these would be absorbed again as the Treasury avoids borrowing and people use this liquidity to pay their taxes, nevertheless, there is probably some additional liquidity, and some residual liquidity will remain. So, if we were to look at these broader aggregates, including all short-term assets, we'd probably see a higher degree of expansion. Now, M2 is probably a more relevant guide than M-1B. I don't want to bore you again with my views about interest rates in real terms after tax and why they haven't been very restraining. As far as the outlook is concerned, I think there is a sense of unrealism about the Greenbook. It would be nice if things worked out that way with slow, stable growth. We have to bear in mind that [the level of economic activity] is really a little higher already than we thought it would be as a result of the strong first quarter. But the realism of the outlook is undermined by the fact that we use M-1B at 4-1/2 or 4-3/4 percent. I think the chances are that we will be pushed at least to 6 percent, the upper limit. We have had base drift raising the whole level of the aggregates over time. So, I find it hard to believe that we'll get quite the same pressures in terms of restraint that are seen in the [staff's] outlook. I do see that we're going to get strong budgetary pressures. My impression is that the risks are very much on the up side and much less on the down side. That would encourage me now to want to accumulate such reserves of restraint as we can. We're lucky in a way to have undershot the [targets], at least with respect to the narrower aggregates. And I'd husband this reserve. We'll probably be pushed off that point later in the year. There's no reason to volunteer [to go] in that direction now. Thank you.",575
-fomc-corpus,1981,Governor Teeters.,4
-fomc-corpus,1981,"I would like to remind you that those deficit numbers are not independent of the forecast. Our projected deficit for next year is considerably above the Administration's, primarily because of a much, much weaker forecast--a 0.5 percent rate of real growth rather than 5 percent, and higher unemployment rates and interest rates. I think we added back in about $18 billion for interest payments based on our interest rate forecast rather than the Administration's, and we're losing about $25 billion in deficit per point of unemployment, if you compare the 6 percent with 5 percent. So, if Henry's scenario that the risks are on the up side comes true, the size of the deficit will be considerably below what is being projected at the present time. As I understand this forecast, the staff had a great deal of difficulty getting any of the GNP numbers to work out because of the paucity of money. It is a very tight forecast. And the interest rates that would have come out of just a mechanical running of the model are considerably higher than what are being shown here. So, in contrast to what Henry says, I would think that the risks are on the other side. The consumer is running out of steam; the automobile [sales] probably won't last. [Businesses] can slow down investment. I don't feel strongly enough about it to say that [the risk on] the forecast is on the down side, because I think we have some real demand pressures which are being suppressed, namely in housing at the present time, which with any sort of readjustment would rise. This forecast is one of the gloomiest I've ever seen. And it certainly is gloomier than any forecast that is in the public [arena] now, mainly because of the underlying assumptions about interest rates. I don't particularly want [policy] to let up. On the other hand, I don't want to screw it down any harder at this point. It seems to me that the best way to do this is approximately alternative B because what Fred says about other corporations [is true of the thrifts]. We're going to have impacts on the thrifts. If we keep interest rates up there, we'll get a lot of emergency reaction in trying to rescue them. A very good study was done here at the Board on the number of corporations that have had their ratings in the bond market downgraded. It's not only surprising, it's fairly widespread. There are going to be a lot of corporations in trouble, and I don't see making it any worse for them. I would also point out that we have M2 misspecified relative to where we've set the M1 measures. We have decided to keep the M2 target where it was last year, even though the staff's best estimate was that it would be higher. So we're trying to get M2 into a slot that's inconsistent with M1. And if we just look at the fact that we're over [our target] on M2, I think that is going to lead us to actions to depress its growth and depress the M1s [more] than ever. And we've got the money market mutual funds. We have an interest-sensitive, very interest-sensitive, [component] in the M1 measures, and if interest rates begin to drop, we're going to be sitting here worrying about the fact that M2 is going down, not that it's going up--and for [a reason] that's not connected with our targets. In terms of the alternatives, I come out for ""B.""",707
-fomc-corpus,1981,Governor Partee.,4
-fomc-corpus,1981,"Well, I have the same sense of disquiet that's being voiced around the table, because somehow everything doesn't seem to hang together. We really can't explain why the economy has been as strong as it has been over the fall and winter. And not being able to explain why it has been so strong, we don't have a very firm grasp on what it's going to do in the period immediately to come. I think we have to be pretty flexible and await developments. I have a sense of trepidation that Fred's expectation is going to work out: That the rest of the year will be stronger than we are now anticipating and that there will be a tendency toward very rapid money growth. I hate to talk about these neat little adjustments of what ought and what ought not to be counted, but just in plain old M-1B terms, as velocity turns around, I think we're going to have very fast growth to contend with. And the tax cut will [create] some stimulus to the economy and, therefore, a difficult situation for us to contend with as the year goes on from the standpoint of our target ranges. Now, I don't think interest rates are so low, as Henry does. Looking at the Bluebook [appendix], you find that the long-term government bond yield is 13 percent, the long-term corporate bond yield is 14 percent, and the long-term mortgage rate is 15-1/2 percent. It seems to me that those must all be positive real interest rates by some margin, but they are not, except in the case of mortgages, having that much effect on behavior. That troubles me because I think they will come to have an effect on behavior. And when attitudes shift, then we could find a rather sharp [deterioration] in the [economy]. So, I wouldn't urge deliberately going about raising interest rates, but I think we ought to stick with the course we've set. I didn't mean to offend Jerry on his money market fund calculation, but the fact of the matter is that the turnover of savings accounts is greater than the turnover of money funds. So, if you add some portion of money funds in, you ought to add some portion of the decline in savings accounts into the calculation. You'll never reach an end on this because of the great difficulty of dealing with these problems. I come out, Mr. Chairman, somehow right where Nancy did. I think we just ought to follow alternative B, which is somewhat of a middle course, and have plenty of room to adjust as we go along in the spring. I like ""B"" because it doesn't use up our room too rapidly. Our previous experience, you'll recall, is always that things go along pretty well until we get to a double-digit month--and one will be coming before very long--and then perhaps we'll have to cope with a very low one. I think [""B""] is the way to go. I am troubled by the seasonal adjustment problem. If the April number has something like a 3-1/2 percent overstatement, it's not going to be good psychologically because it will probably give us a pretty high April number and will look bad as it develops. I don't know what to do about it, but we ought to think about that.",659
-fomc-corpus,1981,"Well, the other side of that coin is that if we don't get a high April figure, we really have a much lower number than we think we have when we're publishing it.",36
-fomc-corpus,1981,"Well, we might get a very high April figure. How would you handle 15 percent for April?",21
-fomc-corpus,1981,"Well, at 15 percent it's not so bad. We'd know it's high.",16
-fomc-corpus,1981,"But remember last April we had an estimate at this time of the year for a very large growth in April because of the enlarged refund. And, in fact, it came in at -14 percent, as I remember.",44
-fomc-corpus,1981,"Yes, there's tremendous volatility in that month.",9
-fomc-corpus,1981,April is just a terrible month.,7
-fomc-corpus,1981,Mr. Morris.,4
-fomc-corpus,1981,"Well, Mr. Chairman, I have listened to all these concerns, which seem to be pointed in one direction. But it seems to me that the scenario could be quite different in that the second quarter could turn out to be much weaker than the staff is projecting, and I'm inclined to think that that will be the case. Not that it will be a second quarter such as we had last year, where we had a [GNP] drop at a 10 percent annual rate, but that it will be a sufficient drop to put us in the situation of having to decide whether we are going to follow a monetarist course and let interest rates drop substantially or whether we're going to decide that we will do things differently this year--maintain a relatively high level of rates in the face of a weak economy and perhaps produce a much poorer third quarter than we have projected as well. It seems to me that this is just as logical a scenario as the ones that have been written so far. The fact is that at the moment we just don't know to which of these to attach the higher probability. So, therefore, the staff comes out with zero, which I think is a commendable position if you have to come out with a number. But I'm really concerned about facing exactly the same problem we did last spring.",264
-fomc-corpus,1981,It's much easier to disagree with the staff forecast than to come up with one of your own.,19
-fomc-corpus,1981,It's the statistical--,4
-fomc-corpus,1981,Does this lead you to any particular conclusion among these alternatives?,12
-fomc-corpus,1981,"I think ""B"" is the one that I would support.",13
-fomc-corpus,1981,Mr. Solomon.,4
-fomc-corpus,1981,"Even though I agree that there's a lot of uncertainty as to how much the second quarter will weaken and how much increased strength in the real economy there will be in the second half of the year, I feel that there's a greater presumption of strength in the monetary aggregates. Now, I'm not talking about April, but we're not likely to see the same velocity of circulation, and there are increases in defense spending and tax cuts of some kind coming long. Therefore, it seems to me that to position ourselves as flexibly as possible, we ought to aim for a return to the bottom end of the range by June rather than to the midpoint. However, even though that's alternative B, I think a $1.3 billion borrowing assumption would be just as compatible with that as a $1.5 billion assumption. I'd go on to suggest that to the extent opportunities arise for a discretionary adjustment of the nonborrowed reserve path during the intermeeting period that we bear in mind the overshooting of M2. If that continues to overshoot in a significant way, that should be factored in. Our analysis is that alternative B, even with a $1.3 billion assumption, probably means a rise in the fed funds rate of maybe a point or so from present levels. That's a very rough guess, but we might have something close to the 15 to 17 percent range. If you take the midpoint, it would be a marginal increase, but I don't think it would be that significant that it would cause a lot of reaction. And that's the best position we can be in; I think it would be a great mistake to go either to ""A"" or to ""C.""",338
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"Yes, sir. I would opt for alternative C and I would base that on the following rationale: I assume that our primary objective is to achieve a start on reducing the rate of inflation we have had and that there is an effect on inflation of reducing the growth of, let's say, M-1B. We had M-1B growth last year at about a 7.3 percent rate. A reasonable reduction, if we're able to achieve it, would be from that 7.3 percent to 6 percent growth, let's say, for the period from February through the end of the year. If we set the paths for growth as reflected in ""C,"" I think we can achieve that 6 percent annual growth. I think we can do it without having an impossibly low rate of output. We project, assuming 6 percent M-1B growth for the year, real GNP of something in the area of 0 to 1 percent. That's obviously slow growth, but it's not negative growth. I don't think that we can achieve a fast growth of output and still have the necessary degree of monetary restraint to achieve a reduction in inflation. Now, that 6 percent I'm referring to is on an unadjusted basis. We assume--and maybe some would argue-- that NOW account flows have almost ceased and that in the period ahead we can use an unadjusted aggregate and not be in trouble inasmuch as we believe that the big NOW account change has already occurred. So, to make a long story short, I think the best way of achieving our targets and the best way of bringing down M-1B growth as necessary to have a salutary effect on reducing inflation is ""C.""",347
-fomc-corpus,1981,"Steve, what is the latest on NOW account growth in the last couple of weeks? I forget. Has it come down further or not?",28
-fomc-corpus,1981,"Let me get the figure. Here it is. For the week of the 18th, it's only about $500 million and we're projecting $600 million for the week of the 25th. Our pattern had been that big increases occurred in the first couple of weeks and then they slowed down in the last couple of weeks of the month. In the early part of this month, increases had been about $2 billion. I would assume from here on out--or early next month--that the increases might be more in the $1 to $1-1/2 billion range and then come down again. We are at a higher rate of growth than we expected.",135
-fomc-corpus,1981,You are talking about several billion a month.,9
-fomc-corpus,1981,"Actually, Larry, the New England NOW account experience would indicate that we are not going to have a complete adjustment to NOW accounts for two years. The idea that the country is going to adapt to this in a few months just does not jive with the New England experience. Now, maybe the rest of the country moves a lot faster than we do in New England, but I doubt it.",79
-fomc-corpus,1981,The fact that we have much higher interest rates now indicates that the adjustment would take place more rapidly. We are seeing shorter lag times in everything.,29
-fomc-corpus,1981,"Well, it may be more rapidly, but to argue that the adjustment is largely over I think is just wrong.",23
-fomc-corpus,1981,"Well, we will see. It would certainly ease our problems if it were over fairly soon. I'm a bit confused by what you said, [Larry]. I just want to clarify it. I'm a little surprised that you came out for ""C."" It's against that background that I ask this. My confusion is what numbers you are using. The numbers in the table, as I understand it, are adjusted M1 figures. So, when you talk about 7.3 percent last year, you are talking about the unadjusted figure.",109
-fomc-corpus,1981,"Yes, I'm talking about the unadjusted figures: 4-1/2 percent March to June M-1B on page 7 under alternative C.",33
-fomc-corpus,1981,"Yes, but that 4-1/2 percent is adjusted. On an unadjusted basis, that means what: 6-1/2 percent or something?",35
-fomc-corpus,1981,Last year?,3
-fomc-corpus,1981,"No, right now.",5
-fomc-corpus,1981,6 percent.,3
-fomc-corpus,1981,It's only a 1-1/2 point difference now?,13
-fomc-corpus,1981,That's our estimate. That's from March to June. From February to June it's 2 percentage points different.,21
-fomc-corpus,1981,"In other words, that would give us a 6 percent unadjusted.",16
-fomc-corpus,1981,"And if you talk about 6 percent through the year unadjusted, this estimate may be wrong in the amount of shifting. You may be assuming less shifting but, as we have [now] estimated, it's at the bottom of the range for the unadjusted figure.",56
-fomc-corpus,1981,I think that's 6 percent from the first quarter of 1981 through the period ahead.,19
-fomc-corpus,1981,"Six percent from the first quarter through the last quarter, unadjusted?",15
-fomc-corpus,1981,That's correct.,3
-fomc-corpus,1981,"That would give you slightly less than 6 percent for the year then, which is at the bottom of the target that has been set. I just wanted to make sure that's what you were saying.",40
-fomc-corpus,1981,That's correct.,3
-fomc-corpus,1981,"You want to come in at the bottom of the target range for the year. I just wanted to clarify that. That means, in terms of the adjusted target, that you would be happy to come in at 3-1/2 percent or so.",52
-fomc-corpus,1981,"Yes, but we have some differences with the degree of adjustment.",13
-fomc-corpus,1981,"Yes, that I understand may be a problem. But it's in that neighborhood, right? Mr. Black.",22
-fomc-corpus,1981,"This futility that we all encounter in trying to forecast the economic outlook is perfectly understandable. That reinforces my basic belief that we ought never to lose sight of something that I think we all agree on: That we have to get these aggregates down over the long run. If we work in that direction, then we have an automatic stabilizer in place. And that is something we sometimes forget, I think. If the economy does turn out to be stronger, as it may, then that would tend to exert some kind of braking action; and if it turns out to be weaker, which I think you made a good case for, Frank, then we have an automatic stabilizer on the down side. So, in choosing our short-run targets, we always ought to bear in mind the risk involved. We have had three years in which we haven't been able to reduce the rate of growth in the aggregates as much as we wanted. We came in a little above target last time, so that leads me to suggest that we ought to resolve the risk by choosing a little lower rate than we otherwise might. And I think around 6 percent on an unadjusted basis, as Larry suggested, would be about right between February and June.",247
-fomc-corpus,1981,The unadjusted basis?,6
-fomc-corpus,1981,Right. Unadjusted.,6
-fomc-corpus,1981,"So, you're on ""C"" basically; I just want to be [sure].",17
-fomc-corpus,1981,"A little above ""C"" or between ""B"" and ""C.""",15
-fomc-corpus,1981,"Six percent on an unadjusted basis, from what Steve just told me, is equivalent to ""C.""",22
-fomc-corpus,1981,March to June is shown on the next page here; it's 6 percent.,16
-fomc-corpus,1981,"Yes, I'm talking about February to June.",9
-fomc-corpus,1981,"Well, you're below ""C"" then, if you're talking about February [to June].",18
-fomc-corpus,1981,"Yes, that's 7-1/2 percent on ""C.""",14
-fomc-corpus,1981,I just want to clarify where you are.,9
-fomc-corpus,1981,Let me get my [Bluebook].,8
-fomc-corpus,1981,It's on page 8.,6
-fomc-corpus,1981,Page 7 is what I'm talking about.,9
-fomc-corpus,1981,"Well, you're talking adjusted.",6
-fomc-corpus,1981,They're adjusted.,3
-fomc-corpus,1981,They're adjusted. The unadjusted is on page 8.,13
-fomc-corpus,1981,Keep these two pages in mind.,7
-fomc-corpus,1981,"Do you know what they did? What's causing the confusion, I think, is that the staff switched what they put in parentheses and what they don't--",30
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,"If you look at the last line on page 8, as I understand it--. It doesn't seem right. Well, we don't look at March to June [on a quarterly average basis].",39
-fomc-corpus,1981,You want to look at February to June or March to June.,13
-fomc-corpus,1981,"Yes, that's right. February to June or March to June, whichever one you prefer to look at.",21
-fomc-corpus,1981,"Yes, I thought I was in between ""B"" and ""C"" [with] the 6 percent on the unadjusted. The unadjusted is at the top, isn't it, and the adjusted is at the bottom? I meant 6 percent on an unadjusted basis.",60
-fomc-corpus,1981,"Vice versa, Bob.",5
-fomc-corpus,1981,"Wait a minute. We are saying on an unadjusted basis, February to June produces an adjusted figure considerably below ""C."" We better all try to get this straight in our minds. I think the confusion is because of the parentheses. The real figures are in parentheses; the adjusted figures are not. So, if you were saying 6 percent on the unadjusted figure, you're at only 4 percent on the adjusted figure, which is below ""C.""",94
-fomc-corpus,1981,"Well, I did not mean to be below ""C."" I'm confused on this. It's devilishly confusing anyway. I thought what I was choosing was something between ""B"" and ""C"" on M-1B on chart 1.",49
-fomc-corpus,1981,"Well, that's okay. Those are the adjusted figures.",11
-fomc-corpus,1981,"Okay. Well, somewhere in between there, erring a little toward ""C"" is really what I had in mind.",25
-fomc-corpus,1981,Okay.,2
-fomc-corpus,1981,I [understand] this well periodically and then I get myself confused. It's tricky business.,19
-fomc-corpus,1981,It's easy to get confused. I think we had better be sure what we have decided before we go on. Mr. Boehne.,28
-fomc-corpus,1981,"I don't think I can add to the confusion, and certainly I won't try! I think a good plan, when you don't know what to do or what is going to happen, is to take the middle ground, and it seems to me that ""B"" captures that about as well as anything. So, I would be for ""B."" I would like to pick up on a point that Nancy made, however. The M2 target that we have is quite unrealistic in the sense that it's not consistent, at least in the staff's judgment, with the M-1B target. So, I don't think I would be maneuvering M-1B around a good bit to hit an unrealistic M2 target, which is another way of saying that I don't think M2 is much of a refuge just because we are having trouble knowing what is happening to M-1B.",177
-fomc-corpus,1981,Governor Rice.,3
-fomc-corpus,1981,"Mr. Chairman, I recognize, like Governor Wallich, that the economy has turned out to be stronger and has remained stronger for a longer period than one would have expected. Nevertheless, it's hard to see where the sources of continued strength will be. It's hard to see that the saving rate will fall much further than where it is at the present time and, of course, the outlook for growth in income does not leave much room for consumers to continue to spend heavily out of income. So, I wouldn't see strength continuing to come from the consumer sector. Again, it's hard to see that there will be any strong surge in investment spending. So, in contrast to some of the views that have been expressed around the table, it seems to me that the staff forecast is certainly as good as any I have seen and probably better than most. For lack of a better forecast, I would base my expectations on the staff forecast. In the circumstances, I think we need to preserve our flexibility and, as has already been expressed, it probably would best be preserved by alternative B. I believe that in the circumstances we should give somewhat more weight to M2. Alternative B would do that to a degree. Certainly it allows for a gradual return of M-1B to a lower range in time. Hopefully, over the period of the year, we will get back closer to the top of the target range. I think the risk of alternative C is that we may force higher interest rates over time--interest rates higher than are likely to be sustained. And we may then find ourselves facing a rather sharp fall-off from the peak rates that might be reached. So, I think alternative B is the one that assures us the most flexibility, the most ability to maintain stability, and at the same time maintains a posture of significant restraint.",365
-fomc-corpus,1981,Mr. Guffey.,6
-fomc-corpus,1981,"Thank you, Mr. Chairman. With respect to the staff forecast for the economy, I don't know that there's very much to disagree with if you can't come up with a better forecast. But since I'm not a professional economist, I guess I can take the liberty of suggesting that the forecast in the past has consistently undershot the actual performance. And queuing off of that history, I would believe that we may be looking forward in the period ahead to somewhat stronger growth than is evidenced by the staff forecast in the Greenbook. Having said that and then looking at what is described as the downward shift in demand for money that has been very great in the period just passed--and the sub-talk that we'll return to some more normal level in the period ahead--it suggests that we are going to have very strong money growth as we move to the second quarter and perhaps into the third quarter. If that's correct, it seems to me that we ought to take what we can get now, and that would suggest at least ""B"" and perhaps ""C."" And since I can't decide between the two, I would take something in between. The borrowing level that has been described in the Bluebook as being consistent with alternative B, and I believe that's $1-1/2 billion, seems a bit high to me. Let me make the point that there has been some discussion about whether or not M2 should be taken into consideration for the period ahead. I'd like to see it taken into consideration in a sense that it is running very high. And at the time the staff sets the paths for the period ahead and the borrowing level consistent with those paths, M2 should be either explicitly in the directive or, because of the discussion around this table, implicitly be taken into consideration and not lowered. Thus, that suggests a bit firmer policy, or closer to ""C"" than to ""B."" I would just come out someplace between ""B"" and ""C,"" which is about 6 percent from February to June.",404
-fomc-corpus,1981,What was that last comment? It's the last sentence I need.,13
-fomc-corpus,1981,It's 6 percent if you are looking from February to June.,13
-fomc-corpus,1981,Okay.,2
-fomc-corpus,1981,"M-1B goes to 6 percent and M2 to 12 percent; or if you are looking at March to June, it's about 5-1/2 and 10-1/2 percent.",44
-fomc-corpus,1981,Okay. Mr. Balles.,7
-fomc-corpus,1981,"Mr. Chairman, in terms of these alternatives, I too would favor ""B"" for many of the same reasons that have already been cited. But I do have one question. Perhaps I am the only one around the table who doesn't understand this, but I wonder if you would repeat what you believe to be the significance of the federal funds range associated with ""B."" We've had an extensive discussion--",80
-fomc-corpus,1981,"Well, Mr. Axilrod would have to address that. I will give you a general answer: The federal funds range that we cite in the directive is the trigger for consultation, and then what it means depends upon the nature of the consultation.",50
-fomc-corpus,1981,"My further question, Mr. Chairman, would be with respect to the telephone conference call on February 24, when I happened to be out of town and wasn't able to participate. It was decided, as I remember from reading the memos, that there would be no change in the official funds rate range at that time. But was that also meant to imply that the Desk was free in some sense to come in with an actual federal funds rate lower than the officially specified range? If that is the case, is that also what is suggested with respect to this future period? That's what I'm trying to get some clarification on.",125
-fomc-corpus,1981,"Well, I'm just taking it literally. I'm not talking about what numbers we put in there. The purpose of the funds range is that if an inconsistency develops, as it says, we will have a consultation. What happens during that consultation is an open question. It depends upon what the results of the consultation are.",64
-fomc-corpus,1981,"Well, to take an extreme point of view perhaps, I would want to know why it wouldn't make more sense to have a federal funds rate range centered pretty much around where we are now.",38
-fomc-corpus,1981,"Well, my comment is entirely independent of where this federal funds range is set, which is something nobody has addressed yet. You may want to address yourself to that question.",34
-fomc-corpus,1981,"I probably should say something. There are any number of ways one could set this range. One is to project what interest rate level the staff thinks is consistent with these aggregate targets and set a range of plus or minus 2 to 3 percentage points around that. That would again be different than taking the current range, because we don't think the current range is particularly consistent except for ""A."" We have done that in the past under previous kinds of operating procedures. I have felt reluctant in general to make the range substantially different, even though our staff forecast might be substantially different in a sense, from where the Committee had been. So, what these ranges really represent is some skewing of the present Committee range; they are skewed to allow for where we think the funds rate will be, but there is more room on top because our projection is that, if anything, rates will go higher than where it appears the rate will start off and not that they will go lower. So, they're in some sense judgmental in that respect, trying to distend the existing range to make allowance for how we think the funds rate comes out of the analysis.",231
-fomc-corpus,1981,"I will tell you what my personal attitude toward setting those ranges is. I look at what the staff has to say, but I don't think that's the controlling thing. It's where do we want to have a consultation if it went either down or up, which may or may not be consistent with where the staff estimates that the market might bring it. Those estimates are not very good. They may be the best estimates that can be made, but I look at the range and say, as a first approximation: What level of interest rates might disturb us enough to want a consultation?",115
-fomc-corpus,1981,That would suggest we could narrow it to 2 percentage points.,13
-fomc-corpus,1981,"Well, we'd be having a consultation all the time, I suppose.",14
-fomc-corpus,1981,"Well, to take an extreme view, which I'm not necessarily proposing here: Since the recent fed funds rate has been around 14 percent, if we want to allow some room both on the up side and the down side for the Desk to operate without the necessity of a consultation, we might specify a range of something like 11 to 17 percent to go along with ""B.""",77
-fomc-corpus,1981,Quite possibly.,3
-fomc-corpus,1981,"If there's some flaw in that argument, I wish somebody would point it out to me; there may be a flaw.",24
-fomc-corpus,1981,"Well, it depends. There's no flaw in the logic of the argument, clearly. But the staff expectation of ""B""--what we presented--is a borrowing level of $1-1/2 billion. If the Committee chose that borrowing level, I believe that the funds rate probably would be above 15 percent and maybe closer to 16 percent, although these relationships are loose. In that case, the range around that wouldn't be 11 to 17 percent; it would be quite a different range if that was where you wanted to start and you wanted to allow variation around that. If you wanted to start at 14 percent as you were suggesting and allow variation around that, then I don't think the borrowing level we specified for alternative B is consistent with that approach.",155
-fomc-corpus,1981,"I think we have two choices. One is to take what we think it probably would be--let's say 15 to 17 percent--and then have a symmetrical range with enough room on either side. Or we can deliberately put it off center from that 15 to 17 percent--let's say, John Balles' 11 to 17 percent--because we want to trigger a consultation at 17 percent. I think we are better off continuing to have a 5-point range that is symmetrical [around] the most likely area it will be within because the Chairman can always call a consultation anyway.",124
-fomc-corpus,1981,"My concern, given my view of the second quarter, is whether, using John's range, we would want to allow the funds rate to go down as low as 11 percent before consulting. That's why I would prefer a higher lower limit than a lot of you.",53
-fomc-corpus,1981,"If 15 to 17 percent is the best guess of the staff [at the Board] and in New York, then we can talk about something like 14 to 19 or 13 to 19 percent.",44
-fomc-corpus,1981,"Well, we haven't set the borrowing level yet. Let's finish the go-around and we'll get back to this subject. It's obviously a variable we have to set. Who hasn't been heard from? Mr. Boykin.",43
-fomc-corpus,1981,"Yes, Mr. Chairman. I share many of the concerns that have been expressed with respect to the forecast. I think the economy is and probably will be a little stronger than is projected. Possibly I'm influenced by the people I've talked to down in our part of the country where things tend to be a little stronger. Also, I have a concern, obviously, about inflation in that there doesn't appear to be very much progress in that regard. For the reasons that have already been discussed with respect to the uncertainty about M-1B and also for the arguments that Steve presented on M2, my inclination would be to put a little more emphasis on M2 at least for the time being. I favor maintaining a fairly firm stance in the policy area and I do have some sympathy for alternative C.",159
-fomc-corpus,1981,Mr. Doyle.,4
-fomc-corpus,1981,"Mr. Chairman, as many others have today, I come out on the gloomy side of the forecast on the real economy. The principal reason for that is that it's just inescapable in our District to come to any other conclusion. I know that the plight of the automobile industry has been widely acknowledged, but I think it's important that the impact of that industry and the state it is in be seen in terms of what it does to us in the Seventh District. For example, there are all kinds of numbers on just what the employment base is, but I will cite just a couple of observations about that. Even little American Motors, which I think had less than 2 percent of the market last year, is the largest single employer in the state of Wisconsin. While hundreds of thousands of jobs have gone down on the production side, their board just recently announced that they have terminated 60,000 salaried employees, and a cut into the staffing side is quite a change. The second point is that the plight of Chrysler, I think, has tended to overshadow somewhat some of the problems throughout the rest of the industry. Of all of the automobiles sold in the country last year--just the domestic models--Ford only had two models in the top ten, and one of those was the Pinto which is no longer made. One has to go all the way down to about the 21st rank before we find the car that used to be the number two and number one best seller in the country: the large size Ford. The most difficult aspect, however, is the future. The industry has always been a cyclical one and it has always been optimistic. But it is extremely pessimistic. I think that relates primarily to two things. One is the difference in wage [costs] as they perceive them between the imports and the domestic models. While those figures again are all over the board, they could be greatly understated if we take into account such factors as absenteeism and other benefits for the American worker. And the second is the growing conviction among the domestic automakers--and we hear this more all the time--that the large car must come back in order for them to survive. They are convinced that, given the choice between a high-priced small car and a high-priced larger car, the consumer is going to take that large car. I'm not saying they're right; I'm merely reporting how they feel about it. But if they are wrong, that will have a very serious impact down the road. Despite that, there are some bright spots in our area, particularly in steel and capital goods. But on balance, and despite the suggestion--and certainly our directors feel very strongly about this--that we should be easing economic policy, strong inflationary pressures still persist. That's particularly true in agriculture, where we probably have been lucky so far as price increases are concerned, as others have commented here. We possibly will see continued upward pressures on prices toward the end of the year. And beyond that, any arguments toward easing tend to focus more on the cost of money. In fact, I think many of us feel the reason why automobiles, for example, are not selling is because of the prices rather the cost of money borrowed to acquire them. So, on balance, I would concur with alternative B.",664
-fomc-corpus,1981,"According to my little checklist, Mr. Ford, you talked but you didn't express any conclusion about where we should go.",24
-fomc-corpus,1981,"Well, after listening to all the discussion, I frankly am confused by the indicators we're getting on the real economy. I've never been a great believer in trying to fine-tune the economy from one month or one quarter to the next, anyway. I come out between ""B"" and ""C,"" where a number of other people have, with John Balles' reservation, however, that we ought to allow the lower end of the funds rate range to be at least somewhat lower than what the rate is today as we're sitting here. I'd be inclined to go for a ""B-"" solution with a little more stringency in the control of the aggregates growth and a little more attention to M2. Although Nancy's argument about the unreliability of M2 also concerns me, I feel more nervous about the problems with M-1B than I do about the problems with M2. And looking at the growth rates that the staff has for M2 in these various [alternatives], I'd lean toward trying to come down on M2 a little harder than ""B"" with an in-between policy prescription somewhat like a number of others have expressed, except with the fed funds range having a lower low end that will allow some flexibility in the next few days so that if the futures market for the T-bills, for example, is right, we don't have to be on the phone with each other next week.",283
-fomc-corpus,1981,"Governor Wallich, you were not very specific. I gather you are on the lower side of things.",21
-fomc-corpus,1981,"I was for ""C,"" and I would like to see the funds range a little higher than it is there.",23
-fomc-corpus,1981,A little higher?,4
-fomc-corpus,1981,Higher.,2
-fomc-corpus,1981,He always goes that way.,6
-fomc-corpus,1981,"I wasn't quite sure how to interpret you, Mr. Winn, but I thought you were in the same direction. Is that correct?",27
-fomc-corpus,1981,"Oh, no, ""B"" to ""C,"" or something like that.",16
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"I'm kind of a ""B-,"" but I could go with ""B"" if we put a little more explicit weight on M2, even if just in terms of looking at the path.",39
-fomc-corpus,1981,Mr. Schultz.,4
-fomc-corpus,1981,"I was arguing against ""A"" and ""C."" So, I'm for ""B"" and I tend to agree with Tony that we ought to start out with borrowing around $1.3 billion. And I would go with a federal funds range of 12 to 18 percent.",57
-fomc-corpus,1981,"Well, we have a lunch for Mr. Mayo and I don't think we're going to complete this [discussion] before lunch without forcing things a little faster than I think is appropriate, considering the uncertainties here. It's clear that nobody has been for ""A."" There are a lot of ""Bs,"" quite a few ""Cs,"" and some in between ""B"" and ""C."" We really have had very little discussion of the funds rate until very recently. I am comfortable myself on this. I don't think I would be quite comfortable flat out aiming for ""C."" I wouldn't be very comfortable going much above ""B,"" depending upon how things happen here. It's a question of how we posture ourselves on borrowing and the funds rate and how we react to the inevitable uncertainties that arise. I may feel differently about the borrowing and the funds rate or whatever, depending upon what happens in the next couple of weeks. If it remains very quiescent for the next couple of weeks, we have quite a lot of room for growth. If we suddenly get a jump in April, we're on the other side of the fence, and I think we will need a little discussion of how to proceed under various hypotheses--or at least two hypotheses. One is if money supply comes in weak in the short run and the other is if it comes in strong in the short run. When is lunch scheduled--at 1:00 or 1:15 p.m.?",290
-fomc-corpus,1981,Guests are arriving in your office at 1:15 p.m.,14
-fomc-corpus,1981,"Well, if it's 1:15, I think we can proceed a little further. I'm a little worried about how the directive is written in the light of the various options before us. In general terms, I take it that people are prepared to react fairly strongly, by which I mean they are prepared to see the borrowing level go up and a discretionary adjustment in the path or whatever, if [monetary growth] began running significantly above ""B."" Nobody has been for above ""B,"" so I assume that that is the implication of that approach. I assume that if we really got below ""C,"" let's say--and there isn't a very big margin between these--in the way the numbers came in, that nobody would resist a decline in interest rates in that possible scenario. Where has the borrowing been just recently? It's under $1 billion, isn't it?",175
-fomc-corpus,1981,"This week it's coming in a little higher. It's averaging about $1-1/2 billion because one large bank borrowed substantially this past Friday and that is tending to raise this week's level. The implicit level that we're shooting for in this week is about [$1.150] billion, but it seems to be running higher than that.",67
-fomc-corpus,1981,"It's that high, [$1.150] billion? I guess I would at least raise the question why we should start out any higher than where we are, given that the money supply isn't moving in any particular direction. It's contrary to a ""B to C"" view of things until we get some evidence that it is moving in one direction or another. I just don't feel confident enough about any of these forecasts to suggest a strong view that we should move off the existing level. But the implication is--you know, literally it can happen in a week--that if a great big figure comes in as it sometimes does, assuming that it either happens in a week or over the course of two or three weeks, we would be prepared to move the path pretty quickly if we felt it was getting above the ""B"" path.",166
-fomc-corpus,1981,"But isn't March fairly strong, Paul?",8
-fomc-corpus,1981,"Well, I don't know. I don't know how to interpret it. The latest estimate is 8 percent or 8-1/2 percent.",30
-fomc-corpus,1981,"Yes, 8-1/2.",9
-fomc-corpus,1981,"If you just look at March in isolation, that's a reasonably big figure. If you look at it against the previous two months, it doesn't seem very big, and the most recent figures are slack. And if I take the revisions as my leading indicator--that has been the most reliable indication--they're not very clear but they're certainly not being revised upward as they do when this gets a lot of momentum. If anything, the latest revisions have come in a little weak, haven't they, Steve?",100
-fomc-corpus,1981,Yes. Last week we revised down the [most recent] weeks in March.,16
-fomc-corpus,1981,But isn't March M2 still running around 19 percent?,12
-fomc-corpus,1981,It's 16-1/2.,8
-fomc-corpus,1981,"Yes, M2 is around 17.",9
-fomc-corpus,1981,"M2 is certainly high; there is no question that M2 is high. The prevailing view--and I should say that not everybody mentioned it--among those who did mention it, with at least one exception, was to give some weight to M2. And I think that that's implicit. I should, though, make it explicit in what I'm saying, that we would give some weight to M2 in adjusting the reserve path. Again, I'm not quite sure what number to put down in the actual directive. But if I read the Committee right, the members are certainly more disturbed about exceeding ""B"" than falling somewhat short of ""B.""",130
-fomc-corpus,1981,"So long as it isn't short of ""C,"" I think I would agree with that.",18
-fomc-corpus,1981,"I think that's probably a fair summary. What bothers me is how to word this. I'm not sure there's any massive difference of opinion. I do think all these federal funds ranges seem too high. All these ranges as stated, given the uncertainties that exist, may be quite appropriate in terms of the best estimate the staff can make. But I would get worried if the funds rate shot up to 20 percent here, quite frankly, without reconsidering just where we were. I would not get particularly worried if it went down to where it was before, conceivably, depending upon how business [conditions] unfold in the next few weeks. The lowest was 13-1/2 percent on a weekly average basis. I can imagine circumstances in which that would not be at all disturbing and may be desirable. The numbers I had scratched down here before I heard any conversation were 12 to 17 percent, but I had no particular brief for that exactly.",192
-fomc-corpus,1981,"Why don't we make it 12 to 18 percent, as Fred and I [suggested].",20
-fomc-corpus,1981,"It is symmetrical around where we are, sort of.",11
-fomc-corpus,1981,Where are we--around 15 percent or plus a little?,13
-fomc-corpus,1981,"Well, this week, I guess it would be a little plus.",14
-fomc-corpus,1981,"Probably 18 percent, given--",7
-fomc-corpus,1981,The most recent figure is 14-1/2 percent or something?,15
-fomc-corpus,1981,This week it's averaging 15.07 percent so far.,12
-fomc-corpus,1981,"Well, it will probably ease for the rest of this week, given all the borrowing that has already taken place. That still doesn't tell me how to write the directive, which makes me a little hesitant. But I suppose we could put in a number somewhat below ""B"" if that captures the center of gravity, with whatever funds rate range--",69
-fomc-corpus,1981,We've used language in the past that gave a number and then said we wouldn't be disturbed if it fell slightly short of it.,25
-fomc-corpus,1981,"Yes, we could use that kind of language. Maybe that captures it. We could say ""B"" or lower, depending upon--MR. PARTEE and",32
-fomc-corpus,1981,Somewhat lower.,4
-fomc-corpus,1981,"What is the language we've used before? It was ""somewhat lower depending upon""--",17
-fomc-corpus,1981,"I think ""or somewhat lower.""",7
-fomc-corpus,1981,"""Somewhat less.""",5
-fomc-corpus,1981,"Well, we had language about interest rates--that you were not forcing them down.",17
-fomc-corpus,1981,Yes. Did we actually put that in the directive or was that--,14
-fomc-corpus,1981,"There was such language. I'd have to look it up, but there was such language.",18
-fomc-corpus,1981,"Well, maybe that is the kind of language we need here. Can you provide that language to us, Mr. Secretary?",25
-fomc-corpus,1981,Possibly.,3
-fomc-corpus,1981,What have the borrowings averaged in the last four weeks?,12
-fomc-corpus,1981,Last four weeks?,4
-fomc-corpus,1981,"Well, in the last three weeks, which is easy to [calculate], they were almost $800 million.",22
-fomc-corpus,1981,"Yes, but what do we actually put in the [path]?",13
-fomc-corpus,1981,"But before that, they were in a range of $1.1 to $1.7 billion in that one exceptional week.",26
-fomc-corpus,1981,So $1.3 billion would be an increase in the borrowing level over where we've been most recently?,21
-fomc-corpus,1981,"Oh, yes. In some sense, for this four-week period that is ending, we are aiming at an average level of borrowing somewhere on the order of $900 million. We're aiming this week at $1.2 billion because in the earlier weeks borrowing had dropped well below that $900 million. So, it's coming up this week.",68
-fomc-corpus,1981,"Let me just point out the consequences, not just the arithmetic consequences, of this decision in terms of its implications. If we went with ""B"" and if the forecast is [right]--and I think most people agree with it in terms of tendencies toward a weak economy in the short run and weaker than average in some sense for the year--a 6 percent growth in M-1B in the second quarter maintained through the rest of the year would leave us within our target, but barely, with the prospect of a pretty good interest rate fluctuation if this next quarter is really soft. ""B"" potentially forces [the funds rate] up against a natural tendency. ""C"" continued through the rest of the year, I guess, brings us--",153
-fomc-corpus,1981,To the bottom end of the range.,8
-fomc-corpus,1981,The bottom end for the year as a whole?,10
-fomc-corpus,1981,"That's right. And ""B"" to the middle.",11
-fomc-corpus,1981,"It might be more than the middle, wouldn't it? It's three-fourths [of the year at] 6 percent and one-fourth at whatever it was.",33
-fomc-corpus,1981,[Unintelligible].,6
-fomc-corpus,1981,"""B"" would be in the middle by September and then you'd have to decelerate slightly.",19
-fomc-corpus,1981,"So we'd be above [the middle], yes. Well, these are monthly growth rates rather than quarterly. What is the equivalent quarterly growth rate here for ""B""? It appears someplace, doesn't it?",40
-fomc-corpus,1981,"Well, the equivalent quarterly growth rate is 5.7 percent for M-1B over the 6 [months].",25
-fomc-corpus,1981,"Yes, so it's a little less. But we'd still be above the middle of the range, I think. It would not be running at the top of the range, but just slightly below it after a small first quarter. It's right at the middle of the range in September. Continuing at 6 percent must put us above [the middle], but not as close to the top as I thought.",80
-fomc-corpus,1981,"Well, yes, quarter-over-quarter.",8
-fomc-corpus,1981,"All that suggests, I think, that we should be more conscious of exceeding it than falling somewhat low. What language do we have that was actually in the directive?",33
-fomc-corpus,1981,It was in December [1980].,8
-fomc-corpus,1981,"Yes, that language was: ""...some shortfall in growth would be acceptable in the near term if that developed in the context of reduced pressures in the money market.""",33
-fomc-corpus,1981,"That sounds pretty good because, as I recall Steve's figures, the staff is looking for velocity to slow down some in the second quarter so you were anticipating that we would have to have the higher borrowing, weren't you? What were you looking at in terms of--",53
-fomc-corpus,1981,In terms of the level of borrowing?,8
-fomc-corpus,1981,"Yes, for ""B."" You were talking about $1.5 billion, weren't you?",19
-fomc-corpus,1981,Yes. We had a rather high level of borrowing because we were assuming considerably higher interest rates than I think the Chairman or the specifications are either explicitly or implicitly assuming. So there would be a difference.,40
-fomc-corpus,1981,"Well, I'm not particularly assuming a level of interest rates. All I said is that I might want to consider [an adjustment] at some point if they got high enough. I'm suggesting that this is what the relationships look like and if we want to hit ""B,"" we'd better go out and increase the borrowing right away. But I'm saying: Let's wait and see and get some evidence that that projection is in fact being borne out before we move. It may well be correct or maybe we will have to go even further, but let's wait and see.",111
-fomc-corpus,1981,"I don't think we'd have to be as specific as that language that you just read, Paul. I don't know why we don't just say ""growth in M-1B from March to June at an annual rate of 6 percent or somewhat less.""",50
-fomc-corpus,1981,"Yes, that may be, because I'm not sure we're talking about reduced pressures. It might be that we'd accept somewhat less if [the funds rate] just stayed where it was.",36
-fomc-corpus,1981,"Yes, I think so too.",7
-fomc-corpus,1981,"Well, let me try to see what we're talking about. You said 6 percent is the figure you were thinking of for March to June.",29
-fomc-corpus,1981,"I was thinking March to June. After all, tomorrow is April 1.",16
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,"And it seems to me, even though we don't quite know March, we ought to--",18
-fomc-corpus,1981,"I think we ought to use March to June, too.",12
-fomc-corpus,1981,"Governor Partee, I would mention that we really only know half of March.",16
-fomc-corpus,1981,I know. But people think we know it.,10
-fomc-corpus,1981,People think we know a lot!,7
-fomc-corpus,1981,"As you can tell from the previous discussion, we have great faith in the forecast!",17
-fomc-corpus,1981,"Well, we can say 6 percent or somewhat less or I suppose we can say 5-1/2 percent or somewhat less. I don't know where you want to put the funds rate range. As I say, I would want to look at it even if the funds rate were at 17 percent if the economy were also quite weak at the same time. It wouldn't bother me at 17 percent if the economy were quite strong. But that's something we don't know until we sit down and look at it.",104
-fomc-corpus,1981,"Speaking for those who like a wide funds rate range, I could accept 12 to 18 percent. I think we ought to have a 6-point range rather than go back down to a narrower range.",42
-fomc-corpus,1981,I think 12 to 18 percent makes sense.,11
-fomc-corpus,1981,I would prefer 13 to 19 percent. It seems to me a little more symmetrically placed around--,23
-fomc-corpus,1981,"Well, if you think it's 15 percent now, 12 to 18 is even-handed. But if Paul is sensitive to high rates, as he seems to be, we're going to have a telephone conference call if the rate gets up there.",50
-fomc-corpus,1981,I do have the feeling that at some point we would want to consult.,15
-fomc-corpus,1981,I can support the 12 to 18 percent. Are you implying that we'd stay at about the $1.1 billion in borrowing and then let it--,32
-fomc-corpus,1981,"Well, I wanted to get to that next. I was implying that until we get further information we'd stay roughly where we are, whether that's $1.1 billion or slightly over $1.1 billion. But consistent with this whole attitude is that if the money supply came in strong, we would be prepared to move pretty quickly, which might mean a discretionary move as the natural result of holding the nonborrowed path steady. And we'd be quicker to move in that direction if it came in strong than if it fell short.",106
-fomc-corpus,1981,That is to adjust the nonborrowed path?,10
-fomc-corpus,1981,"A more even pattern of borrowing yielding the same total as this week would probably give us a lower fed funds rate than the 15+ percent we're seeing, right? Therefore, if we're talking about keeping the present fed funds rate, which is around 15 percent, then--",55
-fomc-corpus,1981,I don't particularly care myself about the present level of the federal funds rate.,15
-fomc-corpus,1981,"Well, I think this is going too far.",10
-fomc-corpus,1981,"Well, we would certainly have to start off with it there. Then I think we probably are talking about something closer to $1.3 billion than $1.1 billion.",36
-fomc-corpus,1981,"As to the lower level of 12 percent [for the funds rate], if we get there, it would have to be below that on several days before we say that over a period of time it has been below that. And then we would have done about three-fourths of the drop that we had in 1980.",66
-fomc-corpus,1981,"Well, I have no vested interest in 12 percent. If you want to make it 13--",21
-fomc-corpus,1981,"No, I want to make it substantially higher.",10
-fomc-corpus,1981,I don't think making it 13 is going to capture [Henry's vote].,16
-fomc-corpus,1981,"I would prefer to state the March-to-June growth rate at 5-1/2 percent or somewhat less. I could go either 12 to 18 or 13 to 18 percent on the funds rate and borrowings starting out in a range of $1.2 to $1.3 billion. But I still have a question in my mind. Suppose we did either one of these things and M2 continued to grow at, say, 15 percent. If M-1B was around 5-1/2 or 6 percent but M2 was 15 percent, what would we do then?",127
-fomc-corpus,1981,"Well, I don't think we can deal with every possible contingency, but I--",16
-fomc-corpus,1981,"No, I [realize that].",8
-fomc-corpus,1981,"Just to take the specifications you suggested, if M-1B came in around 5-1/2 to 6 percent and M2 was very high, we would lean on the tighter side. We might make an adjustment.",47
-fomc-corpus,1981,But we'd do it with a consultation?,8
-fomc-corpus,1981,I don't think that would require a consultation if the funds rate were in the range and so forth.,20
-fomc-corpus,1981,Suppose it's all money market mutual funds?,9
-fomc-corpus,1981,"Well, there's a little more to it than--",10
-fomc-corpus,1981,[Unintelligible] market rates.,9
-fomc-corpus,1981,"Well, I'm sure if it did, it will be all.",13
-fomc-corpus,1981,"[The money market mutual funds] are very sensitive to market rates. If market rates go above what the funds pay, the money that is in the funds will move back into the market.",38
-fomc-corpus,1981,This is a question of whether we give some weight to M2. But we don't have to word the directive that way; it already does. The directive always gives weight to M2 as I recall.,41
-fomc-corpus,1981,"I'm reacting a little, Tony, to that memo that you distributed, which effectively points out that we don't make any adjustment in the paths for the nonreservable components of M2 regardless of what they do.",42
-fomc-corpus,1981,"Even though I distributed the memo, on balance I would prefer that greater attention to M2 be done on a judgmental basis rather than a mechanistic one.",32
-fomc-corpus,1981,I agree with that.,5
-fomc-corpus,1981,"Yes, I'm not talking about a formula. The directive just specifies a target for both, which implies that we take account of M2. I don't think we have to change the directive for that purpose.",41
-fomc-corpus,1981,Okay.,2
-fomc-corpus,1981,"I think we have to have some knowledge among ourselves about what weight we give to it; I'm suggesting that be on a judgmental basis. If we want to give it weight, that doesn't in itself require a consultation. The substantive question is whether we want to give it weight.",56
-fomc-corpus,1981,"Well, it all depends, in Jerry's scenario, on what is making M2 go up relative to M-1B.",26
-fomc-corpus,1981,"Mr. Chairman, without getting in a long digression, do you have any feel as to whether Mr. Fauntroy's bill on money market mutual funds has any chance of passing in the near future? That could have some bearing on the growth of M2.",54
-fomc-corpus,1981,I have no particular sense that any bill on money market funds is going to be passed in the near enough future to affect anything before our next meeting.,30
-fomc-corpus,1981,"Furthermore, both bills have been referred to the Commerce Committee, which is a very unfriendly referral.",20
-fomc-corpus,1981,"Oh, really?",4
-fomc-corpus,1981,"There conceivably could be legislation, but I don't think it's going to take place in a way that affects anything before May 23rd, or whenever our next meeting is scheduled.",37
-fomc-corpus,1981,"Mr. Chairman, if we just go with 5-1/2 percent or somewhat less, doesn't that really give us the kind of flexibility that we need to take care of most of these [contingencies]?",44
-fomc-corpus,1981,"Yes. I just want an understanding of how we adjust as we go along. The basic [M-1B reference] is 5-1/2 percent or less, but I think it is appropriate to give some weight to M2. That's what most people are saying.",57
-fomc-corpus,1981,How did we get to 5-1/2 percent? I thought we were at 6 percent?,22
-fomc-corpus,1981,"Well, we have to resolve that.",8
-fomc-corpus,1981,All of a sudden we've dropped 1/2 percentage point.,13
-fomc-corpus,1981,We are trying to find the center of gravity here.,11
-fomc-corpus,1981,And it's falling.,4
-fomc-corpus,1981,Yes. It was 6 percent or somewhat less and now it's 5-1/2 percent or somewhat less.,24
-fomc-corpus,1981,Pardon me?,4
-fomc-corpus,1981,Peter Sternlight has a comment.,7
-fomc-corpus,1981,"Mr. Chairman, you referred to giving some weight to M2 judgmentally. In the recent period, there was an opportunity to do that because the M1s were running weak and we could modify the extent to which we would change the path because of that. But that [situation] wouldn't necessarily arise in the future. You might not have the opportunity to give weight to a strong M2 if, for example, the M1s were running right about on path. Even if M2 were running very strong, I wouldn't see that same kind of opportunity to give discretionary weight to that.",120
-fomc-corpus,1981,I don't understand. You would just reduce the nonborrowed reserve path.,15
-fomc-corpus,1981,But we might be right about on path.,9
-fomc-corpus,1981,"You might be on the M-1B path, but you would not be giving weight to M2. I don't understand how it differs.",29
-fomc-corpus,1981,"If M-1B were on target, we might be just about on path. If that were the case--",23
-fomc-corpus,1981,"Paul, the way I hear the sense of the Committee is this: Whatever we want to argue about on M-1B, either 5-1/2 or 6 percent, even if we're hitting M-1B at 5-1/2 or 6 percent, the farther off M2 goes, the more we want to adjust. I think that is what you're trying to say.",82
-fomc-corpus,1981,"That is what I am saying, yes. Well, we have to go to lunch. We'll see whether we can resolve this in a hurry or not. We have a proposal for 5-1/2 percent or lower.",46
-fomc-corpus,1981,Somewhat lower.,4
-fomc-corpus,1981,I'll just put down 13 to 18 percent at this point on the federal funds rate.,19
-fomc-corpus,1981,"If we have [only] 5-1/2 percent, we can take that ""somewhat lower"" off.",25
-fomc-corpus,1981,"Well, let me finish.",6
-fomc-corpus,1981,You may get a chance.,6
-fomc-corpus,1981,"I'm suggesting the level of borrowings about where they are, the implication being fairly rapid adjustment of the borrowing level if we exceed [the money supply growth specification]. There would be an adjustment if we fell short, too, but it would be a little more sluggish. That's what the ""or lower"" reflects.",62
-fomc-corpus,1981,Where are we now on the borrowings?,9
-fomc-corpus,1981,"About $1.1 billion or slightly above, I think.",13
-fomc-corpus,1981,"Yes, we're aiming at that, but it is running stronger. We're aiming at $1.16 billion. That's the point [target].",28
-fomc-corpus,1981,[Unintelligible] decimal point.,9
-fomc-corpus,1981,That's $1.2 billion.,7
-fomc-corpus,1981,"$1.150 billion. And there's a degree of consensus that we're giving weight to M2 if it gets wildly off the assumption here, which is about 10 percent.",35
-fomc-corpus,1981,Are we leaving out M-1A altogether?,10
-fomc-corpus,1981,"Yes, it's about 10 percent if you--",10
-fomc-corpus,1981,"Well, [the ""C alternative] is only 10-1/4 percent [for M2], so we're at about 10-3/4 percent for M2 or someplace in there. If M2 were in the 11 percent area, it isn't going to get any weight. It's consistent if it's--",65
-fomc-corpus,1981,What was your fed funds range in the directive?,10
-fomc-corpus,1981,13 to 18 percent. And the M-1B number in the directive is 5-1/2 percent or lower.,27
-fomc-corpus,1981,"""Lower"" or ""somewhat lower""?",9
-fomc-corpus,1981,"Either one you would prefer. ""Or somewhat lower"" probably better captures it.",16
-fomc-corpus,1981,"""Or lower"" is infinite.",7
-fomc-corpus,1981,"A consistent number for M2 is 10-1/2 percent, I guess, just looking here.",22
-fomc-corpus,1981,You need a time period.,6
-fomc-corpus,1981,"For the March-to-June period. Well, let me have a show of hands as to how many prefer this formulation? I think the obvious alternative is just changing M-1B to 5-1/2 to 6 percent and leaving everything else the same.",55
-fomc-corpus,1981,"You want voting members only, don't you?",9
-fomc-corpus,1981,I guess so. We're on the 5-1/2 percent alternative at this point.,19
-fomc-corpus,1981,13 to 18 percent for the funds range and $1.150 billion on borrowings.,19
-fomc-corpus,1981,13 to 18 percent on the funds rate and $1.150 borrowings with more of a hair trigger on raising it if it comes in higher than lower.,33
-fomc-corpus,1981,Is this prefer or accept?,6
-fomc-corpus,1981,Is anyone unable to accept it?,7
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Let's get it over with; somehow I'm able to accept it.,13
-fomc-corpus,1981,Let's accept it.,4
-fomc-corpus,1981,Accept? I can accept it.,7
-fomc-corpus,1981,"I would prefer 6 percent or somewhat less, but I could accept that.",16
-fomc-corpus,1981,"I'm still bothered by something. I want to be sure that everybody understands something, which is this: My gut instinct is that if we set the borrowings low at $1.150 billion, we're going to see a drop in the fed funds rate in the next week or two. I realize that we'd be able to adjust it. But do we want to see at this point a market signal that we are easing monetary policy?",86
-fomc-corpus,1981,The funds rate is not a signal.,8
-fomc-corpus,1981,"Mr. Chairman, may I add on to that? I don't know what the funds rate will be with that borrowing. We had borrowing of $1.145 billion in the week of [February] 18th and the funds rate was 15.81 percent. The preceding week borrowing was $1.1 billion and the funds rate was 16.51 percent. And in the more recent week of March 4th, we had a borrowing level of $1.3 billion and the funds rate was 15-3/4 percent. All this [suggests] that we can't be very certain where we're going to come out on this. But I would assume it's somewhere above 15 percent, which would be above the existing--",150
-fomc-corpus,1981,You mean with that $1.15 billion?,10
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Holding it for a while?,6
-fomc-corpus,1981,"Yes. I think from this day it would be above 15 percent, but I can't be absolutely certain.",22
-fomc-corpus,1981,There's a range of uncertainty on these.,8
-fomc-corpus,1981,"Well, let's vote on this.",7
-fomc-corpus,1981,Did you take a vote on the 5-1/2 to 6?,17
-fomc-corpus,1981,Six percent or somewhat less.,6
-fomc-corpus,1981,Or 6 percent and somewhat less.,8
-fomc-corpus,1981,"Well, we can explore preferences on that. How many people prefer 6 percent? Everything is the same except we would put a 6 percent number in there.",33
-fomc-corpus,1981,I would prefer 6.,6
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,I would prefer 6.,6
-fomc-corpus,1981,I would prefer it too.,6
-fomc-corpus,1981,"One, two, three, four, five.",10
-fomc-corpus,1981,Try 5-1/2 to 6.,11
-fomc-corpus,1981,"No, we have to have a number for targeting purposes.",12
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,We're in an area where the [difference] is extremely narrow. How many people prefer the 5-1/2 percent?,26
-fomc-corpus,1981,Or less?,3
-fomc-corpus,1981,"Before I ask how many would accept it, how many prefer the 5-1/2?",20
-fomc-corpus,1981,Without accepting it?,4
-fomc-corpus,1981,You've got to sneak--,5
-fomc-corpus,1981,I prefer the 5-1/2 to 6.,13
-fomc-corpus,1981,You feel it has to be a single number?,10
-fomc-corpus,1981,"Well, it doesn't really have--",7
-fomc-corpus,1981,"We already have ""or lower"" and it makes almost no difference here.",15
-fomc-corpus,1981,[The path would be drawn on] 5-3/4 percent if we said 5-1/2 to 6 percent.,29
-fomc-corpus,1981,"Well, put me down for 5-1/2.",13
-fomc-corpus,1981,"Look, we're virtually equally divided as to preferences here. Let's go with the 5-1/2.",22
-fomc-corpus,1981,I have a feeling it's the Chairman's preference.,10
-fomc-corpus,1981,"Well, if you're going to do that, it should be 5-1/2 percent or somewhat more. At least take off the somewhat less.",31
-fomc-corpus,1981,"It's only somewhat less, Nancy.",7
-fomc-corpus,1981,"Yes, and you'd let it come out as a minus 3.",14
-fomc-corpus,1981,I think there is a--,6
-fomc-corpus,1981,"How far are we off the target for the first quarter? That was a 4-3/4 percent rate of growth or 3 percent or something. And we're coming in at what, minus 2 percent?",44
-fomc-corpus,1981,"I voted with you, Nancy.",7
-fomc-corpus,1981,Let's have a vote at 5-1/2.,12
-fomc-corpus,1981,"Or somewhat less, too?",6
-fomc-corpus,1981,"Yes, or somewhat lower.",6
-fomc-corpus,1981,"Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters Yes Governor Wallich No President Winn Yes Ten for, one against.",49
-fomc-corpus,1981,"Okay. Thank you. Without much delay we finished before lunch.  If we make the lunch late enough, we can always finish before lunch!",29
-fomc-corpus,1981,The meeting can come to order and we can approve the minutes.,13
-fomc-corpus,1981,So moved.,3
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,"Without objection, the minutes are approved. I want to propose a change in the order [of the agenda] this morning. I'm going to have to leave at about 10:00 a.m. for about 45 minutes to an hour, unfortunately, so I want to start off with the business discussion. I've had appointments with the President on and off and he came up with one this morning and I decided I'd better grab it while I can get it. You can go back to do the reports on foreign currency and domestic operations and so forth at that point. And then I can be back for Mr. Axilrod's presentation, hopefully. So, why don't we start off with you, Mr. Kichline?",146
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,"Well, we have a situation continuing where forecasted downturns by a lot of people haven't materialized. I guess we ought to focus on how strong we think things are at the moment in the face of historically high interest rates. Who wants to comment? Mr. Boehne.",57
-fomc-corpus,1981,"I'll start briefly. I've been spending a fair amount of time out in the Third District, and I find an unusual amount of diversity in terms of what people think about the economy. It's all the way from the brink of disaster for some manufacturing firms to strong business for health care, pharmaceuticals, and services. On average I think the ""go slow"" is probably right, but my hunch is that the economy is probably going to be stronger than we think it is, although there is this diversity.",100
-fomc-corpus,1981,How strong do we think it is? That's just it.,12
-fomc-corpus,1981,"Stronger than we think it is. Also, I find a fair amount of support for a balanced budget out there rather than tax cuts. The supply side approach I don't think has reached the countryside yet. I might just add that there seems to be a lot of goodwill toward the Fed as an inflation fighter. But despite some intellectual appreciation for what we're doing, the high and volatile interest rates are beginning to reach the point where it hurts. And I think the gut is overpowering the intellect in this area. That's all I have.",107
-fomc-corpus,1981,Mr. Black.,4
-fomc-corpus,1981,"Mr. Chairman, I wonder if I could ask Jim Kichline to indicate those areas where he thinks the first-quarter GNP will be revised upward?",31
-fomc-corpus,1981,"Inventories for one. The implied estimate was very low for March and the numbers have come in significantly higher. Business fixed investment we think could be revised up at least $5 billion, as shipments were much stronger than their assumptions. And in construction outlays, spending put in place was running higher than their assumptions. Personal consumption expenditures may be a little higher, given the upward revision in March [retail] sales, as may net exports, which is a major contributor here in terms of a low guess prior to the availability of the March data. So, it's pretty much across the board but, surprisingly, both inventories as well as fixed investment are very strong.",133
-fomc-corpus,1981,What kind of percentage are you thinking it will change to?,12
-fomc-corpus,1981,We think the first digit should be 8. It's a question of how much higher. We'd say 8 to 8-1/2 percent or something like that.,35
-fomc-corpus,1981,I think that's probably right.,6
-fomc-corpus,1981,"Mr. Chairman, we are hearing much of what Ed Boehne reflected. We feel that the economy is continuing fairly strong. We really don't have any specific disagreement with the Greenbook forecast, but our fear is that the figures on both the economy and inflation will probably be revised upward. As for the comments that we're receiving from our directors, bankers, and businessmen in the District, they are expressing concern over the plight of the small businessman with these continued high interest rates. They are expressing possibly some sense of frustration in that they really don't see any end in sight and they don't seem to have the feeling that we're making very much progress.",128
-fomc-corpus,1981,"Mr. Chairman, if one looks at the current data coming in, one can't see any sign of weakness in the economy. And with inventories as low as they are, the prospect of any major sharp decline seems fairly remote. But at the same time, I'd simply caution that there hasn't been time yet for the data to reflect the impact of what we've done in the last couple of weeks. We've had a major change in interest rates and that, I think, is going to show up in the months ahead. I'm not concerned about the economy running away from us at the present level of rates, but--",121
-fomc-corpus,1981,It's a little troublesome because we had higher levels of rates than this in the fourth quarter and we had an 8 to 8-1/2 percent increase in the GNP immediately following.,39
-fomc-corpus,1981,"Yes, but most of that [strength] was early in the period.",15
-fomc-corpus,1981,"Last month the bond market had over $5 billion of [new] corporate issues. At the time not only were bond rates high but it was a very disturbed market. Except for a couple of trouble spots, there just seems to be enormous pressure for everybody to go ahead and engage in high levels of economic activity and just content themselves with Henry Wallich's point that after taxes interest rates are not that high. That seems to be everything I hear up here in the financial markets.",96
-fomc-corpus,1981,"Well, I didn't hear that in Pennsylvania, New Jersey, and Delaware. They may not be that sophisticated, but they think these higher rates are hurting and hurting badly, especially the small and medium sized business firms.",43
-fomc-corpus,1981,That's where it is hurting.,6
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"It's obvious that there are very strong crosscurrents around the country. We see this in the West as well. The lumber industry, because of the housing industry, is flat on its back. On the other hand, we see the opposite extreme in office building construction, for example, which is [experiencing] real boom conditions in San Francisco, Los Angeles, etc. Agriculture, our leading source of income in the State of California--I guess it's now the biggest agricultural state in the country--is doing very well. I don't hear of any signs of collapse there despite the high cost of credit to farmers. Aerospace, electronics, and so forth are still going along very strong. In short, what continues to amaze us is the resilience of the economy despite high interest rates. I share your feelings that, looking back over the past couple of years, the often advertised coming of a recession or slowdown more often than not has not materialized. And I suspect, if anything, we're underestimating the strength of the economy. I would look for a better 1982, for reasons I won't take time to go into at the moment, than forecast by the Board's staff.",238
-fomc-corpus,1981,"How is housing out there, John?",8
-fomc-corpus,1981,It's about the same as around the country--poor.,11
-fomc-corpus,1981,"I know, but you don't get any feeling of uplift?",12
-fomc-corpus,1981,"Not as yet, because all these variable rate proposals haven't really had a chance--",16
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"--to take effect in terms of restimulating the industry. But I think when those do get underway, that will have a beneficial effect.",29
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Mr. Chairman, I continue to believe that the economy is stronger than the so-called consensus forecast, which I think would encompass Jim's forecast. In terms of the underlying demands, the suppressed demands, given that in the short run the capacity to snap back very quickly in housing and other areas is so great, I can't see much of a significant downside risk. The major imponderable in all of this is how much financial stress is really there that we don't see. We focus a lot on the thrift industry because we know a lot about it. But I suspect that there probably is a good deal more stress around on balance sheets and other things than we perhaps really perceive. The other point I would make is that, at least in the Ninth Federal Reserve District, I have a hard time finding anybody who thinks that a three-year tax cut is a good idea. There's a certain hesitance for people to talk about that publicly. I'm not sure why. I guess so much hope is pinned on getting some spending cuts here that they don't want to compromise that. But certainly in private discussions I can't find anybody who thinks that a three-year tax cut is a good idea right now.",237
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"One of the interesting areas is the steel industry, which is running currently almost at capacity. How much of that is inventory building is not quite clear, but think about what would happen if automobile sales should pick up or--this is hard to determine--if defense orders start to flow to a greater extent than they have previously. We'd have a really tight bind with respect to steel. The second thing is that if you look at retail sales across the board, and they have been very strong, [our sources] all report that it is for top-of-the-line merchandise. The bargain stuff isn't moving very well. This is not a feeling of weakness in my judgment in terms of what is happening there. One has to watch this comparison with last year--which is how retailers report sales--because of the credit crunch and the difference in when Easter falls and other things. But retailers thought sales would tail off after Easter and they are continuing quite strong even through last week, which is a rather strange phenomenon. The third point I'll make is that on John's point about office building and other kinds of activities we may have a bit of a booby-trap in this area in that most of those have been financed on construction loans without take-outs in some instances. And the question is: With the change in interest rates, what kind of take-out set-up are we going to have for some of these things? They went ahead with the buildings thinking that if they couldn't find financing, they would sell them. We may have more for sale here suddenly than some people have expected. And this is a financial booby-trap out there that may or may not snap at us.",333
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"We sense a fairly strong base of economic activity in our area. There are two dramatically weak segments, home building and automobile manufacturing, and the latter is a big factor in part of our District. However, commercial building, as John said, is very strong, as are chemicals, military equipment, and oil and gas equipment. Basically, we don't see many signs of weakness except in those two specific areas I noted.",83
-fomc-corpus,1981,Mr. Ford.,4
-fomc-corpus,1981,"In the South we have a mixed picture that reflects some of the things you've heard from other areas. The tourist business is great. As for the steel industry in our area, surprisingly, after years of disaster around Alabama, U.S. Steel is planning to put up a new plant of all things and employment is rising in that industry. In our high-tech belt that is developing around Atlanta and Florida, the high-technology industries are doing great. The defense-related industries are doing great. In housing and construction, surprisingly, while activity is not great, on a month-over-month basis it is up and on a year-over-year basis it is up. Mortgage loan closings are up; we don't understand why, but apparently they are. The agricultural sector would be all right were it not for the fact that everybody else in the country has gotten rain except us apparently, and there is still some concern about the lingering effects of the drought we've had. The big area of worry is in the financial sector where, on the banking side, our banks are doing not just well, they're doing fantastically well. Big banks in Atlanta and Florida are up 25, 30, 35 percent year-over-year, quarter-over-quarter, anyway you want to measure it. But there are areas of stress. I've been going out, as Ed has, trying to get closer to the individual industries and some of the particular players to hear how it sounds to them. The thrift executives are counting [reserves]; they are all down. I've now talked to about 8 or 10 of them individually because I made the mistake of making a public speech about their problems a month before everybody else did, so I've been going around trying to heal the wounds and listen to them. What I hear is that they're all measuring their survival literally in terms of how many months of reserves they have left at the current rate. They all have it counted out that way and they are in a near panic state, as [the Board] will hear when it meets with its Advisory Committee later today or whenever. Consumer finances are starting to worry me in that we see more and more isolated signs of stress on the consumer balance sheet tipping upward. One of the biggest industries in our area is Equifax credit reportings, for example, and they say business is great. There is more concern than ever about the credit condition of the consumer. The collection companies are doing great, which is bad news in terms of financial stress. Another thing that worries me is that we're starting to get some evidence of creative financing; as a concept, I think it is very worrisome and something we're going to have to focus on. A lot of financial balloons have been put up in the air where people are disintermediating [from] the normal lending agencies and taking back paper on homes. That is done on the basis of very questionable credit standards or none at all. And I'm starting to hear more and more people, as I talk to people about housing finance, talk about possible problems in the area of creative financing. Finally, all over the District I'm hearing from small businessmen, especially dealers of U.S. built autos and various other small businesses, that they are actually paying 1 or 2 points over the prime rate. They support us tremendously philosophically, but they wish we would lower interest rates today because their survival is in question now. I haven't been able to verify how much of that is true, but every time I go out to a meeting or sit down at a rotary club talk or wherever people get me in a corner and I ask them: ""Do you believe in what the Fed is doing?"" They say: ""Terrific, you're on the right track; hooray for you and Ronald Reagan."" Then if I ask how business is, they say it's terrible. They say, for example: ""It costs me more to finance a car on the floor of my showroom for one month than I can ever hope to make in profit, and I'm not selling it within a month."" So, my big worry would be the overall stresses and strains in the vulnerable areas on the financial side. Overall, I would say the economy in the South is moving sideways. We have strong areas that are booming balanced off by these areas of weakness. We don't see a big surge coming, but we don't think we're in a depression or a recession now at all.",885
-fomc-corpus,1981,"I told you about going to a cocktail party a couple of months ago. A fellow who happened to have had a few drinks came up to me and clapped me on the back and said ""I want you to know that I'm with you all the way, you S.O.B.""",57
-fomc-corpus,1981,That's the exact [sentiment].,7
-fomc-corpus,1981,That very much summarizes what I'm hearing.,8
-fomc-corpus,1981,"Mr. Doyle, let's get the depressing side of this.",12
-fomc-corpus,1981,"Sorry to add to that, Mr. Chairman. The automobile industry is still in a very depressed state in our District and its influence is quite pervasive. Even though production has been up quite a bit lately, largely associated with the introduction of some new models, no one I talked with really expects much of a turnaround in that area at all. There now seem to be increased concerns spreading somewhat to the rural areas. The banks are highly liquid, but high interest rates are discouraging borrowers and we tend to hear more and more from this particular sector recently. The drought has ended in the Middle West and it has brought with it some rather interesting revisions in estimates of food price [increases] for this year, which are expected to be somewhat less than the USDA projections--say, somewhere around 10 or 11 percent rather than up in the 11 to 12 percent range.",176
-fomc-corpus,1981,"Did you get rid of your dry weather, Mr. Guffey?",15
-fomc-corpus,1981,"It largely has abated, yes. Just over the last week to ten days we've gotten very good rains and very general rains. There is some good and some bad news to that. Along with the rains was some very severe weather; and much of the winter wheat, which would be harvested commencing in early June in the southern part of the District, was laid flat by the hail and high winds. So, the question is whether what wheat survived will result in a good crop, beyond earlier expectations; that which was flattened is a total loss. The USDA doesn't know what is out there and I don't think the farmers can tell. Not until the harvest is completed will we know. The fact of the matter is that the outlook for the agricultural sector probably is better at the moment than it has been over the past sixty days, with the exception of the red meat industry, particularly the cattle industry. There has been a continued liquidation of breeder stock, keeping meat prices down. As a result of that there is a loss in the cattle in the feedlot area. That has to end one of these days; and when it does, we will quite likely see an escalation of meat prices, which will roll into [consumer] food prices. On the other hand, the District is heavily engaged in the energy business and that is going gangbusters. The unemployment rate ranges someplace from 3-1/2 percent to 8 percent, depending upon whether you're in Oklahoma, Colorado, or New Mexico. It's a very mixed picture.",305
-fomc-corpus,1981,"Well, I'd better run in a second. We have heard from all the presidents; the governors have all been silent. We'll leave that to you. And you can go over these other [agenda items].",41
-fomc-corpus,1981,"Before you leave, Mr. Chairman, I should say that the green bug problem has been whipped with a red lady bug.",25
-fomc-corpus,1981,Good. By what?,5
-fomc-corpus,1981,Lady bugs.,3
-fomc-corpus,1981,Count on the lady bugs!,6
-fomc-corpus,1981,"Let me ask a question, Roger. Are the cattle being slaughtered or are they being put back in the pasture? With the rains you've had, I would imagine some are going back to pasture.",40
-fomc-corpus,1981,"Well, I can't answer the question of what may happen in the future. The rains have only occurred within the last ten days, so those judgments might be made in the future. But they certainly haven't been up to now. Conditions have been very dry and as a result the cattle have been taken off of the range for two reasons. One was that the prospect for keeping them through the upcoming summer was not very good. Secondly, those in the feeding business were losing from $75 to $200 a head on fat cattle. So, they are just liquidating their breeder stock. Whether or not business judgments will be made to maintain some of that breeder stock now that some green grass has come forth, I don't know. It doesn't bode well, however, for food prices for the period ahead.",159
-fomc-corpus,1981,"We haven't heard from any governors, I don't think. Emmett.",14
-fomc-corpus,1981,"I'll start off. Much of what I've heard from the presidents confirms the feeling I've had about our current situation. If I had to characterize the current economic situation, I would say that the economy is slowing from a very high rate of expansion but it is not by any means weak yet. I say this because it's hard to see any unqualified indications of weakness. Even in retail sales we see, adjusting for autos, an increase. And the slowing in industrial production, while negligible, would actually be an increase if it weren't for the coal strike. So, most of the indications of weakness --for example in the payroll employment area--are not unqualified. On the other hand, there are some fairly good indications of enough strength still left in the economy. Business fixed investment is still strong. And, of course, capacity utilization has increased. So, I would say on balance that there may be some slowing but it's a slowing from a very rapid rate [of expansion] and the economy is not at all weak at this point.",206
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"I deliberately stayed out of the talking stage and in the listening mode because it seems to me that it's more difficult than I can ever remember to know what is happening by looking at the statistics from here in Washington and by using the typical technology of forecasting, either models or judgmental forecasts. The economy just isn't behaving the way it used to. I think the staff is basically right, however, that we're looking at an economy that is quite strong. The areas of weakness that we do see--and we are seeing some weakness in the housing industry and the auto industry, which is being reflected in the employment statistics and to some degree in industrial production--are in credit-sensitive sectors. To the extent the economy is being restrained at all, it's being restrained by monetary restraint, by very high interest rates. What the staff is saying, in effect, is that interest rates will simply rise however far they have to rise to get nominal growth of GNP down to the 8 to 9 to 10 percent range or somewhere around there. And I think the only issue is whether or not the staff's forecast of interest rates is right. The staff's forecast of interest rates, in comparison with the major outside forecasters, leaves no doubt that outside forecasters aren't anywhere close to being correct if the staff has the basics [right] on where the economy is going. The staff has interest rates on Treasury bills continuing to move up through the last three quarters of 1982, hitting a peak of around 17 percent; they are moving up gently but continue to move up. The mean of other forecasters has the peak of interest rates in the first quarter of 1981 and coming down to about 11-1/2 percent by the end of 1982. That's why I think we're seeing a major difference in what forecasters see for the outlook from now until the end of next year. The economy is very strong, and I don't think we are likely to make a mistake at this point of overrestraining it unless we take very drastic action on top of what has already been done.",420
-fomc-corpus,1981,Henry.,2
-fomc-corpus,1981,"Well, I find the economy very hard to read, as do others. Some things don't quite seem to fit together. For instance, we've had this strong surge in the first quarter, which may be revised up. But it doesn't seem to have led to a great increase in capacity utilization; it may have in materials but not in other areas. And it hasn't led to a reduction in unemployment, as one would figure. Now, if we are looking at this first quarter, it really means that GNP from here on out will be about 1 percentage point higher than it would have been had GNP grown at something like 3 percent or so--spreading the difference roughly over the rest of the year, or dividing it by 4. So, the whole picture is somehow tighter. And that I don't quite see reflected in the capacity utilization or the unemployment figures; but it must be there. I also am asking myself: Why, in an economy in which no single thing seems to be outstandingly strong, is there so little room? Why, when we've got some distinctly weak sectors like housing and automobiles, has the economy been expanding so rapidly? Is it because the saving rate is so low that we're now at a much higher level of consumption than we normally would be so that leaves less room in the economy for other things and is squeezing things out? I find all these things difficult to reconcile, but there seems to be no doubt that the economy is not going down even moderately as much as thought; it may not go down at all and is overall very strong.",316
-fomc-corpus,1981,Chuck.,2
-fomc-corpus,1981,"Well, I don't think there's much downside risk either, except if there should be some unexpected financial difficulty that would lead to it. And that's always hard, indeed impossible, to predict or to time. I would agree with Lyle that the governor on the economy is monetary policy. And with emphasis on the aggregates, what we're really talking about is how high interest rates will go. But, of course, as they go higher, if they should go higher, the small business problem and the problem with housing and with automobiles and so forth will get greater and greater. Indeed, that's the disturbing factor about the economy. There doesn't seem to be too much effect in the soft goods sectors and certainly no effect in the defense area. There is a strength that could end up in a bad crash, I think, in nonresidential construction. I agree with Willis that there are a lot of problems that could develop there because there's an expectation that prices will go higher and that the properties will appreciate. If they don't, then there is no basis for the financing being done on them. So, the concern that I'm beginning to have is that to achieve the 9 percent nominal GNP that Lyle speaks of, we will have no activity to speak of in some sectors and hardly reduced activity in other sectors. The differential impacts are going to be very difficult to deal with. Henry made a good point a month or so ago, in a speech that I guess he didn't deliver, which is that there are two tiers in terms of interest rate effects. Those who don't pay 46 percent tax rates are hurt a lot more than those who do pay 46 percent. That's very consistent with the notion that small business is complaining, because they [don't] pay 46 percent tax rates. And it would be very consistent for any firm that is in a loss position to be badly hurt. It reminds me of the [adage] that the worst thing a bank can have is money--that the bank should get so that it doesn't have taxable income. The same thing is getting to be true of debt burden. The worst thing you could have, if you have any taxable income, is not to have a debt burden because then you don't have any tax write-off. So, I agree that we're in a fairly narrow range with very little chance of a sizable decline in the immediate picture and a good control over the expansion because monetary policy is well along the road toward being restraining. But as to the effect that this will have in the longer run, I'm certainly not prepared to say at this point.",518
-fomc-corpus,1981,But isn't it likely from what everybody is saying around the table that we're going to see monetary policy not being very effective as a general restrainer until some of the troubled areas have some dramatic failures? And then we would get a reaction in the rest of the economy.,53
-fomc-corpus,1981,"Yes, we could get a sharp change in expectations. The people who are expecting prices such as real estate values to rise will stop expecting them to rise. And then suddenly what didn't seem to be such a high interest rate before will seem extraordinarily high, and that could happen very quickly. But one just can't predict when it will happen. By the way, though, Tony, I do think that [our policy] is having a restraining effect on the economy. It's clear that housing starts are not going to stay at 1.2 million; they're going to drop below it. And that's very restraining. That's one of the biggest industries in the economy, and it's largely due to interest rates that housing activity is as low as it is. On inventories, I agree with Frank. He said inventories are very, very lean. Why are they lean? It's because interest rates are so high that everybody pays great attention to keeping inventories down. The automobile business, which in the last two or three 10-day periods has been below 6 million in domestic sales, is 4 million off what the industry has been accustomed to. That's a big cut in output in GNP. So, interest rates are restraining the economy; and the higher they go, the more they will restrain.",260
-fomc-corpus,1981,"But even in terms of the residential construction that is still going on, I don't know for sure, but I would venture a guess that a substantial fraction of the housing starts we're seeing right now is being creatively financed. Every place you go you see condominiums, and the sign out front says 10-1/4 percent mortgage money.",69
-fomc-corpus,1981,It's for 2 to 3 years.,9
-fomc-corpus,1981,"No, these are term loans. The way they're being financed is that the builders go to the bank or the S&L and work a deal for a construction loan. They take out all the first mortgages on a term basis at 10 percent or something in exchange for $300 or $400 or $500 thousand in fee income, which the institution takes right in, charges it as current income, and passes it right down to the bottom line.",90
-fomc-corpus,1981,But they don't give 10 or 11 percent on a fixed rate mortgage for 25 years.,20
-fomc-corpus,1981,"Absolutely, yes they do.",6
-fomc-corpus,1981,It's the other way around.,6
-fomc-corpus,1981,"The story that I've been hearing from people in the Midwest whom I know in the real estate insurance business is that they have this ""teaser"" rate. I don't know what they call it. You come in and get 10 or 11 percent financing for the first 2 to 3 years, during which time the builder compensates the thrift institution. But thereafter the loan has to be renegotiated.",83
-fomc-corpus,1981,"There are some of those, but there is an ample number of these deals that I've just described where people still can get a 20-year mortgage at 10 to 11 percent. MR. WINN(?). They add it onto the price, Tony. They just jack the price up. [VICE CHAIRMAN SOLOMON]. Nancy.",69
-fomc-corpus,1981,"Well, I'm surprised at the first quarter, and I don't really understand it. However, I am also getting very worried about the cumulative effect of this [monetary policy restraint]. If real GNP revises up even to 8 or 8-1/2 percent, there literally has been no real growth in the economy for two years. That to me says that monetary policy has been working quite well in restraining the economy from any growth. We've never had a period like this in which we had literally no growth on average for that [length of] time. I think we have to continue to restrain [the economy]. However, I am very worried that we will restrain it to the point that we will get interest rates that are going to be really damaging to all segments of the economy. Interest rates may be [low] after tax, or in real terms, but they are still contributing to cost and are creating, I think, some of the upward pressure on prices. You may be in a 46 percent tax bracket, but you still have to recoup that 18 or 20 percent interest rate in order to pay your taxes on it. This forecast has eight quarters of 18 percent interest rates. I just don't think the economy can survive that way. Either it's going [to blow] up on us in the sense that inflation is going to take off or we're going to have major failures and we are going to get a major recession from this someplace down the line. And I urge caution when we come to deciding what we're going to make the interest rate because I think [the high rates] are damaging. They can do a lot of damage if we are not careful.",344
-fomc-corpus,1981,John Balles.,4
-fomc-corpus,1981,"Well, I will just piggyback on Fred's S.O.B. story with one I find extremely instructive. Two lumber companies. One is a great big one and one is a small one. And if there's any industry in the country, along with autos, that should be screaming for relief from high interest rates, it seems to me it would certainly be the lumber industry. Yet both of these guys are foursquare for solid monetary restraint, enough to get the job done in bringing inflation down. When their quiz them on how they can support this kind of restraint in terms of what its doing to their business, the explanation is along the following lines: They have two choices, both of which are bad, but one is worse than the other. One choice is to price people out of housing temporarily through high interest rates; the other, as they put it, is to price them out of housing indefinitely and permanently through ongoing double-digit inflation. So, even looking at their own long-run self interest, they favor monetary restraint and are not ready to throw me out the window or out of my job--if they could--because of what we are doing to their businesses. I find that rather instructive.",243
-fomc-corpus,1981,They're not facing bankruptcy.,5
-fomc-corpus,1981,"No, but the small lumber company is surely making no money.",13
-fomc-corpus,1981,That's what I was wondering.,6
-fomc-corpus,1981,"It will be a while, but they're not facing bankruptcy.",12
-fomc-corpus,1981,"They probably have some independent wealth, though. I've run into some people like that, too, and they always have some private means if the [business] goes under.",34
-fomc-corpus,1981,"I think it's important to recognize that there is absolutely no way of reducing these interest rates, even short-term interest rates, through the old traditional way of pumping money into the economy. We did an analysis in St. Louis. [It shows that] even when the weekly figures show an increase in the money supply, it is meaningless; within a week interest rates rise. So, I don't know how we can bring these rates down through monetary policy other than by creating a credible track record where people will really believe that we are going to bring the rate of money growth down and stick with it.",119
-fomc-corpus,1981,"Either that way, Larry, or with an old fashioned crunch. My guess is that it's more likely to be an old fashioned crunch. If there aren't any additional comments, we'll move on to Scott Pardee's and Peter Sternlight's reports. Does someone want to make a further comment?",58
-fomc-corpus,1981,"I'd just like to ask you a question on the point you just made with regard to an old fashioned crunch. I'd be interested in knowing, Tony, how serious you think this business is with the mutual savings banks up there [in your area]. I hear that one of them already has a negative net worth and that a number of others are very close to that. What do you see as the scene over the next three to six months?",88
-fomc-corpus,1981,"What I hear, and what my people's analysis suggests is likely, is that between two and four of them, of which a couple are very important, are calculating that they will have a crisis early next year. They are also calculating the number of months they can take this; and, of course, if interest rates were to go significantly higher, that [crisis] might be moved up a couple of months.",83
-fomc-corpus,1981,That would mean early winter or late fall of this year.,12
-fomc-corpus,1981,I don't think the savings banks are really quite that close. It's 1982 and 1983 for the savings banks. It's 1981 and 1982 for the savings and loans.,39
-fomc-corpus,1981,But I'm talking about two to four coming in early '82.,13
-fomc-corpus,1981,"Yes, that's about what the FDIC feels.",10
-fomc-corpus,1981,But there are a few others that would--,9
-fomc-corpus,1981,"By '83, if rates stay up as our forecast has them, there are going to be quite a few. And they go beyond New York and Boston.",32
-fomc-corpus,1981,"Add Philadelphia by 1982-83. We have at least one and maybe two in Philadelphia. On the timetable for the S&Ls, I think Chuck's right. Beginning in the fall of this year, stretching out into '82, you can just string them along a line, a long line.",62
-fomc-corpus,1981,"But that's with no change in the rate of flows in and out. If we have any kind of increased disintermediation, that would precipitate it in a heck of a hurry.",38
-fomc-corpus,1981,"Well, we would, of course, finance them.",11
-fomc-corpus,1981,How?,2
-fomc-corpus,1981,At the window.,4
-fomc-corpus,1981,"And how about the large CDs that might run off? If this calculation is that easy to make that you can string them on a line, as Ed says, then others would be doing that, too, and would be cutting off their support.",49
-fomc-corpus,1981,Has there been any indication that their deposits are being withdrawn in anticipation of failure?,16
-fomc-corpus,1981,"That's the biggest single worry I have heard from people in the thrift industry: That they have something on the order of $50 billion in jumbo CDs that are subject to market confidence. They are being tiered on the rates right now, similar to what happened to First Pennsylvania and other banks, as general recognition of a problem approaches. I would recommend that we track that carefully on the early warning indicator. I haven't personally verified that figure, but I'm sure Chuck's staff has good information--I hope you do --on how much jumbo CD money is subject to quick market judgments.",115
-fomc-corpus,1981,"I don't think we have very good information because the category is $100,000 and over. And the $100,000 notes are pretty secure. We don't know how much is in jumbo CDs.",40
-fomc-corpus,1981,"Some of the big investment banks who are financing some of the mutual savings banks with RP financing are forcing, quietly, a reduction in volume. First they tried to do it by simply raising the price on charges. They weren't getting enough response; the mutual savings banks were paying these higher and higher spreads. Now they have begun to exercise some ""window guidance,"" you might call it, cutting back on the line. But they are trying to do it slowly so as not to trigger [a crisis]--so they wouldn't get the blame for any kind of financial problem.",113
-fomc-corpus,1981,"Most of the commercial paper that thrifts had out was in the California area, is that right? What has happened to it? Is there any indication? Does anybody know?",35
-fomc-corpus,1981,"I know that a number of them have had their ratings lowered. I don't know about the volume, which is what you asked about. I remember seeing that a number of them had their ratings lowered on paper, which should lead to the answer being that there has been a reduction in the availability, but I don't know that. I hope somebody on the staff does.",73
-fomc-corpus,1981,"Maybe we'd better get moving along. There is one point I should mention. I'm told that if anybody has any questions regarding the Board's examination of the System Open Market Account, Clyde Farnsworth and Dave Robinson are prepared to answer questions. Otherwise, we won't bother with that and we'll just accept the report. Does anybody have any questions on that? If not, we'll go to Scott.",77
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,Any comments?,3
-fomc-corpus,1981,"Scott, does the Federal Reserve have any independent authority to operate in foreign exchange markets apart from the Treasury--or possibly, in parentheses, in violation of Treasury policy?",33
-fomc-corpus,1981,"We've reviewed this and reviewed this and reviewed this, and ultimately when it comes down to policy the primary responsibility rests with the Treasury. We can work on a consultation basis and all of that, but if the Treasury objects, then the Federal Reserve, since I've been in it, has acceded to the Treasury's wishes.",64
-fomc-corpus,1981,"The comment is simply that Congress has been fairly consistent in its attitude and that there is statutory language which says that the principal responsibility for international monetary policy is with the President, operating through the Secretary of the Treasury. There are no legal constraints on our operating with our resources but it would create a political problem, I think, if we were clearly doing it against the wishes of the Treasury.",77
-fomc-corpus,1981,I understand the political problem.,6
-fomc-corpus,1981,There are no legal constraints.,6
-fomc-corpus,1981,Legal constraints were what I was asking about.,9
-fomc-corpus,1981,"But you'd be prepared to move as you did the day Reagan was shot if there's severe disorder in the market, wouldn't you?",25
-fomc-corpus,1981,I'm not prepared to move at all until I get an authorization from Washington.,15
-fomc-corpus,1981,Do you mean from the Treasury?,7
-fomc-corpus,1981,"You would let disorderly conditions develop? As you see it, you just wouldn't move until Washington said yes?",22
-fomc-corpus,1981,"Those are the instructions. Volcker, Sprinkel and I had a conversation. Scott was there, and [the Treasury] made it very clear that they want prior consultation before a dollar is spent. They wouldn't give us any flexibility even on, I must say, relatively minor routine countering of a disorderly market. Even though Sprinkel put in his testimony ""countering disorderly markets,"" which is our responsibility under the amended articles of the IMF as well as internal policy, in practice I don't think the policy has changed any from one of no intervention except in an emergency. We'll just have to wait. Henry was at that meeting also and he said: ""We'll see. [We'll wait] until such time as a foreign central bank requests the kind of cooperation that requires using our own resources to some degree or until the dollar itself turns around so there's a change of view."" It's hard to resolve this as an abstract policy issue. I don't think there will be any change until a concrete incident or situation comes along that seems to indicate the other way.",211
-fomc-corpus,1981,What about this talk of selling off reserves and reducing swap lines? Is that serious talk in private and could that be done if the Treasury so ordered it? Or is that a joint decision to be made with the Federal Reserve?,45
-fomc-corpus,1981,My own view is that they won't insist on that.,11
-fomc-corpus,1981,"It seems to me that they can block, in effect, the use of the swaps for intervention, but I don't think they can compel us to eliminate them.",32
-fomc-corpus,1981,"I don't think they will try. My own feeling is, even though that this is being looked at--and it has an impact on the exchange markets--that they are unlikely to go to that extreme. The only way to get rid of the balances without upsetting markets would be to do an off-market deal with a few central banks. This would still alarm them and I think there would be political reactions. The State Department does not think along these lines at all. I think the State Department would go to the mat with the Treasury as it became more of a political issue. I don't think the Treasury is likely to go as far as actually insisting on this.",132
-fomc-corpus,1981,Does the State Department have its economic team in place yet?,12
-fomc-corpus,1981,Yes. Myer Rashish.,7
-fomc-corpus,1981,"I know, but he hasn't been confirmed.",9
-fomc-corpus,1981,Yes he was.,4
-fomc-corpus,1981,When?,2
-fomc-corpus,1981,"Tom Andrews hasn't been confirmed, but Myer was confirmed and so was Bob Hormats. That was my understanding. It was approved by the Committee. Jesse Helms did not say anything, but continued to object. I assumed, since it was approved by the Committee about three weeks ago, that there was floor acceptance. It is normally routine that within 24 hours the whole Senate--",77
-fomc-corpus,1981,I thought [unintelligible] told me last week that Rashish had not been confirmed. Did I misunderstand?,24
-fomc-corpus,1981,I think he was confirmed after 260 questions or something like that.,14
-fomc-corpus,1981,"The way we would get rid of the foreign currency, I assume, is on a declining dollar market. That is, it would seem usual, wouldn't it, if the dollar were dropping to sell marks to support the dollar? And in the process we would get rid of balances and just wouldn't rebuild them. That would be a practical strategy, if we didn't want to--",74
-fomc-corpus,1981,"After all, that's what the balances are there for--to cushion if we ever [wanted to]. I'm sure that the Committee and the Treasury would not want to support the dollar at these levels; if the dollar started coming down, we probably would want to do something, but not in any significant amounts. And that's quite a ways off yet.",69
-fomc-corpus,1981,But what is there in the outlook that would bring the dollar down?,14
-fomc-corpus,1981,"Well, it's awfully high. I would think exports will fade.",14
-fomc-corpus,1981,And the current account deficit. We're already predicting that.,11
-fomc-corpus,1981,Roger.,2
-fomc-corpus,1981,Further along [in his report] Scott mentioned that the French had inquired about the use of the swap line. Is the Treasury position such as to prohibit us from filling a request for the French if we otherwise chose to do so?,47
-fomc-corpus,1981,"Well, it's our normal routine to touch base with the Treasury before a swap line is drawn on by a foreign central bank. On the other hand, the Chairman feels, and I think he is absolutely right, that we don't want to put ourselves in the position of not having any judgment in these matters and creating more of a situation where the Treasury is giving us day-to-day instructions. So, Volcker is planning to tell [unintelligible] that these swap lines are available. I don't think that we will run into any resistance from the Administration as a whole. Whether there will be some initial demurring by the Treasury I don't know, but I'm sure he also will advise the Secretary of the Treasury. I don't know whether Ted wants to comment in this area.",155
-fomc-corpus,1981,I think that's right. That's the way the procedures have worked in the past in the long run.,20
-fomc-corpus,1981,"Where there's no large political or policy [reason] that would cause us to oppose a foreign central bank drawing on a swap line with us, I think we ought to play it in the traditional way that we've always played it. And that is that yes, it's available if the need is there; if a country explains at the time that it comes in formally [with a request to draw on the swap] and gives us good convincing reasons, obviously we will go along. That brings up the Swedish situation. Did you comment on that?",107
-fomc-corpus,1981,"No, I was holding that for my recommendations.",10
-fomc-corpus,1981,What does that mean?,5
-fomc-corpus,1981,That comes next.,4
-fomc-corpus,1981,"When we have a swap drawing, we usually want to know where it is going to lead. With the Swedes we knew that there was a big European loan coming, which might take us out. With the French, one doesn't know where that's going to lead, and I think one has to look at the situation at the time it develops. The swaps are not exclusively for the purpose of intervention anyway. They can be for the purpose of a balance of payments financing in a broader sense. I think one can say that with regard to the Swedes, who have a fixed peg. One can't so easily say that the French have a fixed peg with the EMS, too. So, again, it becomes more a matter of financing a deficit than arbitrarily intervening in the market. I think that makes a pretty good case for the continuance of the swaps.",173
-fomc-corpus,1981,"The Mitterand group is unlikely to permit a devaluation before the elections, which will probably be around the end of next month. There's an increasing feeling, of course, among knowledgeable people--and even those who are not too knowledgeable--that this level of the franc is not sustainable and that if [a devaluation] doesn't come before the election, it will come after. And there are implications that this will put a finish to the European monetary system or that even if it's preserved in its facade, it won't have very much meaning. If there are no other comments, you may turn now to your recommendations.",123
-fomc-corpus,1981,"I have no recommendations as far as any action by the Committee, but I want to inform the Committee that on the 23rd of May the increase from $300 to $500 million in the swap line of the Swedish Reichsbank that we put on last year for one year will mature. The Swedes asked if it could be extended but felt they had no compelling reasons at this point to justify the extension of that increase. They did use the line for $200 million and repaid, as Governor Wallich just mentioned. But in recent months they have had a rather substantial inflow of funds as a result of policy measures they took early this year, so it's difficult to argue for a continuation of this increase in the current environment. It's a hypothetical situation rather than an actual situation. Discussions with Mr. Solomon and Mr. Volcker suggested that perhaps we should let the increase lapse. I informed the Swedish Reichsbank that it would lapse, as it was proposed that it would last one year. I told them, should they have further needs down the road, that the availability of the swap line is there and that if they want to discuss an increase again, we'd be happy to discuss it when they feel they have a compelling case. They accepted that, so I am just informing the Committee rather than making a recommendation that the increase be extended.",271
-fomc-corpus,1981,It will drop back to $300 million.,9
-fomc-corpus,1981,"And they were not unhappy about it. They recognized that in some circles that might be interpreted as a sign of strength. When I told them it was unlikely we would [extend it], they didn't seem to mind at all. Bill.",47
-fomc-corpus,1981,"I just wanted to ask Scott if he could explain something. I'm interested in this list of a total of $30 billion in swap lines. I'm just curious to know how you judge, for instance, that the Swiss should have a $4 billion line, and Italy, which has more people and I think bigger [unintelligible] should have $3 billion. How do you make a decision as to how big the swap line should be?",90
-fomc-corpus,1981,"Back in 1967 we had an elegant paper that was published in the Federal Reserve Bulletin on the criteria for the swap lines based on financial data, reserve position, balance of payments, size of country, and so forth. That was when we were in an active phase of adding countries to the list. We haven't added anybody since. I think the criteria are more what the problem is that we are facing at the time and what the financial interest is to the United States. Our interests are much greater--certainly they were back in 1978 when we had the last increases--with the deutschemark, the Swiss franc, and the Japanese yen. Those swap lines were increased at that time. So, it's more in response to the situations we face. We do still review them; and the Board staff remember the criteria and bring them up from time to time when we are reviewing the size of the swap lines. In the case of the Swedes, it turned out that on these earlier criteria, if we had continued at $500 million, then there might have been justification for some of the other Scandinavian countries to come in and ask for increases. So, we still keep the criteria in mind, but the size reflects more the pressures at the time we are dealing with them.",257
-fomc-corpus,1981,"[We look at the pressures] on both sides. When the Italian swap line was raised to $2 billion in '74, if I remember correctly, it was largely to help them out under the circumstances. In fact, as I remember, they made some drawings. And the Mexicans have also been a case where they wanted an increase to show, as the Swedes did last year, solidarity.",81
-fomc-corpus,1981,"For the currencies that we think we are going to use when we're in trouble we took action to raise the swap lines as part of the November 1, 1978 dollar support package. In the others I guess we've been more or less passive.",50
-fomc-corpus,1981,The British and the Italians and the Mexicans are cases where the shoe has been on the other foot.,22
-fomc-corpus,1981,Is this $30 billion total here a historic high?,11
-fomc-corpus,1981,"Well, it would have to be the high; it will go down from the high by $200 million.",22
-fomc-corpus,1981,"It went to $30 billion on November 1, [1978]. I gather we have to take action to ratify the transactions since the meeting on March 31.",35
-fomc-corpus,1981,Collecting interest on our balances.,7
-fomc-corpus,1981,Have there been any transactions?,6
-fomc-corpus,1981,"It will be interesting to see if we get any dissents, given the nature of the decision!",20
-fomc-corpus,1981,"Legally we don't need a resolution, I assume, on any transactions we do for foreign central banks. Therefore, this particular action is going to be inoperative. If there's nothing else, we'll turn to Peter.",43
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,Comments?,2
-fomc-corpus,1981,"I have a question. I have the impression, talking to market types and bankers on the funding side, that there is still a fair amount of confusion about what the Desk is up to. I want to inquire--it's probably just schizophrenia--in that we make money on [high] interest rates [when] we follow reserves and so on. Do you have the impression in New York that the confusion over the change in our [operating] procedures is decreasing or increasing? Do you have a sense of that?",103
-fomc-corpus,1981,"I think a better understanding of our procedures has been developing. There was some renewed confusion or uncertainty when the February policy record was published in early April because there seemingly was a different significance to the meaning of the federal funds rate constraint. But with the record laid down there and some further comments that were made by the Chairman around that time there has been a better understanding of the significance of the funds rate limits as well, mainly as checkpoints rather than tight constraints.",91
-fomc-corpus,1981,There's confusion arising [even] within the Committee.,10
-fomc-corpus,1981,"Well, I have no comment on that!",9
-fomc-corpus,1981,"Let me ask you a question. You recall the last telephone conversation. I expressed some concern about the market perception along these lines and wondered whether we might not be able to say things a little better in a way that might help the market. When we get to the directive today, I think some alternative ways of talking about the federal funds rate are going to surface because I do have a sense that some confusion still remains out there. On the other hand, I also have some concern that it is probably important not to change the wording very often because just a change of wording has a tendency to confuse people. So, there are pros and cons on this. Peter, do you have a sense at this point as to whether there might be some better way to explain what we are actually about in order to clear up any confusion they may have? Or is a change of wording going to add to it?",180
-fomc-corpus,1981,"Well, as I said, I think there is a better sense of what we are about that is permeating the markets. It's a message that [could use] further repetition or elaboration as opportunities [arise] in testimony or speeches or interviews to convey just how the procedures work and our approach to the funds rate as a set of checkpoints. I've heard the question from market people: If it only has the significance of a checkpoint, why do you have it in your directives at all? I think that's certainly a legitimate point for the Committee to want to discuss.",114
-fomc-corpus,1981,"Well, that's what I keep hearing: If it's just a checkpoint, why do you put it in or why don't you just say that more clearly? They get confused about the way we say it.",40
-fomc-corpus,1981,"I think the directive does, in effect, say that [it's a checkpoint] now.",18
-fomc-corpus,1981,"I think we have to have it. Otherwise, how do we know what the checkpoint is? We could say that that's what it is, although technically that's what the paragraph says.",36
-fomc-corpus,1981,"I know, but it seems to confuse them for some reason.",13
-fomc-corpus,1981,"Peter, you say the [concept of a] checkpoint is there, but I don't read it quite that strongly.",23
-fomc-corpus,1981,Why is that?,4
-fomc-corpus,1981,Maybe I started a conversation that best ought to be done later on. I withdraw the question.,19
-fomc-corpus,1981,"It seems to me that the change in language--I think it was at the December meeting--[clarified it]. Up to then I think the wording called for it more as a real constraint, whereas I read the current wording as more of a checkpoint. That's because we are instructed to maintain reserves along a certain path consistent with the growth path for the aggregates that the Committee voted for and, if it appears that over a period of time the funds rate is not going to be consistent with maintaining reserves on that growth path, then the Manager is to notify the Chairman, and so on.",118
-fomc-corpus,1981,"Whenever we come [to the end of our comments] in this area, there's coffee available. These transactions have to be ratified.",27
-fomc-corpus,1981,I have a question.,5
-fomc-corpus,1981,"I have a question, too.",7
-fomc-corpus,1981,"Peter, knowing only what we've learned from the incoming data, had we responded very strongly to the upsurge [in the growth of the aggregates] in April would it have been possible to make much of a difference in the course of the aggregates? What would have to have been done to do that?",61
-fomc-corpus,1981,"Well, I think we did respond promptly. We didn't get the rate effect until well along in April. Knowing how the whole month turned out, if we could have been omniscient at the beginning of the month, I suppose we could have been even more vigorous early in the month. I'm inclined to be skeptical as to whether it would have made a great difference on how the April growth rate itself would have turned out.",85
-fomc-corpus,1981,"But not being omniscient, just getting the numbers as they came, I presume we could have acted more immediately. We could have relied not just on the automatic mechanism that moves the funds rate; we could have dropped the nonborrowed path and raised the discount rate and so on.",58
-fomc-corpus,1981,We did.,3
-fomc-corpus,1981,"We didn't during that first four-week period, Governor Teeters; we did in the final three weeks. As I interpreted it--and Steve may want to comment--I thought perhaps there was not a need to do that in those first four weeks because there was lighter-than-expected borrowing in the very early part of April. And because of that we were going to be imposing on the banking system a demand for even greater borrowing as we got further into April, which in itself looked as though it was going to be exerting significantly increased reserve pressure without the need to make these discretionary, if you will, downward adjustments in the nonborrowed reserve path. We were looking for borrowing to have to rise up to the $1.6 or $1.7 billion area, well above that initial $1150 million level, as we got further along into April.",173
-fomc-corpus,1981,But the fact is that in the first four weeks you actually moved the nonborrowed path up.,20
-fomc-corpus,1981,"Well, those were just technical adjustments due to the multipliers.",13
-fomc-corpus,1981,"I'd ask the question more historically than Henry did. We had a 13.9 percent increase in M-1B shift-adjusted in April. We had evidence fairly early on that the month would be strong because one of those early weeks came in strong. What would it have taken to have achieved, say, a 10 percent rate of M-1B growth for the month of April? Is it within the realm of possibility?",88
-fomc-corpus,1981,I think it would have taken [steps] that would have had to be done in March.,19
-fomc-corpus,1981,Before we knew that there was an increase.,9
-fomc-corpus,1981,Yes. That would be my view.,8
-fomc-corpus,1981,"But we were well below our money growth path, weren't we, for the first three months? And to a certain extent we expected a rebound in the money supply in April in order to bring the GNP numbers and the money growth into line.",49
-fomc-corpus,1981,"Right. Governor Partee, worrying about how to present alternatives and so forth, we did look at the elasticities in the money market model to see if truly we could get an effect within a month, because in these alternatives we do have effects even in May from decisions taken in the last light almost--a little beyond the middle--of May. And if my memory is right--it may be off a little--it looked as if a one half percentage point increase in the funds rate [would be needed to effect the growth of money in a month]. You could [get the same effect by] working through the borrowing and nonborrowed path, but it comes down to this: that 1/2 percentage point on the funds rate seemed to [have an effect of] about 0.3 percent a month on growth in the money supply.",172
-fomc-corpus,1981,Right away?,3
-fomc-corpus,1981,"Within the month. So, if you wanted to get [an effect of] 3 percentage points, multiply that by 10; it's probably not linear but it might be on the order of 5 percentage points [on the funds rate]. [So, if the funds rate were 13 percent at the beginning of a month] and you made it 18 percent pretty promptly during the month, according to the monthly model it would produce some genuine effect--on the order of 3 percentage points or so--in the money supply. That is all we really have to work on. But then you'd really have to know pretty early in the month what is going to happen.",136
-fomc-corpus,1981,"I don't know where you are [on the agenda]. I understand that you have to ratify the transactions. Maybe you don't want to, after all of this!",33
-fomc-corpus,1981,"I have one other question Paul, if I might, before we do that. We did have a large increase in rates in the month. [The increase in] short rates was historically very large and long rates [went up] quite a bit. One assumes that there must have been losers and well as gainers in that market shift. In fact, the arithmetic suggests it, so it must be so. In that last comment in your statement, Peter, you said the big dealers are in no trouble that you can see.",106
-fomc-corpus,1981,"Well, I said I'm not aware of disastrous losses. There were certainly losses taken, mainly in early April because they had some big [positions] at the end of March. But our impression is that losses were taken by big, well capitalized dealers. They were unhappy, clearly, but they were not put into a state where they couldn't function. There were some smaller [problem] situations, not among the major primary dealers but, as I said, among fringe operators. I can really think of just one smaller dealer operation that was put out of business.",112
-fomc-corpus,1981,"Yes, the one that was in the paper.",10
-fomc-corpus,1981,"It's almost standard practice for all the dealers now, unlike a year ago when only half of them did it, to hedge in the futures market.",29
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,"Now, they [can] hedge purposely.",9
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,But they can hedge pretty well under government securities.,10
-fomc-corpus,1981,"Well, the question I have in my mind is that the dealers hedge in the futures market and the futures market protects the dealers, then, against a very sharp rise in rates. Who is on the other side of those futures transactions and why don't we hear from them? They must have lost as much as the dealers were able not to lose.",69
-fomc-corpus,1981,[Unintelligible] dentists.,8
-fomc-corpus,1981,It may be that it's just very widely distributed.,10
-fomc-corpus,1981,There are a lot of dentists in the area.,10
-fomc-corpus,1981,You haven't heard of any problems?,7
-fomc-corpus,1981,"Well, no. The dealers did have some losses in March. In general, it's true that to some extent they were helped out by hedging in the futures market. Obviously, there were other participants on the other side of the futures market who have lost, but it just seems to be well diversified. We have not heard of terrible calamitous problems there.",73
-fomc-corpus,1981,"I wonder if I can just ask one more technical question of Peter. Can you bring me up to date [on your procedures] when you find borrowings departing from assumptions? As I recall, the last time I heard this discussed you said that in the following period you adjust by only half of the undershoot or overshoot, which doesn't seem to be working out all that well, as far as I can see. Is that still the practice?",90
-fomc-corpus,1981,"Well, in the current three-week subperiod, we went beyond that kind of adjustment and moved the nonborrowed path more in relation to the overshoot. Initially we appeared to be running about $550 million above on total reserves, and the initial downward adjustment in the nonborrowed path was $250 million. Then a week later, it looked as if we were running over by $375 or $400 million and a further downward adjustment was made in the nonborrowed path because of that. There was also another adjustment; in the May 6th week we had deliberately accepted some shortfall in nonborrowed reserves because borrowing had been running higher than expected. It was kind of the aftermath of that super tight week at the end of April. So, another $100 million or so downward adjustment was made in the nonborrowed path for that reason. In total, the downward adjustment in the nonborrowed reserve path relative to the total reserve path was $485 million, which in this case was somewhat more than the amount by which total reserves were running above their path.",217
-fomc-corpus,1981,We still have to ratify the transactions.,9
-fomc-corpus,1981,So move.,3
-fomc-corpus,1981,"Without objection, they will be ratified. When I came back, I thought you had finished your coffee break. I see the coffee is there. Do you want to hear from Mr. Axilrod so you can chew over a doughnut and his comments? Maybe we'll do that, if you don't take too long.",65
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,Is that all there is?,6
-fomc-corpus,1981,"Yes, he brought us right to the brink and then dropped us, didn't he?",17
-fomc-corpus,1981,"I wasn't quite prepared for you to stop so soon, but why don't we have the coffee break.",20
-fomc-corpus,1981,"We have several alternatives laid out before us. They take as their low point where we were last time as converted [for] the remaining part of the period, due to the unexpectedly high [M-1B] growth rate in April. We are, as you know, at the midpoint of the range for M-1B adjusted. The only comfort I feel about M-1B adjusted is that we estimate these shifts about three different ways and they all [produce] more or less the same [results]. They are probably all wrong, but the different ways of estimating come out more or less the same. In the last meeting we picked what is the equivalent of ""C"" this time, which I believe [involves growth that] is low in the range. However, if I recall correctly, the actual M2 came in a little less than we projected the last time, right?",181
-fomc-corpus,1981,"In April it didn't on average, but the data in late April and thus far in early May suggest that in May M2 will come in quite low.",31
-fomc-corpus,1981,"And as you see, bank credit has sneaked just inside the range and M3 remains above its range. While there is a lot of week-to-week change, I suppose that is the trend on the absolutely most recent money supply figures, if there is such a thing as a trend for about 3 weeks or 4 weeks [of data]. That's where we stand. Alternative A would leave us theoretically running in the middle of the range for M-1B adjusted but would leave us above, although closer to, the ranges in the case of the broader aggregates--only slightly closer, I guess, in the case of M2. That seems to me to be the range for our discussion. Who would like to start?",146
-fomc-corpus,1981,Any of those outcomes is acceptable in terms of what might happen.,13
-fomc-corpus,1981,"I think it's fair to say the range of outcomes is likely to be somewhat wider than the ranges presented to the Committee. So, as usual, we are moving in a direction of bias and risk averseness or whatever. I agree that any of these results would not be disturbing in and of themselves. But it's a question of which way we should lean.",72
-fomc-corpus,1981,"Steve, you show M2 for May at 6.6 percent. Is it below that now?",21
-fomc-corpus,1981,"We don't have weekly data, except for certain components. But the weakness in the weekly data on money market funds and what we have seen in small time and savings deposits have led us to project M2 for May generally around that rate. So, it reflects the latest data for those components for which we have weekly data.",64
-fomc-corpus,1981,The 6.6 percent does?,8
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Governor Schultz.,3
-fomc-corpus,1981,"Let me start out with a very quick story about the fellow who went to Dublin and asked directions to a castle outside of town. He said: ""Can you tell me how to get there?"" And the fellow he asked said: ""Of course I can, but you can't start from here."" I'm afraid I have that same kind of feeling as we go around. The last time I expressed a lot of vague fears, which I guess have all come true, that we have gotten higher interest rates and a stronger economy and everything seems to be going in different directions due to that. Money seems to affect interest rates, and interest rates affect money; but neither one seems to have much effect on the economy. So, I have some real questions about how we should go about doing this. In addition, I have the same thoughts that were expressed here a little earlier: That we are putting a lot of pressure on various parts of the economy and that it's going to be hard to get out of this without some kind of financial crisis. The one really strong feeling I have is that monetary policy alone won't do the job for us. But we don't have much choice. Over the weekend I looked at the Bluebook and I thought about ""B"" tending toward ""A."" But the more I listen to the reports that things are pretty strong out there, it seems fairly clear that we don't have any option but to continue to restrain this economy. What we've done so far isn't having too much effect. So, I guess I would now come out somewhere between ""B"" and ""C,"" keeping borrowing around $2 billion and perhaps shading that up if necessary.",331
-fomc-corpus,1981,Mr. Solomon.,4
-fomc-corpus,1981,"Well, unless the President told you this morning that he's willing to change his fiscal policy and have a balanced budget in fiscal 1982 by forgetting about tax cuts and cutting back on defense increases--",39
-fomc-corpus,1981,The question answers itself.,5
-fomc-corpus,1981,"Unless you could tell us that, I feel that we have to go even further this way. I feel we should take alternative C, but not the initial borrowing assumption of $3 billion. I'd start off with a $2-1/4 to $2-1/2 billion borrowing assumption. I think that we have to have a fed funds range going up to 22 percent. And even that will be skewed; in other words, we are likely to be near the ceiling fairly quickly unless we are very lucky and we see much lower growth in May. I recognize, if we do get something on the order of 5-1/2 or 6 percent [M-1B] growth in May, what this would require in June and that, therefore, pressure is likely to continue mounting over that period until the end of June. It seems to me that we are better off to be very firm and vigorous in our responses early in the game. I'm influenced not only by the strength of the economy--and there is a widespread feeling around the country, and certainly in the market, that with the exception of the troubled sectors the economy is very strong--but I'm also influenced by the fact that if the President's program goes through, even with a compromise on the tax cut package, the fourth quarter is likely to be much stronger, and the third quarter probably somewhat stronger, than the present quarter. And in those circumstances we might have major problems [achieving] our fourth-quarter targets. I feel we are better off trying to nip this now than trying to be more gentle in our approach; the latter approach is going to store up a lot of problems toward the end of the year. That's all I'll say right now.",350
-fomc-corpus,1981,"If I may just interrupt, I have a feeling that this relative buoyancy in the economy against expectations is importantly affected by the psychology of the Administration's program itself, the tax reduction.",37
-fomc-corpus,1981,And the way they talk about it.,8
-fomc-corpus,1981,It's the [tack] of the Administration.,10
-fomc-corpus,1981,"In the financial markets, privately people will say that they don't see the difference between a Keynesian tax cut and a supply sider tax cut; it's going to be the same. We are calculating internally within the New York Fed that the budget deficit this year will be above $65 billion and that for fiscal '82, if the President's program is enacted, it will not be $45 billion or less but it will be $75 billion. I would say the majority of the big firms in the financial markets also are forecasting budgetary deficits very much higher than the Administration or even than the CBO estimates. So, that's a factor. I think there would be a remarkable turnaround in psychology and attitudes if we had a more traditional conservative approach to the deficit question by the Administration.",155
-fomc-corpus,1981,"I think the way they say it is of critical importance. The President is essentially an upbeat kind of fellow; I think he wants to talk that way. But the talk has been essentially that we can get out of this almost without any real pain and without any real problems. I just don't think that that's the right way to be talking at this stage of the game because, heaven knows, it's pretty hard to see how that could be possible. If they would talk in a little more practical way, I think it would help.",106
-fomc-corpus,1981,"I think they believe this. I have heard this now for a week from Beryl Sprinkel: Everything will be easy, if the Fed just keeps the money supply--",34
-fomc-corpus,1981,"Yes, I was going to add to that. They say we can get out of this with no problems unless the Fed screws up. If we have problems, it's the Fed's fault.",38
-fomc-corpus,1981,That's exactly it.,4
-fomc-corpus,1981,"I don't know. In all fairness, an awful lot of us who have been advocating monetary restraint over the years have said repeatedly that we can't get over a binge such as the one we have been on without suffering pain. Whether it's Beryl Sprinkel or Joe Jones or whoever, those who have advocated restraint have also warned that there is no easy way out of it. So, I'm not sure that there hasn't been some recognition of the pain that inevitably will be required to bring an economy out of the excesses that this economy has been experiencing.",109
-fomc-corpus,1981,"I didn't mean to get off on a discussion of pain. Governor Partee, what do you have to say?",23
-fomc-corpus,1981,"Well, I agree that we have to be restrictive. But I would say in response to Tony that what we should do is to set our money growth course the way we would like to have it. If it deviates from that, then we'll automatically become more restrictive in terms of interest rates if we need to be tighter, or less restrictive if we need to be easier. So, I don't really see moving all the way down to alternative C in terms of the specifications. What would we like to have develop in terms of the aggregates? That's really the question we are being asked. And in my view ""A"" holds us right along the mid-section of the M-1B range. It's a little ample on M2 and M3 and, therefore, there might be a case for alternative B in order to adjust for having been over on the broader aggregates. As for the numbers for the aggregates, expansion of 3 percent in M-1B for April to June is quite reasonable; it's a very modest expansion and would be a quite acceptable outcome. Now, we don't know what interest rates might be associated with the 3 percent increase. And if I understand the meaning of the funds rate range now as the points at which we're to have a consultation rather than points within which the Manager operates, I think we might want to raise that range in ""B"" to 16 to 22 percent. I can certainly imagine the rate going to 22 percent with no trouble at all, and I don't know that it would be fruitful to have an exchange [of views] until it gets to about 22 percent. But that's just a test point, or guidepost, or whatever you said earlier, Peter, rather than a specification to the Manager. There is one other point that I want to make now. I think we will be in as much difficulty politically if there is weakness in the aggregates as if there is strength. We could quickly get quite a reaction from very weak growth in the monetary aggregates, and that is not unprecedented. Starting in the spring of both '75 and '76, there was a surge in the aggregates that was subsequently reversed. The fact that the last couple of occasions haven't [produced that result] doesn't mean it won't occur again. April is still an odd month; it has a lot of tax transactions in it. So it seems to me that we ought to be in a posture where we can give a little if the numbers come in weak as well as tighten up a little if the numbers come in strong, and we ought to do it from a neutral position. So, I could accept the specifications of alternative A, but I lean rather strongly to ""B"" as a conservative posture.",548
-fomc-corpus,1981,"And would you take the associated borrowing assumption of ""B"" of $2-1/2 billion?",21
-fomc-corpus,1981,"Well, $2-1/2 billion seems a little strong. I wanted to ask Steve why he [raised] that. I would say $2 billion is about where we are now, isn't it?",42
-fomc-corpus,1981,"That's right. We thought with our projections that to stay with unchanged money market conditions we'd expect an outcome more like ""A"" than ""B."" So, with added restraint from ""B,"" it looked as if we'd have to have a higher funds rate, on the order of a percentage point or so higher. It is hard to relate that exactly to the level of borrowing, but that tends to push up the level of borrowing by $450 to $500 million.",93
-fomc-corpus,1981,We are below $2 billion of borrowing right at the moment.,13
-fomc-corpus,1981,It was $1.8175 billion on Friday exactly.,12
-fomc-corpus,1981,But the average of the last three weeks was about $2 billion.,14
-fomc-corpus,1981,"I would say $2 billion, Tony, and then if M-1B comes in strong, that would soon develop additional tension and additional borrowings, as it did in this last episode. I'd favor more of a neutral start.",47
-fomc-corpus,1981,That implies a negative rate of growth in M-1B during June.,15
-fomc-corpus,1981,"Well, it depends upon what happens late in May. The staff is assuming an increase late in May.",21
-fomc-corpus,1981,"It might be helpful to add, Mr. Chairman, that the May estimate of a little over 6 percent in M-1B growth does assume an increase from the preliminary data of the 13th to the end of the month of around $5 billion. If an increase of that magnitude doesn't develop, May could turn out to be unchanged or be at a level that has changed around 1 or 2 percent. It could go almost either way.",92
-fomc-corpus,1981,Mr. Black.,4
-fomc-corpus,1981,"Mr. Chairman, I feel this May-June period is very crucial in our efforts to convince the market that we are bound and determined to hit these targets that we've set. And given the large bulge we had in the April numbers, I feel we simply can't tolerate any more than a modest expansion in M-1B. Along with the fiscal stance that the market perceives, the behavior of the aggregates is going to be the most important thing determining the business outlook rather than all those things we hammered through in our go-around earlier this morning. So, I think we really ought to try very strongly to hit these March-June targets that we established at our March meeting, which would incline me to favor alternative C.",145
-fomc-corpus,1981,Mr. Rice.,4
-fomc-corpus,1981,"Mr. Chairman, this kind of economic environment is one where most people see strength in the economy and where I would characterize the economy as indicating a pronounced lack of weakness. It seems to me that we may continue to see money growth coming in pretty strong. And in this environment, it seems to me the really basic question is how rapidly we want to bring M2 and M3 back to within their target ranges--whether we want to bring them back by the end of June or whether we are prepared to wait somewhat longer. My own view is that we should try to get M2 and M3 back within their target ranges as soon as possible--that is, by the end of June. And alternative C, of course, is the alternative that will do that. Alternative C, if we get the results projected, would result in all three of the aggregates being within their target ranges: M-1B at the low end, and M2 and M3 at the top. I think that is important to achieve. If we had an economy that we could be fairly sure was weakening and if money demand was slackening, we could take a longer time to try to bring these aggregates back to within their target ranges. But in the current circumstances, with recent money growth having been so strong and with every possibility that strong money demand will continue, I would see less risk in trying to get the aggregates back [on track]. Of course, to pursue alternative C would imply, as has been pointed out, substantially higher rates than we have now and somewhat higher rates than we would anticipate if we pursued alternative B. That is, we would have these higher rates in the short run, or at least during the month of June and possibly longer. However, by the fourth quarter, if I read Appendix II [of the Bluebook] correctly, alternative C would yield lower short-term interest rates and alternative B, if pursued, would yield higher interest rates. So it's a question of whether one wants to take higher interest rates now or in the fourth quarter. I would opt for taking them now. And that would lead me to favor alternative C. A final reason for favoring alternative C right now is that we really are not too sure what we are working with when we rely exclusively on M-1B. In these circumstances I think we ought to attach more importance to M2 and to getting M2 back within the target range, so I favor alternative C.",493
-fomc-corpus,1981,Mr. Morris.,4
-fomc-corpus,1981,"Mr. Chairman, I line up with Governor Partee on this one. I think we ought to follow a middle course here. We have had a major change in policy, as defined by interest rates, in the past four weeks. We have seen the federal funds rate move up by 300 basis points. There hasn't been enough time for us to see what impact that is going to have on the economy and monetary growth rates. I think there's a tendency as we get near the peak of activity always to feel that we are not accomplishing anything--that the economy somehow is not sensitive to interest rates. I think back to March, 1980 when that feeling was clearly dominant in this Committee. We didn't know at the time that the economy had already been climbing for two months as we were sitting at the table and as Fred Schultz was about to lead us into a vigorous credit control program.",178
-fomc-corpus,1981,What a friend!,4
-fomc-corpus,1981,"In defense of Fred Schultz, that's not wholly apparent to me, [even] with the benefit of hindsight. Had we not had the credit control program we might not have had the decline.",38
-fomc-corpus,1981,"Well, I think the evidence is that the decline had already started.",14
-fomc-corpus,1981,Ex-post people say that. I don't know.,10
-fomc-corpus,1981,"It seems to me that one could make a case here, at least for the next few weeks, not to set too restrictive a course in the aggregates until we can assess the effect of what we have already done. So, ""B"" looks pretty good to me.",54
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"There are a couple of things, Mr. Chairman, that have led me in the same direction as Mr. Solomon and Governor Rice. We're beginning to wonder--and it's obviously speculation rather than proof yet--whether we aren't witnessing some downward shift in the demand for money, along the same lines as occurred in the 1975-76 episode, because of the institutional changes affecting business deposits with this surge in money market mutual funds. Some simulations we have been doing over the past five months show that M-1B is now well below the level that would have been indicated by historical demand relationships, and I'm really beginning to wonder whether there hasn't been a downward shift. I don't know what studies you have been doing on this, Steve. But if that is going on, and I suspect it might be, the shift-adjusted range that we have set for ourselves could actually give us more expansion than we counted on when we picked out the range at the beginning of the year, even though we are now, as of April, in the middle of that shift-adjusted range. And that leads me to lean more toward ""C"" than ""B."" One thing that gives me real pause about coming out there is what Governor Gramley as well as Steve and the staff remarked on earlier today: Namely, it seems to indicate that we'd have to keep interest rates at a very high level for a very long time. We need some real weakening in the economy in order to hit even the midpoint of our shift-adjusted M-1B range. But, again, our staff has been doing some work on the differences between the liquidity preference model of interest rates and the more traditional loanable funds theory of interest rate determination. And the net of that is that, except for the very short run, interest rates are going to be determined more by credit market conditions than pure money demand equations [would suggest]. This leads us to conclude that it's distinctly possible that we can get a slowdown in money growth this year from last year, along the lines of the midpoint of our shift-adjusted range, without keeping interest rates that high that long, and to a point where we would see somewhat more real economic growth in '81 than the Board staff [has projected] and almost about the same real economic growth, close to 3 percent, in 1982. Admittedly, a lot of this is conjectural and one might even say speculative; but taking both of those reasons together tilts me toward alternative C.",501
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Mr. Chairman, when you were out, Governor Gramley spoke of some frustration in terms of trying to figure out what the economy is doing. We have more than our share of frustrations in policy here, too. We just got through revising up the money supply a little in the first quarter, convincing ourselves that that made more sense. But now we find that the GNP may be revised up more, so we're further away than we thought we were.",92
-fomc-corpus,1981,Wait 'til next year's revision!,7
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"We have a little frustration, too, with respect to this question of how quickly the banking system responds to what we do. We saw a classic illustration of that in this period here, apropos to your comment earlier, Governor Partee. We seem to have a situation where, even when we begin to firm up, what happens for a couple of weeks is that the banks sit there and wait until Wednesday and cover their whole position on Wednesday. And the funds rate doesn't change except on Wednesday and then everybody discounts the change. And then for a week or two after the banks run down their excess reserves and end up with deficiencies. Somehow or other, in ways that are not clear to me, it takes a couple more weeks and we revise away all those deficiencies with ""as-of"" adjustments. Then finally, after all of those processes have run their course, we begin to see some pressure either in terms of borrowing or the funds rate, or both. I will also confess to a little continuing sense of frustration about the construction of and subsequent adjustments to the reserve paths, which comes up again in this forthcoming period. The Bluebook indicates that, looking out over the April-June period, any of the alternatives contemplates a substantial acceleration in reserve growth while at the same time about the same or less growth in money. I don't know what all that means except that maybe we don't know as much as we think we know. As I suggested earlier, there are some risks here, and I think we have to be prepared to take some risks. In the current circumstances I come out somewhere around ""C,"" too, partly because I think the economy, if anything, is stronger, and partly because I think money growth is likely to be stronger in the short run than we expect. And finally, like Governor Rice, if we have to take a bit of a slowdown or a decline in the economy, which we may have to do, I'd rather do it now than later, partly because I think it makes more sense in the context of hitting the annual targets but partly because it forestalls an even more serious problem that would occur if we let [money growth] continue to build up. Given all of that, I come out somewhere around ""C.""",450
-fomc-corpus,1981,Governor Wallich.,4
-fomc-corpus,1981,"Well, I see the economy lifted to a higher level of [activity] and, with a given rate of money growth, we have a higher level of velocity than one would have expected. Certainly, we have to [get money growth to] come back [toward our] midpoints. If we don't do that, I think we will have continuing pressure from high interest rates for a long time, with the economy being held down by always bumping [up against] the admittedly very tight-fitting money supply ceilings. I find that uncomfortable to contemplate for the future. So, if we could create a little breathing space in the real sector, letting out some of that steam that built up during the first quarter, I think we would operate more comfortably with our existing targets and in the long run we'd probably have less high interest rates. Conceivably, maintenance of these high interest rates would give us this [result] anyway through some sort of financial crunch. But we don't want to provoke that. So, I would lean toward exerting a good deal of pressure now in order to get [rid of the imbalances in] the economy and [in] the relationship of the aggregates to the economy. That suggests that ""C"" is the appropriate alternative. To the extent that one can [anticipate] these things, if ""C"" will allow the funds rate to come down later even though it may mean a higher funds rate immediately, that's what I think we should aim at, i.e. somewhat less pressure in the economy for the longer run. I would say one other thing. Given the way we were surprised by events in April, we ought to examine whether we couldn't respond more flexibly to such developments. I realize that means responding to the weekly data in a way that the data themselves don't really justify. Nevertheless, it has happened again and again that we were overtaken by events and, in the light of hindsight, probably would have wanted to move faster. I don't recall so many instances in which we did move fast and then regretted it or didn't move and then found that that would have been the right thing to do. On balance, I think our failures have been on the side of actions [that were] too little and too late.",454
-fomc-corpus,1981,"But you want to be asymmetrical about that, don't you?",13
-fomc-corpus,1981,"On the down side I do have my reservations, yes. In short, I would lean toward ""C.""",22
-fomc-corpus,1981,Mr. Guffey.,6
-fomc-corpus,1981,"Thank you, Mr. Chairman. I'm primarily motivated by a desire to hit the targets that we set earlier, not because they're magic but because that would tend to avoid the same kind of thing that happened in June, July, and August of last year. That is, things got away from us after one month [of] fairly large [monetary growth]. We say that isn't terribly bad, but when we start piling one month after the other, we then have a very small chance of hitting our targets for the year. Therefore, restraint at the moment is attractive to me, but I'm not sure that I would go as far as ""C."" The staff's estimate of growth in M-1B of 6 percent or a little above in May under alternative B probably is subject to being off by at least 100 percent. That is, I think we could get 3 percent or 9 percent in May as easily as 6 percent. Thus, my prescription would be something between ""B"" and ""C,"" with a borrowing level initially of about $2.1 or $2.2 billion and with the rather specific instruction to the Desk and to the staff that if money growth as it develops in May is running above 6 percent, the borrowing level should be adjusted upward promptly to $2-1/2 billion, [the level] I believe the staff would say at the moment is consistent with ""B."" So, I am choosing numbers for growth in the aggregates between ""B"" and ""C,"" with an initial borrowing level of $2.1 or $2.2 billion but I would be prepared to move borrowing up rather rapidly if growth in M-1B starts coming in above 6 percent in May. A federal funds range of 17 to 22 percent would be acceptable.",367
-fomc-corpus,1981,Mr. Boehne.,6
-fomc-corpus,1981,"I think the current economic situation and the general climate that we're in call for restraint. And we really have to hit our targets. I'd be prepared to err some on the side of restraint, but it seems to me that alternative B does that. I find going all the way to ""C"" to be too much in that direction. So, I would come out in the neighborhood of ""B.""",80
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"I would opt for ""C"" for most of the reasons already stated. There is one further reason, and that is the possibility that the new seasonal adjustments are a bit unrealistic in terms of the degree to which they've adjusted the aggregates downward. I'd like to throw in one other thought, too. If we are interested in achieving the greatest degree of confidence that could reasonably be expected in the financial markets, I wonder if in the directive--and this piggybacks somewhat on some of the things that Fred Schultz has said--we ought to consider eliminating any reference to our federal funds rate checkpoints. It seems to me that there could be a lot of reasons why the Chairman would consult at a critical phase. It is conceivable that growth of the aggregates, for example, could be a source of concern that might lead to adjustments. I do know that there is still a degree of uncertainty in the minds of market participants as to why we include a reference to checkpoints on the fed funds rate and not on some of the other [factors] that could influence our [need to] consult. So, I think some consideration should be given to clarifying that with a statement, perhaps by the Chairman, that we consult for a lot of reasons and that under our new procedures fed funds checkpoints are no more meaningful than other checkpoints that would lead to consultation.",268
-fomc-corpus,1981,We'll get to that subject a little later. Mr. Gramley.,14
-fomc-corpus,1981,"Well, Mr. Chairman, I think the mood of the Committee is becoming very clear. This is a Committee that follows a tough policy. It's only a question of how far we go. I share the general view that I believe prevails here that we're dealing with a very strong economy and that our problem this year in terms of the monetary aggregates is primarily making sure that we don't overrun the upper ends [of our ranges] rather than the other way around. But I want to call the Committee's attention to the fact that we have essentially one alternative that implies no change in money market conditions and that's ""A."" The other two are both tougher. And if my sense of relationships is correct, the borrowing numbers we're associating with ""B"" and ""C"" are not by any means associated with the midpoints of the federal funds ranges that we're talking about here. The present level of borrowing is less than $2 billion. Under ""C"" that would go all the way up to $3 billion. And if we go that far, I think we're going to end up having a telephone consultation by next Monday, if not earlier. We have done a lot of tightening recently, and I think we ought to try to keep that degree of tightness and perhaps go somewhat further. But I wouldn't want us to get into a situation in which if some temporary weakness in the aggregates does develop, as Governor Partee suggests it might, we would end up running interest rates back down again. That would be quite unproductive, if the Committee's diagnosis of the economic problem is a correct one. So, I think the better alternative would be to stick with ""B"" and then come back a month from now at the next meeting and go further if we need to.",355
-fomc-corpus,1981,Mr. Ford.,4
-fomc-corpus,1981,"I come out pretty much on the consensus of between ""B"" and ""C,"" leaning toward ""C."" I share the concern about the great risk to credibility and the overriding need to meet the targets and to start now rather than to wait until later. We've been fortunate that the seasonal adjustments, if I read the staff work right, had the effect of making the more recent aggregate numbers look lower. They are below some of the others, which were adjusted upward, is the way I read that.",100
-fomc-corpus,1981,"It makes April lower, but May and June higher.",11
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,February is higher and April and January are [lower].,11
-fomc-corpus,1981,"Depending on how different Fed watchers interpret that, there may be a little vulnerability about some of the downward movement from pretty high numbers to quite low ones, even though in other timeframes they are offset. Overall, I would say we'd have to go with a reasonably tight policy so as not to pay later, hoping it is true, as I think Governor Rice said, that we'll get slightly higher rates now and receive as our reward lower rates later in the year than we would otherwise have under ""B"" or ""A."" However, I'm very concerned about the fragility of the marketplace. Fred Schultz in his comments mentioned the words ""financial crisis"" and it almost sounded casual to me, Fred. I don't mean to insult you but I don't think that's something that we should--",155
-fomc-corpus,1981,This is not my day!,6
-fomc-corpus,1981,Casual?,3
-fomc-corpus,1981,"You said there might be a financial crisis and I thought everyone would blanch. I blanched, but nobody else did. We're obviously not going to put that in the policy record, but I really do hope that we redouble our efforts to watch very carefully for possible problems arising in the most vulnerable sectors, the housing-related sectors, and try every device we can think of to help the thrifts that is not a bail-out, which would [subvert] monetary policy. I'm referring to advocating right now federal preemption of the limits on due-on-sale clauses in 17 states, including some of the biggest ones, and things like that. That would help them to reliquify themselves better without an outright bail-out, which would simply exacerbate our monetary control problems. That's the only thing I would like to add to this process as we head toward this obvious consensus of ""B"" to ""C""--that we have to redouble our efforts in the area of monitoring and doing whatever we can that is not inflationary to help the [institutions that] bear the brunt of it. I don't know that there's an answer, Chuck. I know what you're going to say, but we had better be searching.",246
-fomc-corpus,1981,"Due-on-sale doesn't help them this month or next month, that's for sure.",16
-fomc-corpus,1981,"No, but if you do the calculations on the amount of money they can recycle, that makes a big difference.",23
-fomc-corpus,1981,It might next year or the year after.,9
-fomc-corpus,1981,Governor Teeters.,4
-fomc-corpus,1981,"Well, I'm shocked by the consensus that is emerging. I don't think this economic outlook, which is based on ""A,"" is at all encouraging. It means another year or maybe two years of no growth in the economy. I find the unemployment rates projected, with no growth, rather unbelievable also. More importantly, it seems to me that the level of borrowing is now becoming very crucial here. At just under $2 billion we have already put a great deal of pressure on the market. We have shot [short-term interest] rates up 3 to 5 full percentage points, depending on which ones you look at. If we move borrowing up another $1 billion, the [proposed fed funds upper end of] 22 percent isn't going to hold. It seems to me that we really should be somewhere between ""A"" and ""B"" and perhaps move the borrowing from the present $1.7 or $1.8 billion to just over $2 billion and let that be the deciding point here. I'd set the [top of the funds rate] range at certainly no more than 21 percent, which I find difficult to accept. We're putting a lot of pressure on the market now. We haven't had enough time, as Frank said, to assess what that sudden change in interest rates is going to do. I think it's foolish to run rates up another 5 percentage points in such a short period of time, which I'm convinced ""C"" would do at this point. I can live with ""B,"" but I don't like it. I'd much rather have the borrowing halfway between $2 and $2-1/2 billion.",331
-fomc-corpus,1981,That doesn't sound like such a weak approach.,9
-fomc-corpus,1981,"No, no.",4
-fomc-corpus,1981,That borrowing [level] is pretty good.,9
-fomc-corpus,1981,That's a $400 million adjustment right off.,9
-fomc-corpus,1981,You're above--,3
-fomc-corpus,1981,"Yes, but it's better than the [$2-1/2] billion that everybody else is talking about.",22
-fomc-corpus,1981,[I don't think] that's right. I was starting at $2 billion and moving it up from there.,21
-fomc-corpus,1981,"Yes, me too.",5
-fomc-corpus,1981,Mr. Boykin.,5
-fomc-corpus,1981,"Mr. Chairman, I come down pretty clearly for ""C."" The arguments for that position have been stated and I will not take the time to restate them. But just by way of summary: The strength of the economy worries me; I wonder about the recent rapid growth in money and that it may not be temporary; also the expectations issue looms rather large in my thinking. I think it's important to have a continuously firm policy.",88
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"Mr. Chairman, there are several things we haven't really talked about this morning, including the international situation, the Middle East, and a number of other things that certainly could alter the outlook very quickly. A second point is that I'd be very happy if somehow we could get away from the check writing privileges on these money funds, because I think we are exposed there with the funds investing in issues that could go sour on them. We may have more volatility built into this than we are thinking about. The third is that we talk about targets as if they were fixed and we forget base-drift and a whole lot of history that goes into them. I'm not sure that hitting the midpoint of our new range is what we really ought to be doing. A little miss on the low side might be more helpful than misses on the high side. I'm disturbed by the M2 and M3 figures, which tend to go on the high side in this set-up. On the other hand, I have some sympathy with Lyle's point of view in that I'd hate to see us run the rates up and then run them right back down again. That would not be very helpful in terms of our longer-run objectives. To take a stance at this time, I would be content to be able to hit somewhere between ""B"" and ""C"" rather than to set a target and then be all over the lot in terms of our performance. I, too, would be inclined to raise the borrowing objective to help move in that direction; I'd go to $2.1 billion or something in that neighborhood as a first move.",323
-fomc-corpus,1981,Mr. Doyle.,4
-fomc-corpus,1981,"Mr. Chairman, it's very difficult for me not to be influenced by the state of the economy in the Seventh Federal Reserve District, particularly the credit-sensitive industries, which are extremely depressed. Every day the feeling seems to be growing that the risks are greater that some of these industries may not recover their former strength. Hence, I would favor alternative A but I could reluctantly support alternative B.",77
-fomc-corpus,1981,"I guess that is everybody, unless somebody has not been heard from.",14
-fomc-corpus,1981,We haven't heard from you.,6
-fomc-corpus,1981,We're about to!,4
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"I'll reveal my forecast on where the Committee would come out, which by coincidence or otherwise doesn't make me feel uncomfortable. We have had a 5-1/2 percent [M-1B] target for the quarter, and the alternative that's consistent with that is ""C."" But we had a big increase [in M-1B] in April. My forecast was that it might not look too good or that people might not want to say that we should go all the way to ""C,"" which implies about 1 percent [M-1B growth for April to June] by the time we state it in the directive. Stated flatly, we're certainly around the ""B to C"" area; both the Committee and the non-Committee members, looked at individually or collectively, are split someplace between ""B"" and ""C"" with a little flavor of between ""A"" and ""B."" The question I would raise is whether we can reconcile that part of it, and I'll get to the borrowings and the other issues in a minute. If you look at the way the record has been stated historically, the most consistent way is that [at this point in the quarter] we'd put in a growth rate for April to June.",252
-fomc-corpus,1981,"Is it through June or to June, Paul? I'm worried about the lack of [unintelligible].",22
-fomc-corpus,1981,"Well, it means through June. We next meet at the beginning of July, don't we? I wondered, when I looked at it, whether we could even put in a growth rate through July. I thought about it after the Bluebook was prepared. But generally we go on the theory--maybe it's not a good theory--that we set something for the quarter and then review it at the middle-of-the-quarter meeting. We can get some of that flavor--I don't know whether this captures some of the [concerns] or not--with a slight rewriting. The draft directive says ""In the short run the Committee seeks behavior of reserve aggregates consistent with a substantial deceleration of growth in M-1B from April to June""--and that's shift-adjusted--""to an annual rate of ___ percent"". This language is all the same so far. Consistent with this approach, we presumably could put in something like the ""B"" number or we could put in [the ""B"" number and] ""or lower, as may be consistent with the objective for M-1B adopted by the Committee on March 31"" and then repeat that number. If we want to go that way, I think it says that we are between ""B"" and ""C."" And then we'd put some M2 number in there. We could go that way or we could just put in a lower number--we can't put in a much lower number--and say ""or lower."" To get absolute consistency with what we did last time, we would [have to] say ""C"" or lower. Last time the directive simply said ""5-1/2 percent or somewhat less,"" so theoretically we could do that. I confess to my own bias of rather liking some feeling in the directive that we are not going to hit a precise number, because we are not going to anyway, and giving some flavor of which way we want the errors to go. Well, let me just get a very preliminary reaction to something like that. Let me say specifically that we are putting in 3 percent but with the period April to June. In any case, we want a substantial deceleration--I'm just talking about M-1B--to an annual rate of 3 percent or lower, as may be consistent with the objective of 5-1/2 percent for the quarter that we adopted last time.",483
-fomc-corpus,1981,"What is the purpose of putting the rest of the language in there? If we say 3 percent or lower, what function does the rest of this language serve?",33
-fomc-corpus,1981,"It just ties it back to what we said before as to what [M-1B growth for] the quarter should be; it's an element of continuity and it's not really a lower limit. I don't think we can control M-1B that closely, so its purpose is to give some idea of what we mean by a little lower, I think.",72
-fomc-corpus,1981,Is there no reference to NOW accounts? That's because it's shift-adjusted. I get you.,19
-fomc-corpus,1981,"Yes, it's shift-adjusted. We are all talking about the shift-adjusted number--or I am--at this time.",26
-fomc-corpus,1981,"To get [a growth rate of] 5-1/2 percent or somewhat less for March to June, we are going to have less than 1.3 percent for April to June. That bothers me; it seems to me that we are putting in figures that are really not consistent with one another.",63
-fomc-corpus,1981,I think that's right.,5
-fomc-corpus,1981,"Well, I guess I disagree with that. But it's a question of approach. My [point] on this is that we are not going to hit a precise number anyway, so it's useful to give the direction in which we would like to go from whatever precise number is put in. Or we could be completely neutral. If if we put in something as high as 3 percent as the center of gravity of the Committee, I would interpret that as not neutral; we'd rather come in lower than higher. And that's what I'm--",106
-fomc-corpus,1981,"But that first ""lower""--the phrase ""an annual rate of 3 percent or lower""--connotes that. I wouldn't have judged that the Committee's view is that [M-1B growth of] 1 percent or less is what we are really shooting at. And 1.3 percent or less is what we'd have to get if we are going to get 5-1/2 percent or less from April to June.",89
-fomc-corpus,1981,"Well, this is the question. The question obviously was not asked this way, but let me ask the question. Suppose we have a happy day and those late May figures come in rather low and it looks as if, indeed, we may come in lower than 1 percent for May and June with interest rates not rising and maybe falling under those circumstances. Would the Committee consider that an unhappy result or a happy result? I myself would be rather happy. And, therefore, I would not want to be pushing out money if the growth rate happened to come in, let's say, at zero in May and June, if interest rates were already stable or declining.",132
-fomc-corpus,1981,"I don't have any objection to that, but what that postulates is that we hope to have another downward shift in the demand function for money. And if we do, that is fine and the money numbers will look better. Unless we get a very marked turnaround in the behavior of the economy in the near term, what that would imply is that the money demand function is not behaving as the staff has assumed. I don't know why we would want to wish for something like that. That really doesn't do any good; it just makes the numbers look better.",111
-fomc-corpus,1981,There's some advantage to that.,6
-fomc-corpus,1981,I'm not sure I follow your concern. I would argue that without some wording of this sort--not that the wording is all that critical--the Committee would begin getting worried that money growth was coming in too low and would want to raise it a little. And I'm not sure we want to do that.,61
-fomc-corpus,1981,"Perhaps what Governor Gramley is getting at is this: Suppose we aren't so lucky and growth in May and June comes in, say, at 3 or 4 percent. Then how would that 3 or 4 percent be interpreted as being consistent with 5-1/2 percent or less?",61
-fomc-corpus,1981,"Well, it wouldn't be. But in that case it's not consistent with the 3 percent either.",20
-fomc-corpus,1981,"Well, suppose it's just 3 percent?",9
-fomc-corpus,1981,"Maybe the problem is the [wording] ""as may be consistent."" Perhaps we should indicate the direction of the move not ""as may be consistent"" but ""in order to be more consistent"" or something like that.",45
-fomc-corpus,1981,We can look at this language if you want.,10
-fomc-corpus,1981,"As I read this construction, Paul, I would have said that the Committee would strongly resist growth above 3 percent and that it would be more or less indifferent between, say, 3 percent and zero. That's the way I look at it.",50
-fomc-corpus,1981,"Yes, I think that is what it is meant to convey, if we put the number 3 percent in there. There is nothing to say we have to put 3 percent in there; we can put in a different number.",47
-fomc-corpus,1981,"The way I read it, though, is that we would also be resistant to [M-1B growth] below 1-1/4 percent or whatever the number is, as long as it was consistent [with the target for the quarter].",51
-fomc-corpus,1981,"Yes, but then it says the previous target was 5-1/2 percent or less.",20
-fomc-corpus,1981,"And that's why I said that. Well, any positive number would be all right.",17
-fomc-corpus,1981,I would read it the way you did and maybe even add one of the negative numbers.,18
-fomc-corpus,1981,"Suppose we said ""3 percent or lower unless it becomes inconsistent."" What happens if we do that?",21
-fomc-corpus,1981,But wouldn't 3 percent itself be inconsistent?,9
-fomc-corpus,1981,"That moves us toward consistency, but it doesn't really make it consistent. That's the point.",18
-fomc-corpus,1981,"Well, what's consistent? We are talking about a very small number for two months. That's the problem I always have with these things. One thing I'm sure of is that in one meeting out of about twelve we may be within 1 percent of one of these numbers. There shouldn't be a comma after ""percent"" anyway. It would be "" percent or lower.""",73
-fomc-corpus,1981,The comma after percent is meant to indicate that it's only the lower part that is consistent.,18
-fomc-corpus,1981,"If we discuss the central issue first, maybe this clause will fall into line more easily. If we say 3 percent, we are going squarely for alternative B. It's only if luck comes along that we are going to accept lower [growth]. The consensus of the Committee was clearly for between ""B"" and ""C."" Some people had ""C,"" some people had ""B,"" and no more than one or two were between ""A"" and ""B."" I think 3 percent doesn't reflect the Committee consensus.",105
-fomc-corpus,1981,How we set this up depends upon where the borrowings go. But I do not read this at all the way you are now reading it. It says 3 percent or lower and it refers to the consistency. I read it the way Mr. Partee reads it.,55
-fomc-corpus,1981,"It means, though, that the setting of our reserve path would be based on 3 percent, wouldn't it?",23
-fomc-corpus,1981,"Is that what sets the reserve path? It's borrowing, isn't it, that sets our reserve path?",20
-fomc-corpus,1981,"Well, initially.",4
-fomc-corpus,1981,"Yes. If we raise that initial level of borrowing by anything like what the staff has proposed, that absolutely swamps the difference in the reserve path between, say, 2 and 3 percent, doesn't it, Steve?",45
-fomc-corpus,1981,Sure.,2
-fomc-corpus,1981,You must be talking about a lot more money over the two months with a $500 million adjustment of the initial borrowing than you are with the difference between 2 and 3 percent.,37
-fomc-corpus,1981,"Forget about the language at the moment. My interpretation of this language, as I say, is very much the way Governor Partee suggested. There's no point in saying that we are not going to permit something above 3 percent. We don't know. Maybe it will come in above 3 percent. We may set the borrowings at $3 billion and it could come in above 3 percent. Forgetting about the language, is this where we want to be? Will we resist pretty darn hard growth above 3 percent but be quite relaxed below 3 percent down to zero or I would say even below zero, depending upon how things develop in the market for this 2-month period? Is that what we are trying to say?",148
-fomc-corpus,1981,"I would hope that we are trying to say that we'd [strongly] resist growth above, say, 2 percent or something like that, if we want to start somewhere between ""B"" and ""C.""",43
-fomc-corpus,1981,I must confess that I don't know what the operational meaning of that is for M1-B [growth]. All I have are forecasts that are right within [a range of plus or minus] 10 percent.,42
-fomc-corpus,1981,"I think there's a value in showing that we are determined and are trying to be very closely consistent with our previous short-run target. It just adds to our credibility. And, as various speakers have said, I would rather see the rate pressure now than later in the year. It's obviously not a matter of life and death when we are talking about [a difference of] something like 1 percent, since we don't control it that closely. In terms of what our target is, it seems to me better to be in a fairly tight position even if we are a little more relaxed on the initial [unintelligible] assumption.",127
-fomc-corpus,1981,"From my vantage point, if we had 3 percent in there as you suggest, Mr. Chairman, and in fact ended up there, that wouldn't bother me too much because I don't see an enormous difference even between the 6-1/2 percent [of ""B""] and the 5-1/2 percent [of ""C""] for March to June. My concern is this: I'm inclined to the view that whatever we set we are likely to exceed in this immediate situation; and given the lags in the reaction process both by us and by the banks, if we start out saying we would live with 3 percent, we could easily end up with a quarterly growth rate for March to June of not 6-1/2 percent but even more than that. I'm not sure what [directive] construction allows us to deal with that.",173
-fomc-corpus,1981,"Well, I don't think any construction allows us to deal with that. What allows us to deal with that is where we go on the borrowing assumption right now. I don't see people being all that gung ho on the borrowing assumption that the staff says is consistent. I'm not sure it is. The staff estimate may be too high. I think we ought to get some understanding of what we are talking about here, but the only difference it makes in the real world is what number the outsiders read six weeks from now or when it's all in the past anyway. We can obviously put in 2 percent here. That goes squarely in between.",129
-fomc-corpus,1981,What kind of borrowing are we putting in?,9
-fomc-corpus,1981,"Well, we will get to that in a minute.",11
-fomc-corpus,1981,"Paul, in your statement a moment ago you asked us if what we are trying to say is that we don't care how far down [M-1B growth] goes. My reaction to that is that we shouldn't have it open-ended at the bottom. I think ""somewhat less"" is the right tone. I wouldn't want to see the aggregates collapse again as they did a year ago and be at the floor [of the long-term ranges] once again.",93
-fomc-corpus,1981,We can write this more straightforwardly perhaps by just using a sentence that has a number in it and then go on to say that a shortfall in growth for the two months from the rate specified above would be acceptable. That's saying the same thing in two sentences.,53
-fomc-corpus,1981,"If we are going to say ""or lower,"" that second sentence is already implied, it seems to me.",22
-fomc-corpus,1981,"Well, this is partly a question of whether we want to tie it back to the objective for the quarter that we set earlier. I don't know whether it's a good idea or not. But if we follow this idea that we set a target for the quarter and we shouldn't forget about it six weeks later, it's useful to make a reference.",68
-fomc-corpus,1981,Stick to your guns.,5
-fomc-corpus,1981,"I think it would be less confusing if we followed what Tony suggested by putting in 2 percent and dropping the words ""or lower.""",27
-fomc-corpus,1981,"I don't think we can do that here with the rest of this. We can't say 2 percent, which is higher than the previous target, and say it's consistent.",34
-fomc-corpus,1981,We could make it a range. We haven't used a range.,13
-fomc-corpus,1981,"We can put in a range. I have thought of that, too.",15
-fomc-corpus,1981,"Or we can say ""2 percent or somewhat lower.""",11
-fomc-corpus,1981,What's wrong with a range? I guess the problem is that it doesn't let us deal with the bottom side.,22
-fomc-corpus,1981,The only fear I have of ranges is that we can put in a range of 2 to 3 percent and we won't be within it anyway. And people attribute special importance to a range as a whole. That's my only objection to a range.,50
-fomc-corpus,1981,For the sake of discussion: If we set a range of 1-1/2 to 3 percent so as to be generally consistent with the quarterly objective and--,34
-fomc-corpus,1981,You're going to get all excited if it's less than 1-1/2 percent?,18
-fomc-corpus,1981,I'm not. That's the problem.,7
-fomc-corpus,1981,It really ought to be zero to 3 percent or something like that.,15
-fomc-corpus,1981,"Mr. Chairman, I don't know if it would be helpful, but part of the reason for wording such as this or the other wording you suggested is technical. I understand that if the Committee put a number in there of 2 or 3 percent, we would construct the target on 2 or 3 percent or whatever the number is; and at whatever point the Committee felt they were willing to have a shortfall, as money was coming in short we simply would lower the nonborrowed targets commensurately, if that's what the Committee intends this kind of instruction to mean. Under that assumption we would really need to know pretty much in a general way what the lower limit is below which the Committee doesn't want the nonborrowed path lowered any more. That was why we felt it might be useful to tie it to the March-to-June target the Committee had already set.",178
-fomc-corpus,1981,The effort is to get some sense of a range without saying we have a range that's only one or two percent [wide]. That [kind of range] sounds more rigid than I think we can afford to be.,43
-fomc-corpus,1981,What Steve is implying is that the lower limit would be the 1.3 percent rate of growth.,21
-fomc-corpus,1981,"Or whatever by saying ""somewhat less."" It's literally what the Committee set for itself at the previous meeting. That's what this kind of wording would imply: That it's something like the lower limit.",39
-fomc-corpus,1981,"I am inclined to feel that we ought to get something in there [that gives some definition to the] ""or lower."" It's something of an experiment, but I think it may be useful experimenting to see whether we like referring back to the quarterly ranges in these interim meetings. We may get in trouble because sometimes we may not want to refer back to them. But if we don't, we don't. In this case I think it may be useful [to do so]. This other language may be better, saying whatever growth rate we want to use--perhaps an annual rate of 2 or 3 percent--and maybe putting in an ""or lower"" and whatever the consistent number is for M2. I don't know. [We could say]: ""A shortfall of growth in M-1B from the 2-month rate specified above would be acceptable in light of the rapid growth in April and the objective adopted by the Committee on March 31 for growth from March to June at an annual rate of 5-1/2 percent or less."" This other way tried to compress it into one sentence; maybe that isn't wise.",228
-fomc-corpus,1981,Are you going to leave out the fed funds range?,11
-fomc-corpus,1981,"No, I'll get to that. Let's take it one thing at a time.",16
-fomc-corpus,1981,"Speaking for myself, I feel that there is some value in referring back; I don't think it's enormous. Either formulation, as spelled out here or with a separate sentence talking about accepting a shortfall in the more straightforward way is okay. I think pretty much everybody would want to have X percent or lower at a minimum, and I think there's some slight advantage in referring back to that target for the period.",81
-fomc-corpus,1981,"Well, as nearly as I can see at the moment, I think we are only left with whether we take this or make it two sentences. The question is whether to put in 2 or 3 percent to start with. It doesn't bother me much either way.",54
-fomc-corpus,1981,"Mr. Chairman, the way you have separated that and made it into two statements to my view and Lyle's--he and I were chatting--eliminates the problem he raised of the 3 percent not really being consistent. If you say the Committee would also accept a lower figure, which in a sense would be consistent with the 5-1/2 percent, I think you have eliminated the problem--assuming that you can get people to vote for the 3 percent.",98
-fomc-corpus,1981,"""3 percent or lower"" is what it says?",11
-fomc-corpus,1981,"Actually, now the way it's written here it just says 3 percent and then the next sentence goes on to say a shortfall would be okay.",30
-fomc-corpus,1981,I see.,3
-fomc-corpus,1981,Which would be consistent.,5
-fomc-corpus,1981,"Now, we could say ""3 percent or lower"" and say that a shortfall would be acceptable because of--",23
-fomc-corpus,1981,"Yes, that's what I was thinking",7
-fomc-corpus,1981,"Well, I think we are close to this two-sentence version. The question at the moment is the borrowing. Not everybody mentioned it; a minority mentioned it. Of those who did the levels suggested ranged from $2 billion to $2-1/4 billion. The latter was the highest. We had some at $2 billion and some at $2 billion plus--$2.1 to 2.2 billion. A lot of people didn't say anything. So, I think it's clear that we start out at least at $2 billion, which is about $150 million above where we are. The question is how much, if any, to go above the $2 billion at the start, with the recognition--particularly if we start around $2 or $2.1 billion--that if [M-1B growth in] the latter half of May comes in high, we are going to raise that.",186
-fomc-corpus,1981,Starting out with $2 billion is starting out $250 million above where we are.,17
-fomc-corpus,1981,"Well, I'm not quite clear where we are at the moment. I thought we were at least at $1.8 billion.",26
-fomc-corpus,1981,"The borrowing that we are aiming for--the borrowing consistent with this week's nonborrowed [path]--would be about $1860 million. Borrowing for the 3-week subperiod would be about $2 billion. But if you want to take where borrowings actually have been this week thus far, it's $1.7 billion.",69
-fomc-corpus,1981,"We know where it has been this week so far. We only have two numbers. What we were aiming for this week at this moment on our present track is $1860 million, I take it. And we have been averaging $2 billion, so $2 billion really isn't all that much of a change. It's a little higher than where we are aiming right at the moment, but not higher than where we have been. I don't think $2 billion implies all that much of a change, so we may want to make it just a shade higher than that. But a lot of people haven't been heard from. Whom do we have for something between $2.1 and $ 2.2 billion--$2.15 billion, I suppose, just to split that--which is about $300 million higher than this week's figure.",170
-fomc-corpus,1981,Doesn't that have something to do with the fact that there aren't any excess reserves out there?,19
-fomc-corpus,1981,It's swinging up and down.,6
-fomc-corpus,1981,"Well, we tend to adjust to that, so if [the demands for] excess reserves turn out high, we tend to supply them.",28
-fomc-corpus,1981,"But the point is that if we move borrowing up, we ought to get a fairly quick effect, shouldn't we?",23
-fomc-corpus,1981,"Well, I think $2150 million probably would be consistent with a higher federal funds rate than we have experienced thus far, [which is] in the 18-1/2 percent range.",40
-fomc-corpus,1981,What would you guess that would be?,8
-fomc-corpus,1981,"I would say between 19 and 20 percent, give or take some.",16
-fomc-corpus,1981,Which is right at the very top of the range that we have specified here.,16
-fomc-corpus,1981,"It sounds strong to me. That's why I started out with $2 billion. But I certainly would be interested in moving it quickly, depending upon what kind of reactions we see.",36
-fomc-corpus,1981,"Well, let me just try $2.1 billion and see whether there's a consensus for that.",20
-fomc-corpus,1981,We're down to voting members?,6
-fomc-corpus,1981,"Well, I'm asking for a vague consensus now. How many are happy with $2.1 billion?",21
-fomc-corpus,1981,Would accept or would make one happy?,8
-fomc-corpus,1981,"Well, I wasn't getting that precise. I was trying to get to some kind of consensus. I take it there's no overwhelming happiness at $2.1 billion. I don't know which direction to go from the $2.1 billion.",48
-fomc-corpus,1981,I could accept it. But try $2 billion.,11
-fomc-corpus,1981,I'll try it. Does $2 billion make people unhappy? I have a lot of no hands raised here. Does $2.2 billion make people happier?,32
-fomc-corpus,1981,How about $2.1 billion?,8
-fomc-corpus,1981,"I think you hit the right number, but it's whether it's preferred or acceptable.",16
-fomc-corpus,1981,$2.1 billion is acceptable.,8
-fomc-corpus,1981,"Is $2.1 billion acceptable? We'll remain very tentatively there at the moment. Let's [discuss] the federal funds range. First of all, the question has been raised whether we should have it at all, I guess. Did you hand out these other--",55
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,I have a series of reworded sentences. I have one reworded sentence that assumes we keep it; let me see what the change is from what we now have. Maybe Mr. Axilrod can explain it to me.,48
-fomc-corpus,1981,"The essential sentence that you have there says that if it appears during the period before the next meeting that fluctuations in the funds rate, taken over a period of time, within a range of __ to __ percent are likely to be inconsistent, etc., the Manager will inform the Chairman, who will then decide whether the situation calls for supplementary instructions. That sounds as if the federal funds rate is an objective within the [context] of the instructions. The proposal, in line with some of the [points] raised by Committee members, essentially has the same beginning but it tries to make the federal funds rate seem more like a consultation point that involves a little more flexibility. It says that if it appears during the period before the next meeting that pursuit of the monetary objectives and related reserve paths is likely to be associated with a funds rate range persistently outside a range of _ to _ percent, then the Manager will inform the Chairman--the same sort of instructions as before--but then it says ""who will then decide whether consultation with the Committee is necessary.""",209
-fomc-corpus,1981,"When I was looking at this before, the one thing I didn't like about it was the use of the word ""necessary."" Is that a good word or is ""advisable"" a better word there? If we say it's necessary, are we not then implying that again the fed funds range is part of the--",64
-fomc-corpus,1981,"That's a good point. This construction with ""advisable"" would be better.",17
-fomc-corpus,1981,"Well, it reads to me literally as saying that the Chairman could permit the funds rate to go almost anywhere.",22
-fomc-corpus,1981,"Well, I think that's a mistake anyway. If we are all saying that the purpose of the funds range is to trigger a consultation, then we should not imply so clearly that the Chairman can veto a consultation and in effect abolish the FOMC and run a one-man FOMC.",59
-fomc-corpus,1981,"Why wouldn't the same wording apply to the borrowing assumption and to the aggregates? In other words, isn't this an implicit prerogative of the Chairman on any of this? He can call us any time as long as he doesn't call collect!",48
-fomc-corpus,1981,"Well, I think we ought to discuss whether we want this at all, which I guess is the question you're raising. I'm obviously at the hands of the Committee, but I don't find any difficulties myself, and I see some advantages, in saying if interest rates move extremely enough the Committee at least wants to review what the heck it's doing. I think that's the question. If we really think that, then I'm inclined to feel that we ought to say it. If we don't think that and genuinely don't think this is anything to be worried about, then we [could] leave it out. Now, we could write this to say that if either the money supply is moving well outside its range or if the federal funds rate is moving well outside its range, we would consult. And I think that is true in a sense. The difference in the implication is that if the money supply is running outside its range, we know what to do if it doesn't involve conflicts with these other things. We know what to do in the sense of the general direction.",210
-fomc-corpus,1981,"I think if the money supply is running outside its range, you will consult [with the Committee]; and if the fed funds rate is running well outside its range, then you may consult.",38
-fomc-corpus,1981,"Well, I'm not so sure we would consult if it were running outside the range; it depends upon how far. It's likely to run outside the range in the short run, so we would make all these adjustments in borrowings and stuff that we talk about.",52
-fomc-corpus,1981,All right.,3
-fomc-corpus,1981,"Now, if it went far enough.... What I think disturbs people is that we would want to look at [our decision] again if it implied a very large change in financial conditions that was not necessarily contemplated at the time of the meeting.",49
-fomc-corpus,1981,"If we use some language like this, is it absolutely essential that the language be right in the directive itself? Let me explain where I'm coming from. The advantage to a federal funds rate consultation guideline is that the federal funds rate, whatever else it is, is the only thing we have in the short run that is fairly unambiguous. Borrowings and the money supply and reserves and those things are all over the lot. The funds rate at least is unambiguous. I certainly agree with the idea of trying to get the markets and everybody else to recognize the de facto role that it plays. But I'd like to see something [about the federal funds rate] preserved, and I wonder whether it can't just be part of the general discussion and not right in the directive language itself.",157
-fomc-corpus,1981,"It could. It can be anything we want. At the present time, I am somewhat allergic to making that big a change in the directive because it will then give more significance to it than I think it's worth.",43
-fomc-corpus,1981,"Couldn't we perhaps say specifically that the Manager's operations are not to be constrained by the funds rate but that if the funds rate moves outside etc., the Committee will consult? Then it is clear that it is not a constraint.",45
-fomc-corpus,1981,"Well, I think we can say that. But the explanation you gave I'd be perfectly happy to put in the general discussion as background for this.",29
-fomc-corpus,1981,"I like this, Mr. Chairman. It's a logical step in the process of moving where I think we eventually ought to be, if we can get the aggregates under control, of not having any limits. It fits in with the step where we define the limits as a consultation point and it allows the Desk to move a bit before we have that consultation rather than delaying it maybe for a couple of days.",81
-fomc-corpus,1981,"Oh, it's for more than a couple of days, I think, under the current directive; we've done that historically.",24
-fomc-corpus,1981,"I mean that if you decided to have a consultation, you might notify us a day or so ahead, and meanwhile the Desk might go ahead and go outside [the funds range].",36
-fomc-corpus,1981,"Well, I think they've been doing that anyway, but I agree with you.",16
-fomc-corpus,1981,But this makes it clearer to the market.,9
-fomc-corpus,1981,"Right. I think this comes pretty close. We can quibble about the language, but the intent of this is to be consistent with what we've been saying.",32
-fomc-corpus,1981,I think that's right.,5
-fomc-corpus,1981,"I rather like the other alternative we were talking about, which is that a Committee consultation may be called for by the Chairman if it appears during the period before the next meeting that the federal funds rate is likely to be significantly outside a range of _ to _ percent for an extended period.",57
-fomc-corpus,1981,I think that's pretty much the same.,8
-fomc-corpus,1981,I thought that was pretty straightforward.,7
-fomc-corpus,1981,"Well, I'll tell you. What I don't like about that--and we're talking about nuances--is that it has no connotation that we're following a reserve path. That sentence in and of itself can be interpreted to mean that we really set this federal funds range as a range.",56
-fomc-corpus,1981,"Also, it seems to me that there ought to be a professional judgment on the part of the Manager that it's going to run well outside the range rather than that the Chairman is making this decision. If we want it to be a technical question, it seems to me it ought to be a Manager's question.",62
-fomc-corpus,1981,"If any mention of this were totally omitted, where could the problem conceivably arise in the markets? If we just stop referring in any way to a federal funds--",34
-fomc-corpus,1981,"Well, there are two questions. Forgetting about the market, there is just the question of what the Committee wants to say and whether it wants to have a consultation. If we do, then I think we ought to put it down. But so far as the markets are concerned, I think that it will be read as--",66
-fomc-corpus,1981,As an underlying focus.,5
-fomc-corpus,1981,"--a further step in the direction toward ignoring this, and they would expect more instability rather than less in some sense. They'd feel we had changed in some more fundamental way than this discussion seems to imply.",42
-fomc-corpus,1981,"Mr. Chairman, I like the way it was in the original here.",15
-fomc-corpus,1981,Do you mean the way it was last time?,10
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,The way it has been?,6
-fomc-corpus,1981,"The way it has been, where the situation calls for supplementary instructions from the Committee. I think that's what it is we want. I'd rather not have all that stuff about necessary and persistent and the rest; I'd just leave it alone.",47
-fomc-corpus,1981,I can live with it the way it is. This is an effort to say what we've said more informally.,23
-fomc-corpus,1981,I think we can just say it informally and leave it that way. It has caused a useful consultation for everybody; it has marked a point at which we make a decision as to whether we're going to do it or not do it.,48
-fomc-corpus,1981,"But, unfortunately, the way we have said it has led to the feeling on the part of a lot people in the markets that we still do have a fed funds rate target.",36
-fomc-corpus,1981,"But, Fred, we've violated the range practically every time, with only one exception.",17
-fomc-corpus,1981,"I understand what we've done. It's just that I think there still is a misperception in the market, which it seems to me we might be able to clear up with some rewording. I do have some reluctance about changing it, just on the basis on the fact that every time we make a change there is some confusion in the market. So, whether it's worth making the change is a question. My feeling is that it would be good if we did change it. I would hate to see us give up some kind of fed funds range because I think the uncertainties that we're dealing with here and the relationships between the aggregates and the economy are so difficult that the fed funds rate tells us something. There can clearly be a situation in which something is happening out there and we ought to be consulting. But that's what we're doing. We keep telling people that that's what we're doing and they don't believe us very well because this range appears in the directive.",193
-fomc-corpus,1981,"Mr. Altmann reminds me, and I will remind you, that in what we're going to publish Friday or whenever we publish it, we have a paragraph in the general discussion that says: ""With respect to the federal funds rate,""--it probably should say the federal funds rate range--""it was stressed that the Committee specified an intermeeting range for fluctuations over a period of time to provide a mechanism for initiating timely consultation between regularly scheduled meetings whenever it appeared that fluctuations within the specified range were proving to be inconsistent with the objectives for the behavior of reserve and monetary aggregates. Thus, the limits of the range were indicative of the conditions under which the Committee would wish to consult to reexamine its short-run objectives and were not intended as binding constraints on System operations pending such consultations.""",157
-fomc-corpus,1981,When will that be published? Is that in the directive?,12
-fomc-corpus,1981,"That's in the policy record for the March meeting, which will come out this Friday.",17
-fomc-corpus,1981,I take it that there is a general feeling that we should continue to specify something. Is that correct?,21
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"That's a majority. One can make an argument that in the light of all we have said the present language is increasingly well understood and that we always run some danger of a renewed misinterpretation by changing it at all. So, we can just leave it as it was. That's one option. The other option, if I'm reading it right, is something very close to what was distributed here, which is not a very drastic change anyway. Which of those two options commands the greatest support? Let me try the option of not changing the language at all. Who is for that? Do I conclude from that that there is positive support for at least a modest change in the language by the other 15 people sitting here? If that is right, then we are down to the particular wording. You have one version in front of you.",167
-fomc-corpus,1981,"I have a suggestion, which incorporates Governor Schultz's thoughts and I think gets around the points that both you and Governor Partee raised. It reads as follows: ""The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that pursuit of the monetary objectives and related reserve paths during the period before the next meeting is likely to be associated with the federal funds rate persistently outside a range of __ to __ percent.""",87
-fomc-corpus,1981,"But if you say ""persistently"" then don't you have to say that the Chairman will call for a consultation?",23
-fomc-corpus,1981,"Well, I don't think we ought to deny the Chairman the opportunity to make a decision on his own.",21
-fomc-corpus,1981,"I think you can be sure that the Chairman will [do so], whatever the language says. So this is just a nicety of whatever language it is.",32
-fomc-corpus,1981,"Oh yes, I know that. I'm not talking about substance; I'm talking about images.",18
-fomc-corpus,1981,"It says ""may,"" but it certainly implies that he's going to do it.",16
-fomc-corpus,1981,"I prefer ""may"" because ""will"" implies that there is a target there.",17
-fomc-corpus,1981,I think that version is considerably better than this one.,11
-fomc-corpus,1981,"Well, in substance, it seems to me to say the same thing.",15
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Exactly the same, but it leaves in the reserve path and the monetary aggregates, it lets the Manager for Domestic Operations make the technical decision, and it says the Chairman ""may"" call a consultation.",40
-fomc-corpus,1981,Read it again.,4
-fomc-corpus,1981,"""The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that pursuit of the monetary objectives and related reserve paths during the period before the next meeting is likely to be associated with a federal funds rate persistently outside a range of _ to _ percent.""",54
-fomc-corpus,1981,That certainly puts the reserve issues first; there's no question about it.,14
-fomc-corpus,1981,And I think it's a clear statement of what we're trying to accomplish and what is available presently.,19
-fomc-corpus,1981,"Very honestly, I don't detect a substantive difference, but it's perfectly all right with me.",18
-fomc-corpus,1981,"I don't think there's a difference, but I think it's worded a little better.",17
-fomc-corpus,1981,"It's just a matter of wording, really. MR. GUFFEY(?). Mr. Chairman, for the moment, I'd like to try to make a case to keep the language as it is presently. The markets and the public have not seen the March change in the language, which I think is rather specific and good.",65
-fomc-corpus,1981,It's not a change in the directive language; it's an explanation.,13
-fomc-corpus,1981,"Yes, it's an explanation. But if we then come along a month from now and publish a directive, which may mean the same thing to us but changes maybe 60 words, that will give rise to the analysts publishing from now until at least the end of the year all sorts of interpretations. I think that's what we don't want. It seems to me that consistency would best be served by leaving the language as it has been published in the directive, with an informal understanding in the Committee with the Chairman that it is a consultation point as described in the record.",112
-fomc-corpus,1981,"Well, I think the argument for not changing it at all is that it may be more confusing to change it. We'll see whether your comments changed to more than 4 votes the number who want not to change it.",44
-fomc-corpus,1981,"I must say that I think that's incorrect, Roger. I wasn't at that telephone conference call and I read with some amusement the paragraph that was just [quoted]. I think it is stretching things to say that the earlier instruction could be interpreted in the way it was interpreted in that meeting. And I think what is now being proposed is consistent with the interpretation in the telephone conference call. It was a stretched interpretation, which now needs a different instruction, I think, if we're going to stay with it and use it. So, I do believe a change is necessary.",113
-fomc-corpus,1981,"Have you convinced anybody, Roger? Do you have more than 4 votes for not changing it?",20
-fomc-corpus,1981,"I'm more convinced myself, but it--",8
-fomc-corpus,1981,"I think Roger has a point that there is a danger. We will, of course, publish the policy record from the earlier meeting and it has this language, which I think exactly summarizes our feeling about it. Then if we come out with another directive, there is a danger that some of the Fed watchers may believe that we mean to change the significance of this paragraph on page 9 [in the March] policy record.",85
-fomc-corpus,1981,Any change we make may be confusing. I don't disagree with that.,14
-fomc-corpus,1981,"Right. And since the policy record paragraph on page 9 expresses exactly what we're trying to do, then it seems to me, even though I guess this may be too unorthodox, that we could simply refer here to that policy record paragraph.",50
-fomc-corpus,1981,Always? At every meeting refer to that policy record interpretation?,12
-fomc-corpus,1981,"Look, we can attempt to handle that problem. I think there is some danger, which we can't get around, that with any change in wording somebody will look at it and say: Do they really mean what they say? We can put in the policy record what we mean: That what we really have done is to change this language slightly to make sure it conforms with what we said last time.",80
-fomc-corpus,1981,Sure.,2
-fomc-corpus,1981,But we'd be taking a risk if we do that.,11
-fomc-corpus,1981,That's the way to do it.,7
-fomc-corpus,1981,"But couldn't we simply say, taking Lyle's language, for example, ""as called for in the policy record of such and such a date"" so it makes quite clear that this is simply a summary version of the larger explanation in the policy record?",51
-fomc-corpus,1981,But this is supposed to be the operating paragraph of the directive.,13
-fomc-corpus,1981,It's only a formal point as to whether it's desirable or not to be in the directive.,18
-fomc-corpus,1981,"Well, you don't mean to put it in the directive. You mean to have in the policy record entry for today's meeting a reference to the previous policy record saying that the Committee adopted this language in furtherance of its determination in the earlier meeting.",49
-fomc-corpus,1981,"No, I had meant--",6
-fomc-corpus,1981,"Oh, I see.",5
-fomc-corpus,1981,I raised the question of whether it would be appropriate to have a reference in this one-sentence summary to this larger explanation in the policy record as consistent--,31
-fomc-corpus,1981,"I don't like that much, but I think what Chuck is suggesting is fine.",16
-fomc-corpus,1981,We could reference it again in the record for today's meeting.,12
-fomc-corpus,1981,An interpretation of the funds rate range?,8
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,You mean reiterate it in this--,8
-fomc-corpus,1981,"Then that becomes an explanation for why we changed this wording, so that people don't think there's something more that we did, because after all it will come out [later]. They will know about this wording and then they'll have the explanation of the wording at the very same time.",55
-fomc-corpus,1981,But that explanation goes to what's here now.,9
-fomc-corpus,1981,"Unless people are ready to change their minds, I think there are these problems. I'll just return to my question: Has Roger convinced anybody that there is greater danger in changing the words at all?",39
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,"There's always a danger of some confusion here. There may be a little but I think we can handle it without undue risks. I could certainly live with it the other way. It's no big deal to me. If the issue had never come up in the first place, I wouldn't change it. But I--",62
-fomc-corpus,1981,This is not my day!,6
-fomc-corpus,1981,"Well, Roger has my vote.",7
-fomc-corpus,1981,"But he had it before, didn't he?",9
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,He didn't? Let's try it again: How many people would vote for no change [in the directive wording]? We're up to five; we have one more. That still is a minority.,38
-fomc-corpus,1981,"On [some] grounds I'd vote that way, though not because I like what we have now. But I don't like the change to which we're going, and I suspect we're not going to change it again soon, so we're losing an opportunity to improve it permanently.",53
-fomc-corpus,1981,What would you do? Would you go further than what we're suggesting?,14
-fomc-corpus,1981,I would stress the deviation from the aggregates and then come in from the funds rate. MESSRS. PARTEE and SCHULTZ. But that's what Lyle's version did.,37
-fomc-corpus,1981,"No, I don't think he mentions the deviations from the paths.",13
-fomc-corpus,1981,"Yes, he did.",5
-fomc-corpus,1981,"Yes, those are the first words.",8
-fomc-corpus,1981,That's exactly what he did.,6
-fomc-corpus,1981,"Do we have a consensus on Mr. Gramley's reworded version which, if I can read it, says: ""The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations..."" I don't know what happens if it appears to the Chairman, but not to the Manager.",60
-fomc-corpus,1981,Then you better talk to the Manager!,8
-fomc-corpus,1981,I have a feeling the Chairman can talk the Manager into--,12
-fomc-corpus,1981,"""...that pursuit of the monetary objectives and related reserve paths during the period before the next meeting is likely to be associated with a federal funds rate persistently outside a range of __to __ percent."" Do I have a consensus on that? I hope I have more than 5 votes anyway. All right, let's assume that. Now we have to put figures there, it so happens.",77
-fomc-corpus,1981,5 to 50 percent!,6
-fomc-corpus,1981,You still don't have a consensus on 3 percent.,11
-fomc-corpus,1981,We don't want to have--,6
-fomc-corpus,1981,"We will come back [to that]. Actually, very few people specifically commented on [the funds rate range]. Among the people who specifically commented, we have one mentioning a ceiling of 20 percent and three a ceiling of 22 percent. My notes only have that many comments.",56
-fomc-corpus,1981,I said I would accept 16 to 22--,11
-fomc-corpus,1981,"With a ""B"" specification.",7
-fomc-corpus,1981,"Right. Well, I think it's probably a choice between 16 to 21 percent and 16 to 22 percent. I think there is an implication--these people may be wrong--that the upper end of this range is much more likely to be binding than the lower end during this period. And the range isn't absolutely symmetrical [around the current level]. I'm not sure it's so far from the [expected rate], depending upon what reserve number we put in there. But I would also presume that there is a bias; people recognize that it may be a bit asymmetrical, but they want to consult if it gets above whatever number we now put in, which seems to me to lie between 21 and 22 percent. How many 22s do we have?",155
-fomc-corpus,1981,"This is strictly as a consultation point, you're saying?",11
-fomc-corpus,1981,"Yes, that's right. It looks as if that's the prevailing view. How many would prefer 21 percent? It looks like we put the upper limit at 22 percent; 16 to 22 percent, I guess.",45
-fomc-corpus,1981,Have we ever had a 6-point range before?,11
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Yes, we have.",5
-fomc-corpus,1981,"Yes, we've backed away from--",7
-fomc-corpus,1981,All right. Now we have this reworded sentence and we have that range tentatively settled at 16 to 22 percent. Let's come back to the borrowing. Is $2.1 billion the consensus?,43
-fomc-corpus,1981,Ask for a vote.,5
-fomc-corpus,1981,"How many people are willing to put in $2.1 billion immediately? That looks pretty good at a quick look. Now we come back to the [wording of the] paragraph. What I am suggesting is: ""In the short run the Committee seeks behavior of reserve aggregates consistent with a substantial deceleration of growth in M-1B from April to June to an annual rate of __ percent..."" The question is whether we put in ""or lower"" there. The sentence continues with a comma and then: ""after allowance for the impact of flows into NOW accounts, and with growth in M2 at an annual rate of about __ percent. A shortfall in growth of M-1B from the two-month rate specified above would be acceptable, in light of the rapid growth in April and the objective adopted by the Committee on March 31 for growth from March to June at an annual rate of 5-1/2 percent or somewhat less."" Is that general language okay? I think that's where we arrived before. We have to fill in the blanks and decide whether to put in ""or lower"". As nearly as I can see, it's a simple choice between 2 or 3 percent. How many 3 percenters do we have?",252
-fomc-corpus,1981,"If it's ""or lower.""",6
-fomc-corpus,1981,"Okay. Let me assume it's 3 percent or lower, if we take the 3 percent.",20
-fomc-corpus,1981,"Okay, I'll go with that rate.",8
-fomc-corpus,1981,Five voting members.,4
-fomc-corpus,1981,"Well, what's the alternative--""somewhat lower""?",11
-fomc-corpus,1981,"The alternative, I think, would be 2 percent without the ""or lower,"" but the ""lower"" appears in the next sentence.",28
-fomc-corpus,1981,"We're going to say ""lower"" not ""somewhat lower""? How far are you going with this?",21
-fomc-corpus,1981,"What the next sentence says is that a shortfall in growth would be acceptable. It refers back to the earlier [decision on the quarterly growth rate]. The choice is between ""3 percent or lower"" in the first sentence, which we just had an indication of views on, or 2 percent in which case I think we leave out the ""or lower"" but the [concept of] lower appears in the next sentence in the form of a shortfall.",92
-fomc-corpus,1981,Do you want hands?,5
-fomc-corpus,1981,"Yes, for the 2 percent without the ""or lower.""",13
-fomc-corpus,1981,Just voting members?,4
-fomc-corpus,1981,"Well, I don't know whether we're getting close here. Let me just take the voting members and go over it again. How many--just the voting members now--prefer the 3 percent or lower?",41
-fomc-corpus,1981,Five.,2
-fomc-corpus,1981,"Five, okay.",4
-fomc-corpus,1981,There's an exception.,4
-fomc-corpus,1981,Was your hand up or down?,7
-fomc-corpus,1981,I accept this.,4
-fomc-corpus,1981,Do you prefer it?,5
-fomc-corpus,1981,"I asked for preferences at this point. Now, let me just make sure. Who prefers the 2 percent period? Six.",26
-fomc-corpus,1981,Six.,2
-fomc-corpus,1981,That's great. Six and five.,7
-fomc-corpus,1981,[Not] including you.,6
-fomc-corpus,1981,We're down to splitting hairs.,6
-fomc-corpus,1981,How about 2-1/2 percent?,10
-fomc-corpus,1981,"How about ""2-1/2 percent or somewhat lower""?",13
-fomc-corpus,1981,"Or ""slightly.""",5
-fomc-corpus,1981,Why don't we find out what people can accept.,10
-fomc-corpus,1981,"Well, let me try. Who would accept the 3 percent or lower? Ten.",18
-fomc-corpus,1981,All but Tony.,4
-fomc-corpus,1981,"We're within very narrow grounds. I'm interested in maximizing the happiness at this point. I biased this thing now. A lot of people will find the 2 percent unacceptable now, I presume. How many will accept the 2 percent?",47
-fomc-corpus,1981,Accept 2 percent? I'll accept either one.,10
-fomc-corpus,1981,Eight. I'm afraid I succeeded in biasing the thing.,12
-fomc-corpus,1981,"No, I was going to vote--",8
-fomc-corpus,1981,I just really can't get awfully excited over this thing.,12
-fomc-corpus,1981,"It looks like 3 percent or lower. And maybe we should just start the second sentence by saying ""The shortfall...,"" which refers back to the ""lower.""",34
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,This is becoming a theology session!,7
-fomc-corpus,1981,"All right, now we have 3 percent or lower with this two sentence approach. We have 16 to 22 percent and we have borrowing at $2.1 billion [without] an allergy toward raising the borrowing if [money growth] comes in high.",53
-fomc-corpus,1981,M2?,3
-fomc-corpus,1981,"Oh, M2. Where are we on M2?",12
-fomc-corpus,1981,6-1/2 percent.,7
-fomc-corpus,1981,M2 is 6-1/2 percent.,11
-fomc-corpus,1981,"All right. For conforming purposes, we've put in 6-1/2 percent. Because we said ""or lower,"" we can put in 6 percent; that's [about] halfway between ""B"" and ""C"" and it's a nice round number.",54
-fomc-corpus,1981,6-1/2 percent is [unintelligible].,13
-fomc-corpus,1981,"Okay, put 6 percent in there.",9
-fomc-corpus,1981,"Six percent looks about right, doesn't it?",9
-fomc-corpus,1981,"It just squares the thing. Okay, so we've got 3 percent or lower, 6 percent, 16 to 22 percent, and $2.1 billion.",35
-fomc-corpus,1981,And we'll be lucky to hit any of them!,10
-fomc-corpus,1981,Yes. Is it clear what we're voting on?,10
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,"Mr. Chairman, may I call your attention to the second line of the general paragraphs, which I think is not entirely consistent with the views of the Committee on what is happening in the economy. It says: ""...suggested that real GNP will probably grow little in the current quarter."" That sounds like an awfully flat economy.",67
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,"This is a fairly optimistic group. I would say: ""suggested that GNP will grow more slowly in the current quarter.""",26
-fomc-corpus,1981,"Yes, or not [unintelligible]. That gives us more room--",16
-fomc-corpus,1981,Where does this all appear?,6
-fomc-corpus,1981,It's in the second line of the general paragraphs.,10
-fomc-corpus,1981,I think it's perfectly safe to say that it will grow more slowly.,14
-fomc-corpus,1981,Than 8-1/2 percent or something like that.,13
-fomc-corpus,1981,"Or even, if you like, ""will grow slowly."" ""Grow little"" sounds as if the economy--",22
-fomc-corpus,1981,"No, I agree. ""Grow more slowly"" is perfectly all right. We'll make that change. Okay, you all know what you're voting on. Mr. Secretary.",34
-fomc-corpus,1981,Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters Yes Governor Wallich Yes President Winn Yes,47
-fomc-corpus,1981,My word!,3
-fomc-corpus,1981,I think that's the first unanimous vote--,8
-fomc-corpus,1981,We can go grab a sandwich.,7
-fomc-corpus,1981,That's pretty good.,4
-fomc-corpus,1981,"Thank you. Wait a minute, do we have anything else?",13
-fomc-corpus,1981,Only the date of the next meeting.,8
-fomc-corpus,1981,"We have to confirm the date of the next meeting. Let me just say that I assume we can confirm that. But it's a meeting where we have to review the annual targets, so I think it's quite likely we might want to come in here the afternoon before.",53
-fomc-corpus,1981,What's the date?,4
-fomc-corpus,1981,July 7th.,5
-fomc-corpus,1981,"The 7th is Tuesday, but we may start Monday.",13
-fomc-corpus,1981,That's only a formal gavel. The meeting can come to order. I should mention first of all that we have a new member of the Committee in the broader sense. Is he a member in the narrower sense--I should know this--at the moment?,52
-fomc-corpus,1981,"He is a member, which means he has a vote.",12
-fomc-corpus,1981,I want to welcome Si Keehn from Chicago. I'm sure you are all aware of this at this point. I don't know if you have had any meetings with the Presidents yet.,36
-fomc-corpus,1981,"Not quite yet, just having come in last week.",11
-fomc-corpus,1981,"You haven't been introduced to all the bureaucracy of the Federal Reserve. You can be introduced to this portion of the bureaucracy. We welcome you. The second item of business is the election of the General Counsel. As you know, Neil Petersen left some weeks ago, and I think we are fortunate here at the Board in having enticed Mike Bradfield to come as General Counsel. And I think it's appropriate that he be made General Counsel of the Committee. I am familiar with Mike, as are some other people here, because he was with the Treasury for some years; and he has recently been in private practice in a firm in Washington. If somebody would like to make a motion to that effect--",139
-fomc-corpus,1981,I move the election of Mr. Bradfield as General Counsel.,13
-fomc-corpus,1981,Second heartily.,4
-fomc-corpus,1981,"That's right, we have several people here who have worked with him closely in the past. Without objection, we have formally disposed of that. I would like to change the [order of the] agenda a little because enough has been going on with the money supply and interest rates recently that I think it would be useful to have that background, if you are prepared, Mr. Meek. We will approve the minutes first.",85
-fomc-corpus,1981,So moved.,3
-fomc-corpus,1981,"Without objection the minutes are approved. Are you prepared to talk, Mr. Meek?",18
-fomc-corpus,1981,Yes sir.,3
-fomc-corpus,1981,We'll go to Mr. Pardee next just to complete this part [of the agenda] and then go to the general economic situation.,27
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,Where are the CD rates today?,7
-fomc-corpus,1981,"They were about 17.70 percent last Thursday and are somewhat lower than that today--about 17.50 percent after our operations today, I would say.",33
-fomc-corpus,1981,How is FNMA raising the money [they need] if they have cut back [on their monthly offerings in the market]? Where are they going for money--discount notes?,35
-fomc-corpus,1981,Through the discount notes mostly.,6
-fomc-corpus,1981,"What fraction do they have in the discount notes? Is that a pretty big figure, Paul?",19
-fomc-corpus,1981,"I had a call in today to find that out, but I have not gotten the figures. The market says that the rollover is quite substantial.",29
-fomc-corpus,1981,"I hope when you are talking about municipals being the ""wallflowers in the industry"" that you are not suggesting that people are now papering their walls with them!",34
-fomc-corpus,1981,That comes next year!,5
-fomc-corpus,1981,Questions or comments?,4
-fomc-corpus,1981,Regarding this spread between rates on U.S. Treasuries and agency issues: Is that pretty widespread throughout the agencies?,24
-fomc-corpus,1981,"It's pretty widespread. What has happened with FNMA, as I said, is that a good many people have taken them off their [approved] list, and it's harder for FNMA to sell anything longer than the four-year issue that they came out with. It's a much wider spread than I think lasted for any length of time in 1974. There was a brief period [then] when it got up to 75 to 100 basis points. But they have a significant problem. The new management of FNMA met with the industry about a week ago and everyone is impressed with their plans and with the kind of appreciation they have of their problems. But it's going to take some time to resolve them. Basically I believe, as the Fortune article on FNMA reported, that the portfolios are under water by a very substantial amount.",168
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"Mr. Chairman as I listen to this and think back over what we've had to read, I become more and more impressed with the fact that we are hung by our own petard in the M-1B concept. If one really tries to convert that to a deposit category, and makes any allowance for the money funds and for repos, then the whole perspective changes. One's whole interpretation and thinking about this changes. I just think we are hanging onto something that is not very real. I know the difficulty of trying to get rid of it, but it certainly--",114
-fomc-corpus,1981,We have one proposal to get rid of a range on M-1B.,16
-fomc-corpus,1981,It really alters one's whole perspective on this to think about it in a realistic sense.,17
-fomc-corpus,1981,"Well, I don't know. The report that Paul gave sounded to me like very tight money in the old fashioned sense of the term.",27
-fomc-corpus,1981,"Well, I think one understands it a lot better if one thinks of it in terms of the behavior being somewhat different than reported.",26
-fomc-corpus,1981,Do you mean that it naturally has a higher growth rate or--,13
-fomc-corpus,1981,Sure. You get a much higher growth rate if you convert this. We talk to people who are using money funds for their deposits; they're banking the rest of it. Something has to give.,39
-fomc-corpus,1981,So it ought to have a lower growth rate? I'm just trying to understand the thrust of your remark.,21
-fomc-corpus,1981,"My thought is that if you change the measurement of what we call [M-1B], then you get a different behavior path. And you get a different outlook on this whole history as well as on current developments.",44
-fomc-corpus,1981,I don't understand fully the statistics on the money market funds. Everybody I talk to is using them like crazy and the statistics don't show that.,28
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,"Mr. Chairman, we have the preliminary results of the survey from Michigan in which we surveyed a thousand or so accounts and asked about their money market funds.",31
-fomc-corpus,1981,"[You mean] a thousand or so people, right?",12
-fomc-corpus,1981,People. And there were very close to a thousand [with] accounts in money market funds.,19
-fomc-corpus,1981,"Oh, really? How big was the sample?",10
-fomc-corpus,1981,"Well, you are going to tax my knowledge here.",11
-fomc-corpus,1981,"About 5,000.",6
-fomc-corpus,1981,"It's 5,000 households of which 1165 had an OCD account. Just adding quickly--there's close to a thousand or a little under that have money market fund accounts. We asked all holders [of such accounts] the number of checks written per month. I don't have it by the amount of deposits at the moment, but 76 percent wrote no checks, 18 percent wrote 1 to 3 checks, 2 percent wrote 4 to 9 checks, and 2 percent wrote 10 or more checks per month. That's very consistent, of course, with our measure of the velocity of these accounts, which is very low.",132
-fomc-corpus,1981,"But how many withdrew money on 24-hours notice, Steve, without writing a check?",18
-fomc-corpus,1981,I don't think we asked that.,7
-fomc-corpus,1981,You can set up your account right away.,9
-fomc-corpus,1981,"Well, that's true. We asked: If money market funds were not available, where would the money be? That's another indirect way of getting at it. The answers were: Non-interest checking, 2 percent; interest checking, 3 percent; and the rest was in savings accounts, and the bulk in money market certificates.",66
-fomc-corpus,1981,"The analysis that only a very small fraction use the account actively and that, therefore, it is like a savings account may be misleading. That's because [if] only 5 percent or so of the holders use the account as if it were a checking account, that part really ought to be added to M-1B.",65
-fomc-corpus,1981,"I'm impressed with the number of small bankers in small towns in rural areas who now are running into their own customers who are putting money into money market mutual funds. The sophistication of this is spreading to areas where in the past it has been slow to go. It seems to have happened in the last 4 or 5 months, since the beginning of the year.",73
-fomc-corpus,1981,"Any other questions, comments? Mr. Black.",10
-fomc-corpus,1981,"Paul, how did you interpret this ""3 percent or lower"" [reference to M-1B growth in the directive]? Was there any floor in your mind on that ""or lower""? When we voted on the 3 percent or less, most of us would not have anticipated the kind of weakness we had in the aggregates, nor probably would we have voted for that ahead of time had we known it. Yet, as the aggregates began to come in more weakly, you lowered our nonborrowed targets to account for that weakness, which seemed counterproductive to me if you had in mind some floor not too far below 3 percent. If you had in mind no floor, that seems appropriate.",141
-fomc-corpus,1981,"When the Committee consulted by phone on the 17th of June, the amount we had lowered [the nonborrowed path] at that point was $180 million, and the shortfall was not all that great. We have seen quite a lot of weakness, of course, since that time.",60
-fomc-corpus,1981,"After you constructed the path on 3-1/2 percent and you got persistently [low] figures, you still moved it down somewhat after that, didn't you?",35
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,Didn't you?,3
-fomc-corpus,1981,"No, it has not been moved down.",9
-fomc-corpus,1981,"No, that was the decision in the conference call.",11
-fomc-corpus,1981,"Except that there was an adjustment. We came out of that Wednesday with the very high borrowing that I mentioned, and there were some spillover effects into the next week, when borrowing also ran high. And the overshoot in borrowing in that first week was then disregarded in that sense.",58
-fomc-corpus,1981,"It has not been moved down; it also wasn't moved up. And if the borrowings have fallen out since that time, they have just fallen out.",31
-fomc-corpus,1981,[During this period] we've had some rather peculiar borrowing patterns within the week. Sometimes borrowing was very late in the week and it was very early in the week a couple of times. What explanation do you have for that?,45
-fomc-corpus,1981,"I think one has to start with the Memorial Day weekend when there is some suspicion that borrowing was as heavy as it was over the weekend because we were coming toward the end of the quarter and people felt entitled, in some sense, to use the window. It was a long weekend and borrowing was quite heavy over that weekend. Thereafter, we had a kind of alternating pattern in which borrowing tended to be low and then high in successive weeks, which is not an unfamiliar pattern with banks who tend to bet that the next week is going to be like the [current] week. So, if Wednesday is tight, they are likely to figure that out and borrow on Friday. That gives a profile for the week of high borrowing before the weekend and low borrowing afterward. If borrowing then toward the end of the week tends to be low, which happened in several weeks, and money market conditions are easier, that tends to make banks borrow less before the weekend--less than called for by our path--with the result that by Wednesday the amount they have to borrow is substantially more than the average, and interest rates go up.",224
-fomc-corpus,1981,"We've had some exceptionally tight Wednesdays, haven't we?",10
-fomc-corpus,1981,"We've had some very tight Wednesdays. And as I [mentioned in my statement], I think [in the days prior to] the Wednesday in the middle of June, the willingness to accumulate deficiencies on the part of the banks reflected a conviction that interest rates were moving lower automatically because the economy seemed to be weakening and the M-1B numbers were coming out weaker. The banks assumed, I think, that at the end of the week it would be cheaper to cover their positions than it was at 18-1/2 percent before the weekend. That presumption was not at all consistent with our reserve path. So, on Wednesday the 17th of June, banks wound up borrowing $6.4 billion in order to have over $5 billion of excess reserves that day to balance their position.",161
-fomc-corpus,1981,"Mr. Chairman, I think it might be helpful in response to President Black's question to point out, with regard to the additional very sharp weakness that occurred in M-1B, that the data became available only Wednesday and Thursday when we had a sharp downward revision in deposits of a couple billion dollars for the week of June 24th relative to path. And preliminary data suggested a drop of almost $7 billion in the week of July 1st.",92
-fomc-corpus,1981,"If I remember it correctly, two weeks ago when we already had some June numbers, we were assuming [that M-1B in] June was minus 3 percent or something like that. We are now assuming two weeks later that it was minus 10 percent.",54
-fomc-corpus,1981,Most of that occurred in the last two days.,10
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"Paul, isn't it our purpose, though, to impose the discipline of monetary policy upon the banks? And won't the fact that they had to pay more teach them a lesson? Won't it teach them that if we want to discourage their extending credit, for example, that they have to take it seriously and not anticipate that we'll be there with the funds they need for their reserve requirements when they need them? In other words, isn't this really the strategy of our whole policy currently, and isn't the level of the fed funds rate reflecting exactly what we want to achieve, if our strategy is right? We're using it as a means of affecting the commercial banks' credit activities.",134
-fomc-corpus,1981,What I was just describing was the conflict between their expectations and our reserve strategy.,16
-fomc-corpus,1981,They haven't had this unfortunate experience in a long time.,11
-fomc-corpus,1981,"[Unintelligible] that took place. That changes their expectations, you see, and has market effects [such as I] described.",29
-fomc-corpus,1981,Where is the federal funds rate today?,8
-fomc-corpus,1981,"I walked in here [directly] from the airport, so I don't know.",17
-fomc-corpus,1981,It may be just under 20 percent by now. It has been right around 19-3/4 to 20 percent all day.,29
-fomc-corpus,1981,He started doing his operations at 19-3/4 percent; it bounced up a bit.,20
-fomc-corpus,1981,"We did $3-1/2 billion of 3-day repurchase agreements today. On Thursday, both the New York and Board staff projections suggested that we should be absorbing reserves this week and, in fact, that was a fairly general forecast in the Street. We discovered a big shortfall the next day, and the estimates this morning showed a need to add $1.1 billion of reserves on our numbers and $1.9 billion on the Board staff's numbers. So we did $3-1/2 billion of 3-day RPs, which would supply about $1-1/2 billion [on average for the week].",131
-fomc-corpus,1981,What was the shortfall? Was it in float?,11
-fomc-corpus,1981,"Yes, and the banks' Treasury balances [were a little high].",14
-fomc-corpus,1981,"I was surprised, Larry, by what you said. It seems to me that this could be a miscalculation on the part of the banks. But it could be an unfortunate exercise. We have been spending quite a lot of effort, if I understand it, trying to say to the market that we don't watch the funds rate and that what we do is to operate on aggregates. So, looking at a weakening in the aggregates, I think an intelligent banker might say: Well, that means there are going to be more reserves around and the market is going to ease. So [the banker] operated on that presumption and then, in fact, found that the market didn't ease. Why? Because we were reducing our nonborrowed reserve target in the early part of the first four weeks or so in order to keep the funds rate from declining.",171
-fomc-corpus,1981,"Well, Chuck, I thought our strategy essentially was to attempt to bring down inflation by controlling the availability of bank credit. And I think the banks have been accustomed in the past to assuming that when Wednesday came around somehow or other the Fed would supply the necessary reserves in order to resist the otherwise upward movement of the fed funds rate. Now, by letting the fed funds rate flow upward, even though it's more expensive to them, we will discourage their provision of credit. Am I mixed up?",98
-fomc-corpus,1981,"Well, no. My point was simply that on Wednesday they either come into the window or they don't come into the window; [that has been their practice] for a long time. My further point was that they could look at what they regarded as being pretty weak money numbers and they could look at our statements to the press that we were going to provide the reserves and let the funds rate go where it would, and they might conclude that the funds rate ought to ease if the money numbers are weak. Now, Steve's point, I think, is the most relevant one, which is that it has only been in the last few days that the numbers have been all that weak. So, it's the hazard of not following the regime that we said we would.",153
-fomc-corpus,1981,Is the weakness that has become apparent in the last couple of days going to show up in the figures that are published this afternoon?,26
-fomc-corpus,1981,"Only to a degree. This afternoon we will publish data for the 24th and that will show no change in M-1B from the previous week. But in the preliminary estimate we had expected a $2 billion increase. For July 1st our preliminary numbers, for what they're worth, show a $4-1/2 billion drop in the actual figure from what we had projected. But that won't show up [in our published data] until next Friday, if it stays.",99
-fomc-corpus,1981,"It could be revised quite a bit couldn't it, Steve?",12
-fomc-corpus,1981,"Yes. The preliminary numbers have been revising $1 to $2 billion, at least recently since the MCA.",23
-fomc-corpus,1981,Is it consistently in one direction or not?,9
-fomc-corpus,1981,"Well, we had two downward revisions [in a row].",12
-fomc-corpus,1981,We seem to be in one of those patterns [where the revisions] go the same way.,19
-fomc-corpus,1981,We have to ratify the transactions.,8
-fomc-corpus,1981,So moved. SEVERAL. Second.,9
-fomc-corpus,1981,Mr. Pardee.,5
-fomc-corpus,1981,"[Statement--see Appendix.] VICE CHAIRMAN SOLOMON(?). I think [the situation] is serious myself, because there are quite a few industries that are losing competitiveness very rapidly and are having difficulty getting export orders at these levels [of the dollar]. I have a report that the Treasury is projecting a $50 billion deficit next year on the current account. We've been projecting a somewhat smaller deficit than that.",84
-fomc-corpus,1981,Current account or trade account?,6
-fomc-corpus,1981,"Current account. Under those circumstances, the dollar is going to start crashing and it has a long way to go. And there is going to be very little [foreign central bank] cooperation. I [heard] that at The feeling is that one of the reasons don't ask for cooperation is first, that they don't want the United States to hold a lot of secondly that, when the dollar starts to fall, they don't want to have created a precedent whereby they would have to give us cooperation. The whole tenor or the atmosphere [is that] the kind of cooperation we've had in the last few years with central banks has been seriously demoralizing. This is what telling me also when I was in Europe. I'm not saying that we are going to be able to do very much about it, given the Treasury's view, but I think it's not a happy situation at all.",175
-fomc-corpus,1981,"Would you think that if we did operate in the market, we could have changed these [exchange] rates much or could have kept them significantly lower?",30
-fomc-corpus,1981,"If we had had consistent and cooperative intervention both by the Bundesbank and ourselves, yes, they would be significantly lower because the foreign exchange market would be influenced by that to some degree. And so maybe would corporations. I'm not saying our intervention as such makes that difference. If the psychology is not handled in such a way that the psychology of the traders is influenced by our cooperative intervention, then it's self-defeating. But we had a problem also with the Bundesbank, which followed extremely erratic intervention policies. They've gone as high as $700 odd million in one day and then the next day [have done nothing]. For example, today the Deutschemark fell very rapidly and sharply and they didn't spend a dime. On other days they will spend a lot of money. I don't think that kind of intervention, even when large, is of any use at all. It doesn't change the psychology of the traders [and reinforce the view] that it's a two-way street.",195
-fomc-corpus,1981,"Tony, weren't these the same guys, though, who back in the fall of 1979 jumped all over our Chairman allegedly because just the opposite scenario was occurring? They were concerned about the expansiveness of our policies and the dollar was terribly weak, and I remember our discussing this and wringing our hands somewhat around this table about that problem. Aren't we damned whatever we do?",77
-fomc-corpus,1981,"There is a tendency always for the Europeans, and to some extent the whole world, to be super critical of us since we are the biggest economic force. There's no question about that. But I think the situation was very different in the fall of 1979. What they were looking for then was some meaningful monetary policy [action] that would promise to check our rate of inflation, which was running very high and was having an indirect spillover effect on the dollar. There were no complaints in terms of the level of cooperation between central banks on intervention.",111
-fomc-corpus,1981,Are you hearing reports of noncompetitiveness of U.S. manufacturers?,15
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,What kinds of industries? Chemical?,7
-fomc-corpus,1981,"Chemicals have been very prominent, but we're getting reports of some others, such as textiles.",19
-fomc-corpus,1981,"I don't think one ought to look at the fact that American industries are becoming less competitive as an altogether undesirable thing in the sense that this is one of the ways in which the incidence of monetary policy shifts and gets moved around from those industries that are heavily dependent upon credit to others. The problem as I see it--and this is where I would agree with Tony--is that the lags in this whole process are very different. What may well happen is that two years from now we will be looking at a current account deficit of enormous magnitude [that is] slowing the economy down a lot, and we will be driving interest rates down because we're trying to keep our own domestic economy going, thereby aggravating our inflation problem because of what is happening to the exchange rate. It would be a lot better if we could smooth this process out a little through intervention policy.",173
-fomc-corpus,1981,"We won't be masters of our own domestic monetary policy if at that point it makes sense domestically to ease and we're running a $50 billion current account deficit and the dollar is reacting the way I would expect it to be reacting. Even [though] last month's German current account and trade figures were disappointing, the Germans are fairly confident that they will come in substantially lower in '81 and with a surplus in '82. At some point the markets will turn around, and I think the extremes of this roller coaster are unnecessary. We could be in a situation where we're going to need that kind of cooperation.",121
-fomc-corpus,1981,"Chuck, I've had reports of noncompetitiveness [with foreign producers] even in computers and high technology in the last couple of months.",28
-fomc-corpus,1981,"That's true in Boston, too.",7
-fomc-corpus,1981,"This doesn't jive with the staff presentation this morning on the deficit that is in the projection. The staff doesn't anticipate that the value of the dollar is going to fall more than 4 or 5 percent. Isn't that right, Ted?",48
-fomc-corpus,1981,"Yes, from the average of the second quarter. It's a decline of 4 percent from where we are now.",23
-fomc-corpus,1981,I assumed there was a self-correcting mechanism and people say it's not going to work.,19
-fomc-corpus,1981,"Tony, from the European side, is the main concern with the high dollar a capital outflow problem or is it this issue you're talking about that there's a lack of cooperation here and that countries may not be the masters of their monetary policy?",48
-fomc-corpus,1981,"Oh, I think they're more concerned about the immediate impact on their currencies. There's a secondary level of concern among some of them, not among others, about the fact that in the longer run cooperation is going to be eroded. Some of them, on the other hand, may be perfectly happy to see a major reversal of this, in which they would not come in and support the dollar as strongly [unintelligible]. They feel that the present policy has freed them from that obligation. Obviously, they're still going to support the dollar at some level because it can be very damaging to them for us to get too competitive on exports. But this policy carries things to such an extreme, given the lag in the J curve effect that--",148
-fomc-corpus,1981,We trip up with the lag.,7
-fomc-corpus,1981,"It's just begging for more and more amplitude in the swings. Add that to the volatility of our domestic interest rates and it begins to have a damaging effect on the volume of world trade and the volume of economic activity. Anyway, that's my view. I don't know what to recommend, but we are confronted--",61
-fomc-corpus,1981,The implication is that the Germans want to intervene. I haven't seen any [evidence] of that.,21
-fomc-corpus,1981,"No, the German government would like to see cooperative intervention between the Bundesbank and the Federal Reserve. The Bundesbank, or at least the head of the Bundesbank, is reluctant for the two reasons I mentioned: One, he doesn't want to see the United States holding too many deutschemarks simply because it gives us more independence and we're less controllable; and secondly, when the dollar has turned around, he doesn't want us to be able with more moral clout to ask for intervention because of the fact that he had asked us to intervene earlier. I would say that there's a clear split in many ways right now between the Bundesbank and the German government. The German government's view is that one has to ignore short-term interests in the interest of stronger international cooperation. There's quite a difference of view, which they're prepared to talk about, between them and the Bundesbank right now.",176
-fomc-corpus,1981,Does this have any implication at all for our swap arrangements and the conditions under which we could draw on them?,22
-fomc-corpus,1981,"Not in any formal sense. But I think you're right if you're implying--assuming that our policy of benign neglect continues--that if there's a reversal and the dollar comes under heavy pressure and they are reluctant to support it with their own resources and we start supporting it by wanting to activate the swap line, it is possible there will be somewhat less enthusiasm and maybe more foot dragging on our activating the swap line.",81
-fomc-corpus,1981,"Well, there are two different points of view here. We're looking at the possibility of a current account deficit of fairly sizable proportions, which you're saying could bring about a very sharp decline in the value of the dollar.",43
-fomc-corpus,1981,At a later time.,5
-fomc-corpus,1981,"At a later time. Our staff has taken just the opposite point of view: That we're going to get a sizable deficit and some decline in the dollar but not a collapse. Is that correct, Ted?",41
-fomc-corpus,1981,"It depends on what you define as a collapse. The dollar today is 1.09 on this weighted average we use. We have it at the end of next year at 1.00. Is a 9 percent decline a collapse or not? That is the first proposition, the trade weighted dollar. The second proposition, after this correction, is that when we try to run it out and see what happens beyond 1982, the current account deficit essentially stabilizes at the $25 to $30 billion dollar range. That's not $50 billion but it is a very large deficit. But it does stabilize under that scenario; it doesn't get worse. Those, I think, are consistent with the kinds of numbers that President Solomon was describing. It is describing a process, though perhaps not as far as others might think it would go. If the dollar moves [down] sooner, then we are not going to get quite as large a deficit, but we might have more--",197
-fomc-corpus,1981,"I would guess--and Ted, I'd be interested in your guess--that a 9 percent decline in the trade weighted value of the dollar probably is going to be something like a 30 percent decline against the deutschemark.",45
-fomc-corpus,1981,Probably something like that.,5
-fomc-corpus,1981,"Now, a 30 percent decline is not collapsing in the sense of the whole financial system collapsing or anything like that, but I'm simply saying--",29
-fomc-corpus,1981,Wait a minute. A 30 percent decline?,10
-fomc-corpus,1981,That takes us back to 1.80.,10
-fomc-corpus,1981,A 20 percent decline would take it into the 1.90s.,16
-fomc-corpus,1981,That would imply a very sharp rise in the D-mark against most other currencies.,16
-fomc-corpus,1981,"Of course, a higher dollar would be having a very favorable effect on our own inflation rate in the meantime. We'd be getting the benefit that the foreigners were getting a couple years ago.",37
-fomc-corpus,1981,Do I detect a ground swell here in favor of intervention?,12
-fomc-corpus,1981,I don't feel it. I think it's working pretty well.,12
-fomc-corpus,1981,Does it make any difference?,6
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,You mean in what the value [of the dollar] would be?,14
-fomc-corpus,1981,"Whether the Treasury will [want to intervene], given its--",12
-fomc-corpus,1981,"It's not only the Treasury; it's also the present management of the Bundesbank. The two together I think probably make it less [likely] even if all of you feel very strongly on this side--if you all feel strongly as I do. I don't see it, given the joint position [of the Treasury and the Bundesbank]. Now, in a few months it may be beneficial--",78
-fomc-corpus,1981,"Mr. Chairman, does it make any difference what we think?",13
-fomc-corpus,1981,"Of course, we have independent powers [but] we endeavor to cooperate internally as well as externally. Do I detect a ground swell?",27
-fomc-corpus,1981,I certainly do.,4
-fomc-corpus,1981,"A cooperative policy of intervention is better than not having one and I think the arguments that Tony makes are really the cogent ones over a period of time. I'm not sure it matters day-to-day in terms of any particular exchange rates, but in terms of being able to ameliorate at least some of these more violent swings that produce these crazy effects over time, I think it is desirable.",79
-fomc-corpus,1981,"Leutwiler, the head of the Swiss National Bank, said to me a couple of weeks ago that he feels that the more permanent disadvantage of the policy, as distinct from the Bundesbank position, is that the foreign exchange market will not be as easily convinced in the future that there is cooperation among central banks. He feels that when the time comes when there is cooperation again, it's going to take a lot more money and a much longer period of time for that stand to have credibility and to have an impact on the exchange markets. It is true that in the last year or two, when the exchange market would see the Bundesbank and the Federal Reserve acting in very close harmony, they would pay a heck of a lot of attention.",149
-fomc-corpus,1981,I'm not so sure.,5
-fomc-corpus,1981,"Basically it is a matter of supply and demand in the market. You may change some people's minds and thereby shift the demand and supply schedules, but if we have a $25 billion deficit, it has to be financed from somewhere. It isn't going to come because traders take positions supporting the dollar. It will have to be financed either by central bank action--they once bought $35 billion in one year and it didn't accomplish much--or it has to be financed by our borrowing abroad and putting that into the [exchange] market.",106
-fomc-corpus,1981,"Sure. Current account deficits have to be financed. But you would agree I'm sure, Henry, that there are short-term capital flows that, based on expectations and movements in exchange markets, can go way beyond [unintelligible] in the opposite direction, depending on the particular psychology.",58
-fomc-corpus,1981,"Well, it's the possibility of affecting that psychology that I don't feel very optimistic about.",17
-fomc-corpus,1981,I just don't know [at what point] we'd intervene. I recall that we were surprised that the mark moved from 180 to 190 and we were intervening and then it went from 190 to [200]. Those were big moves. Why didn't we go in at that point? I don't know--,62
-fomc-corpus,1981,We bought quite a few.,6
-fomc-corpus,1981,"Yes, we did; we bought quite a few [deutschemarks] at that time. And now look how much further it has gone. It's terribly difficult to know when to intervene. I do think we'd be a lot better off if certain people in the Administration would not make such a public [declaration] about nonintervention and the fact that we're not going to do anything. It seems to me that we'd be a little better off if there were a little less talk about it, but I'm not sure that I'm for jumping in with a policy of [large-scale] intervention.",118
-fomc-corpus,1981,"Well, one has to consider, in addition to the arguments that Tony has made for German nonintervention, that they would be buying dollars at a very unfavorable rate if they bought any [ahead of] a near-term decline. So, that's not--",51
-fomc-corpus,1981,"Nobody would expect them to support the dollar even under the tightest of cooperation at anywhere near these levels. I don't mean to carry this too far. Even though I may be among the most concerned here, Paul, I'm not recommending that you do anything about it and take on a confrontation in this area at the same time that we have other problems in domestic monetary policy. It doesn't seem to make a lot of good sense at this point.",88
-fomc-corpus,1981,Trade one [problem] for another.,8
-fomc-corpus,1981,Do you mean now that we're following a more and more [unintelligible] on the domestic scene we can get more [unintelligible]?,31
-fomc-corpus,1981,"Divert the argument. Well, I haven't detected a full-scale ground swell.",16
-fomc-corpus,1981,"I would join those who would like to have a more cooperative intervention policy. If that, added to the two or three other voices, is a ground swell, then--",34
-fomc-corpus,1981,I would be very happy to support it.,9
-fomc-corpus,1981,"I would be very happy to go back to the old way of doing things, if it could be done without a fight with the Administration. I can't think of grounds on which I would less want to do battle than this one.",46
-fomc-corpus,1981,"Well, at least at this point in time.",10
-fomc-corpus,1981,"I think the question can be left to developing a strategy as the dollar drops. It's too late now to rescue anything on the up side I think. We did, of course, have a very active intervention policy right up until January 20 or thereabouts.",52
-fomc-corpus,1981,"Just as a point of information, when are the Carter bonds due? And how big are our balances over and above the amount that we owe in Carter bonds?",32
-fomc-corpus,1981,"First, Carter bonds are due at the end of this month. And the answer to the second question is that we have about $5.8 billion over and above the Carter bonds.",37
-fomc-corpus,1981,But not in deutschemarks.,6
-fomc-corpus,1981,"Not all of it. We have $5.8 billion over and above the Carter bonds, $3.6 billion of which is in DM. That's it.",33
-fomc-corpus,1981,I think Chuck is right. We can't fight this out philosophically. We have to wait until the flag is on our side; we have to wait until the dollar comes down.,36
-fomc-corpus,1981,"Unfortunately, if we wait that long we could figure, as Tony indicated earlier, that we wouldn't have the foreign central banks on our side any more. It's going to be a lonely battle to fight. I think the die is cast; there's not much else we can do.",55
-fomc-corpus,1981,"Just demand rules of the gold standard, that's all, right?",13
-fomc-corpus,1981,You'll hear more about that soon.,7
-fomc-corpus,1981,"I'm not convinced that it would have made much difference in the actual level of the dollar; in terms of atmospherics, it may have made some difference. If we haven't any more questions about that, we can turn to the economic situation over a prolonged period as background to our deliberations, keeping in mind that we have to make quite a few decisions over the course of our meeting, presumably tomorrow morning for the actual decisionmaking. Are you prepared, Mr. Kichline?",97
-fomc-corpus,1981,Prepared for what?,4
-fomc-corpus,1981,"Anything! Go ahead. MESSRS. KICHLINE, ZEISEL, and TRUMAN. [Statement--see Appendix.]",28
-fomc-corpus,1981,Questions?,2
-fomc-corpus,1981,You didn't say anything about answers.,7
-fomc-corpus,1981,You have a chart here on the money supply.,10
-fomc-corpus,1981,It's plotted wrong. It's plotted in the middle of the period; it should be plotted at the final period.,22
-fomc-corpus,1981,"Well, that's what I was wondering. I wondered what was plotted. I can't find it at the moment.",22
-fomc-corpus,1981,For M-1B?,6
-fomc-corpus,1981,Yes. Those are the changes fourth quarter-to-fourth quarter?,13
-fomc-corpus,1981,"They are changes fourth quarter-to-fourth quarter, adjusted, beginning in 1975 to date. We tried to incorporate some ad hoc adjustments for ATS and NOW accounts. I think they are the familiar numbers.",42
-fomc-corpus,1981,"Yes, I just didn't know whether they were fourth quarter-to-fourth quarter.",16
-fomc-corpus,1981,In 1980 it's 6-3/4 percent.,13
-fomc-corpus,1981,"I would note in that connection that I've been trying to keep track of the annual year-to-year changes. Of course, we won't know what the quarter-to-quarter changes will be for this year either until we finish the year. But it looked for a long while as if it was going to be difficult to make the year-to-year change less than it was last year. Last year adjusted it was 6.7 percent, which was the same as in '79. With this slump in June, if we remain within our targets without a weird pattern, we're going to have a year-to-year decline. If we're at the midpoint of the range or below, it will be a sizable year-to-year decline in the adjusted figure. It will be an increase in the unadjusted figure, but I guess that's to be expected.",166
-fomc-corpus,1981,Do you really mean a decline or a reduction in the rate of increase?,15
-fomc-corpus,1981,"A reduction in the rate of increase--a decline in the year-to-year change. What did I look at? I was looking at the wrong numbers. My conclusion is right, but it's not much of a decline. That's right. I'm sorry. We have to be at the midpoint or below to get a year-to-year decline--I'll get this straight now--for M-1B adjusted. For M-1B unadjusted, we'll never get a decline.",95
-fomc-corpus,1981,Why do you want a decline on a year-to-year basis?,13
-fomc-corpus,1981,Because that's what we're supposed to be doing.,9
-fomc-corpus,1981,I thought it was fourth quarter-to-fourth quarter.,11
-fomc-corpus,1981,"Well, it depends upon which figures you think are more significant. I happen to think the first three quarters are not excluded from the year. But I may be peculiar in that respect. On M2, we are not going to get a decline year-to-year; regardless of what we do, we're going to get an increase of some size. And it looks as if we'll get a big increase in M3 on a year-to-year basis. I just cite this as background. We'll probably get a small decline in M-1B adjusted and some increase in all the other numbers year-to-year. Let me ask another question and then I want to say something else. The Treasury seems to think that the budget this [fiscal] year is going to be only about $50 billion in deficit, if I interpret them correctly. How do we have a $10 billion dollar difference with only two months left to go?",184
-fomc-corpus,1981,"Well, I don't know.",6
-fomc-corpus,1981,"My other question is: How much [reflects] the difference in your [interest rate assumptions]? They were assuming a 9 percent interest rate next year for the bill rate, and you're assuming what--15 percent or something?",46
-fomc-corpus,1981,Yes. How much is that worth in fiscal terms?,11
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"It's $17 billion additional expenditures using the staff forecast because of higher interest payments compared to their March numbers. The actual level of interest payments in the budget for fiscal '81 in our forecast--and I presume ours is reasonably close to the Administration's--is nearly $71 billion, and it would rise to $88 billion next year.",67
-fomc-corpus,1981,What is the figure on interest payments?,8
-fomc-corpus,1981,$71 billion.,4
-fomc-corpus,1981,"I have a tabulation of the tentative forecasts, at least, that were made by various members of the Committee. I don't know whether you can review this better than I, Mr. Kichline; I don't know whether you are prepared to. Are these staff forecasts the same as the ones you have here or--",64
-fomc-corpus,1981,"Yes, they are.",5
-fomc-corpus,1981,"Somehow, the Committee members straddle the staff forecast in every item for this year and for next year except [for nominal GNP].",28
-fomc-corpus,1981,You mean [unintelligible]?,8
-fomc-corpus,1981,"Yes, in [nearly] everything. Technically they straddle [the staff forecasts]. The staff's forecast of real GNP is in the middle of the others for this year. For the GNP deflator, the staff is on the low side and for unemployment it's about in the middle. But next year the staff is on the low side on real GNP and I guess on prices. It's not unanimous but it's about in the middle I guess on unemployment. If this [table] is right in terms of the Administration's forecast, no member of the Open Market Committee who has expressed himself so far [has a forecast close to] the real GNP growth implied in the Administration forecast [for 1982].",146
-fomc-corpus,1981,"Paul, [our forecast is] much closer to the Administration's than the staff's but we're still well below the Administration's. [Real GNP growth of] 5.2 percent [in 1982] does seem optimistic. The question I have that builds on your observation about their T-bill rate [assumption] is this: Jim, am I reading your charts right in trying to put them together for the corporate AAA bond rate, the T-bill rate, and the implicit price deflator in 1982? If I do the arithmetic correctly, are you really projecting that in 1982 the 3-month Treasury bill rate will be a flat 16 percent in the face of a 7 percent GNP deflator and an 8 percent CPI, yielding real rates of interest of 8 percent on the short end of the yield curve and real rates of interest of 7 to 8 percent on the long end? These seem to me awfully high real rates if I'm reading your charts right.",207
-fomc-corpus,1981,"This has been a matter of some discussion. Maybe we ought to linger on this point a moment, Mr. Kichline.",26
-fomc-corpus,1981,"If you lower that, it seems to me then that you can allow for a lower deficit, you can allow for more investment spending, and you can get a little closer to the Administration's real forecast, which is where we come in.",48
-fomc-corpus,1981,"As you know, forecasting interest rates is a real problem, and I tried to say in my [briefing] that there are a lot of pitfalls involved in this process. We've tried to look at this in a variety of ways. The charts aren't plotted incorrectly, and you've described what is there and what the implications are. Our general view is that we do have very strong latent demands for goods and services in the economy in a variety of sectors; [those demands] are being held down by interest rates. We're stuck with an assumption of 4-1/4 percent [growth in] M-1B and a good deal of uncertainty about how to interpret that measure of money. Is it really the sort of thing that one would have perceived in the past, linking it closely to transactions demands? Or is it changing? In our forecast, looking at 4-1/4 percent money [growth], we have what we've termed some further downward drift in the money demand function. That is, money is acting in a more powerful way than the 4-1/4 percent [growth] we observe. But even so, using any of the standard models, to get the economy to limit growth of money demand to 4-1/4 percent takes incredibly high short-term rates. The Board's model has much higher rates than we have here. At the same time, we get very high long-term rates, which is one of the factors damping investment growth in our forecast. And, in response to a question earlier this morning, my [comment] was that with the kinds of rates we have built in one could easily argue a case for a lower investment demand than the staff has forecast. That is, the implied real rates are very high. So, we're really fighting this issue of what kind of [interest] rates would be associated with the 4-1/4 percent growth in money, whether [that] is sustainable, or whether in fact we might just find the economy collapsing in that environment and [money growth] then snapping back. But it's a key issue with regard to the staff forecast. Projecting nominal interest rate levels out a year or a year and a half is something I wouldn't like to stake a lot of confidence on. So, you pointed to a real problem. It seems to me that we could not expect that situation [of high real rates] to persist for an extended period of time. It would have to be resolved in one way or another, either by the economy collapsing and dragging rates down or by rates falling with changing price expectations. We do have in this forecast a rather favorable price performance, and one would think there would be an unwillingness to pay those long rates. So, it would need to be resolved.",556
-fomc-corpus,1981,"Well, as long as the short-term rates are significantly above the long rates, people have an expectation that rates will come down. And that is why they're willing to pay very high rates temporarily. If they ever gave up on that expectation, the [yield.] structure presumably would flatten out, and it's only then that we would see the full restraining power of those interest rates.",76
-fomc-corpus,1981,"I don't know whether anybody is enough of an historian here [to know]. There have been lots of times in history when short-term rates have been above long-term rates, going way back.",38
-fomc-corpus,1981,During the 1920s.,7
-fomc-corpus,1981,Does this happen when the general structure of interest rates is going down--that short-term interest rates are persistently higher than long-term interest rates and the general trend is downward? In the 1920s I guess the trend was down.,48
-fomc-corpus,1981,"It seems very logical in terms of the structure. People expect rates to go down and they do go down; but in order to hold short-term securities, they have to be paid a premium. Otherwise, they do like Merrill Lynch and start buying bonds.",51
-fomc-corpus,1981,I don't know what the historical record has been.,10
-fomc-corpus,1981,"Paul, may I just expand briefly on the point you made? Has there ever been a time in our history--I just don't remember seeing a good chart on this--when long-term and short-term [real] rates were both in the 7 to 8 percent range for a period longer than a year, which seems to be implied here? Right now we have high real rates, so it's not impossible. We have them temporarily right now. I guess one has to believe that anything that is reality has to be believable.",106
-fomc-corpus,1981,"The trouble with that analysis, to me anyway, is that it doesn't take taxes into account. And we've never had the kind of inflation, interest rates, and high marginal tax rates of the sort we have now. I don't know how high these interest rates are. They're high for some people and they're not high for other people. I don't know how to resolve that.",74
-fomc-corpus,1981,"Well, I came out the way Bill did on the real rate route. It seems to me that these kinds of rates could not persist over this long a period without causing some kind of collapse. I have found in the last six weeks that the apprehension and the anxiety level have been increasing in the thrift industry and in small and medium size businesses. I think their expectation is that interest rates are going to come down before the end of the year. If this kind of view prevailed in the economy, I think we'd have a massive spread of heart attacks.",111
-fomc-corpus,1981,Starting at this table!,5
-fomc-corpus,1981,"Yes, starting at this table probably. It just does not seem to me that we can have this kind of interest rate structure lasting for two years without some very serious financial collapses.",37
-fomc-corpus,1981,"But the question is: Do [rates] come down because the GNP weakens or for some independent reason? What Jim says is driving them is [the assumption of] a relatively small money supply expansion and [the staff forecast] has to force that on an economy with quite a lot of nominal GNP. The staff could be making a mistake in velocity; turnover could be faster than has been predicted. But otherwise, it either has to be a faster increase in money or a smaller increase in nominal GNP.",104
-fomc-corpus,1981,You've got a collision there.,6
-fomc-corpus,1981,The [problem] may be that what this forecast doesn't show is the collapse that you said would develop.,21
-fomc-corpus,1981,Something does not add up.,6
-fomc-corpus,1981,This forecast cannot come about in reality. Something has to give between now and the time we get to it.,22
-fomc-corpus,1981,"But there are possible adaptations to this forecast, setting apart the collapse of the thrift industry--or assuming that the thrift industry is handled by merging three-fourths of them into banks or something like that. You could make this forecast work by pushing up the deflator somewhat so the real interest rates don't look quite that fierce and by shifting the mix of GNP. If, for example, we got a substantial consumer anticipatory response to a 3-year tax cut and less housing and less business fixed investment, we might get 1 percent [real] GNP and a somewhat higher deflator; the overall outlines might work. But then we'd still have to worry about how to handle the collapse of the thrifts and what sort of additional structural damage would be happening. I agree that we are looking at a situation in which very, very substantial structural damage is probably ahead if this is--",177
-fomc-corpus,1981,If the rates stay up.,6
-fomc-corpus,1981,"What would happen if the M-1B estimate is really, in effective terms, much too low? In other words, if a substantial shift in the demand schedule were ahead because of the use of substitutes, would that lower interest rates in your context or--?",53
-fomc-corpus,1981,Yes. Another way of saying that is that we would have more money growth than the measured M-1B picks up.,25
-fomc-corpus,1981,"And it would mean lower interest rates, then.",10
-fomc-corpus,1981,For this nominal GNP.,6
-fomc-corpus,1981,"Right, other things unchanged.",6
-fomc-corpus,1981,"Which is what has happened to us again and again, hasn't it? We set what looked like a very low M1 target and then a shift occurred and it turned out not to be very low.",40
-fomc-corpus,1981,"Governor Wallich, that hasn't really occurred since 1975-76. That's when it most clearly occurred. Thus far this year, unless we get further shifts, we're pretty much on the ""schedule"" that we tended to project--that is, a so-called downward shift on the order of 2-1/2 to 2-3/4 percentage points. If there's no further shift this year, that's about what we'll end up with.",91
-fomc-corpus,1981,"Yes, but aren't you arguing in effect that because we've had such a large shift in the first half of the year, we're therefore unlikely to get any in the second?",34
-fomc-corpus,1981,If we get a similar shift in the second half then we'll have a much more expansionary policy than was voted for.,24
-fomc-corpus,1981,Do you have a major shift in the demand for money built into the '82 forecast also?,19
-fomc-corpus,1981,"About the same as in 1981. I would say that in February we had a high interest rate scenario. We had assumed some downward shift of the money demand function, as Steve mentioned. We didn't, however, have it all occurring essentially in the first quarter. We're stuck with the question of what to do at this point, and we made the assumption that, in fact, a demand shift of 2 to 2-1/2 percent for the year was reasonable. So, we wouldn't anticipate any shift over the balance of this year, but we have once again put in a similar shift for 1982. Even with that, however, we get very high interest rates in order to hold the M1 growth down.",148
-fomc-corpus,1981,"I'll reverse the question. It's easy to ask the questions of Mr. Kichline, but almost everybody in this room has a similar forecast for nominal GNP. You were told to assume somewhat lower monetary growth next year. What interest rates are you assuming and how do you get there on the basis of historical experience?",64
-fomc-corpus,1981,"Well, I think we have to assume--we better assume it and if we don't assume it, we better pray for it--that what's wrong about the way [the components of the staff's forecast] add up is that they do not believe that real interest rates will come down and that that will be accompanied by a decline in nominal interest rates. That's what solves the puzzle. That's what we have to hope for.",84
-fomc-corpus,1981,It solves the puzzle unless you consider part of the puzzle [to be the] historical relationships between money and nominal interest rates.,25
-fomc-corpus,1981,"Perhaps what we have to do--I've been thinking more and more about this--is to consider another shift adjustment. Now, listen fellows, if we project these kinds of interest rates of 16 percent out for another two years then I think we have to hire those guys to do the Michigan survey every month from now on. I haven't had the benefit of [seeing] that but I used to work at that survey center so I know how they operate. If I understood you right, you said that 18 percent of the thousand households that have such an account said they were writing 3 or 4 more checks [per month].",127
-fomc-corpus,1981,Four percent of those who have money market funds--is that what you meant?--were writing more than 3 checks.,25
-fomc-corpus,1981,"Yes, but that could be consistent.... Let me put it to you as a question: Couldn't that be consistent with a much larger percentage of the balances in money market funds being drawn in the form of transactions if the wealthier households are the ones that are doing it? Each check would have to be a minimum of $500, right? Then there is a learning curve. I would say that over the next year or two, if you guys believe that these high interest rates will last, that percentage of households and especially the percentage of dollars that get used as checking accounts--assuming Congress doesn't take your advice, Paul, and puts reserve requirements on them--[is going to rise]. We are going to see a big shift. The shift we're going to be talking about six months or a year from now isn't going to be the shift to NOWs out of checking; it's going to be the shift to checking in the form of MMFs. And since normally we think of checking account money as an M1 type number and since MMFs we think of as M2, we may have to think some more about that.",225
-fomc-corpus,1981,I'm not sure that resolves your dilemma. The deus ex machina that brings that about is the high interest rates that you don't want to assume in the first place.,33
-fomc-corpus,1981,"I'm saying that if you're assuming it, then you have to do some shift adjusting of this other type.",21
-fomc-corpus,1981,"You can consider that we may have an insolvable problem here and that Mr. Kichline is right: That barring a so-called disaster, if interest rates go down, then the GNP will jump up. And if interest rates don't decline, the economy will decline sharply.",57
-fomc-corpus,1981,"Isn't that what's likely to happen--that we'll have periods of weakness that will tend to be followed by some strength? It seems to me perfectly reasonable to expect some weakness in the latter half of the year followed by some strength in the first part of next year caused to some extent by lower interest rates, by the tax bill that will go into effect, and by [higher] defense spending. And given the kind of monetary policy we have had, if we have some strengthening in the economy, we most certainly will have some upward movement again in interest rates. So, are we not likely to be faced by these opposing forces going back and forth?",130
-fomc-corpus,1981,"[Interest rates] never go down, Fred.",10
-fomc-corpus,1981,"Oh, I think they do; they go down. I think they're going to go down in the latter half of this year.",26
-fomc-corpus,1981,"I don't think it's likely that we're going to have that kind of gradual change. I think it's more likely that after a protracted period of these high real interest rate levels we will see a significant recession both here and abroad. I don't know whether that will be in 6 months, 9 months, or a year, but at some point I think we will see a significant recession; inflationary expectations will get lowered and interest rates, both nominal and real, will come down. But I don't know if we have any alternative to the policy that we're following. I don't see any gradual way for this scenario to be different than that.",128
-fomc-corpus,1981,"An average of 1 percent growth or 1/2 percent growth over a period of two years is historically very rare. I don't know if it has ever happened. I think that's the kind of scenario one projects when one doesn't know whether [economic activity] is going up or going down. So, you have the economy growing very slowly and unemployment rising. But it doesn't have a very high percentage probability, as Otto Eckstein would put it.",90
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"Well, for a more optimistic scenario: Our staff has recently gotten into this treacherous business of forecasting interest rates and they come up with much lower rates by '82 and going on into '83 than the Board's model. That reminds me of that old story about a tough question in an economics exam where the student wrote ""God only knows what the answer is."" The professor came back and said ""God gets an A and you get an F."" Without going into a long harangue on methodology here, the Board's model is this large structural model. As I understand it, there's a lag of about 4 years between money and prices. By using a much smaller model with about a 2-year lag and by using a loanable funds theory of interest rates rather than the traditional liquidity preference theory, we get more real growth, less inflation, and lower interest rates. That's really rather startling. Specifically, as opposed to, say, a 16 to 17 percent level for the 3-month Treasury bill for this year and next year, we would show the Treasury bill rate coming down to about 9 percent in '82 and going down to about 7 percent in '83. As I say, God only knows which model is right, but I wouldn't--",257
-fomc-corpus,1981,What do you get for real growth and inflation?,10
-fomc-corpus,1981,We get more real growth and less inflation.,9
-fomc-corpus,1981,What money supply do you get?,7
-fomc-corpus,1981,We're using the same assumptions as the Board's model.,11
-fomc-corpus,1981,"What kind of increase in velocity are you talking about, then? Well over 10 percent?",19
-fomc-corpus,1981,"No. As I understand it--and we'll get beyond my technical knowledge pretty fast here--one of the things that's keeping interest rates very high in the Board staff's big structural model is the need for a big increase in velocity. In our particular way of looking at the world, we get a quicker decline in inflation by reducing the rate of monetary growth in each of the last 2 years. As you remember, there has been a slight decline in the growth of M-1B and there apparently will be a bigger one this year. That reacts faster in our way of looking at the world in getting inflation down; hence, interest rates come down faster.",132
-fomc-corpus,1981,"If this table is right that I have in front of me and you haven't changed your numbers, your nominal GNP forecast for next year is a lot higher than the staff's. Right?",38
-fomc-corpus,1981,"Yes, without trying to be overly precise.",9
-fomc-corpus,1981,"Which means your velocity must be much higher than this, assuming you use the same money assumption, with lower interest rates. You have much lower interest rates and much higher velocity.",35
-fomc-corpus,1981,That's the key to it.,6
-fomc-corpus,1981,About [unintelligible] percent velocity.,10
-fomc-corpus,1981,"If you figure out how to make that work, it would be great. It's the kind of thing in which you've not looked at the specific [unintelligible] about the implications for money demand. How is it that you get this sort of money demand relationship with interest rates declining? If you have a big shift in the money demand function, then it will work. Otherwise, you're sort of out in limbo.",85
-fomc-corpus,1981,"Well, one of the things that we are assuming has happened, and I think the Board staff has arrived at the same conclusion, is that there probably has been a big downward shift in the demand for money so far this year. We have the same ingredients working that we had in '74 and '75 when we had big institutional changes--remember that corporations and municipal governments could get into savings accounts--and extraordinarily high interest rates. At that time we were [registering] an all time new record as well. And of the various episodes of history in which we have thought that there might have been a downward shift in money demand, the 1974-75 experience stands out as one of the more likely episodes. We're guessing now that the same thing has occurred this year.",156
-fomc-corpus,1981,And will continue.,4
-fomc-corpus,1981,And will continue.,4
-fomc-corpus,1981,"So, you're not that far from Bill.",9
-fomc-corpus,1981,"No. And what's more, with regard to velocity and how much GNP can be supported, M-1B is what you gave us for the specification. You did not give us [a specification] for M2 or demand that we respond [on the basis of] M2. It might be, if indeed the public meets more of its needs for money with these tricky MMFs used as checking accounts, especially where big dollars are involved, that lower money growth can hold up more GNP. So, yes, we get more velocity; and it may be believable if this structural change that the Michigan survey talks about is happening.",128
-fomc-corpus,1981,Mr. Morris.,4
-fomc-corpus,1981,"Well, Mr. Chairman, all this conversation, or much of it, suggests to me that we ought to face up to the fact that we do not know how to measure transactions balances in our present society. M-1B is somewhat of a nostalgic attempt to maintain a concept of transactions balances and I think it's leading us into all kinds of problems. First of all, we don't know what M-1B unadjusted is in the sense that we don't know how much of M-1B is really not a transactions balance. For example, in the areas where there are very high minimum balance requirements for NOW accounts, people will shift assets into their NOW account in order to get the free services. In Connecticut, for example, the average balance in a NOW account is $6,000. This is substantially higher than the average balance in personal checking accounts in Connecticut before the NOW account came into being. The reason is that [banks] learned from the Massachusetts pricing of NOWs and put in very high minimum balance [requirements]. So, some part of M-1B unadjusted is not a transactions balance. Then we adjust the M-1B for shift adjustments, and I suspect this is done on the basis of--to put it mildly--incomplete evidence. In addition to that we have the evidence just cited that some 4 percent of the money market funds are being used, at least to some degree, as transactions balances. I suspect that percentage will rise over time. We have overnight RPs, for example, that are used by a good many corporations as transactions balances, and RPs are not in M-1B at all. I really don't think we will ever, from now on, be able to have a concept of a transactions balance in which we can have the same confidence we used to have in the old M1. At least we knew then that M1 was the store of money that people had available to them to make payments. It seems to me that we could be splitting hairs on M-1B for a great many years and talking about these wild changes in velocity, about these changes in money demand, and so on, and all we'd be doing is covering up the fact that we simply don't have any basis for measuring what transactions balances are any more. And that's likely to be [more] true in the future than--",478
-fomc-corpus,1981,"Once Reg Q is gone completely and all deposits bear some kind of competitive market rates, it's mind-boggling to think of [where] to cut off the so-called money supply in terms of a coherent [measure of] transactions--",47
-fomc-corpus,1981,Is there anyone who would like to defend M-1B or M1-A or M1?,20
-fomc-corpus,1981,"Well, I think M-1B is quite a bit better than Frank has said. What we really have to do is to talk about first differences. We need something to steer by. Now, the fact that there are some idle balances in a transactions total of M1 doesn't mean a thing. There have always been a lot of idle balances in there, and what we need to do--",79
-fomc-corpus,1981,"There are a lot of transactions balances that are not in there, too.",15
-fomc-corpus,1981,"And that, of course, one allows for in the velocity estimate. You can take any number and modify it to take account of other things that you think are happening in the economy. I don't see that M2 is that much better [than M1]. If I understand what the DIDC did, in another 25 days we're going to have 4-year certificates in M2 that are probably going to sell like wildfire. Are you going to consider those transactions balances? They're going to be in M2.",103
-fomc-corpus,1981,"I think M2 is too narrow, too.",10
-fomc-corpus,1981,"I don't know whether it helps or hurts, but we had a conversation similar to this about a year ago I suspect. I thought that M1 [growth] would never come up. And no sooner did I so state in public testimony, it came back up to the point where [M-1B] was [above the Committee's ranges] by the end of the year.",77
-fomc-corpus,1981,But it seems to me that this is only half of the problem. Half of the problem is that we don't know what the monetary aggregates are; the other half of the problem is that we don't know what the relationship is between the aggregates and GNP.,51
-fomc-corpus,1981,Maybe we're getting to where we ought to give some thought to the monetary base.,16
-fomc-corpus,1981,"I do think it can be said in favor of M-1B that transactions balances are a unique concept. There's a logical reason why they might be related to GNP. Once you go beyond that to M2 or M3, there's really no place to stop. All you can do is stop with total credit, like Henry Kaufman, because changes in credit presumably indicate the degree to which people and businesses are overspending or underspending their income. If you measure all forms of credit, then maybe you can measure excess demand or deficient demand. But by just measuring what is related to depository institutions, such as M3, you don't capture the whole. There still are possible substitutions for depository institution credit and open market credit, and one may be misled.",155
-fomc-corpus,1981,That is what led the Board many years ago to promote the development of the flow of funds accounts.,20
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Mr. Chairman, I'll start off by saying that I didn't really use any model, but for the balance of this year my view of the economy is very similar to that in the Greenbook for essentially the same reasons. I do see a bit steeper drop in the second and third quarters but a little faster snapback in the fourth quarter. For 1982 I haven't seen all those forecasts you have in front of you there, but I suspect that mine is probably an outlier in that I'm looking for real growth in the 3-1/2 to 4 percent range, a slight fall in unemployment over the year back to where we are now, and inflation around 8 percent but with a hunch that we could do better on that. There are several reasons why I put down that kind of scenario. One is the pent-up demand that Mr. Kichline referred to before, combined with the tendencies toward creative financing. At any level of interest rates I think we're liable to see more activity than we might otherwise assume simply because of the way things are being financed these days. The second point that I think is important is the implication of this improved inflationary outlook, regardless of whose numbers one looks at. With any of those numbers, we're getting near the point where we've got to see some improvement in inflationary expectations begin to feed through into long-term interest rates, along the lines perhaps that Mr. Ford was suggesting before. Certainly in the long-term area I do expect to see interest rates quite a bit lower than they are now. I'm not as pessimistic as the staff is either in terms of the near-term or the longer-term outlook for interest rates in general, partly for the reasons I just mentioned. But I also think that financial innovation, or however you want to describe it, will have continuing implications in terms of the behavior of M-1B, even if interest rates are lower. I also am inclined to the view that at least in the context of next year, we probably will see a fairly exuberant response to the tax package, although I'm not sure about the durability of that going out to '83 and '84. So, there's a good chance that we could see a fairly strong economy throughout next year. I have to hedge my bets a little, too, though. Obviously, an outlook like mine assumes, among other things, that we do get at least some give in wages; and it assumes that we don't get any fresh shocks from energy or food. More importantly, it assumes that we're able to sneak through this [period of] financial strain and keep things reasonably in check. There I must confess to being a little more nervous now than I was even a month ago. Paul Meek mentioned the FNMA situation. I think it is symptomatic. I had another incident relayed to me the other day when the people at the Independent State Bank in Minnesota who are [pooling] bank CDs and selling them [as] money market mutual funds told me that they were now having trouble selling these funds, even [though they consist of] bank CDs that are fully insured by the FDIC. The sensitivity level has reached that point, so they reported to me. That's obviously a major question mark. The other thing I'll mention in terms of major question marks is this deficit outlook. Obviously, we still don't know where we're going to come out on the tax package. But if we look at the staff's estimate for the '82 deficit, they have about $80 billion compared to $45 billion. They have about $100 billion in Treasury and agency financing for the year as a whole and they are $30 billion above the Administration's estimate of outlays despite, I think, having lowered defense expenditures as well. Now, if the staff is right and the Administration and Congress are unable to make offsets, that comes near to resulting in a $50 billion deficit and I think we will have problems both in terms of the real economy and in terms of expectations and everything else. For the moment in my own forecast I'm willing to assume the best, but I wouldn't bet all I own on it.",831
-fomc-corpus,1981,You wouldn't?,3
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,Who else would like to go on the couch? Nobody else has anything to say about the outlook?,20
-fomc-corpus,1981,Is this in addition to [the forecasts] we wired in?,13
-fomc-corpus,1981,"Well, just any general comment that you would like to make.",13
-fomc-corpus,1981,"Mr. Chairman, I think the key is what happens to inflationary expectations. If we keep the money supply on target, as I think we will, I believe we're going to see lower interest rates and drastically improved inflationary expectations. So, I come out fairly close to John Balles and Jerry on that. My figures are a little different. I didn't have to contend with a speed-up in velocity, John, because we put our nominal GNP at 8 percent, which is a little less than the Board staff [forecast]. But we come out with real growth of about 3 percent for '82, about the same on nominal GNP both years, and an implicit price deflator of 5 percent in '81. The latter is probably whistling Dixie, but I think we could see some drastic improvement there.",168
-fomc-corpus,1981,"I thought I was the outlier on that deflator. I had 6 to 7 percent, but you have me beat!",27
-fomc-corpus,1981,I'm not sure I share all this optimism about inflation.,11
-fomc-corpus,1981,"Yes, I was just going to say the same thing.",12
-fomc-corpus,1981,Let me just report on a few very scientific surveys I've made in my own research.,17
-fomc-corpus,1981,You've [talked to] lots of taxicab drivers!,13
-fomc-corpus,1981,"Yes, that's right! I asked a few businessmen recently what they are assuming on inflation for the next five years in their internal planning. I haven't found one who is not close to 10 percent. I also asked them, when I've had a chance, what it would take to change their mind. And they say a couple of years of less than 10 percent!",74
-fomc-corpus,1981,It's a distributed lag effect.,6
-fomc-corpus,1981,"I just wonder with how much speed we can expect these changes in expectations to materialize. As nearly as I can see, they haven't been dented by anything--well, I shouldn't say they haven't been dented. There is more questioning; business people are not so likely to say [inflation] is going to accelerate. They're ready to concede that they may be wrong, but I'm not sure they are yet ready to take a strike to have wages rise at 8 percent, let's say, given that kind of expectation. And I don't think labor is going to ask for less than 10 percent, so where are we?",127
-fomc-corpus,1981,Corporate profits aren't going to be very strong and [corporations] are going to have some real incentive to start getting a little tougher.,27
-fomc-corpus,1981,"Well, I don't know. Theoretically, yes. But as they look around, they say look at what happened to our friend Mr. McCardell at International Harvester. He took a nice strike and tried to get wages down and damn near bankrupted the company.",56
-fomc-corpus,1981,The tax cut will pay for that union settlement.,10
-fomc-corpus,1981,The corporate tax cut will pay for the union settlement?,11
-fomc-corpus,1981,"Yes, that's what I mean.",7
-fomc-corpus,1981,"Market people that I talk with feel that inflationary expectations are not down. That's a view among their clients as well as their own view. And, of course, that is corroborated by the long rates we see. So, I come back to a very pessimistic view. It seems to me that there's a good deal of likelihood that [the economy] will stay stagnant. If the economy picks up in the fourth quarter the way some people feel it will, it will put a lot of pressure on interest rates. And we will have had by then, unless we [see rates decline] in the coming weeks of this quarter, a protracted period of very high real interest rates. It seems to me that some companies are getting to the limit of their abilities [to cope with these high interest rates] and there will be some failures. I think this will change inflationary expectations and in the process there will probably be a certain amount of recession, too. But that's a [scenario] that doesn't give us a gradual transition to a much better world.",212
-fomc-corpus,1981,Mr. Boykin.,5
-fomc-corpus,1981,"As far as inflationary expectations are concerned, people I've been talking to are really not convinced at this point that we'll make a lot of progress. There seems to be more conversation about that possibility, but decisions are being made every day down our way based on expectations of [continued high] inflation. As for the economic outlook, we don't differ greatly with the Board staff's forecast. Though we think the rate of inflation might be a little less in 1981, our 1982 forecast is just about where the Board staff is. But we feel the economy in 1982 is probably going to be a bit stronger than the Board staff is forecasting.",131
-fomc-corpus,1981,Governor Partee.,4
-fomc-corpus,1981,"Well, I didn't submit estimates so perhaps it's unfair to say anything. But I come out a lot closer to Tony than anybody else who has commented. I think we have a heroic staff forecast here in saying that inflation is going to drop this much. I'm inclined not to believe it because I don't think we've had the confrontation with costs that is going to be required to call for a permanently lower increase in costs than we've been seeing. I don't think that's easily handled by people just saying that they will settle for a lower pay increase or take lower corporate profits without fighting back. I think they will fight back, and it's going to be a very difficult period. I have the feeling--and have had it for the last year or so--that the way we're running monetary policy now, and it's a way that's probably appropriate, is as a governor on the economy. Essentially what we have here is a governor-type operation in the way the staff has run their forecast through '82. Any time those latent demands begin to perk up and we get an overrun in money, we will tighten up and interest rates will go higher. That will then force the economy down [to] the point where the money demand will be [less] strong and interest rates will fall. And we'll get a little better [economic performance] coming up to that limit again and then tend to go through it while interest rates will be high until the inflation rate is significantly reduced. I guess I would be rather in agreement with the staff projection except that I would have put inflation a little higher than they have it, for next year certainly. I think there's going to be a big food price increase next year. Also, I can't really buy the recovery they have in the second half of '82 because by then we'll be faced with financial distress on all sides. And I think that will have enough of an expectational influence that the economy won't, in fact, recover. That's all.",390
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"I put down numbers for 1982 that are not a lot different from what the staff is forecasting. My real growth number was 1 percent; my implicit deflator number was, as I remember, 8-1/2 percent or somewhere around there. But I put those numbers down with a lot more foreboding than has been expressed in some of the comments around the table, because I think those numbers are realizable only if we get very, very lucky and have a big shift in money demand or if we have a sequence of developments in which we get more consumption than the staff is talking about and a lot less investment, with all that means for potential problems for the future. Particularly, I want to call the Committee's attention to what I think could be a degree of self-deception. That is, we have to be awfully careful about what we're accomplishing, if in fact we live within our targets of money growth but get a lot more effective increase in money because we've had big downward shifts in money demand. I don't buy the argument, for example, that because nominal money growth is actually falling we can get declining inflation but because we're getting such a big drop in money demand we can also get real growth. That in effect says somehow that the inflation rate is some mystical property of expectations and has nothing to do with what is really going on in the economy. I don't think it's going to happen that way. Inflation is going to come down if, and only if, we're awfully lucky and at the same time have very, very constrained growth in real economic activity. We'd be very lucky indeed to get the kind of improvement on the inflation front that the staff is forecasting. We will get it only if real growth is constrained to somewhere around where we're talking about. I worry a lot about the implications of interest rate levels that persist at where they are now for another 18 months. I think we're really looking at major, major problems ahead.",395
-fomc-corpus,1981,Governor Teeters.,4
-fomc-corpus,1981,"I played with the numbers also and I came up with two scenarios. Basically, the overall [unintelligible] is the governor on the rate of growth of nominal GNP. And given the reduction in the rate of growth in money and the assumed reduction for next year, we don't have much room for a nominal GNP that is very large. One of the two scenarios that seemed to fall out of my working with the numbers was that we would have a full blown recession this year. Yes, it could happen. With all the growth that we've had, [growth for the year] could still come out at 1 percent because of the first quarter, but we could have zero or a negative in the other quarters. If you look at the flash on real GNP in the second quarter, the only thing that is positive is inventories; everything else is down. Basically, it's a negative quarter. If we got the recession this year and we stayed with high interest rates, then we could get some recovery but not a very vigorous one next year. The other scenario that can work here, with these high levels of interest rates, is that we could squeak by this year without a major recession and then have very, very slow growth next year also--basically two very low growth years rather than a recession and a recovery. I don't think we can live with these interest rates over that period of time without really causing a recession, the timing of which I'm uncertain about. But with these rates of interest we will be there probably sooner rather than later.",313
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"Our projections for 1982 are almost exactly in sync with the staff's, whereas we project a little stronger economic growth in 1981 than does the staff and are a little less sanguine about the deflator. However--and I guess maybe I'm always out of synchronization myself--for once I feel a lot more satisfied with what is happening than do some of my colleagues here at this table. I think one has to look at it with a little perspective, recognizing that we have embarked on something quite different than what we had back in October of '79. We had an understandable year of adjustment procedurally to get the effect of what we said we were going to do. We did this against a backdrop of a public and financial markets that had been promised an awful lot repeatedly and they were, and still are to some extent, somewhat cynical and understandably so as to what they might expect either from the Administration or from the Federal Reserve. However, I think in the last several months our record on monetary policy--our record of holding monetary growth under control--has been quite remarkable; and at least the utterances of the Administration, whether or not one agrees with them philosophically, are somewhat of a departure from anything that has been presented to the citizenry in a long time. It seems to me that the key to the future depends very much on the next 6 to 9 months. If we're able, as we appear to be doing now, to control the growth of money and if the Administration--and the politics of this are somewhat important in terms of people's attitudes--is able to produce and to persist in having a friendly understanding on the part of the public of what it's trying to do, and if we can stick with this over the period of the immediate future, I think the entire ball game might be significantly changed and changed for the better. I am a little apprehensive. Two months of control of M-1B or the monetary base or whatever else one may look at is not indicative of long-term results. But it certainly is better than anything I've seen in a long time. And I feel pretty good about it.",431
-fomc-corpus,1981,Governor Wallich.,4
-fomc-corpus,1981,"Well, I was away so I didn't put in any numbers. My only reaction to the staff forecast is that I'm skeptical of the favorable inflation developments. I can't prove that outcome isn't likely but it seems more optimistic than I would expect in light of the details of the situation, both in terms of the particular developments in food and energy and what I see on the side of costs. As for the slow growth, I have no sense of which way it's going to go. It seems to me that Chuck is right in saying that we have a governor on the up side. Any time the economy breaks out on the up side it will be pushed down again by rising interest rates. If we have a symmetrical policy, that would be true also on the down side. That is to say, any time the economy slows down interest rates will be pushed down if we keep the money supply on track. So, I wouldn't anticipate any very severe recession. But the economy could fluctuate between moderate expansion and moderate contraction. Now, I hope the analysis is true regarding this quasi-equilibrium of [the economy] moving something like 1 percent for two years as a result of strong private demands. It would give us an opportunity for the future. It would be equally well rationalized in terms of there being a very strong demand for credit on the part of the government through a rising deficit that keeps interest rates high rather than the strong and unsatisfied private demands. If we get out of this inflation, it's unlikely to be by what Lyle calls some mythical relationship. I think it will be because costs are coming down. And costs will come down in the [usual] painful and unpleasant way--falling profits, rising excess capacity and, unhappily, higher unemployment. There is some tradeoff, I think, in terms of lowering the level of unemployment, excess capacity, and the duration; the lower level and longer duration will accomplish about the same. But I think it would be surprising if we got out of this inflation without more sacrifice than is implied in the optimistic interpretation of our situation.",416
-fomc-corpus,1981,Mr. Keehn. This may be your only chance to give us a view from the outside world uncontaminated by deliberations within the Federal Reserve.,31
-fomc-corpus,1981,"Well, having been in the chair about three or four days, I'm sure you can appreciate that my impressions and opinions are rather freshly minted. But I must say, reading the forecast and hearing it today, that I find it exceptionally gloomy; the figures we submitted were slightly on the more optimistic side. But as I relate this to the individual industries in our area--and I think you have heard in the past that some of our industries are indeed troubled, and certainly since the last meeting, if anything, they have deteriorated further--I really end up not finding any particular disagreement with the way the forecast looks. But just to add a comment to what Lyle said earlier, there is a growing impatience, if you will, in our area about the high level of rates. Many of our industries which are troubled now really are imperilled by the high level of rates. Though our board, for example, understands the need for this, they are taking the view that at some point we have to bring rates down or we're going to cause some very significant problems with some basic industries in our area. On a lighter note, at our board meeting a week or so ago at which we discussed the discount rate, there was a comment--more in desperation than I think as a serious comment--that we should recommend a reduction in the discount rate of about 4 percentage points. But in thinking about that, it did occur to our directors that if I walked in for my first meeting with that kind of suggestion, you might really look up to see what just came in the door! I did want to report, however, that the interest rate scenario is of increasing concern and is increasingly worrying the people in the Middle West.",345
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"Mr. Chairman, we've mentioned very little about wages, but we have the backdrop of the air traffic controllers, the upcoming post office [negotiations], and baseball as another indication of the popular mood on wages.",43
-fomc-corpus,1981,Foul ball!,4
-fomc-corpus,1981,It sounds like you're getting [unintelligible].,11
-fomc-corpus,1981,"I don't see much easing of inflation occurring. It may show up. But at the moment, with utility rates going up and the possibility of food [price increases], the mood in the public toward inflation easing isn't very evident. Everybody is looking more for it to hold [steady].",56
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"My second point is that in talking around--I've been in the building game a little recently--builders all complain that they haven't had a chance to increase their prices in the last two years because of the status of housing. They are all sitting there with [price hikes of] 20 percent or more ready to go anytime there's a little uptick in the housing area. Now, this may be wishful thinking, but they certainly are not psychologically adapted toward holding the line. Finally, all our scenarios suggest a smooth process developing. I just think about all the uncertainties and the questions. I don't think we have a year to go on the thrift industry before we start to see some major shifts of funds. I don't know whether it will be people getting scared and shifting funds, or an acceleration [of flows] into the money funds, or a money fund going kaput. Then we could wake up with $100 billion more looking for a place to go. We may have major problems from crises and movements of money, which are going to impact institutions in a way we don't foresee. And that's going to be the biggest psychological change to take place in the period ahead.",234
-fomc-corpus,1981,"Have we exhausted the comments? I guess we can't carry this much further this afternoon. We didn't get quite as far as I thought we would. Maybe we'll start off with Mr. Axilrod tomorrow. Let me just say that, when I look at where we are today as compared to where we were six months ago, I share Larry Roos's feeling of some satisfaction thus far. But it's a limited satisfaction. I think we have clearly taken the froth out of inflation. All those prices that are sensitive to tight money or expectations, or both, are pretty well deflated. In fact, I think many of them are deflated below the cost of production and, therefore, if things got easier, they would go up again at some point. If the economy began going up again and interest rates began going down, we probably [could expect] increases in some raw materials prices anyway. I think we've been exceptionally lucky on oil--I don't know how long that will last--and we've been pretty lucky on food. The trick is to convert that luck, to the extent that it is luck--it's partly tight money--into a more lasting wage and cost pattern. Views differ on that. I don't quite believe that we're seeing it yet, but I hope we will see it. I think we can begin to say that something may be happening on the inflation side. I'll concede that much, Mr. Kichline, even though it will take some time to be confirmed. I also think conditions are softening in the economy, which may be optimistic compared to the view of some in the markets that even this level of interest rates wouldn't soften anything in the economy. I believe we are seeing, at the moment at least, some softening; but the burden of all the comments that were made around the table is that there is no simple way to get from here to there. I don't know whether the staff forecast or many of the other forecasts imply a fairly simple way. They don't imply big recessions or a big backtracking on inflation. I'm not sure that there is an easy way to get from here to there or any way that doesn't involve a lot more real problems and controversies than we've had so far. But we don't know where all that is going to lead or precisely what direction it's going to take. Meanwhile, we have to make a few decisions. We unfortunately have to use these fragile numbers that we have, and some of them are getting increasingly fragile. I agree with Frank Morris in terms of direction, but we happen to have a law as well as an expectation that says that we have to review our present targets and have to put down some new ones for next year. We are in a happy or unhappy situation that practically everything is outside the target range. It's not quite that bad: Some are high within the range; others are above or below; it depends upon which one you look at. I think we do have inconsistencies among the targets for the first half of this year. I suspect the staff analysis, when Mr. Axilrod gets to it, will suggest that those inconsistencies will become less as the year progresses. I guess he has to assume that because they were estimated in a consistent way originally and if they're off path for six months--if the original analysis was right--they have to come back toward consistency in the next six months.",679
-fomc-corpus,1981,We're not that stubborn!,5
-fomc-corpus,1981,"In any event, at the moment they are inconsistent. We have to consider, therefore, whether to change the present targets to realign their internal relationships. I don't mean to suggest that that's positively necessary; it depends upon the analysis. And they all have ranges, so we have some room for some inconsistencies. But we do have to consider this internal alignment question. We have to consider all the questions that were raised about what velocity is likely to do and what all the new institutional arrangements mean. When we get through all that technical [analysis], we have to decide where policy ought to be in some sense in terms of real pressure. And the policy [discussion] only comes after we get through that morass of technical questions, the way this is set up. We're going to do all that for this year and, obviously, we have to set some ranges for next year. Again, we have what one might think of as pictorial questions in terms of how the targets look against this year's targets and this year's performance relative to all those expectations out there, and we have to reconcile that somehow with our policy predilections. The policy question comes down, I suspect, to a question of where we want to take our chances because--at least speaking for myself--I doubt that anybody can be all that certain about any particular outlook or all that certain about what some of these internal relationships are. Not only do we have to make substantive decisions, but we have to portray them to the public. And we are going to have to lean one way or the other on where we want to take our risks. I would only say in that connection that we may not be quite as far along as we thought but we are some distance along the road of taking the risks that a constraining policy [presents] in the interest of dealing with the inflationary problem--risks for not only the financial system but the real side of the economy. I suppose everybody is looking to see whether that's where the risk is going to be balanced in the future or not. With that much comment, I guess it is late enough so that we can retire for the evening and come back at what time?",439
-fomc-corpus,1981,9:30.,4
-fomc-corpus,1981,"At 9:30 in the morning we will take up the long-term discussion. We will consider revisions in the targets for this year, if any--and I'm not implying there should be any--and whether we want to make any changes in the targets from this year for next year. And then we will come back to what we want to do in the next month.",75
-fomc-corpus,1981,"Mr. Chairman, isn't it worth pointing out that the staff originally recommended a much higher M2 as being consistent with--",24
-fomc-corpus,1981,"Well, they recommended a somewhat higher M2, but the distance--",14
-fomc-corpus,1981,10 to 12--,5
-fomc-corpus,1981,"I don't know. It wasn't that high; it was 1/2 to 1 percentage point higher. The discrepancy could explain, one can say, perhaps half [of the overshoot from the target]; I think their original analysis probably would have explained one-third or two-thirds of it or less.",61
-fomc-corpus,1981,"Mr. Kichline, do you want to take about a minute to describe the producer price index figures that came out this morning?",27
-fomc-corpus,1981,"In June the producer price index for total finished goods rose 0.6 percent; that compares with 0.4 percent in May and 0.8 percent in April. For the second quarter as a whole, it was up 7.1 percent at a compound annual rate compared with 12 percent in the first quarter. Food prices rose 0.5 percent compared with no change in the preceding two months. Finished energy goods rose 0.2 percent compared with a decline in the preceding month. But excluding food and energy, the total was up 0.6 percent, with a bit slower or pretty much unchanged rates of increase across the board. For example, capital equipment prices were up 0.7 percent compared with 0.9 percent in the preceding two months. On average there does not appear to be much of surprise in this particular index compared to our earlier expectations.",181
-fomc-corpus,1981,"The crude food [component] was up very strongly, though, wasn't it?",16
-fomc-corpus,1981,"That's correct. It was up 2.8 percent compared with a 2 percent decline in the preceding month. I might say on food that it's principally the meat prices that are up, particularly beef but pork as well, and we had in our forecast a continued further rise in those prices. So it appears as if the rise in meat prices has begun.",72
-fomc-corpus,1981,But futures prices for meat in the last couple of weeks have been down surprisingly. I don't understand that.,21
-fomc-corpus,1981,"Yes. Some of the spot prices, though, have been moving up. I think the crude materials prices reflect that rise in the food area, in beef and cattle particularly; it's just there that we've seen increases in spot prices. The rise has been erratic but [generally] up. You're quite correct, though, that there is [that] expectation. I don't know about the last couple of days, but the futures prices did not show anything that unusual.",94
-fomc-corpus,1981,"Mr. Axilrod, do you want to proceed with a laying out of these difficult arithmetic issues and presumably some economic implications thereof with respect to the targets with which we are blessed or hung--one or the other?",44
-fomc-corpus,1981,Hoisted!,3
-fomc-corpus,1981,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1981,"Well, it's all complicated, as Mr. Axilrod suggests. Let me just make a couple of comments. If I can, I will separate the substance from the numerology; that distinction may not be accepted by everybody around the table, but let me make it for the moment. I do think there are some signs of progress on inflation and inflationary psychology; I'm not one to overstate that, as I suggested yesterday. Largely we have affected the things that are most likely to be affected by restraint in the short run: commodity prices, precious metals prices, and the exchange rate to some extent. The hardest part of the battle is ahead in terms of affecting the underlying rate of inflation. Maybe something is happening there but it's still in the ""maybe"" stage. Nevertheless, the stage is at least set more favorably than we've had it in the past. All that is on the plus side. We discussed at great length the economic outlook yesterday. I don't think anybody is very satisfied with any of the projections in terms of their internal logic and plausibility for continuing over a period of time. There is a high risk premium in any of them and our job is assessing where the risks lie in our own policy in terms of our broadest objectives. I haven't much doubt in my mind that it's appropriate in substance to take the risk of more softness in the economy in the short run than one might ideally like in order to capitalize on the anti-inflationary momentum to the extent it exists. That is much more likely to give a more satisfactory economic as well as inflationary outlook over a period of time as compared to the opposite scenario of heading off economic sluggishness or even a downturn at the expense of rapidly getting back into the kind of situation we were in last fall where we had some retreat on inflationary psychology and the latent demands in the economy immediately reasserted themselves. Then we would look forward to another prolonged period of high interest rates and strain and face the same dilemmas over and over again. Neither of these outlooks is very simple or happy in a sense. But between the two I suspect, hard as it is to say, that the lesser risk in the long run is taking a chance on more sluggishness in the short run rather than devoting all our efforts to avoiding the sluggishness in the short run. How that converts into these numbers is another thing. We have technical problems of internal consistency between M-1B unadjusted and M-1B adjusted and between M1 and M2. We have the problem--if it is a problem--that we're low on M-1B and that to come back within the range or at least near the midpoint of the range, as Steve said, gives us very high growth rates in M-1B for a period of months. If we had those high growth rates, we'd probably overshoot on M2. We wouldn't be overshooting on the annual objective for M1 but we would probably be overshooting on M2. So, we have a question as to what to do with this year's ranges. I have some predilection myself, but it's no more than a mild predilection, not to fool around with changing them this year on the grounds that to change them has an atmosphere of fine-tuning and it's even harder to explain at the end of the year why we are outside of the ranges if we are outside of them. [Changing them implies] a kind of renewed commitment to coming within them and we may lose a little flexibility that it may be desirable to have. On the other hand, internal consistency and the actual level of M-1B could easily suggest that some reduction in that range would not be out of line. So, one could argue it either way. If we raise [the range for] M2 or M3, which is another possibility, as Steve suggested, it creates something of a problem of giving confusing signals to the market, just in terms of the surface impression of ""easing."" And if we change this year's targets, particularly if we lower the M-1B range for this year, we have to consider what that does in terms of what we can say about next year in the portrayal of some year-to-year declines. [The task] is not impossible, but we just have to consider what those implications are. So, we have a lot of permutations and combinations, starting from my own predilection that the general risk is that we in some sense may be too easy rather than too tight during the period ahead. I think we ought to take our risks on the side of being tighter rather than looser. I leave it to you to convert that into numbers, but that's my general sense of the direction in which we should be moving. With that much introduction, I open the discussion at this point not to a consideration of the short-run operational decision for the next month or quarter or weeks--although obviously that's going to be in the back of people's minds--but of this problem of what to do with [the ranges for] this year in terms of internal consistency or broader changes and what to do about next year. We are not looking at this point at the short run but recognize that the [dilemma] we're in is going to be greatly colored if we have the [large] decline in M-1B for the next published figure that the preliminary data suggested. The way we start out the next quarter is going to be considerably affected by whether we get a big increase in the following week, which is now the instinct of the projectors and some people in the market. We have an [estimated] increase of $5 or $6 billion in the week of July 8, which seems possible. We started out July with a better posture in terms of our targets; if M-1B goes down by $4 billion in the next published figure and remains there, then we are really behind the eight ball in terms of the targets in the short run. Whereas, if we have that big recovery in the following week, we would not be faced with that same drastic low starting point. In an ironic way I rather hope that the July 8th figure is a big increase. The ideal thing would be that we recover from the big decrease of the coming week and start off at a reasonable level for the next quarter. But that's all in the lap of the gods, so far as I know. All I know is that it's going to color where we start off this quarter. But since we don't know that and we can't do anything about it, I don't think we can take it too much into consideration at the moment. Let us proceed. Mr. Roos.",1355
-fomc-corpus,1981,"I think you've resolved the question I had. I was going to ask a procedural question. Maybe I'm alone in this, but when Steve reports a lot of figures as he did--four pages of them--I don't have the mental ability to absorb that and to translate that into where we are going. I was going to ask the question--",68
-fomc-corpus,1981,"Let me make a comment in that respect, if I may. I think we are all in the position you are in. I suspect that if we arrive at some tentative figures, after some preliminary discussion, we better have a recess for figuring out the implications of all these figures in terms of growth rates over the next couple of quarters to make sure we are really where we want to be. There's too much arithmetic involved to put together the figures casually. So, I think we ought to get a general feel of what people think and then go back and do some of the arithmetic and see whether we are really where we want to be in terms of all these targets and their interrelationships. Go ahead.",140
-fomc-corpus,1981,"Well, I would support the basic position you expressed a little while ago: That if we are going to err, which I hope we won't, it ought to be on the side of constraint rather than ease. I think that one of the big problems we have is the problem of credibility and how people see what we are doing. If we were to do anything that would give the appearance of easing monetary policy significantly at the present time, I think we'd frustrate what would be the apparent objective of ease--bringing down interest rates and bringing relief to a soft economy. So, I would support, Mr. Chairman, what you have said as far as basic policies are concerned.",135
-fomc-corpus,1981,"That may be pretty vague, and I was pretty vague. I raised the question of lowering the M-1B target [for this year]. But whether or not we lower it, I would not aim right now aggressively, in quotation marks, for something like the A alternative presented here in the short run and what that means for the long run--returning to the midpoint of the present target. I think we have the alternative of either lowering the target or saying that we are going to be low in the range--not necessarily outside the target, but we don't expect to be in the upper part of this range. We could either be below the target or in the lower part of the range. Those are the two choices I see for changing the M-1B target for this year.",159
-fomc-corpus,1981,"Well, alternative 2 on page 8 [of the Bluebook] would be my preference in that regard. That's the more restrictive of the two for the remainder of this year.",37
-fomc-corpus,1981,I think that's moving too fast.,7
-fomc-corpus,1981,Are we moving up?,5
-fomc-corpus,1981,Page 8 is where are we.,8
-fomc-corpus,1981,"That's 3-1/2 percent. You are not suggesting that we attempt to get on a path right now of getting back to 3-1/2 percent by the end of the year, are you?",44
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,I didn't think we were talking about the short run.,11
-fomc-corpus,1981,"No, we shouldn't be talking about the short run. Is page 8 the short-run stuff?",20
-fomc-corpus,1981,That's the last half of this year.,8
-fomc-corpus,1981,To hit the bottom part of the present range of 3-1/2 percent--,18
-fomc-corpus,1981,"Well, I don't know. You say it's fast. Let me remind you that a year ago we were sitting here talking about how in the world we could get back up into the ranges. In fact that was the key note of your July presentation. So, who knows? I think we ought to choose these numbers with respect to what we think the longer-run effect will be and then struggle with the question of whether we come in low or go above or anything like that in the short run. But we ought to try to keep in mind what the economy requires. Quickly, Paul, I happen to agree: Alternative 2 looks all right to me.",131
-fomc-corpus,1981,What page?,3
-fomc-corpus,1981,Page 8. That's the--,7
-fomc-corpus,1981,"Look, I'm confused about what those alternatives are. What are they?",14
-fomc-corpus,1981,"Those, Mr. Chairman, are simply the growth rates--in some sense the midpoint growth rates--we'd expect. So, alternative 1 is the midpoint of the present longer-run range of 3-1/2 to 6 percent and we would expect M2 and M3 to grow at rates above the upper ends of the present ranges. If, however,growth in M-1B were held to the lower limit of the present 3-1/2 to 6 percent range for the year, we would expect that growth in M2 would be in its range and growth of M3 just a tick above its range. That [table on page 8] shows those relationships.",142
-fomc-corpus,1981,"Steve, in Appendix III, the associated interest rates for the third and fourth quarters are 19-1/2 and 21 percent, is that right?",32
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,They're high rates.,4
-fomc-corpus,1981,If you believe that.,5
-fomc-corpus,1981,"But I think the point is that we can, in fact, accept the strategy of alternative 2 and not change the long-range targets for this year.",31
-fomc-corpus,1981,"That's right. Let me just clarify this. If we implicitly accept the strategy of alternative 2 in a rough way, we are left then with the question before us of whether we keep the M-1B range unchanged or whether we lower it. [That strategy] is consistent with either hypothesis, and we wouldn't have to change the M2 range. We could, but we wouldn't have to. Now, I don't know whether any of you people who have commented already want to say anything about 1982. In effect, you have said alternative 2. You haven't said anything about 1982, and I don't know whether you want to at this stage.",134
-fomc-corpus,1981,"The 1982 ranges and the changes for 1981 are somewhat separable topics. We can separate out the very short run and separate out the rest of year, and then we can talk about 1982. I think those three topics are more manageable than if we try to get into all of them at the same time.",67
-fomc-corpus,1981,"I disagree, Henry. I think one has to discuss what one is recommending for '82 in discussing whether to revise the remainder of '81 or not. If you want to revise the remainder of '81, you then are going to be much less willing to announce a further reduction [for '82], presumably, at this time.",67
-fomc-corpus,1981,"I think there is a relationship between the two. We have too many numbers to discuss here, we all agree. But I think we should just get out on the table initially a feeling--I guess it's broadly reflected on page 8 and then it's reflected on page 14, too--about what's implied for next year.",65
-fomc-corpus,1981,"I would recommend alternative II in '82 also, going slowly at [our job of reducing monetary growth]. Alternative II is consistent with our long-range objective of reducing our M-1B [range] by about 1 percentage point a year.",49
-fomc-corpus,1981,You have an Arabic number 2 on page 8 and a Roman numeral II on page 14.,21
-fomc-corpus,1981,"I wouldn't go with the Roman II; I would say Roman I, possibly with a 3-point range.",22
-fomc-corpus,1981,"We don't have the answers, but implicit in these is the level of interest rates. Alternative I is the one that keeps interest rates in the 18 percent range for the full 18 months, isn't that correct? Presumably alternatives II and III would put interest rates in the 20 or perhaps 22 percent range.",64
-fomc-corpus,1981,"Well, it probably would, if you assume the economy unchanged.",13
-fomc-corpus,1981,Until the economy collapses!,6
-fomc-corpus,1981,It doesn't have to collapse; it just needs to ease a little.,14
-fomc-corpus,1981,"There's a further complication. At least we in New York, Steve, are a little surprised by the interest rate levels projected to be consistent with each of these alternatives. To me these interest rates are very much on the high side. Certainly the market would think they are on the high side. And since they're derived on fairly unreliable historical relationships based on the model, it may be that the market is less wrong and more right. We ought to take with a grain of salt the interest rate projections; I'd think of them as being more the outside limit on the upper side rather than as the most likely result.",121
-fomc-corpus,1981,"May I just go back and ask Mr. Roos and Mr. Partee if they are ready to pronounce judgment? This all should be considered very tentative. All I want is an instinct at this point. Consistent with alternative 2 for the short run, meaning this year, would you leave the ranges unchanged or would you lower M-1B presumably?",73
-fomc-corpus,1981,For the short run?,5
-fomc-corpus,1981,No for this year.,5
-fomc-corpus,1981,I mean this year. Not really short run but this year as opposed to next year.,18
-fomc-corpus,1981,"The ranges should be left unchanged. I think we ought to opt for the lower of the two alternatives to stay within the ranges, if I understand it.",31
-fomc-corpus,1981,Yes. We have two questions here. One is where we should aim in substance and the other is whether we should change the range. That's a pictorial question. We can go either way on the pictorial question.,44
-fomc-corpus,1981,"I would think, and this may be unrealistic, that at this particular time whichever way we go, it would be appropriate [to provide] an early explanation in a public statement by the Chairman or through some other mechanism as to what we actually were seeking to accomplish in this meeting. In other words, in this situation an understanding of what we are trying to do is so critical currently that getting our story across through signaling [may not be the way to go]. Maybe it is too early to talk about this--maybe it ought to be in the directive--but whatever we come up with, if we opt for what the Chairman implied earlier, I just wonder whether this shouldn't be expressed and explained quite openly or publicly without the 30-day lapse that usually accompanies these things.",154
-fomc-corpus,1981,"Well, it presumably will be explained in the testimony.",11
-fomc-corpus,1981,"That's when--the 21st? [Secretary's note: Chairman Volcker testified on July 20, 1981.]",26
-fomc-corpus,1981,"On your question, I think it's really a matter of taste. We could say, as we often have with these ranges, that they are there for a purpose. That is, things change, and we change [our view of where we want to be] within the ranges. It looks as if there was a change in the demand function for money and, therefore, we are going to come in low on M-1B and we're going to come in high on M2 and M3. Or, if you prefer, we could say there has been an apparent change in the relationships here and, therefore, we are going to reduce the M-1B range 1/2 point and increase the M2 and M3 ranges 1/2 point. It's just a matter of taste as to the cosmetics of how we go about it, Paul.",173
-fomc-corpus,1981,"Yes, I think it is a matter of pictorial taste. Mr. Black.",17
-fomc-corpus,1981,"Mr. Chairman, I am very sympathetic to your expression and Larry Roos' expression of the way in which we ought to err if we have to. I would take a different position on the ranges, however, and suggest that the more prudent thing to do in light of the weakness in the aggregates in the first half may be to take the bottom half of this range that we previously adopted. That would mean that if M-1B could grow 10.4 percent, it would hit the midpoint of the present ranges; it would end up considerably below that, of course, if [second-half growth] came in below that. The reason I think this is important is that even to hit the bottom part of that range, we have to have a pretty good rate of increase in terms of how the market judges that. We would have to have [growth at a rate of] 7.4 percent between now and December. And since they remember what we did last year, if they start seeing figures like that and we have not taken any explicit action to lower that range, I think that would disturb them more than if we do lower it. It is quite true, as Larry says, that if we explain this at an early stage, that will help some. But all too often the market doesn't seem to listen to these explanations; they just look at the cold figures. So, I would say we really ought to make [our objective] explicit and try to come in somewhere in that lower half. I would rather come in a little above the lower part of it, though, and would want growth a little higher than that of alternative 2, which would bring us nearly to the lower part of the M-1B range. So far as the ranges for M2 and M3 are concerned, I'd leave those unchanged. If we come in somewhere in the lower part of the existing M-1B range, that would enhance the chances that M2 and M3 would come in within the ranges that we specified; if they should turn out to be lower than that, then we have plenty of range to accommodate that, too.",432
-fomc-corpus,1981,"Would you just cut the range? Is that the idea, Bob?",14
-fomc-corpus,1981,"Yes, I'd cut it off at the midpoint of 4-3/4 percent and have the range be 3-1/2 to 4-3/4 percent and try to come in somewhere within it. If we had had stronger performance in the aggregates up until now, I would not be as sympathetic to that, but--",69
-fomc-corpus,1981,Where are you for next year?,7
-fomc-corpus,1981,Next year I would cut [the range for] M-1B down to 3 to 4-1/2 percent. That's not exactly what any of these alternatives specify.,37
-fomc-corpus,1981,3 to 4-1/2?,9
-fomc-corpus,1981,"Yes, 3 to 4-1/2 percent for M-1B and then I would take the alternative III [ranges for the other aggregates] but I'd clip the top half of M2, M3, and bank credit by about 1 percentage point and leave it there. Most of those ranges might be pretty reasonable. They are not all that far apart so I don't feel as strongly about that as I do about the desirability of emphasizing, either through explicitly cutting the range or through stating it very clearly, that we are aiming at somewhere in the bottom half this year. That's really the important point.",125
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"I'd like to say a few words first about how I get to where I am. It's useful for thinking about ranges in the future to remember that we are dealing in a world now in which the money demand function has been shifting all over the lot. And I agree with Tony that one can't make interest rate forecasts from the money growth ranges under these circumstances without having a great deal of uncertainty. But I wouldn't express it the way he does. I don't think we ought to take these interest rate forecasts with a grain of salt. I think we ought to look very, very carefully at the possibility that they may be right and at what that means for the selection of ranges. It seems to me we are looking at an economy with some very strong increases. We have a lot of expansive forces going on, but the economy is being held in check by very, very tight monetary policy. High interest rates have slowed economic growth essentially to nothing. And if interest rates went down a lot, the economy would bounce right back again. On the other hand, I also think we have real interest rates where we want them now because we are making progress on inflation. If one believes the staff is correct that we are going to make more progress over the next 18 months, we are going to have a rather dramatic shift in expectations about inflation. That means that unless nominal interest rates come down as inflation subsides, we are going to have real interest rates increasing substantially. We are going to have a lot tighter monetary policy than we really want. If nominal interest rates come down, then the downward shifts in money demand that we have been experiencing in the past several years are much less likely to occur. I'd like to remind you of how much this has meant for the course of the economy this year. If you look on page 6 of the Bluebook, you find that over the fourth quarter of '80 through the second quarter of '81 shift adjusted M-1B went up 2.2 percent at an annual rate. But if you add the 5 percentage point shift in the money demand function that took place, that number converts to 7.2 percent. The point is that we may not be anywhere near that lucky in getting downward shifts in money demand in the future. So, I think Chuck Partee is right. We may be sitting on a situation in which, in order to keep interest rates from going up like gangbusters, we have to permit a lot faster money growth than we have had in the first half of this year. That means to me that we should stick for '81 with the same ranges we have. If we are fortunate and money demand continues to move down, growth will come in near the lower end of the ranges. If we are not so fortunate, we may end up with growth over the four quarters more like the midpoint of the range. I would leave M2 alone; I don't think we need to change the M2 range. And I would be inclined to abandon altogether the actual M1 range along the lines that Steve suggested. For '82, I would be leaning in the direction of something like a 3 to 7 percent range for M-1B and maybe even 6-1/2 to 9-1/2 percent for M2 because I think we have seen somewhat of a change in the relationship between the two--although heaven knows, developments may come along that would alter those relationships between now and then. I'm wondering, in light of the uncertainty with which we've been looking at these M-1B numbers, if we ought to be thinking over the long run of leaning more heavily on a broader aggregate such as M2 and perhaps indicate in our announcement this July that we are thinking along those lines.",757
-fomc-corpus,1981,"The trouble with going toward leaning on M2 is that we still haven't had a presentation of information that would indicate that it's a more reliable guide. One has an instinctive sense of that because it's more stable and closer to GNP, but we haven't had that analysis.",54
-fomc-corpus,1981,"But some comment in the directive to indicate that it is indeed being looked at might well be worthwhile. Given that we are in fact looking at a family of aggregates and that none of these aggregates is behaving very well, it might be a good idea to indicate to people in the market that we are indeed looking at least to some degree at M2.",70
-fomc-corpus,1981,"Let me just make one comment on one of Governor Gramley's points, which I think is valid, but maybe not too much in the very short run. At some point, if inflation does come down and interest rates come down, we may find we need much higher growth in transactions balances relative to nominal GNP than anything in recent experience has suggested. How we would ever make that shift is very difficult psychologically in terms of all this numerology because we all keep talking about the need to reduce money growth, and it would give the wrong signal if we actually set a projection based upon [the need for faster growth]. It's too early to assume that need anyway. Some day it's going to happen or it may happen. My reaction is that it's premature [to act on it now]. It may not be premature to raise the subject as a possibility for the future, but it's too early to raise the subject in terms of the actual targets we put down because I don't think we are there yet. And we might give a wrong signal by leaning on it now even though I suspect it is going to happen at some point. Some day we are going to have to say rather flatly that the target is higher relative to nominal GNP precisely for this reason, and I would consider putting a sentence or two of that sort in the testimony. But it's probably too early to reflect it in any actual targets we set, because it will not be identified in the public mind with this rather sophisticated analysis but would just be interpreted as a straightforward easing of policy. And that is not what would be meant. Governor Wallich.",321
-fomc-corpus,1981,"Well, I think Lyle has given us a very sophisticated argument against the proposition that the way to get inflation down is to keep pulling the aggregates down. I get the similar argument from a very theoretical side. The people who are examining the post-World War I inflations conclude that at the end of the inflation [the monetary authority] can enormously increase the money supply without rekindling inflation because that is what happened then. But I share the Chairman's view that we are far from that point. Moreover, typically when one has had declining interest rates, velocity has not changed back to its previous behavior but has remained high because there's an underlying trend that increases it. So, I would be very hesitant now to move in the direction of allowing higher targets. There are two things we need to bear in mind. One is the substantive point about what we want to do; the other is the strategic. The two substantive things we need to do are to avoid the repetition of 1980 by going to a very high rate from a low level, perhaps in order to get back on track, and thus conveying the impression of a massive expansion. That suggests to me that we ought to keep M-1B growing slowly the rest of the year, if necessary by changing the target range downward. But that can also be done by specifying that we're aiming at the lower end of the range. That's what the Germans have been doing, and recently they actually have changed the target. The other thing we ought to do is to get M2 and M3 more or less on track. Yesterday's discussion shows that M-1B is increasingly regarded as unreliable. I say that very reluctantly because I've favored transactions balances as a criterion. But it doesn't seem to be a feasible criterion, at the present time at least. So, I think we need to focus on M2 and M3, and that suggests to me again that either we lower the M-1B target or aim specifically at its lower end. In either event, I come out with something like the alternative 2 growth rates for '81. Now, for '82 I see Tony Solomon's point that if we make a big move on anything in '81, we can't make a very large move in '82. That's the strategic aspect of the matter. But I think there's still room for some reduction in the target for M-1B this year and a smaller reduction for it next year. I would go somewhere along the lines of the ranges in alternatives II and III on page 14.",512
-fomc-corpus,1981,Governor Schultz.,3
-fomc-corpus,1981,"Well, with the exception of Mr. Black, I was the outlier on my forecast for inflation for next year. [My forecast was] predicated on the idea that we would continue with the policy of monetary restraint. I disagree with Governor Wallich. I think we have a real opportunity at this point to bring inflation down. There are a lot of indications that the groundwork has been laid and that there is sensitivity [to that possibility]. I certainly would agree with Mr. Solomon, though, that it takes a period of intense price and wage competition to bring inflation down. We have that opportunity over the next four quarters and I think it is very important that we not lose this opportunity for two reasons: (1) because the American public are going to get very impatient if they don't start to see some real effects from the kind of policy we've been carrying out; and (2) because we have another big tax cut coming up on the first of July of next year and that's likely to be very stimulative. So, to me, the next four quarters are really crucial. It is vital that we have a continued policy of monetary restraint. There are risks on both sides. There is a risk in what I really would like to see, which is a period of very slow growth or a mild recession, and the risk is that it could get out of hand on the down side. I don't think that's likely to happen, first because there is a great deal of latent demand in the economy and if the economy does weaken to that degree, interest rates would come down and that would have a stimulative effect. Also we have another tax cut coming on October 1 and we have continued heavy defense spending, [both of] which I think are likely to prove to be a support underneath the economy if it should get much weaker than I would anticipate. The risk on the other side of not having a firm policy of monetary restraint is that we could have a very difficult time early next year. It seems to me that the period of greatest danger for the thrifts is that period; if we ease up and then have this tax cut and the defense spending and the other things that could well take place, we could easily be in a situation in the first quarter of next year where interest rates are rising and there is tremendous pressure on the thrifts. I think that's the period of great danger. It seems to me that we have a real opportunity here and it's very important that we not let this situation get out of hand as we did last year. The economy is poised so that we can exert a real effect on inflation. So, I would like to see us reduce the lower M1-B band for this year to 3 percent from 3-1/2 percent. I see the arguments on the other side, but if we leave it at 3-1/2 percent the market would look at it and say: ""That points to a big increase for the remainder of this year and if the Fed weren't going to try to hit that target, why did they leave it there?"" I think that makes a lot of sense. The argument can be made that if we put in 3 percent, then that is a real target and maybe we would have to hit it in spite of what may happen in the meantime. It seems to me that the stronger argument is that if we leave it at 3-1/2 percent, the market will anticipate that we're going to be pumping up the money supply pretty rapidly between now and the end of the year to get to that figure. So, I'd like to see us lower that range to 3 percent on the down side. Next year, I do think there's likely to be a wide swing, particularly in M-1B. My anticipation is that the economy likely will remain somewhat sluggish in the first half. But if we do have some success in getting inflation down and that tax cut hits on July 1, the second half of the year could be pretty strong and I think we are likely to get some rather wide swings [in monetary growth]. I would opt for alternative III, which would mean a further lowering of the target range for M-1B on the bottom side but retaining the 3-point range.",859
-fomc-corpus,1981,"May I ask: What does 3 percent imply for the rest of the year? If [M-1B growth] were to come in at 3 percent, Steve, what would June to December be then?",44
-fomc-corpus,1981,"Well, the June-to-December growth would be around 6-1/2 percent. That would be the alternative C.",26
-fomc-corpus,1981,It's consistent with alternative C in continuing to--,9
-fomc-corpus,1981,That's alternative C. [M-1B growth] comes in at 3 percent for the year.,21
-fomc-corpus,1981,"You'd leave the upper part of the range unchanged then, Fred?",14
-fomc-corpus,1981,I would. I'm very much afraid--,8
-fomc-corpus,1981,You're also saying you'd leave it unchanged in '82?,11
-fomc-corpus,1981,I'd leave the upper part of the range alone for this year or lower it 1/2 point. I wouldn't lower it by more than that. I am afraid of tightening these ranges too far.,40
-fomc-corpus,1981,"If you reduce the bottom limit of the range for this year, just pictorially, I think you'd want to reduce the top too because you wouldn't want to be widening the range in the middle of the year.",43
-fomc-corpus,1981,All right. I'd accept that. I'm really much more concerned about the bottom part than I am the top. I'd accept the lowering of the top.,30
-fomc-corpus,1981,What would you do for '82?,8
-fomc-corpus,1981,2-1/2 to 5-1/2 percent.,14
-fomc-corpus,1981,That would leave the top the same as this year and would reduce the bottom by 1/2 point further from this year. Governor Teeters.,30
-fomc-corpus,1981,"May I remind you that we shouldn't take too much credit for the price easing? I never thought we were totally at fault for the price increases that we suffered from OPEC and food; and I don't think the fact that OPEC and food have calmed down has a great deal to do with monetary policy per se, except in the very long run. As a result, I think we ought to be very careful about what we do in terms of interest rates. Nobody yet has mentioned housing; nobody has mentioned the Chrysler problem; nobody has mentioned all the companies that have had their credit ratings downgraded; nobody has mentioned the possibility that the thrifts are going to go [under] if we keep interest rates up. I get the impression that we're really tearing at the fabric of the financial world and the economy. If we persist in having very high interest rates over very long periods of time, we're going to cause a disaster in this country. It may not be next month and it may not be next quarter, but it's going to be a severe problem and it's going to come down on our shoulders for having pushed the economy over the edge. I happen to agree with Tony Solomon on the short run because if we aim for the 3-1/2 percent lower end of the M-1B range for this year, then we have no place to go next year. We can put our ranges at any place up to 5 percent, but if growth were to come in [at or] above 3-1/2 percent, we're going to be in a position of increasing the rate of growth of the money supply and not decreasing it. So, I think it's foolish to try to come in at that lower end. I think we're going to come in at the lower end and I think we're going to come in at the higher end on M2, which we've known since the staff was telling us that in February. However, the markets are totally aware of our problems with M1-A and M-1B and M2. If you read the most recent DRI report it describes exactly what our problems are in getting these things to come together. Therefore, I don't think we have any credibility problem in explaining the difference between M-1B at the lower end of the range and M2 at the upper end of the range. That leads me to the decision that I don't think we should change the ranges. We should stick with the M-1 B range of 3-1/2 to 6 percent. We ought to have good conversations and a good flow of information back and forth between ourselves, the market, and increasingly with the Congress, and we can explain what is happening. We don't have to change the ranges to do that. I don't think we should go for alternative II; it's too strict. If people look at the first half of this year, everybody is aware that we're way under on the M-1B growth rate. Even if we don't achieve our current range the second half of the year, they will be understanding of it. And we can talk about it. When we come to next year, if we aim for a higher rate of growth in money and presumably some easing in interest rates, which I think is appropriate at this point in time, then my preference is with Lyle; I don't see any reason to tighten up. Nominal GNP next year is going to be a great deal larger than it is this year. Why reduce the money supply and almost assure ourselves that we're going to maintain high interest rates for this long a period of time? It seems to me that we don't have to adopt any of these strategies. We could stick almost exactly with the numbers that we have this year and, in effect, that represents a fairly tight monetary policy. So, I come down somewhere between alternatives 1 and 2 on page 8 and for retaining the 1981 targets for 1982, particularly since we are setting preliminary targets for 1982. In the past we've trapped ourselves by setting [new] targets in July and reaffirming them in February. With all the uncertainties that we have, it seems to me we'd be better off to stay put now and, if necessary, change them in February but not commit ourselves to a lowering of the targets this far in advance of actual economic developments.",878
-fomc-corpus,1981,"Well, all of those ranges on page 14 lower the targets a bit, Nancy. Alternative I lowers the target ranges by 1/2 point.",31
-fomc-corpus,1981,It raises the M2 and M3 and bank credit ranges.,13
-fomc-corpus,1981,"I wouldn't take any of these, Chuck.",9
-fomc-corpus,1981,"Oh, I thought you said you'd take alternative I.",11
-fomc-corpus,1981,"No, I'm talking about alternative 1 on page 8, which is the shorter-run target. I'd take the present ranges for '81 [instead of any of those] on page 14. I don't see any reason to change them.",49
-fomc-corpus,1981,I see.,3
-fomc-corpus,1981,"Well, let me just make one point as a footnote. I think you are correct in worrying about [high] interest rates and what that might do to the financial fabric. The question of strategy is whether we take that risk in the short run or exacerbate that risk by being too easy in some sense in the short run and having high interest rates longer. I think that's the issue before us.",81
-fomc-corpus,1981,But that has been the issue repeatedly.,8
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,"It has been over the past 2-1/2 years that I've been here, and all we do is end up with high interest rates.",30
-fomc-corpus,1981,"Well, you could argue we haven't been tight enough.",11
-fomc-corpus,1981,Try to tell that to the construction industry.,9
-fomc-corpus,1981,Mr. Solomon.,4
-fomc-corpus,1981,"I'm embarrassed to say that I have changed my position every day in the last four days, as I looked at each of these permutations and combinations. I was in favor of almost every single one that has been mentioned at one point or another. And I must say I've come full circle. I won't bother you with why I came full circle. The disadvantages of each of these approaches are pretty obvious, but let me explain why I now would recommend that we stay [with the targets we have] for the remainder of the year. The problem, I think we all agree, is primarily presentational. Fred, even though I agree with much of what you said, I would disagree with you on the reaction of the market and the public. If we leave the target unchanged for this year and say that we expect to come in at the lower end--I'm talking about M-1B obviously--I think that is better than lowering it a half point. If we lower it a half point, the market will believe we're going to make an enormous effort to come in at that lower target because, otherwise, why make the adjustment? If we leave the target range alone and say we expect to come in at the lower end or possibly even undershoot given unusual situations--velocity or what have you--I think the market would expect less of an expansionary policy from us in the remaining few months. They would expect less of a repeat of last year. There are so many disadvantages of adjusting any of this or fine-tuning that I'm not sure what we gain that is significant, and we constrain our hand for '82. We have a wide range of possibilities [for next year] because of this velocity question. It seems to me, however--and here I would disagree with Nancy--that for '82 we still need to show continuity of policy and continued severe monetary restraint. What I would do is give a preliminary view--emphasizing that it's very much subject to review if there are unexpected changes in velocity and as we assess the state of the economy--that we would cut the range for M-1B for '82 by 1/2 point and leave the M2 and M3 ranges alone, recognizing that we have not cut them for 2 or 3 years. It seems to me that there are overwhelming technical arguments for that and I think they're fully explanatory. Everybody knows about the surge in moneymarket funds, and in general I think we have convinced everybody that we have a very restrictive policy. I don't think we have to worry about the fact that we haven't cut the M2 range in a couple of years. There are good reasons, which everybody will accept. So, that would be my recommendation.",547
-fomc-corpus,1981,"That's a tighter fit for M2 than is proposed by any of the alternatives I through III on page 14, isn't it?",26
-fomc-corpus,1981,He said leave it unchanged.,6
-fomc-corpus,1981,He'd leave it unchanged at 6 to 9 percent.,13
-fomc-corpus,1981,6 to 9.,5
-fomc-corpus,1981,"I would not lower it, right.",8
-fomc-corpus,1981,"But the alternatives here all raise it, you see.",11
-fomc-corpus,1981,They all raise it.,5
-fomc-corpus,1981,"Part of this whole credibility issue is a perception of a kind of simple-minded, if you want to call it that, approach. If we ignored the recommendations of the staff last year to raise the M2 range for '81, at this point I don't see the argument for going ahead and raising it [now]. I don't believe the innovations in financial instruments that we should expect next year are going to be such that we should have the kind of growth in money market funds that will put more pressure [on M2]. I would not raise the range.",111
-fomc-corpus,1981,I wasn't disagreeing with your proposal; I was just trying to point out that you were really making a very tough proposal.,25
-fomc-corpus,1981,"Oh, I think it's reasonably tough. In some ways, as I explained earlier, I think the markets are still focusing more on M-1B. And as I said, perversely I'm afraid, if we lower the range a half point, the markets will expect us to make an even greater effort to hit it than if we leave it alone and say we expect growth to come in at the lower end.",83
-fomc-corpus,1981,Explain to me what worries you about that. Are you worried that we would be making a major effort to get growth up to 3 percent? Is that what bothers you? Or are your worried that that is too constraining? Which side are you on?,52
-fomc-corpus,1981,"I'm not talking about the substantive decision on how we actually handle ourselves for the rest of the year, because we don't have full control of where we're going to come in. I'm talking about my impression of the public reaction or the market reaction, which is that if we say that we're going to lower it a half point, rather than say that we're leaving it alone but we expect to come in at the low end, then the markets will expect a more determined expansionary effort on our part because we are fine-tuning the range.",106
-fomc-corpus,1981,A more determined expansionary effort if we lower it to 3 percent than if we leave it where it is?,23
-fomc-corpus,1981,Than if we leave it alone and say we expect to come in at the lower end or even possibly undershoot.,23
-fomc-corpus,1981,But the substance of it is that we shouldn't make M-1B grow very fast; whether we express that in terms of a target or by saying we expect its growth to come in low is a matter of strategy.,44
-fomc-corpus,1981,"Let me say this, on the substance of it: I feel that we should be careful not to [let growth] exceed the lower end and we should accept a little undershooting. I don't think we'll get that much criticism because I don't see that it's going to be timed with a recession. Obviously, if we were undershooting and we had a recession simultaneously, we would get an enormous amount of criticism.",82
-fomc-corpus,1981,The next appointee to the Open market Committee is going to be a market psychiatrist!,18
-fomc-corpus,1981,"Well, we have every kind of therapist here.",10
-fomc-corpus,1981,And the one who goes off will also need a psychiatrist!,12
-fomc-corpus,1981,Mr. Boehne.,6
-fomc-corpus,1981,"I think we're positioned really rather well with respect to our '81 targets. Looking forward from last February, I didn't expect that we'd be as well off as we are now, and I think we ought to accept the good fortune that we have. So, I wouldn't tinker with the '81 targets. To be at the bottom end with respect to M-1B and at the upper end with respect to M2 is about as good as we can hope for. In fact, I'd be very happy if we ended the year in roughly that position. So, I would leave those targets unchanged. I am concerned somewhat by the shortfall that we are getting in M-1B. We've now had [minus] 5 percent in May and [minus] 10 percent in June. We do have a forecast of growth in July and I think there's an underlying feeling that the risks are for too much growth in the second half of the year. But I have seen this pattern develop before, so I have no problem in beginning to resist this shortfall some, which I think is consistent with the idea of moving between now and year-end toward the lower end of the M-1B range. It doesn't do us any good in the market to run double-digit shortfalls because what comes from that is the expectation that we can't tolerate that for very long and we're going to have to resist it. So, I think some resistance to that is appropriate. As far as 1982 goes, I think we ought to keep the ranges for the broader aggregates about the same as those we now have for 1981 and I am torn between whether we should lower the M-1B range by a half or a whole point. I could live with either. If we lowered it by a whole point, we'd be getting a little more consistency between the narrower and the broader aggregates. But the important thing is that we lower the M-1B range; whether we lower it a half point or a whole point I'm not sure is significant. We are going through a period of maximum danger with regard to the inflation problem and the potential danger to structure as well as a possible recession over the next 12 months. However, I'd rather be running that gauntlet over the next 12 months than the 12 months after that or the 12 months after that because we have begun to make some progress down the anti-inflation road and the costs and the amount of that risk will be less over the next 12 months than in the subsequent 12-month periods. From the strategic point of view, we have to try to keep this anti-inflationary momentum, of which monetary policy is a part, going over this year and next year.",552
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Mr. Chairman, making a couple of general points first, I certainly count myself solidly in the camp of those who would say we should err on the side of firmness now. I think that is very important. I also tend to agree with Mr. Solomon that in all of the scenarios that are laid out here, particularly in the short term but maybe even beyond that, the interest rate profiles are too high. I also think that the actual growth of money over the second half of the year is very important in terms of how we start off 1982. And when I look at some of those numbers that have money growth at 8 or 10 percent in the second half of this year looking toward getting down to 2 or 3 percent next year, the trajectory that presents creates some real problems for me as well. One other general point: I think Steve implied that the staff thought that some of the definitional kinds of problems associated with M2 and M3 relative to M1 might be less next year. I'm not at all sure of that. It seems to me they could be greater, given what the DIDC is doing and the possibility of legislation for an all-saver type certificate or something like that.",247
-fomc-corpus,1981,I didn't mean to imply that.,7
-fomc-corpus,1981,"Okay. Well, I don't think we're out of the woods by any means in terms of those problems with the broader aggregates. As far as the specifics, taking the 1981 targets first, I rather strongly favor the view of retaining the '81 targets as is. To change them involves two problems for me: One is the strategic problem for next year; and the other, which may be more important, is that to do so would give the impression that we really know enough to be able to fine-tune these aggregates at midstream by 1/2 point or whatever. I don't find that very appealing. So, I would retain the existing targets for 1981 although, as I will indicate later, I certainly would not mind an outcome that looks like alternative 2 on page 8. I would not change the targets. I do have some sympathy for the idea of getting rid of the M1-A measure just to get rid of it. In terms of 1982, again partly because of this potential problem I see with M2, M3, and bank credit, my view at this time would be to state a target for M-1B of 2-1/2 to 5-1/2 percent, using the 3-point band. And as Mr. Solomon suggests, right now I would leave the targets for the broader aggregates for '82 where they are for '81, with some rather full explanation in your testimony that partly because of uncertainties about the tax legislation or whatever we will have to take a harder look at these at the beginning of next year.",323
-fomc-corpus,1981,So you're recommending a full point reduction in the M-1B rate for 1982?,19
-fomc-corpus,1981,It's a half point on the top and a full point on the bottom.,15
-fomc-corpus,1981,Mr. Morris. You would solve half the problems by abandoning M-1.,16
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,That simplifies it.,4
-fomc-corpus,1981,"If he wants to get rid of M2, he can do so.",15
-fomc-corpus,1981,"Well, I wasn't proposing that we do that in '81. In general, in order to improve communications between the Federal Reserve and the public, we shouldn't change the guidelines unless there's a pressing need to do so. I think it generates confusion. And I don't see any pressing need to change the 1981 guidelines. But I'm not sure I would do what you're suggesting, Paul, which is to suggest to the [Congressional] Committees that we're confident we are going to come in at the lower end of the range, because this M-1B monster is an extremely volatile instrument. Last year half of the year's total increase in M-1B occurred in one week. I think it would be fine to say that we want to be within the range, but I'm not sure I'd want to commit myself to coming in at the lower end even though we're way below it at the moment. I thought Steve's remarks supported extremely well my view of getting rid of the M-1s as a guideline. He only concluded that we should get rid of M1-A; I don't quite understand that. But I would go beyond Lyle Gramley's position and use M3 and bank credit as guidelines rather than go to the halfway house of M2. If we were to do [as I suggest], we would accomplish one of the things that we're concerned about. That is, we're concerned about a one-time shift in the demand for the narrow aggregates in the event of a sharp decline in interest rates, and it would no longer be a problem. I just don't see how we could accommodate that with an M-1B guideline. But if we had an M3 and bank credit guideline, we could accommodate it very easily. There are two other advantages, it seems to me, of such a shift. One is that there's a great deal less noise in the broader aggregates than in a narrower one. The noise factor, which is huge in M-1B, gives the monetarists a shot at us several times a year. They say the money supply is either growing too fast or too slow. There's no way we're going to get M-1B growing at anything approximating a straight line because of the heavy noise content, which was even demonstrated recently in the [article published by] the St. Louis Federal Reserve Bank.",469
-fomc-corpus,1981,"Monetarists don't shoot at other monetarists, Frank, and we're all monetarists.",20
-fomc-corpus,1981,"Another nice little problem it would solve is the weekly money supply problem because even though we'd be giving information to the market every week on the M1s, the market would not be weighing that so heavily since they would know we were no longer gearing policy to M1 but to the broader aggregates. Now, assuming this advice is not going to be accepted--",71
-fomc-corpus,1981,I find it very persuasive. You ought keep on.,11
-fomc-corpus,1981,"You ought to be a debater, Frank.",10
-fomc-corpus,1981,"--if we could get away with cutting the range for M-1B by 1/2 of one percentage point next year and with keeping the other ranges where they were, I think that would be an excellent outcome. If we can't, then I would be willing to cut the whole batch by 1/2 percentage point. And I would support Steve's suggestion that if we're going to have an M-1B target, we have solely a shift-adjusted target. Having two targets for M-1B is also a source of confusion.",111
-fomc-corpus,1981,"Well, I'm not sure that's what Steve was suggesting. We would have an M1 target period, not shift-adjusted.",25
-fomc-corpus,1981,"Yes, no M1-A.",7
-fomc-corpus,1981,That's on the presumption that we declare the shift is completed.,13
-fomc-corpus,1981,I see.,3
-fomc-corpus,1981,Or irrelevant.,3
-fomc-corpus,1981,"Either completed or irrelevant, one or the other.",10
-fomc-corpus,1981,But it may not be completed.,7
-fomc-corpus,1981,That's the problem.,4
-fomc-corpus,1981,That's why I was suggesting widening the range.,9
-fomc-corpus,1981,"I'd like to make a parenthetical comment that may be of some use. I encountered enormous resentment in Europe among government officials and central bank officials about our continuing to publish the weekly money supply statistics. Maybe their reaction is much too excessive, but they believe that we unnecessarily encourage extra volatility above and beyond what our October '79 approach involved by our continuation of the weekly publications. I just pass that along for what it's worth.",84
-fomc-corpus,1981,"We're going to have to consider that one of these days. I take it that the predominant comment from market people, as you would expect, is that they want us to continue it. There are some comments in the other direction, however; but all the market people argue that the more information they get the better.",63
-fomc-corpus,1981,I find that quite a few leading bankers in New York feel exactly the opposite.,16
-fomc-corpus,1981,"The farther away you get from the market operator types, the less sympathetic people, including the more senior bankers, are to that. Governor Rice.",29
-fomc-corpus,1981,"Well, Mr. Chairman, I agree with the general thrust of your opening statement, especially the part where you seemed to say that we should take the risk on the side of more softness in the economy rather than try to counter any sluggishness that might occur in the short run. From my point of view, probably the most critical question right now is whether we continue to do what we said we were going to do--whether we are going to continue to reduce gradually the growth of money--or whether we are going to try to adjust our position in light of what we think we see developing in the economy. To me it's extremely important to be perceived as doing what we said we were going to do. Rather than try to adjust to the short-run changes that we see, which might make more sense from the short-run point of view, I think it's better to continue to do what we said we were going to do. That is likely to have a much more decisive impact on inflationary expectations. So, for that reason I would favor, as have others, keeping the 1981 targets where they are. I would not change the ranges at all for the reasons set forth by several of you, particularly those set forth by Tony Solomon. I would also for the rest of 1981 opt for alternative 2 on page 8. But it's important to try to keep M2 and M3 as close to their target ranges as possible, and therefore, I would be willing to accept growth in M-1B of 3-1/2 percent [or less in the second half of this year]. In the interest of trying to keep M2 and M3 close to their ranges, it's important to accept the shortfall for the rest of the year in M-1B. As for 1982, I would favor strategy 2 as indicated on page 12, accepting the 3-1/2 percent growth for M-1B for 1981, and moving back to the 4-1/4 percent midpoint of the range for 1982. That, I think, implies some variant of alternative II on page 14.",436
-fomc-corpus,1981,I think it's alternative I.,6
-fomc-corpus,1981,You may be right.,5
-fomc-corpus,1981,"Well, you might ask what the staff had in mind.",12
-fomc-corpus,1981,"What I was going to propose is that, in effect, we do what we said we were going to do and reduce the M-1B range by 1/2 percentage point. So, [for 1982] I'd move to a range of 3 to 5-1/2 percent and leave the ranges for M2 and M3 where they are right now.",78
-fomc-corpus,1981,"Let me just say that given all the complications of this, I think the meeting is going to run until after lunch. I'd like to get through this preliminary go-around and maybe before we resolve this turn to the short run because I think that has some influence on how we finally come out. I suspect we're going to continue the meeting after lunch. Mr. Guffey.",75
-fomc-corpus,1981,"Thank you, Mr. Chairman. Let me just make a couple of preliminary comments as background to my recommendations. First of all, I feel that there's a good deal of latent strength in the economy and that at any indication of lower interest rates, for example, that strength will come forth and we'll have a quite different problem than we may be facing right now. Secondly, it does seem to me that we've made some real progress against inflation and that the public is at least willing to accept that. To be sure, most of it has not been of our own making; it has been in both energy and food prices. Nonetheless, the stage is set. And one last observation: If it is true that we've come to this point for whatever reasons, whether we've had a part in it or not isn't important. Historically, the Federal Reserve has always come up to the hitching post and then backed off simply because the Administration and the Congress have thrown bricks at us or have not been supportive of a policy of restraint. Through the course of recent history at least, we've backed off and we've made a mistake each time. I think we have an opportunity this time to carry forward what we should have done before because for the first time ever we do have, for whatever length of time, the support of the Administration at least. So, we ought to take advantage of that opportunity. That is the background. With that background, I would like to propose that we not change the ranges for the remainder of 1981. I'd leave them the same with the understanding, [explained] through testimony or otherwise--and I think the market already understands--that we're probably looking to the lower end of the range. The fact that M2 and M3 are running very high in the range or outside of the range at the moment seems to me to be consistent with perhaps running at the bottom end of, or even below, the M-1B range for the remainder of this year, while M2 and M3 are right at the top of their ranges. As a result, the fact that we may end up with M-1B below the lower end of the range for 1981 is not important. I wouldn't move the ranges downward simply to accommodate that shortfall.",455
-fomc-corpus,1981,We could juggle the shift adjustment.,8
-fomc-corpus,1981,"Unfortunately, the only new evidence we have on the shift adjustment would lower the adjusted M-1B. If we wanted to take that evidence from this Michigan survey, that's--",35
-fomc-corpus,1981,"Well, I think we ought to leave it right where it is. That story can be told from the picture that will unfold in 1981, and I think it leaves open the lines of communication even with the monetarists. For 1982, from the alternatives on page 14, I like lowering the range of M-1B coupled with broadening the range to 3 percentage points, so 2-1/2 to 5-1/2 percent has some attractiveness to me. But I'd also retain the present ranges for M2, M3, and bank credit. I'm not sure what those all mean. For M2 at least I'd retain the present range, the 6 to 9 percent. As to the short run and what we do in the next month, as I understand the procedure, we're not going to talk about that right now. So I'll stop. I do have some comments to make about that, however.",194
-fomc-corpus,1981,Mr. Ford.,4
-fomc-corpus,1981,"On the substantive issues of where policy should go, I agree with your opening statement and with the consensus that's developing that, given that there are risks on both sides, we have to run the risk of holding tight.",43
-fomc-corpus,1981,Let me just restate my own semantics. I think you have stated it correctly. There are risks in everything we do. I think the lesser risk is--,32
-fomc-corpus,1981,The holding tight.,4
-fomc-corpus,1981,"--holding tight, not that that's the greater risk.",11
-fomc-corpus,1981,Did I summarize it wrong?,6
-fomc-corpus,1981,"No, I think the sense of it is clear enough, but just as a semantic matter I think we're minimizing what inevitable risks there are by doing that. There are risks with any of these alternatives.",40
-fomc-corpus,1981,"Next, with due regard for Nancy's and other people's concern about the thrifts, I very deeply share that concern, but I think we can lose with the thrifts either way in that there's a lesser risk of playing to win now in the next few months than by letting their equity run down longer and facing the same problem a year from now with less equity when that turnaround comes, as Fred so nicely put it. Substantively, my thinking goes from that point. That says then, concerning the '81 targets, to leave the ranges where they are. There are two approaches: the one Fred suggested or leaving the ranges where they are and explaining that we're willing to accept being at the lower end or even a little below [on M-1B]. I'd put more stress on getting M2 within the top of the target, if we possibly can, even though the staff forecast suggests it will be a hard thing to do without blowing interest rates through the roof. But I just am skeptical of that view, or I should say more optimistic about the outlook for interest rates than they show in their forecast. We're praying for a better interest rate forecast than the one they have. If theirs is right, we're in big trouble with the consensus that we're developing here. Concerning the 1982 targets, like a number of previous speakers, I think we need an alternative to the ones shown. Basically, it's alternative II with a modification on the M2 target. I'd like to see M2 kept where it is because if we set an M2 target with a cap of 9-1/2 percent, that would be the highest rate we've had at any time--if my table here is correct--since July of 1977. And I'm worried that even though there are technical reasons for seeing M2 as being somewhat more expansive than previously, the markets keep records of this stuff and if they see us moving M2 to the highest range we've set in four years, that could hurt our credibility and exacerbate the problem of getting within the targets. So, I'd say let's go for alternative II on the M-1B range, but cut M2 down to the present range of 6 to 9 percent [despite] the grounds that it's hard to cut it given the structural changes that Steve and the staff have pointed out to us. Concerning the short run--well, we don't need to talk about the next quarter yet since you want to do that after lunch. The only other thing I'd say is that, Frank, you're not completely alone in the woods. I have developed a touch of Morrismania and I'd say we should move in the direction of considering dropping M1-A immediately. I'd go at least that far with Frank.",553
-fomc-corpus,1981,You don't have much mania!,6
-fomc-corpus,1981,Even I have that much!,6
-fomc-corpus,1981,And step two toward Morrismania is at least to restate our concerns about the very substantial structural problems with M-1B. Deemphasizing M-1B a bit in our statements would be the way I'd lean toward Mr. Morris's position on which aggregates to emphasize.,57
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"Basically I'm in favor of what I call the KISS approach: Keep it simple, sir.",19
-fomc-corpus,1981,"Or keep it simple, stupid.",7
-fomc-corpus,1981,"Your opening statement, which has been supported widely around the table now, was that there's much more to be lost than to be gained by tinkering with these 1981 ranges. In fact, I don't recall that we've done a midyear correction heretofore. If that's wrong, I withdraw the comment.",63
-fomc-corpus,1981,We haven't had much experience. I think what that means is that we haven't done it for two years.,21
-fomc-corpus,1981,"The latitude with the present ranges seems to me to be adequate for the balance of this year. With respect to the alternatives for 1982 set forth on page 14, I would go for alternative I for M-1B, which is to drop the range by 1/2 point, but I find it difficult to buy any of those alternatives for M2, M3, and bank credit. A number of people have spoken on this so far, and I would come out bottom line the same way, to leave those ranges for the broader aggregates the same as they are now. However, I would begin formally and more explicitly, following up on what Lyle said, to give more recognition to M2. We have done that in a very subjective way in our recent published directives. We can all recall the time when we went as far as saying we would give it equal weight. That has been some years ago now. Perhaps it needs to be discussed at some length how far we go in the formal sense in giving more recognition to M2. If you look at the spread between M1 and M2 over quite a long period of time, it bounces all over. I have a table--Bill says he has one too--that shows that over the last 20 years that spread has averaged about 3-1/4 percentage points. The 4-1/4 point spread which is shown on page 14 between the midpoints of M-1B and M2 just seems to me to be excessively high. Coming in somewhere around the historical average spread of 3-1/4 points would justify leaving the M2 range at 6 to 9 percent for next year, which is where it is now. One of the reasons I would lean more toward M2 in a formal sense in our policy deliberations is that I have some skepticism about M-1B; I don't share Frank's view completely, but we are dealing with a very tricky animal in the shift-adjusted M-1B. And at least for next year, that gives us perhaps good reason to place more weight on M2. As a number of others have said, I wouldn't be unhappy at all if we dropped M1-A altogether and do it right now. When we get into the short-run specs, the June-to-September period, I'd like to say more about leaning as aggressively against undershoots as overshoots, but that discussion comes up later.",500
-fomc-corpus,1981,Mr. Boykin.,5
-fomc-corpus,1981,"Yes, Mr. Chairman. I also would agree with the substantive comments that you made in your opening statement. With respect to the strategy for the rest of 1981, I would tend to favor alternative 2 on page 8. I would not make any adjustments in the '81 ranges; I would just let those stand the way they are. As for the strategy for 1982-83, I would look to strategy 2. With respect to the ranges for 1982, I would go for a 1/2 point reduction in the M-1B range to 3 to 5-1/2 percent. I would also be very inclined to leave the M2, M3, and bank credit ranges where they are currently. It may be because I sit next to Frank Morris, but I'm beginning to find quite a bit of sympathy for looking a little closer at M2.",184
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"Mr. Chairman, I'm impressed with the power of the number. We should remind ourselves that [when] we were sitting here a year ago and thinking about the future we forgot base drift in setting our targets. If we go back and adjust for that and secondly if we adjust for the changes that have occurred in M-1B--and the Michigan survey, I think, does not include corporations' use of money funds in the transactions balance set-up--the adjustment probably is in the other direction. [If] we were sitting around the table at the moment faced with the fact that we were over our targets, not under our targets because of the base-drift problem and the adjustment of M-1B, I wonder what our reactions would be. I think we can get trapped by the numbers we're playing with here if we're not careful. Second, contrary to the view most people have expressed, I'd be very strongly in favor of changing our targets at the moment. I think we're going to get trapped next spring if we don't. Suppose we're successful in the sense of coming in at the lower end or less; that becomes our base, if we use precedent on this score. Think what kind of adjustments we're going to have to make and to explain at that stage to make this fit any kind of economic analysis related to those that we've heard. If we're not careful, we're going to be increasing our numbers in February. I feel it's much easier to try to explain it now. Also, if we set targets, we ought to try to shoot for the midpoint. When we set targets and say we're going to shoot at the lower end or less, I think we're playing games a little. Moreover, if we have to make an adjustment, I think it is easier to make it now and then not make one in February. I think we have ourselves trapped by this annual review, particularly when we base it on where we are rather than on having some continuity in the series over time. I'd be in favor of making the adjustment now and, if we're lucky, that would bring us closer to the midpoint of the adjusted range. Then we would not have to make a change on an annual basis to make a continuous effort to achieve our inflation objective. It seems to me that we ought to avoid getting trapped into basing our ranges on where we are and do it rather on a continuous series over time.",480
-fomc-corpus,1981,"Mr. Keehn, you can make an interim concluding comment and we can have a coffee break.",20
-fomc-corpus,1981,"Well, I'd best be brief! With regard to 1981, it seems to me that from the earlier discussion, we're clearly in a learning phase [regarding the relationship] between M-1B and M2. And until we learn more about the downward shifts, it's awfully hard to be precise. To change either range at this point implies a greater degree of precision than may perhaps be the case. I don't see how we can logically change one without the other. Being new to this, I think the outside perception is that the actual results count much more than how they actually relate to our ranges. So, I'd be in favor of not making any change at this point. With regard to 1982, it seems to me that a great deal has already been accomplished and that for all the reasons that have been stated we will have lost a great deal if we do not continue the downward shift. The visibility of reducing the numbers somewhat has a great positive effect. Therefore, I'd be in favor of alternative I for M-1B but would leave the other ranges where they currently are for fear that if we raise them at all, it would have a negative market reaction.",238
-fomc-corpus,1981,"Let me just make one or maybe two comments before the coffee break. Most people have said: ""Keep the ranges this year the same,"" which was my instinct when I was thinking about it before. However, I found that Governor Schultz raised some rather cogent points. I did a little arithmetic this morning and I think one can argue, although I'd want to confirm this arithmetic, that it's reasonably safe--that may overstate it a bit--to expect that we would come within the M-1B range if we lowered it by 1/2 percentage point. That may give us the leeway that Frank is worried about in the unfortunate circumstance that M-1B growth would go up. I still don't think it's going to go up above the upper end, but as opposed to saying we're going to be in the lower end of the range there may be some advantage in just reducing the range a little this year. Everybody probably changes their mind on this, like Tony Solomon, but I find the case for keeping the range less persuasive than my own initial instinct suggested, depending upon just how the arithmetic works out. I think the arithmetic works out rather favorably on that, although I'd want to look at it again. Anyhow, let's go to the coffee break and after the coffee break we'll go to the short run; and then we'll go back to the long run again and make sure the short run fits with what we want to do in the long run.",294
-fomc-corpus,1981,"I guess we are back on page 15 [of the Bluebook]. Is that where we are, Mr. Axilrod, for the short-run ranges? I'm not sure on the arithmetic of how the short-term ranges match with the long-term ranges. Maybe you can inject something now. Do you have another statement to make about the short-term ranges?",72
-fomc-corpus,1981,"Well, Mr. Chairman, I had not planned on any substantial statement in view of the preceding one. But I thought it might be useful to expand at least a little bit on how these short-run ranges relate to the longer-run ranges. And that would give me an opportunity to provide some additional data that would be relevant to the Committee's preceding discussion. We constructed alternative A to reach the midpoint of the present longer-run range for M-1B by the fourth quarter. Given the shortfall in money growth in May and then in June bringing the level down even further, unfortunately that [calls for] a very rapid growth rate for M-1B month by month [in the June-to-September period] of around 10-1/2 percent. Alternative A is associated with a slower growth rate on a quarterly average basis in the third quarter of around 4 percent, and then of course by the fourth quarter [as the quarterly growth rate] veers toward the 10-1/2 percent monthly rate, the fourth-quarter average rate would be around 10.3 percent. Alternative B again has a relatively rapid growth month by month of 8-1/2 percent in M-1B, and that alternative was constructed to get toward the bottom end of the present range. It actually implies a growth Q4 to Q4 of 3.9 percent, which is somewhat above the bottom of the present range.",289
-fomc-corpus,1981,"Fourth quarter to fourth quarter? And it implies for the two quarters, 2.8--",19
-fomc-corpus,1981,For the two quarters it's about 5-1/2 percent.,14
-fomc-corpus,1981,"Yes, for the two quarters on average. But it would imply [quarterly average growth rates], assuming [a fairly smooth trajectory month-by-month], of 2.8 and 8.2 percent, right?",44
-fomc-corpus,1981,"That's right. And alternative C, Mr. Chairman, goes to the bottom end of a range that is 1/2 point lower than the current 3-1/2 to 6 percent range, should the Committee be considering that. Even so, that would imply month-by-month growth in M-1B on the order of 6-1/2 percent, again given the low starting point of June. Of course, if there should be any upward revision in that figure and if you're thinking of the level as the ultimate target, it would tend to lower that growth rate; and a downward revision would tend to [raise] that growth rate. That would give you growth of 1-1/2 percent in the third quarter and 6 percent in the fourth quarter, again veering toward the monthly growth rate by the time of the fourth quarter, and it would only give you 3 percent Q4 to Q 4 . Now, those are a lot of numbers, but if the Committee would indulge me with a little patience for a bit, I think it would be helpful, Mr. Chairman, to give two more sets of numbers that aren't shown [in the Bluebook], because the upper ends of the ranges are not irrelevant in terms of announcement effects when the Committee reaffirms or changes or does whatever to its targets. Given what has happened in the first half of the year, the growth rates in the second half implied by the upper ends of the ranges are, of course, very large as you can tell. For example, if we had Q4-to-Q4 growth of 6 percent, which is the upper end of the M-1B range, given what has happened thus far this year, the monthly growth rate would be on the order of 13-1/2 percent; that would give you quarterly average growth of 6 percent in the third quarter and 13-1/2 percent in the fourth. If the upper end of the present range were reduced by 1/2 point, say, the potential monthly growth to get 5-1/2 percent would be around 12-1/4 percent from now on, with a third quarter of 5-1/4 percent, which looks reasonable, and a fourth quarter, as the arithmetic works out, of around 12-1/2 percent. That gives you an idea of the dimensions that are involved. Finally, associated funds rate ranges were presented [in the Bluebook] with the three alternatives. The only range that implies an easing in the money market, from our analysis, is the rapid growth rates of alternative A, and that I think has been amply explained. It comes out of this dilemma involved in analyzing money demand relative to GNP. If there is a further sharp downward shift in money demand or if GNP is indeed weaker than we have projected, then of course that lower funds rate range of alternative A could well develop with less rapid growth than is called for in alternative A. But under the assumptions that we have been working with, we have more moderate money market conditions associated with ""A,"" while ""B"" and ""C"" imply current or somewhat tighter money market conditions on our analysis, again I stress, given the GNP projection.",663
-fomc-corpus,1981,"Yes, that's apart from the difficulties of any short-run interest rate forecast. According to the model they depend upon a GNP projection, which may be unreliable; and, therefore, if we get a weaker GNP we can get much lower interest rates consistent with any of these forecasts. Who would like to wade into this short-run problem? Mr. Boehne.",75
-fomc-corpus,1981,"I think it comes down to how one weighs the risks of growth in the aggregates in the second half of this year that is too rapid and a repeat of what happened last year versus a cumulative shortfall in the aggregates. We've seen the possible beginnings of [a cumulative shortfall] in June and July and I do give some weight to that possibility. I would come out somewhere between ""B"" and ""C"" on page 15, preferring to err more in the direction of ""C"" than ""B,"" but somewhere in that ""B"" to ""C"" area.",117
-fomc-corpus,1981,Mr. Morris.,4
-fomc-corpus,1981,"Well, Mr. Chairman I would support alterative B. I like the idea of having a plan to hit the lower level of the range or to get close to it by November. I don't think I would want to publish that objective in the report we put out or, in other words, commit ourselves to being on that particular course, given the volatility of these numbers.",75
-fomc-corpus,1981,What alternative do we have other than to publish?,10
-fomc-corpus,1981,"The alternative would simply be to state that our objective for the June-to-September period is to produce the growth rates in alternative B, without stating explicitly that they are designed--",35
-fomc-corpus,1981,"Okay, you would put in the 8-1/2 percent.",15
-fomc-corpus,1981,"Oh, yes. But I'd just not say that these are designed to get us to the lower end of the range by November. Since I think the third quarter is going to be weaker than the staff is projecting, this can probably be accomplished without as much interest rate pressure as in the forecast, so I would support a funds range of 14 to 20 percent rather than the 16 to 22 percent shown.",84
-fomc-corpus,1981,"Do you have a comment on the funds range, Mr. Boehne?",16
-fomc-corpus,1981,"Yes, I would have something like 16 to 22 percent.",14
-fomc-corpus,1981,Mr. Solomon.,4
-fomc-corpus,1981,"I don't think we can afford to do a repeat of last year and that seems to be a pretty widespread feeling in the Committee. It seems to me, therefore, that we have to be fairly close to alternative C for the remainder of this year. I would go for something between 6-1/2 and 7 percent [for M-1B]. We could phrase it as ""6-1/2 percent or slightly more"" in the directive. That would be consistent with a borrowing assumption of $1-1/2 billion in our view and would probably give us a fed funds range of 15 to 20 percent. The midpoint of that is where we would likely come out, which would be a fed funds rate in the 17 to 18 percent area. That would be my view, Mr. Chairman.",168
-fomc-corpus,1981,Governor Wallich.,4
-fomc-corpus,1981,"I share the view that we have to avoid a repetition of '80 but we also have to avoid a repetition of '79. It would be the third year if that happened. I don't think M-1B by itself is all that important, but the appearance that it is rising rapidly would be very damaging. I think we ought to stress that more weight is being attached to M2 and, in that context, I would say M2 growth at 8 percent seems desirable with M-1B at 7 percent, let's say, and the funds rate range at 17 to 22 or 23 percent.",125
-fomc-corpus,1981,Mr. Black.,4
-fomc-corpus,1981,"Mr. Chairman, I think the near-term growth rate [for M-1B] shown in alternative B would be about right and, as Steve indicated a moment ago, that would give us a fourth quarter '80 to fourth quarter '81 growth rate of 3.9 percent, which would put us a little above the floor of our current range. I think the more important question may be what we do with the federal funds rate range. As I have stated several times, I favor elimination of these funds rate ranges, and we have moved several steps in that general direction. We first widened them, and then we had the top and lower limits as points where we would check, and now we have moved into the realm where they are points where you may ask us to consult. I'd like to go a step further and just eliminate those altogether. But I recognize that that's probably not going to be the consensus of the group. So, I would put the range at about 14 to 20 percent.",203
-fomc-corpus,1981,Mr. Guffey.,6
-fomc-corpus,1981,"Thank you, Mr. Chairman. I would opt for alternative C as shown on page 15 for both M-1B and M2 for the intermeeting period. Because of all the uncertainty that surrounds the velocity and shift in demand for money and all the other boogie-men we seem to come up with, it seems to me that it is a time to focus a little more closely on interest rates. Thus, I would start out on the side of not wanting to see interest rates drop very quickly through the remainder of this year, and a 16 to 20 percent range is my preference for federal funds.",124
-fomc-corpus,1981,16 to 20 percent?,6
-fomc-corpus,1981,"I beg your pardon, 16 to 22 percent. The ""B"" federal funds rate range, but the ""C"" aggregates rates.",29
-fomc-corpus,1981,Mr. Ford.,4
-fomc-corpus,1981,"I come out close to ""C"" with the fed funds range of ""B,"" as Roger has just said, or better yet widening the band further or certainly not narrowing it because fed funds today I'm told are trading at 19 percent. A couple of people have suggested that we put the cap at 20 percent; were that to lead the Desk under any circumstances to start injecting funds after we walk out of here, that would undermine the whole philosophy or strategy that you laid out at the beginning of the meeting. So, I think we either have to widen the fed funds range or for sure not lower its upper end to avoid giving any signals in the next few days of loosening policy significantly. I am concerned about the target base drift question, which only one person raised--about where all of this leaves us at the end of the year, depending on where we come out in the range, and how we adjust to that. I don't have the answer, but I want to share the expression of concern--I think it was Willis who put it on the table--that we should think ahead as to where this short-run decision we're making today leaves us at the end of the year in terms of bringing the aggregates in line with the longer-range objectives that you have to talk about on the 21st of July. I just need more information from the staff as to whether we face a base drift problem that is the reverse of the usual drift up. If I understood Willis right, he was implying that if growth comes in low and we have trouble getting M-1B up into the range, we might have a reverse base drift problem. I don't know about that. I'd like to hear more. So, put me down for a little less tight than ""C,"" keeping the fed funds range about centered on where it is now, 19 percent, and either loosening that up or certainly not lowering the top.",386
-fomc-corpus,1981,"Let me just explore the implications. You say leave the federal funds where it is, meaning--",19
-fomc-corpus,1981,It's 16 to 22 percent now.,9
-fomc-corpus,1981,"Okay, that's the range. But where would you put the borrowing? If you lower the borrowing, the funds rate presumably will come down. The borrowing this week was $1.4 billion. Was that what--",43
-fomc-corpus,1981,"Yes, $1.5 billion seems consistent with that; I'm not exactly sure.",17
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"Well, Mr. Chairman, I think we as members of the Committee are indulging ourselves a bit in picking and choosing from these various alternatives in trying to get a package here. I'd like the monetary aggregates to come in low and interest rates to be a little lower and the economy to keep going where it is. I don't know if we can get there from here.",74
-fomc-corpus,1981,Do we have a consensus on that?,8
-fomc-corpus,1981,"No, I want the economy to be a little weaker.",12
-fomc-corpus,1981,"I would suggest something along the following lines: Using the aggregates of ""B,"" a federal funds rate range of 15 to 21 percent, a borrowing figure of $1-1/2 to $1-3/4 billion, and an understanding that if the aggregates fall short and that does not happen in the context of a weakening economy, we let them. I am prepared to see actual money growth well below where we are targeted so long as it reflects a downward shift in money demand. And that's, in effect, what I'm saying. If we get a continuation of the downward shift in money demand and, therefore, low growth in the aggregates, I would not fight it. But I would like to see us arrive at some agreement that if in fact the staff is right and we get a reversion of money demand to what normal relationships would suggest, we won't let interest rates go up a long way.",184
-fomc-corpus,1981,Governor Teeters.,4
-fomc-corpus,1981,"Well, I come down close to where Lyle does. I would put the federal funds rate at 14 to 20 percent and borrowings between $1-1/4 and $1-3/4 billion. If [money growth] begins to fall short, I would permit it, but I certainly wouldn't permit it to the extent that we did in May and June. I think we overdid it in moving down on that particular path. Like Frank, I think the [nominal GNP] is going to be somewhat weaker than is being projected, and I'm not sure whether it's going to come out of the real side or inflation. We have had some short-term inflation gains that are going to be temporary and we may get a nominal GNP that's a little low over this third quarter; so we could get the 8-1/2 percent rate of real growth with the 14 to 20 percent fed funds rate at this point. If growth falls short because we don't get the rebound in money, that's one thing; but if it's falling short because the economy is plunging, I will have a different attitude toward it. I assume that if we get information that the economy is either growing too fast or too slow in terms of what we're anticipating, we will have a conference call.",263
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Steve, what's the published fed funds band in the last directive?",13
-fomc-corpus,1981,16 to 22 percent. It will be published.,11
-fomc-corpus,1981,"For the past 3 weeks in this past intermeeting period, what did you think the borrowing level was?",22
-fomc-corpus,1981,"First we thought $1.6 billion; that was a week ago. This week we think $1.4 billion, but it's averaging $1.9 billion to this time. We thought consistent with $1.6 billion we'd have to see the funds rate move down toward 18 percent and it didn't; and we thought consistent with $1.4 billion, the funds rate would be in the 17 to 18 percent area and it isn't there yet.",94
-fomc-corpus,1981,Okay.,2
-fomc-corpus,1981,"Theoretically, they ought to be giving away federal funds tomorrow afternoon.",15
-fomc-corpus,1981,"Mr. Chairman, I'm in the area of ""C"" partly because I think we don't want to repeat 1980 but also because I have an eye on where we're going to start off 1982. Steve said that the quarterly average number toward the end of the year with ""B"" gets us up in the 8-1/2 percent area and that to me is troublesome. I get more and more attracted to ""C"" with the advantage of Mr. Solomon's comment to the effect that, at least as they view the world, we could get [the growth rates of] ""C"" with a funds rate of 15 to 20 or 21 percent--either one would be all right with me--and an initial borrowings level of $1-1/2 billion.",162
-fomc-corpus,1981,"I ran out of names--no, Mr. Schultz.",12
-fomc-corpus,1981,"I think the economy is going to be a little weaker in the third quarter and to me that's a consummation devoutly to be wished for. I would not move too rapidly to offset a little economic weakness; and under those circumstance I think alternative C is as fast as we ought to go, not as slow as we ought to go. So, I would favor alternative C for M-1B and M2 and I would start the borrowings at $1.5 billion and put the fed funds range at 15 to 21 percent.",111
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"This platter of choices is almost enough to give us indigestion. Reverting to what Bob Black had to say in his opening remarks yesterday about the June 17th conference call, I share the view that the weakness we accepted was a little more than I had in mind at the time. But after last year's M-1B growth of 6-3/4 percent, if I recall the adjusted figure, the 3-1/2 percent lower end of the range, if that's where we're going to end up this year, is an awfully sharp deceleration. The only way I can justify that in terms of not pushing the economy over the brink and creating a serious recession is the evidence, reasonably persuasive, that there has been a downward shift in the demand for money. I think it would be a great mistake if we ended up the year under that 3-1/2 percent lower limit, even given what seems to be going on in terms of a downward shift in money demand. But to hedge my bet to make sure that we don't undershoot for the year as a whole, for the June-to-September period I'd lean more toward the alternative B specs, including the [associated] federal funds range, than I would those of alternative C. Again, I would like to raise the issue of whether we should at this time explicitly place more emphasis on M2, which I would favor.",284
-fomc-corpus,1981,"Let me just comment on this sharp deceleration. I think it really is misleading. I looked at some figures yesterday on the annual growth. We started out this year from the highest quarter we had last year, and it was an exceptionally high quarter. When you look at this in a broader perspective, taking all the quarters into account, if we end up at the 3-1/2 percent lower end of the range, we're only slightly below the average we had for last year--on the order of 1/2 percentage point below as I remember the figures. And we had an increase for the whole of last year of what?",129
-fomc-corpus,1981,5.8 percent.,5
-fomc-corpus,1981,"5.8 percent. If we end up at the bottom of the range in the fourth quarter, in a straight line from here to there, the annual growth in M-1B would be what?",41
-fomc-corpus,1981,5.1 percent.,5
-fomc-corpus,1981,It would only be about 3/4 of a percentage point reduction in growth from a year ago.,21
-fomc-corpus,1981,But we can always get those sorts of peculiarities.,11
-fomc-corpus,1981,"Well, my argument is that I don't think that's a peculiarity. The peculiarity is the fourth quarter. The fourth quarter happened to be the only quarter last year when we were above target, and it was an abnormally high quarter. If we say the world begins and ends with the fourth quarter of last year, we get a different picture than if we say the money supply was lower during the first three quarters of last year than it was in the fourth quarter. Anybody putting in any kind of econometric equation puts in an annual figure. Nobody just picks out one quarter to put in.",121
-fomc-corpus,1981,"Mr. Chairman, to put this in a slightly different light, but I think it reinforces what you're saying: If we had drawn our cone not from where we ended up in the fourth quarter but from the midpoint of the range, [unintelligible] is 3-1/2 percent, which is now the lower part of our 1981 range. It would be a little above the midpoint of that range--",86
-fomc-corpus,1981,"That's another way of saying the same thing. Or if we draw it as a channel from the end of the cone last year, as I sometimes draw it, we are now a little below the middle of the channel, or maybe quite far below in June. But for the first half of the year as a whole, we're right in the middle of the channel.",73
-fomc-corpus,1981,If there were a credible way of de-emphasizing the fourth quarter-to-fourth quarter growth to formulate the target--I don't know how--the right formulation would be year over year in some broad sense.,42
-fomc-corpus,1981,"I thought of doing that last year. The reason I didn't was because it looked too damn difficult to get the annual average down. But it looks as if we have achieved it, or may achieve it.",41
-fomc-corpus,1981,Possibilities.,3
-fomc-corpus,1981,But that is in a sense more meaningfully in economic terms. One can argue it either way. Obviously the year-to-year change is influenced by what happened last year. But just picking out one quarter and saying that's the end of all existence is clearly not right either.,54
-fomc-corpus,1981,"The scary thing is the psychological pressure on us [depending on] where we end [in any] fourth quarter. If we're seriously overshooting or undershooting, we're going to make three times the effort--or at least we're going to be under that kind of pressure psychologically--to make a much bigger response than is good for the economy, simply because it happens arbitrarily to be the fourth quarter and people will be judging us on the fourth quarter.",90
-fomc-corpus,1981,"I don't have the figures, but if we looked at the year-to-year changes in M1 now, they are still high, I think. If we looked at the first half of this year against the first half of last year--",47
-fomc-corpus,1981,"Oh, I don't have that.",7
-fomc-corpus,1981,I can look it up. Six months this year over last year's is plus 6.3 percent. The second quarter of this year relative to last year is [plus] 7.4 percent.,41
-fomc-corpus,1981,Because it dropped out of bed in April.,9
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,Wait until we get to the third quarter.,9
-fomc-corpus,1981,Then the year-over-year will be--,8
-fomc-corpus,1981,"No, it will narrow from now on with any of these numbers. By the end of the year we would be down just a bit below where we were last year.",34
-fomc-corpus,1981,It's becoming a seasonal pattern.,6
-fomc-corpus,1981,Next year we'll straighten this out by putting back the first half of the year in the seasonal patterns that we left out and then it will all look very even during the year. Governor Partee.,39
-fomc-corpus,1981,"I would opt for alternative B. And I would point out that in a way we're getting a deceptive look because we're taking a snapshot as of June, which is the very low point, we hope, of the [downward] movement. After all, as a result of the cumulative effects of a minus 5 and a minus 10, alternative B gets us a third-quarter growth rate of 2.8 percent. Now, 2.8 percent is not a high monetary growth number, so it seems to me quite a reasonable thing to shoot at.",113
-fomc-corpus,1981,Quite true.,3
-fomc-corpus,1981,"We'll have to decide on the fourth quarter a little later. But, you know, it's a long time to the fourth quarter. We may well have a double-digit plus or a double-digit minus between now and then so we will be talking in an entirely different arena when we get to discussing the fourth-quarter average, which I wouldn't want to see go up as fast as that 8.2 percent or whatever Steve has on that. I also disagree with Lyle that we should not pay any attention to shortfalls below the number because I can't tell whether there's a demand shift or not. That is, when we're experiencing it, it can be either a demand shift or it can be a weakening in the economy; and the money supply numbers can very well predate the weakening in the economy somewhat so that we're not all that aware of it. But we're not talking about a very strong economy when the auto companies report an annual sales rate of 5.4 million and wonder whether they can survive to the end of the year. That's not a strong economy. It's also obvious in housing that we're not talking about a strong economy. Builders are going out of business every day. So, I don't want to take a lot of risk of a cumulative shortfall. Remember, if we put May and June together we have as much of a drop as the April drop last year, which really galvanized us, perhaps improperly, into action. So, I think we shouldn't accept a substantial shortfall from the numbers that would be occasioned by alternative 2. I guess the funds range could be 15 to 21 percent. Interestingly, I had great difficulty finding what the funds rate range had been over the last period when I read the Bluebook; it wasn't in the usual place. We've deemphasized it to the point that we don't even report it now! Assuming it was 16 to 22 percent, which is in the crossed out section of the directive, 15 to 21 percent seems all right. I wouldn't want to see the borrowing target above $1.4 billion, which as I understand it is where we are currently in this period. I don't think we ought to raise the borrowing target above what it now is.",448
-fomc-corpus,1981,Governor Rice.,3
-fomc-corpus,1981,"Well, Mr. Chairman, I favor alternative B. It seems to me that if we pursue alternative C, we run a substantial risk of not getting M-1B back even to the lower part of the target range. We just may not get back to the range. Alternative B gets us back to the range by November and we're still on the low side, so alternative B makes more sense to me. And I would go with a federal funds range of 16 to 22 percent and borrowing at $2 billion.",105
-fomc-corpus,1981,$2 billion?,4
-fomc-corpus,1981,"$2 billion. That's the borrowing that goes with ""B."" I'm being a purist.",19
-fomc-corpus,1981,"Well, that may be what they have in here. Okay.",13
-fomc-corpus,1981,That's what one has to expect with a--,9
-fomc-corpus,1981,"I would opt for ""C"" in its entirety. I just think we [can't] afford to announce that we're going to tolerate aggregate growth above the ""C"" figures. We must remember that these are adjusted. If you take off the adjustment, the rate of growth is even higher. But I'd suggest a borrowing assumption of about $1-1/2 billion.",74
-fomc-corpus,1981,"You may be right. These are adjusted figures, certainly; and if we continue to get some growth in NOW accounts, the unadjusted figure will be still higher. It's a point worth making. I'm not so sure that we're going to get much growth in NOW accounts from now on. In the last couple of months we haven't gotten much, but nobody knows, obviously. It may be that these figures are coming together. But the chances are you're right.",92
-fomc-corpus,1981,"I would just add that I was very much intrigued or impressed with Fred's suggestion of reducing the bottom of the longer-term targets by 1/2 point, which would enable us to come up to the bottom of what we're seeking with this alternative C, if I understand it right.",57
-fomc-corpus,1981,"If we go with ""C,"" we need to lower the bottom of the M-1B range.",21
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,To be consistent.,4
-fomc-corpus,1981,There are a few more people who have to talk here. Mr. Boykin.,17
-fomc-corpus,1981,"Mr. Chairman, I would go with alternative C, a borrowing assumption of $1-1/2 billion and a fed funds range of 16 to 22 percent.",35
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"I remind the group that we come back together in about six weeks, so we are not casting this in cement for the next six months. I'd be inclined to somewhere between ""B"" and ""C"" with the funds rate range of 15 to 21 percent or something of that nature and $1.4 billion in borrowing.",67
-fomc-corpus,1981,"Mr. Keehne, you bring up the caboose again.",13
-fomc-corpus,1981,"Well, for the reasons that have been reasonably covered, I would be in favor of alternative C with a federal funds range of 16 to 22 percent; and if mathematically the $1.5 billion borrowing level results from that, I'd be in favor of that.",55
-fomc-corpus,1981,"Well, let's see where we are. Obviously, we're between--",13
-fomc-corpus,1981,Let me ask for a staff interpretation of the consistency of a borrowing number of $1-1/2 billion with a midpoint of 19 percent on the funds range. I thought when we last talked about a funds rate in the 19 to 20 percent area we were talking about borrowings of about $2-1/4 billion. I think we're talking about numbers here that are just inconsistent with one another.,84
-fomc-corpus,1981,"Well, we wouldn't know. The money supply numbers, depending on developments in the economy, could be consistent. But we wouldn't think that borrowing of $1-1/2 billion would be consistent with a funds rate of 19 to 20 percent. We think that implies lower funds rates.",59
-fomc-corpus,1981,We would argue somewhat differently. We believe that borrowing of $1-1/2 billion implies a fed funds rate of 17 to 18 percent. We'd be about a point--MR. SCHULTZ &,43
-fomc-corpus,1981,That's what he said.,5
-fomc-corpus,1981,I thought he said 19 to 20 percent.,11
-fomc-corpus,1981,"No, he said it would not be consistent with 19 to 20 percent.",17
-fomc-corpus,1981,"I don't think your numbers are terribly inconsistent [with the staff's numbers], Tony.",17
-fomc-corpus,1981,That's why I picked the 15 to 21 percent funds range for a borrowing [assumption] of $1-1/2 billion.,29
-fomc-corpus,1981,And $2 billion would be consistent with what kind of funds rate?,14
-fomc-corpus,1981,"Well, it had been running in the 18-1/2 to 20 percent area, or more like 18-1/2 to 19-1/2 percent. That's a discount rate structure.",44
-fomc-corpus,1981,"Are you still using a rough rule of thumb, Steve, that a $100 million difference in borrowing represents 1/2 of a point?",29
-fomc-corpus,1981,"Yes, that's very rough.",6
-fomc-corpus,1981,It's rough on amount and timing.,7
-fomc-corpus,1981,"Well, the funds market has been rather mixed up for some weeks now, really beginning around Memorial Day, I guess, as Paul Meek suggested. It is mixed up partly because the staff said weakness in M-1B should bring a pretty prompt easing and it hasn't happened, so they don't know where it should be. We have sentiment ranging from ""B"" to ""C"" with some emphasis on ""C."" I share the concern about just the publication effects of saying we want to aim for 8-1/2 percent over any period of time. I would not mind a big rebound in July, if we could sneak it in there and get it over with. In fact, that would be the desirable result. But we're starting July from a very low base and I don't know what the chances are of getting a very high growth rate in July, considering how low we're starting--if last week's figure is borne out when we get the final numbers. A number of people have mentioned M2. I would be strongly inclined, whatever we say about M1, to stick something in the directive that says we don't really want to see M2 going outside its range. That provides something of a fail-safe. Having done that, we swallow the pictorial effects of any of these things. So, we're someplace between ""B"" and ""C."" For the borrowing assumption, $1-1/2 billion seems to be about where we are now; it's not too bad to start with. The real questions are the ones that Lyle and others raised about what happens under various contingencies. The most straightforward way to play it, I suppose--if we decide on an initial borrowing level of, let's say, $1-1/2 billion at the moment, which is lower than the staff says is needed to restrain the money supply over the whole quarter--is to take it symmetrically. If the money supply began rising faster than is projected here, we would simply let the mechanical [process work]; we wouldn't change the nonborrowed reserve path but would let borrowings rise. It depends upon what happens to M2, but if M2 is behaving itself, we would just let borrowings rise, which would mean a rather gradual rise in borrowings to a higher number. And we'd do the reverse if it's falling short, which would mean a rather gradual fall in borrowings. If it fell short, we'd bring the caveat on M2 into play. If M2 were rising very fast, that might trigger a change in the nonborrowed reserve path.",520
-fomc-corpus,1981,You mean to lower it.,6
-fomc-corpus,1981,"Well, if M2 was high, we'd lower the path. Or if it was low, we'd raise the path.",24
-fomc-corpus,1981,But why start with what seems to be an unrealistic relationship between borrowing and the funds rate?,18
-fomc-corpus,1981,"What's unrealistic to you? What would you suggest? I don't know. You didn't suggest anything, I guess.",22
-fomc-corpus,1981,He suggested something very high.,6
-fomc-corpus,1981,"I suggested a high funds rate, but I didn't know what the borrowing assumption was that would match it.",21
-fomc-corpus,1981,I don't have a borrowing number down for you.,10
-fomc-corpus,1981,"I didn't put one down because I don't have the relationship in mind. But it seems to me that it should be closer perhaps to $2 billion than to $1.5 billion, or somewhere in the middle there.",44
-fomc-corpus,1981,"We haven't been at $2 billion for a long time, theoretically, and we've had a decline in the money supply. We were at or above $2 billion on the borrowings at the beginning of some weeks. But we haven't been aiming for a $2 billion number for a month or more.",60
-fomc-corpus,1981,We believe that there have been some hang-ups in the fed funds market recently and that if we stay at this borrowing level we will see the fed funds rate get lower over a period of time--I don't know how long--at the same borrowing level.,51
-fomc-corpus,1981,"A question to Paul Meek: Do the market people perceive that the 18 percent surcharge rate is a de facto [floor] on the federal funds rate? It shouldn't be, but is that the perception?",42
-fomc-corpus,1981,I don't think it's perceived that way. I have some feeling that with that 18 percent rate it may be a little harder than it otherwise would be for the rate to go much below 18 percent.,41
-fomc-corpus,1981,If you're selling federal funds--,6
-fomc-corpus,1981,"Well, I think that's true. It's harder to go below but I think the experience is that it will go below. It's just that the higher that rate is, the higher the funds rate will be. If we cited the target in terms of a quarterly average, it wouldn't look frightening because that's going to be low. Suppose we put that in the directive. Can you give us your evaluation of the pros and cons of citing the target that way, Mr. Axilrod?",96
-fomc-corpus,1981,"If you put it in the directive along with the growth rate for June to September, I think it would have diminished importance. It would just call to the market's attention that this is not such a high growth rate month-by-month. If you put it in without the growth rates month-by-month, unless we understood what it is the Committee intended for the growth rates month-by-month, there would be some difficulty in targeting. That is, if July came in very strong, the quarterly average would really depend on the projections for August and September. So, if that average were the sole target, we would be back in the arena of simply making the money market conditions depend to a great extent on how the staff happened to see the projections, right or wrong, in the months and weeks ahead. Whereas if we had some idea of the implicit monthly targets that the Committee preferred, then we would not be so dependent on projections.",185
-fomc-corpus,1981,"I don't think we ought to operate on a quarterly average, but it would be very reasonable to talk about 8 percent, or whatever we have in mind, for June to September and to say that would mean a second-to-third quarter increase of about 2-3/4 percent.",58
-fomc-corpus,1981,You raise some question in my mind about what kind of quarterly pattern you have in mind.,18
-fomc-corpus,1981,"What we normally would put down is a straight line. But this time, as you can see, we put a little more in July and slightly less in August and September simply because we expect the social security payment in the week of July 8th to add a couple billion dollars in that week and 1 percentage point at an annual rate for July as a whole. That's probably excess perfectionism, but it--",83
-fomc-corpus,1981,That would be right if we were starting from a reasonably high level or a normal level. But we need an awfully high figure in that first week just to get any growth in July.,38
-fomc-corpus,1981,"July 8th doesn't show an increase from July 1st. If July 1st is at the low level, then we'll have a very low July probably. And if the Committee adopts 8 percent for the quarter--we didn't project a very high latter part of July--presumably an easing process would be needed.",66
-fomc-corpus,1981,Right away I'd expect.,5
-fomc-corpus,1981,"I just don't know how this works out arithmetically. But I have some concern that if we don't have a really big increase in the week of July 8th, we are starting July so low that we'd have to drive the borrowing down to $700 million or something to have any chance of getting there.",64
-fomc-corpus,1981,"Well, isn't that what you're--",7
-fomc-corpus,1981,We're very dependent on tomorrow's figures. There are such big [differences] implied.,18
-fomc-corpus,1981,"If we don't get that rebound in the week of the 8th, then we're off the bottom of the chart, aren't we?",27
-fomc-corpus,1981,"I'd like to get a rebound. I just don't know what we'll do if we don't get it. I devoutly hope that if in fact we have a big decline this week, we'll get an offsetting increase or a little more next week.",50
-fomc-corpus,1981,"That touches upon the reason I want to lower the top of that range somewhat because I foresee that we would have to have very high rates. And if the range had been dropped, it would be more acceptable to the market.",45
-fomc-corpus,1981,This is the old principle of aggregates on the high side and interest rates on the low side.,19
-fomc-corpus,1981,"If we don't lower the top bound, we could have 12.4 percent growth between June and December on that.",24
-fomc-corpus,1981,We'll return to that question.,6
-fomc-corpus,1981,"Well, I would just like the market to know we aren't even thinking about that. And if we hit the middle of the range, we could have, as I suggested, 10.4 percent.",41
-fomc-corpus,1981,You can return to that argument at the next round.,11
-fomc-corpus,1981,I was trying to help you with your problem; I was saying that it doesn't look as bad against that background as it does if we don't lower that top.,32
-fomc-corpus,1981,We could put a footnote in that we're not seriously thinking of getting to the top.,18
-fomc-corpus,1981,"In some sense the specifications here are easy enough. It's just how we should act if we go off course that is a little more difficult. The specification seems to me to be something like--well, just to use a round number--7 percent. We may want to have a small range and say provided that M2 is within its range. I don't see why borrowing somewhere around the present level of $1-1/2 billion isn't reasonable.",90
-fomc-corpus,1981,But is it consistent?,5
-fomc-corpus,1981,"The staff says no. Or, what is coming out of the machine says that we have to have a higher borrowing level. But I don't know. A lot of skepticism was expressed around the table about whether in fact we do need a borrowing number that high. Balancing my general feeling about where the major risks lie, given the shortfalls that we have had, I don't want to run an undue risk of a further shortfall. Borrowing of $2 billion would produce, at least I would think, a 20 percent federal funds rate around this time. I'm not sure we want to be that tight; and 20 percent is what the staff says that $2 billion would produce.",139
-fomc-corpus,1981,I thought $2 billion would give us 18 percent.,12
-fomc-corpus,1981,18 percent on the funds rate?,7
-fomc-corpus,1981,That's what Steve just said.,6
-fomc-corpus,1981,"With alternative B, we say the funds rate would be in the 19 to 20 percent area. That's in paragraph 22.",27
-fomc-corpus,1981,"But in answer to my question just a minute ago, I thought you said 18 percent.",19
-fomc-corpus,1981,Two billion dollars is literally higher than what we have had for a month.,15
-fomc-corpus,1981,"Well, [$2.1] billion was the average level of borrowing last month. It only fluctuated a bit.",24
-fomc-corpus,1981,We'd have to have one week of $2.3 billion or something.,16
-fomc-corpus,1981,"In June, borrowing ran $2.0, $2.2, $1.9 and $2.3 billion; then it dropped in the first week of July to $1.7 billion and it's running $1.9 billion thus far this week with some expectation of a drop-off.",61
-fomc-corpus,1981,It has been higher than I thought it was.,10
-fomc-corpus,1981,"At any rate, $1.5 billion should certainly be consistent with a lower funds rate than we're experiencing right now.",24
-fomc-corpus,1981,"That's what we think, if we get it.",10
-fomc-corpus,1981,"Theoretically, yes.",6
-fomc-corpus,1981,"Theoretically, a lot lower on borrowing and the funds rate.",14
-fomc-corpus,1981,"Well, we can be a little higher on the borrowing, but I think that's taking a chance of the money--. These differences are so small. Let me try 7 percent and $1-1/2 billion.",45
-fomc-corpus,1981,What was the second number?,6
-fomc-corpus,1981,Borrowings of $1-1/2 billion.,11
-fomc-corpus,1981,"And 15 to 21 percent. I'd be happy with 15 to 20 percent, but 15 to 21 percent seems to catch more people. What else do we need to know? And the caveat on M2.",48
-fomc-corpus,1981,Does that mean that M2 is within its range for the year?,14
-fomc-corpus,1981,"Yes. Right now it's at the upper end of the range, so it means M2 growing at 9 percent or a bit less.",28
-fomc-corpus,1981,The implication is that it has some relevance for whether or when we change the nonborrowed path?,20
-fomc-corpus,1981,"If we have the top of the fed funds range at 21 percent and it reaches 21 percent and the Desk starts injecting reserves, won't that be as--",32
-fomc-corpus,1981,"That's not the way it works, though.",9
-fomc-corpus,1981,That's not what they will do. We will just have a consultation.,14
-fomc-corpus,1981,That caveat on M2 may be very easily triggered.,12
-fomc-corpus,1981,"Well, we're right on the margin of it now. There's no question about that.",17
-fomc-corpus,1981,"Especially with the wild card [certificate] coming at the end of this month, we could almost--",20
-fomc-corpus,1981,"I don't object to it, but I don't want to underestimate the importance of that--",17
-fomc-corpus,1981,"Well, I think it's very important.",8
-fomc-corpus,1981,"Even though M2 grew only 5 percent in each of the last two months, that's because M-1B was negative. Therefore, if we get M-1B--",36
-fomc-corpus,1981,To have a very high M-1B figure and have M2 within the 9 percent would be very unlikely.,24
-fomc-corpus,1981,"So, if the caveat is triggered--and it is very likely--we may end up seriously falling short of the 7 percent objective.",29
-fomc-corpus,1981,What has the growth in the nontransactions part of M2 been in the last couple of months at an annual rate? Do you have such a number?,31
-fomc-corpus,1981,"Yes, the question is whether I can find it. It was running 7-1/4 percent in May and 10 percent in June; both of those are a lot lower than it ran in the previous months.",45
-fomc-corpus,1981,"I don't know what the arithmetic is, but I presume the nontransactions part of M2 could run at approximately 10 percent with this kind of M1 figure.",33
-fomc-corpus,1981,That's right; it's about 75 percent of M2.,12
-fomc-corpus,1981,What about Chuck's point about the lifting of the Regulation Q ceilings on the longer-term CDs? We could get a surge in some of those.,29
-fomc-corpus,1981,"Yes, but we're likely to have some offsetting weakness in the money market funds.",17
-fomc-corpus,1981,Or it could come out of the securities markets.,10
-fomc-corpus,1981,"What we need is an M-2A and M-2B--a transactions component, shift adjusted--",22
-fomc-corpus,1981,Shift-adjusted M2 numbers.,7
-fomc-corpus,1981,Updated seasonally.,4
-fomc-corpus,1981,"Well, I don't intend this to be quite as precise as you're talking about. We can't judge M2 that closely. The figures come in a little late. But if M2 is running 9-1/2 percent--and we won't even know it [currently]--that's within our range of tolerance. If it's clearly running high, it's very important--",73
-fomc-corpus,1981,But shouldn't we take a look as to why it's running high?,13
-fomc-corpus,1981,"Inevitably we have to [unintelligible]. Well, let me try this. Have I mentioned all the variables: 7 percent, $1.5 billion, 15 to 21 percent, and a strong M2 caveat.",52
-fomc-corpus,1981,With any kind of target number for the period?,10
-fomc-corpus,1981,7 percent for M-1B.,8
-fomc-corpus,1981,For M2 I mean.,6
-fomc-corpus,1981,"For M2 I think it would be rather explicit that we're talking about 9 percent or less. If it got over 9 percent, we'd be concerned about it.",34
-fomc-corpus,1981,Restrain it if it's over 9 percent?,10
-fomc-corpus,1981,You mean 9 percent for the next intermeeting period.,12
-fomc-corpus,1981,It's over 9 percent now.,7
-fomc-corpus,1981,"No, he means for the period ahead.",9
-fomc-corpus,1981,"We [tried to draft] some wording. We can come back to the precise wording, but let me see what Steve has: ""In the short run the Committee seeks behavior of reserve aggregates consistent with growth in M-1B from June to September at an annual rate of 7 percent""--or whatever number we put in--""after allowance..., provided such growth is consistent with M2 growth remaining around the upper limit of or moving within its range for the year."" Everybody knows that's 9 percent, I presume.",105
-fomc-corpus,1981,"That's really between ""A"" and ""B,"" when most of the discussion has been for between ""B"" and ""C.""",26
-fomc-corpus,1981,"It's a combination of all three of them. M-1B is between ""B"" and ""C;"" M2 is between ""A"" and ""B;"" the borrowings are at ""A;"" and the interest rates are between ""A"" and ""B."" You guys scrambled the whole mess!",61
-fomc-corpus,1981,We could conceivably have a very weak M-1B that we would encourage getting weaker because our M2 constraint is at the upper end--,30
-fomc-corpus,1981,I think M2 is the more critical variable now.,11
-fomc-corpus,1981,You don't mind minus numbers in M-1B?,11
-fomc-corpus,1981,I mind very strong numbers in M-1B.,11
-fomc-corpus,1981,"I don't think any of these relationships is all that precise but it's true that, according to the staff's estimate, if we got 7 percent, the 9 percent M2 constraint wouldn't operate.",40
-fomc-corpus,1981,"We have a relatively restrained growth in the nontransactions component, not very different from last month. It's a little lower actually in most cases than the June growth. It's pretty restrained.",36
-fomc-corpus,1981,"Mr. Chairman, what does this mean for M-1B? How weak would M-1B have to get--how far below 7 percent would it have to be--before it would trigger something?",43
-fomc-corpus,1981,"Well, the answer is: I don't know. But if you accept the staff's analysis here, they would say there's no problem. Their estimate is that if we get 7 percent on M-1B, M2 will come in at 8-1/4 percent. It has met this--",62
-fomc-corpus,1981,I could conceive of a situation where we could end up with M2 approaching the 9 percent upper limit and the bottom falls out of M-1B.,32
-fomc-corpus,1981,I think that would be more a reflection on M-1B than on the economy.,18
-fomc-corpus,1981,That's precisely what this would say. We wouldn't worry very much about that shortfall in M-1B if M2 is rising rapidly. That's what we would be saying.,35
-fomc-corpus,1981,"Well, I'd have some problems with another month or two of negative growth in M-1B.",20
-fomc-corpus,1981,"Well, with the negative growth in M-1B we've had an M2 figure of 5 percent or so. So, we're not likely to get a combination of 9 percent on M2 and a negative M-1B.",48
-fomc-corpus,1981,"If we get 7 percent, it's still coming in below the lower limit of our long-term ranges. It takes 7.4 percent to hit the lower limit. I don't know whether we really want to set it that low just from the standpoint of appearance because it's deliberately saying we're not going to hit our target.",64
-fomc-corpus,1981,"Well, I'm not so concerned about the question of what the appearance is.",15
-fomc-corpus,1981,"Well, I prefer Fred's suggestion. Or Willis' suggestion could take care of that aspect, if that's what we want to do with it.",29
-fomc-corpus,1981,"Well, the proposal is not quite as constraining as I would like. I still prefer a straight alternative C, with a little lower figure on everything; but you're halfway between ""B"" and ""C"" on both M-1B and M2.",52
-fomc-corpus,1981,"It's not halfway; it's closer to ""C.""",10
-fomc-corpus,1981,"Well, okay, you're right; it's closer to ""C.""",13
-fomc-corpus,1981,"I'm happy to go all the way to ""C,"" if that's where you people want to go.",20
-fomc-corpus,1981,I don't.,3
-fomc-corpus,1981,That's too stringent.,4
-fomc-corpus,1981,I can't even [unintelligible] accept what we've got.,14
-fomc-corpus,1981,Is there some way to build in that a little weight would be given to weakness in M-1B? It's all loaded the other way.,29
-fomc-corpus,1981,"I don't know how much you want to build in. But to the extent you want to build some in, you have the staff's estimate, for what it is worth--and the staff's estimate is always the best technical analysis that can be provided--that M2 is going to come in below this constraint if M1 is really weak.",69
-fomc-corpus,1981,"Well, as I recall, for June we started out with an estimate of plus 5 percent and ended up in the negative at minus 10 percent.",31
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,"Mr. Chairman, did I understand your explanation right that for whatever number the Committee chooses for M-1B, if it runs weak and required reserves go down and M2 stays at 9 percent or something like that, the borrowing would tend to come down and we'd adhere to the nonborrowed path and vice versa if it went up? I was not sure exactly.",75
-fomc-corpus,1981,"I'm not sure exactly either, because we have 19 different permutations and combinations. I didn't go quite as far as what you said. I said that if M1 were coming in weak, we would just let the natural result come in on the borrowings. I haven't faced explicitly what we would do if M1 is in fact [weak] and M2 is above 9 percent. I suppose at some point if M2 got strong enough--there's some shady area there--we would have to reduce the nonborrowed reserve path.",109
-fomc-corpus,1981,"At that point, I think we'd want a consultation, if we really had a head-on collision between too weak an M-1B and too strong an M2, because of the caveat you're building in.",43
-fomc-corpus,1981,"Obviously, there are lots of circumstances in which we'd have enough of a conflict that we would have a consultation, but the clear implication is that we would let M-1B get weaker than 7 percent if M2 is running strong in the short run pending--",53
-fomc-corpus,1981,One thing that I think would [address] the concerns of a number of people is [to agree that it] would be a signal for a consultation also if we were to see some significant weakness in incoming economic statistics and at the same time a weak M-1B number.,56
-fomc-corpus,1981,"Let me give you an argument that's against my own case. If interest rates should come down, M2 probably would accelerate because money market funds would gain relative to market investments. That gives me some pause in the mechanics of the constraint.",47
-fomc-corpus,1981,"You know, M2 growth in the second quarter was 10.8 percent.",17
-fomc-corpus,1981,"But if the economy weakened, even though interest rates were coming down, in fact there would be some force pushing M2 up, but at the same time M-1B is likely to be--",40
-fomc-corpus,1981,We can't handle every possible contingency here. The ultimate answer has to be we would have a consultation if things go askew enough.,26
-fomc-corpus,1981,"Mr. Chairman, would you want to consider that we would have an understanding on this M2 caveat but not include it in the published directive?",30
-fomc-corpus,1981,"I'd like to get it in the published directive, frankly, because I am hesitant. Whatever the M1 figure, the arithmetic of what we publish is going to look high, and I'd like to get something in the directive that says we're not going wild in increasing the monetary aggregates. And the way to do that is to get M2 in there.",70
-fomc-corpus,1981,I think your earlier suggestion of perhaps putting something about the quarterly average in the operating paragraph would be very useful.,22
-fomc-corpus,1981,"Would that create a precedent, Lyle, for later quarters when we don't want to put in a quarterly figure?",23
-fomc-corpus,1981,We have done it before.,6
-fomc-corpus,1981,"We could say that just in terms of setting this objective, the Committee noted that the quarterly average was such and such. That would clearly divorce it from any operational significance.",34
-fomc-corpus,1981,Will you qualify your M2 constraint in the sense that unless there are special factors causing it to rise--,21
-fomc-corpus,1981,"We're getting into an area where there are more things than we can write into the directive. If there are special factors causing it to rise, we better consult. But what we're talking about here is a relatively brief statement that eventually is going to come out in the public and we're talking about the best way of expressing it. We can be straightforward and just say we're looking for M2 growth of around 8 to 8-1/2 percent; that's what this draft says.",96
-fomc-corpus,1981,And let it overshoot if it does? M2 at 8 percent would suit me.,19
-fomc-corpus,1981,"That's what I argued for before, Henry; I ran that up the flag pole and there were some who didn't salute.",24
-fomc-corpus,1981,"That's the more traditional way of doing it--just to say we want x percent on M-1B and 8 or 8-1/2 percent on M2. You think the staff is wrong, Mr. Solomon?",47
-fomc-corpus,1981,"Right. Given what we've been saying, I don't see how we're only going to get one point more growth in M2 than in M-1B.",31
-fomc-corpus,1981,"Well, I cannot resolve that technical argument; I don't know what the answer is. I suggested the way I suggested because I think we probably want to be in a posture of not easily looking at overshoots of the broader aggregates. And that's what this attempts to express.",55
-fomc-corpus,1981,I prefer your caveat to spelling out 8 percent.,12
-fomc-corpus,1981,I much prefer language that would suggest something below the upper end of the range.,16
-fomc-corpus,1981,"Paul, you read us just a small part of the suggested language; I take it there's a lot more on both sides of it that doesn't leave the impression, as that one paragraph does, that this whole decision--even though it's the most conservative choice--sounds expansive. You have 7 percent--",60
-fomc-corpus,1981,"Well, I think there's enough problem in this language that we ought to fiddle around with language during lunch and get wording that we're satisfied with. But the substance of it is what I'm suggesting. Have we had enough discussion? It's 1:00 p.m. and I don't see anything better at the moment than the 7 percent, $1.5 billion, 15 to 21 percent and the caveat of M2 staying within the range basically.",92
-fomc-corpus,1981,It's a helluva formula!,6
-fomc-corpus,1981,How many find that acceptable?,6
-fomc-corpus,1981,"Voting members only, right?",6
-fomc-corpus,1981,"Well, I guess a lot of people find it acceptable. If nobody has anything better to suggest, let's have a vote.",25
-fomc-corpus,1981,Chairman Volcker Yes Vice Chairman Solomon Yes Mr. Boehne Yes Mr. Boykin Yes Mr. Corrigan Yes Mr. Gramley Yes Mr. Keehn Yes Mr. Partee No Mr. Rice Yes Mr. Schultz Yes Ms. Teeters Yes Mr. Wallich Yes,58
-fomc-corpus,1981,We have sandwiches out here. Let's take a little time to begin eating the sandwiches and return to the longer-run discussion in the light of the shorter-run decision. [Lunch recess],36
-fomc-corpus,1981,"I think we more or less solved the problem of where we are for the rest of this year--that's implicit in the decision we just made--which is around the lower end of the range for M1 and around the upper end of the ranges for M2 and M3 and [credit]. I'm not sure that needs a lot more discussion. What we have to decide is whether to change any of the ranges for this year and what to do for next year. On next year, there isn't a tremendous amount of difference in the alternatives the staff has given us. I share the predilection cited by a good many people that we probably shouldn't raise M2 and M3, which means that M2 would be lower than cited in any of these alternatives by a full 1/2 percentage point if we neither lowered them nor raised them. My own feeling about M-1B, though I'm not even sure at this stage whether we will call it M-1B next year--I'm assuming we can be rather general and just call it M1, but it's not adjusted--is that we are left with an unknowable about what the nontransactions component of M1 means conceptually. One can argue, as I guess Steve argued--I'm not sure he quantified it--that having that component in there and the fact that it is household transactions accounts at best, means that it has a higher growth trend than the others and that, all things equal, [its growth] ought to be what--1/2 to 1 percent higher on this combined basis?",314
-fomc-corpus,1981,"Well, our calculations are a little lower than that. It depends on the ratio one expects at the end. Maybe 0.3 to 0.5 percent is a little too specific, but it's 1/2 point or lower.",49
-fomc-corpus,1981,"I also worry a bit about the opposite of that. We have a lot of nontransactions [balances] in the initial adjustment of M-1B, but when people get [funds] in there and look around at all these attractive rates in the market, they may take it out over time, which artificially depresses that aggregate.",68
-fomc-corpus,1981,May I just ask what the logic of this is? Is this just an empirical result or is it an argument that the income elasticity of demand for household deposits--,32
-fomc-corpus,1981,"It's essentially that. It's higher than the demand for other transactions deposits in M-1B. And with the increased weight of the household balances in M-1B, this is an effort to see, for any given growth rate in M-1B prior to the increased weight, what this would mean. So, 5 percent might mean 5.3 percent to start with but, of course, we would reduce it 1/2 point thereafter. But's that's purely mechanical; the increased savings deposits may be compensating balances for all I know and not really--",116
-fomc-corpus,1981,"The burden of my comment is not that we know any of these things empirically or logically. The burden is that [we have] all these uncertainties. I'm basically agreeing with Frank Morris; I'm going a long distance [in that direction] but I don't think we can abandon M1 because people would question our good faith if we abandon M1 at this point, given all the emphasis on it. I think we have to end up giving them a target for M1. But I don't see why we can't make a radical change and make it a 3-point range instead of 2-1/2 points and just tell them there are all these uncertainties in both directions. So what I would be inclined to do--I don't know whether to call it alternative III or not--is to take that 2-1/2 to 5-1/2 percent range [under alternative III], which gives us a reduction of 1 percentage point on the lower end of the range and 1/2 percentage point on the upper end of the range from where we now are, and leave the others unchanged tentatively.",226
-fomc-corpus,1981,We're back on what page?,6
-fomc-corpus,1981,14.,2
-fomc-corpus,1981,"It's about what a lot of people are suggesting, but I would cast my vote on widening the M1 range a bit. You might want to say a word about M3, Steve. You told me you have the feeling that it may be a little high here or that it could be comfortably lowered. I don't know whether we want to do that or not, given the--",76
-fomc-corpus,1981,"Well, just to be clear on these ranges, we had centered them in alternatives I, II, and III on our projections of the midpoints [of the associated M1 ranges]. The alternative III range, therefore, has a midpoint of 8 percent [for M3 and for alternative I it's] 8-1/2 percent. And with the Committee willing to say that growth in the broader aggregates could be in the upper ends of the ranges, it would not be too difficult to lower the 6-1/2 to 9-1/2 percent range to 6 to 9 percent because we're not projecting growth above that [upper limit]; our midpoint is not above or even very near that 9 percent.",148
-fomc-corpus,1981,For both M2 and M3?,8
-fomc-corpus,1981,"Well, particularly for M3. If you lowered the M2 range to 5-1/2 to 8-1/2 percent, the top of that range is really roughly the ""midpoint."" It's not a case where the top of that range would be uncomfortably near the midpoint we're actually projecting.",65
-fomc-corpus,1981,Let me just be clear. Your analysis says M2 would grow faster than M3?,18
-fomc-corpus,1981,"No, they're growing about the same. But if growth is about the same next year, I would say that if you can stand the 6 to 9 percent range for M2, you can also stand the 6 to 9 percent range for M3. But for M3 that would be 1/2 point lower than the range you now have.",74
-fomc-corpus,1981,"Right. Well, that's an alternative that we could consider then. It gets us another reduction in one of these ranges.",24
-fomc-corpus,1981,Why wouldn't we hold off making that change?,9
-fomc-corpus,1981,We could.,3
-fomc-corpus,1981,"We could do that in January, if it still seemed to be relevant.",15
-fomc-corpus,1981,I think you're right. We have to keep--,10
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Why announce any reduction now? By January we'll have a much better idea of which way we're going.,20
-fomc-corpus,1981,That's what I said.,5
-fomc-corpus,1981,The only reduction that this would involve at this point is M-1B.,16
-fomc-corpus,1981,I don't think we even need to reduce the range for M-1B at this point.,19
-fomc-corpus,1981,"If we don't, aren't we saying that we now think we're not going to reduce it?",18
-fomc-corpus,1981,Because we'll have it so low this year--,9
-fomc-corpus,1981,"Let me restate that. I said M-1B; what I stated [earlier] is that we are just calling it M1. It will be conceptually the same as the present M-1B, but it would be an unadjusted number.",55
-fomc-corpus,1981,Then it would be 3-1/2 to 6 percent.,15
-fomc-corpus,1981,"I'm saying 2-1/2 to 5-1/2 percent but 3-1/2 to 6 percent is the present range. Well I don't know if it is; it's 3-1/2 to 6 percent or 6 to 8-1/2 percent, depending upon which way you look at it.",72
-fomc-corpus,1981,"How would that relate to our present range, which is 3-1/2 to 6 percent? Is that unadjusted or adjusted or--? MESSRS. PARTEE and SCHULTZ. That's adjusted.",46
-fomc-corpus,1981,"Well, the argument is purely intellectual because I don't think we have any empirical evidence. If you took the Axilrod analysis, you would say that the effective range is reduced by another 1/4 to 1/2 percentage point because of this growth factor that he builds into the total. If you gave weight to my suspicion that that wouldn't be true, it might even be the opposite. But who knows? My suspicion is that people have excess money in M-1B now, unadjusted, that might be withdrawn.",108
-fomc-corpus,1981,"Is Steve saying, on purely technical grounds because of the technical factors he's referring to, that if we wanted no change we'd add 1/2 percentage point to the range?",35
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Conceivably, if you wanted to make some allowance for the fact that household deposit balances may have a higher income elasticity than balances of nonhouseholds.",32
-fomc-corpus,1981,This would mean you are moving the midpoint of the range down by roughly 1 percentage point and possibly more.,22
-fomc-corpus,1981,It means moving it 1/2 percentage point more than you otherwise would.,16
-fomc-corpus,1981,And the movement down from the present figure is just 3/4 of a percentage point.,19
-fomc-corpus,1981,"In terms of the midpoint, that's correct.",9
-fomc-corpus,1981,On an unadjusted basis wouldn't 3 to 6 percent be sufficient?,16
-fomc-corpus,1981,"I would be much more comfortable with 3 to 6 percent. I think we're building trouble for ourselves. You're right, Mr. Chairman. We'll probably not [unintelligible] today when the relation between money growth and GNP is going to revert to something more nearly normal, given the reduction of inflation. But that isn't going to happen all at once; it's going to happen progressively. If the rate of inflation comes down and nominal interest rates fall and we keep real interest rates where they are, the target next year--even the same target--will be more binding in terms of its meaning for economic activity than it was this year. And that's going to be increasingly the case, if one takes into account the fact that it's--",149
-fomc-corpus,1981,"But the midpoint between 2-1/2 and 5-1/2 is 4 percent, which is above where I certainly hope growth will be this year. So, in fact, if we adopt 2-1/2 to 5-1/2 percent, we are actually allowing for more growth than we're likely to get this year.",73
-fomc-corpus,1981,"But that ignores the shift adjustment that has been taking place. This year we will be adding roughly if we haven't already--if the staff is right and we have no further shift in money demand--about 2-1/2 percentage points of money growth, effectively, that doesn't show up in the numbers. And one needs to take that into account. There is just as much effect on the economy from a 1 percentage point drop in money demand, given the money supply, as there is by adding 1 percent to money supply, holding demand constant. It has no different effects on output, employment, prices, or anything. And we just can't count on this concealed money growth; sometimes we don't even want to recognize it ourselves, but it is happening. It's not going to continue to happen unless this process of innovation develops new steam.",169
-fomc-corpus,1981,"Well, don't you think the process of innovation is going to continue, though, to some degree? The momentum involved now--",25
-fomc-corpus,1981,"To some degree, yes. But the staff has pointed out that this process of innovation is stimulated by the move of interest rates to new peaks. Following new peaks we have this burst of innovations which then settles down. We had it last year in the second quarter; we had it in 1975-76; we had it again in the first half of this year. And while it will continue, it will be at a much slower rate.",90
-fomc-corpus,1981,I thought theory said that the income elasticity for transactions balances was a good deal less than unity.,19
-fomc-corpus,1981,It is. It's about .75 by most estimates.,11
-fomc-corpus,1981,"Then we would expect a continuing rise in velocity, wouldn't we?",13
-fomc-corpus,1981,Why?,2
-fomc-corpus,1981,"Oh, for velocity, sure. It's only a question of the rate of increase in velocity. There's a trend factor that would take place even if there were no innovations because the income elasticity of money with respect to real income is less than 1.",50
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,"Do you have copies of this that you can distribute, Mr. Altmann?",16
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"In addition, we have the shift adjustment question, Fred. Since we're going to give them a plain figure, that adds something.",26
-fomc-corpus,1981,We don't have to do that. But at some point fiddling around with a very small adjustment--,20
-fomc-corpus,1981,I would very much like to do it.,9
-fomc-corpus,1981,"We can change our minds at the end of this year, if we think a big shift is going on.",22
-fomc-corpus,1981,But in the past we haven't changed our minds at the end of the year. We feel stuck with what we do [at this meeting each year].,30
-fomc-corpus,1981,He's just talking about calling it M1 rather than doing a shift-adjusted--,16
-fomc-corpus,1981,Oh.,2
-fomc-corpus,1981,"But the other side of it is that we would certainly, we hope, get substantially less nominal GNP next year than this year.",27
-fomc-corpus,1981,"Remember, though, that we have to say whether or not this is consistent with the Administration's 12 percent nominal GNP growth [forecast].",29
-fomc-corpus,1981,"Well, it isn't.",5
-fomc-corpus,1981,"Yes, but we have a--",7
-fomc-corpus,1981,"Yes, but listen: When you talk to [Administration officials] in private they are very clear about the fact that they really don't believe in these numbers that they are publishing here at midyear. They say it quite directly. They have said it to me.",52
-fomc-corpus,1981,"We have unreconcilable inconsistencies in that respect, I guess. There's a great question as to whether it's consistent with their GNP forecast. On the other hand, they will presume that the money supply is declining from year-to-year. So, we'll have to say we are inconsistent with that assumption if we--",64
-fomc-corpus,1981,"Yes, they [assume] rising velocity, too. Well, maybe it will go up.",20
-fomc-corpus,1981,"I know, but they just have wild numbers. Privately they say quite directly: Don't pay much attention to these midyear figures we are coming out with.",32
-fomc-corpus,1981,"I recognize all the problems, but it's a little hard to say we're not going to reduce the target next year in any respect.",26
-fomc-corpus,1981,3 to 6 percent would be a reduction of 1/2 percentage point.,17
-fomc-corpus,1981,But on the nonbinding end of it.,9
-fomc-corpus,1981,"On the floor, not the ceiling.",8
-fomc-corpus,1981,We used to do that--nibble at the upper edge of one and then next time at the lower edge of the other. I figured out it took ten years to bring about a moderate reduction. I think we have to go across the board.,50
-fomc-corpus,1981,"By across the board, do you mean on all the aggregates or on the top and bottom of M1?",22
-fomc-corpus,1981,Top and bottom.,4
-fomc-corpus,1981,"I think, barring technical inconsistencies, all of them.",13
-fomc-corpus,1981,"The only other decision we have to make, as nearly as I can see based upon the earlier discussion--tell me if I'm wrong--is [on M1]. Nobody talked about--well, maybe somebody did, but the great majority did not--changing the M2, M3, and bank credit ranges. We had this debate. We had a predominant view, which was not to change anything. But Mr. Schultz raised some arguments, and one or two others did, on reducing the [M1 range] this year, which may have some bearing on this. That's the only other decision I think we have to make here.",128
-fomc-corpus,1981,Except that Steve told us we can reduce M3 next year.,13
-fomc-corpus,1981,Next year.,3
-fomc-corpus,1981,"It seemed, within these numbers, relatively--",9
-fomc-corpus,1981,"That's right; we could do that. So the open questions are M-1B this year, M1 next year, and M3 next year if we're sticking with the 6 to 9 percent for M2 next year, which seems to be reasonably satisfactory. These differences are small but, unfortunately, the one that is critical is the Ml range for next year just in terms of public appreciation and the psychology of getting something down.",88
-fomc-corpus,1981,"I have a question on that Mr. Chairman. Obviously we're making some provisional statements on the 1982 ranges, but at what point in time do you foresee our moving to the actual M-1B as compared to the shift adjusted?",48
-fomc-corpus,1981,"Well, I am hoping--",6
-fomc-corpus,1981,I can see us going on forever and ever ignoring what the actual is.,15
-fomc-corpus,1981,I think we've run out of speed on this already. It has exceeded my tolerance for having any faith in the adjustment now.,25
-fomc-corpus,1981,"You'd start it for next year, wouldn't you?",11
-fomc-corpus,1981,"I hope that we will find in the next six months that there isn't much difference between the two and that against that background we'll say ""Forget about it next year."" I would plan to say in the testimony as background for whatever number we put in here that we don't think [the shift] is going to be significant next year, so we are very tentatively assuming it's not going to be. But if it still looks significant by December, we'll have to give you a different judgment. However, we are assuming in this very tentative way that it's not going to be significant next year.",117
-fomc-corpus,1981,"If that's the case and if these next six months are critical and we will have another opportunity to change what we're going to do for '82 next February, in order to reassure the markets and to be consistent, why don't we say this time that we're going to reduce the numbers on M1 by 1 percentage point at both ends? And if at the end of the year the picture is different, we can still make an adjustment next February with less problem, in my opinion, than we'd have if we come out with testimony on July 22nd that we're really not going to continue our 1 percentage point reduction each year. I think this is an important time to state once again what we're doing.",141
-fomc-corpus,1981,"Just to make sure you realize the arithmetic of what Mr. Roos said: If we reduce the range by 1 percentage point on both ends, it would be 2-1/2 to 5 percent.",44
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"That's horrendous. One would have to assume an increase in velocity of circulation of something on the order of twice--or 1-1/2 to 2-1/2 times--the normal secular increase in velocity of circulation. That is too heroic an assumption to make, Larry. The fact that we've come in comfortably so far is strictly due to this rather fluky situation. If the staff is right and we don't see that, and we just have the normal situation continue for the rest of the year, if I'm understanding this right, we would still come in at about what--5 + 3, Steve? Is 5 the increase for the first half?",136
-fomc-corpus,1981,For which aggregate?,4
-fomc-corpus,1981,For the velocity of circulation.,6
-fomc-corpus,1981,"Oh, yes.",4
-fomc-corpus,1981,The growth plus the normal.,6
-fomc-corpus,1981,That's right; the excess is more like 5 to 7.,14
-fomc-corpus,1981,"Right. The chances of repeating that situation don't look very good. If I were a betting man, I would bet the chances are maybe 1 out of 5 that we're going to get that kind of growth in velocity next year.",47
-fomc-corpus,1981,"We seem to assume that growth in velocity is a special event due to definable changes in technology. But if people are circumventing the need for transactions balances right and left by using money market funds and overnight arrangements and so forth, then really all that is happening is that M-1B is becoming a smaller part of the transactions balances. And its velocity isn't really a meaningful figure; it's just a statistical number relating M-1B to GNP. But it doesn't exert any constraint. That is what I fear may be happening, although one can't be very sure. But that makes a rise in velocity more probable than thinking of it in terms of a special innovation.",134
-fomc-corpus,1981,"I think that much of a rise seems unlikely to be repeated next year because we won't have, I assume, as big a growth in money market funds starting from the present base as we had this year.",41
-fomc-corpus,1981,"But we don't need anything like that kind of rise next year, depending on what one is assuming on nominal GNP. If [GNP growth] is in the 9 to 10 percent range and [money grows at the] midpoint of 4 percent and normal velocity is 3, that would give you an extra velocity of 3 rather than 5. You can play with numbers like that. I don't think you--",87
-fomc-corpus,1981,A lot of that is possible.,7
-fomc-corpus,1981,The fact is we don't know. We're all giving grist to Mr. Morris's mill.,19
-fomc-corpus,1981,"Well, what does M2 mean?",8
-fomc-corpus,1981,"But you could also argue that M-1B doesn't make any difference. Whether our money supply comes in at 2 or 3 percentage points above what is otherwise stated, what difference does it make if we have more money or more velocity? It all accomplishes the same objective.",57
-fomc-corpus,1981,"No, I wasn't making that kind of--",9
-fomc-corpus,1981,"Well, you slip into that sort of argument that somehow the economy will always manage with whatever money we put out. If M-1B is that elusive in terms of its relationship with GNP, then the proper interpretation is that we ought not to be targeting M-1B. We ought to be looking at what we think is relevant.",69
-fomc-corpus,1981,"Well, I think you know that I have less and less confidence in M-1B; I give less and less weight to it.",28
-fomc-corpus,1981,"One thing that has been overlooked is the assumption that the inflation rate will be as high as the staff has said. If it's lower than that, one doesn't have to make such heroic assumptions about the increase in velocity.",43
-fomc-corpus,1981,And if it's higher than that?,7
-fomc-corpus,1981,"Well, then you have to be really--",9
-fomc-corpus,1981,"If our primary purpose at this moment--maybe this isn't our purpose--is to impact inflationary expectations, we would have to announce, in understandable terms, a reduction in the rate of growth of the narrower aggregates. I don't think it's realistic to think that we can say we're only going to shade down M1--if we're going to call it that--very slightly because we think something is going to happen to a thing called velocity or the money demand function. When I read these financial letters, I seldom see any reference made to these more technical aspects of what we're trying to do. They talk about our published ranges in simple terms and whether or not they think we're going to be able to achieve them. So, I think they are two different things. The technical aspect of what we're doing is something different from the impact we're trying to make on inflationary expectations. And the latter has to be done in a simple manner and has to involve a discernable reduction in the actual figures from the current 3-1/2 to 6 percent to something that to less knowledgeable and less technically oriented people looks like a continuation of our resolve to reduce these ranges gradually.",233
-fomc-corpus,1981,"There are two other problems here, though. It's going to be impossible for us to raise the number. Suppose we get a repeat of last year and get a sudden expansion in the money supply over the fall; we will end up with a high base. Then we will face the problem we faced at the end of last year as to whether we can even meet the targets that we set for ourselves in July. And if we lower them too much--by a whole percentage point, say, or even if we lower them at all at this point--and then in February we really need to raise them 1/2 percentage point, we're not going to be able to do it. A second consideration here is that if we get the ranges too low, we will never be able to get within them and we'll lose credibility because we can't achieve our targets. We have to balance whether we're going to achieve the targets as well as whether we're ever going to have the opportunity to raise them, which I don't think we are.",204
-fomc-corpus,1981,"Obviously there's no perfect solution, but I would argue that the right balance to strike is one that retains our credibility in terms of continuing to squeeze inflation. Certainly there's a widespread perception in the country that the Federal Reserve is very strictly committed and dedicated to monetary restraint. I think we can achieve that with only a 1/2 point reduction; I don't think we need a full point reduction. There is a continuity in policy with a 1/2 point reduction and it lessens somewhat the problem that Nancy is talking about. If we end up at the low end of the target this year, or even with some undershooting, we have to start from that point; we can't go back to where we were supposed to be. Then it's quite a tight target. So, my sense of balance between the expectations of the country for us to continue this policy in a persistent way and the danger that it's going to be too tight is to strike a balance with a 1/2 point reduction. Now, I don't particularly care if we lower the floor a full point because I don't think that's the meaningful constraint. I have a slight preference for a 1/2 point reduction on both the floor and the ceiling. But if you want to lower the floor a point, and you don't think we're going to get criticism because we're widening the range, [I could accept that]. You were telling me that Senator Proxmire was pushing you to narrow the range.",292
-fomc-corpus,1981,At midyear. But I see some positive benefit to widening the range to explain to them that these numbers are not so solid and reliable. It's a symbolic recognition of the fact that there are great uncertainties about M1 and what M1 means these days.,51
-fomc-corpus,1981,I don't think we should lower the ceiling a whole point. That really is risking a major problem in the economy in terms of our not making--,29
-fomc-corpus,1981,"Well, we've heard the arguments on both sides. Having heard both sides, I conclude that 2-1/2 to 5-1/2 percent is still the right compromise. I feel somewhat open-minded about M3. Let me just try 2-1/2 to 5-1/2, 6 to 9, and 6-1/2 to 9-1/2 percent, but I am perfectly happy to try the same [M1 range] and 6 to 9 percent for both M2 and M3. What are the preferences between those two?",124
-fomc-corpus,1981,If it doesn't cause any more problems to lower M3 a half point--,15
-fomc-corpus,1981,That's what it looks like at this point. There's no guarantee on what it will look like in December.,21
-fomc-corpus,1981,We don't need to do that.,7
-fomc-corpus,1981,What about not doing it now but waiting to see the situation?,13
-fomc-corpus,1981,"Last year, Mr. Chairman, I believe the Committee lowered M2 at midyear and then raised it back.",23
-fomc-corpus,1981,Is that what we did? I thought we raised one of these.,14
-fomc-corpus,1981,"Yes, that's right. I think it was M2. You lowered it at midyear and then at the beginning of last year--",27
-fomc-corpus,1981,"So we have precedence for that. Let me just ask the preference between those two approaches. There are other combinations and permutations, but let me just see how those two go. Everything the same with 2-1/2 to 5-1/2, 6 to 9, but a 1/2-point difference on the M3 range. Who is for the leaving the M3 range at 6-1/2 to 9-1/2 percent, given that choice.",102
-fomc-corpus,1981,I think Chuck made a pretty good argument for not doing it now and taking a look at it later.,21
-fomc-corpus,1981,"How many have a reasonably strong feeling about the 6-1/2 to 9-1/2 percent versus 6 to 9 percent? Well, among those registering feelings anyway, the 6-1/2 to 9-1/2 percent commands a little more support. Now, let me just ask a general question. Does anybody else, after hearing this debate on both sides--on lower or higher, visual, substance, or uncertainty--want to propose another change? If not, I am going to go ahead with the 2-1/2 to 5-1/2, 6 to 9, and 6-1/2 to 9-1/2 percent.",147
-fomc-corpus,1981,I would much prefer 3 to 6 percent on M-1B.,16
-fomc-corpus,1981,"There have been preferences expressed on both sides, but let me just ask--",15
-fomc-corpus,1981,How about 3 to 5-1/2 percent?,13
-fomc-corpus,1981,It's only the upper limit that is really binding.,10
-fomc-corpus,1981,"Yes, except that we--",6
-fomc-corpus,1981,"There are other possibilities. There's a whole range of numbers we can put down--different higher limits, different lower limits, whatever.",26
-fomc-corpus,1981,We have never responded when [the growth rates] went down to the bottom; we only respond when they go to the top.,26
-fomc-corpus,1981,Is there some reasonable contentment with 2-1/2 to 5-1/2 percent?,22
-fomc-corpus,1981,Do you want a show of hands?,8
-fomc-corpus,1981,"Yes. Well, [unintelligible], let's just reserve that for the moment. That's tentative. Now, what do you want to do about this year? I've been on both sides of this issue and will remain on both sides of the issue. The argument, as I understand it, is: Why horse around for 1/2 percentage point and raise questions about fine-tuning and all the rest. If we go that way, I think we have to say something about being comfortable on the low side however that is precisely expressed.",109
-fomc-corpus,1981,[Comfortable] for M-1B. We're uncomfortable on the high side for M2.,20
-fomc-corpus,1981,"Yes, that's right.",5
-fomc-corpus,1981,"Given what we voted for on the short run, I think we really ought to reduce the lower end. Growth is going to come out awfully low.",31
-fomc-corpus,1981,"The other side is: If we lower it, we have a target that is more attainable on the low side, consistent with the decision we made earlier. It's less frightening on the up side. It comes down, in part, to how convinced one is that if we saw a sudden radical move in the other direction so that the upper side is threatened, we'd be prepared to pull out even more stops than we otherwise would, given that we went out of our way now to lower it.",98
-fomc-corpus,1981,That's the decisive thing. I don't like this fine-tuning; that argument is the one that is a real potential trap. And I just don't see why we want even to run the risk of finding ourselves in that position.,45
-fomc-corpus,1981,"We gain so little by lowering the lower end of the target. [M-1B is] running below the lower end of the target and everybody is saying right now ""Gee, the Fed is doing great."" If it ended up the year below 3-1/2 percent, I doubt that anybody would be seriously concerned about it as long as the economy--",74
-fomc-corpus,1981,Does anybody have anything to add to this argument? Does anybody want to make a final statement that's going to be persuasive on this score before I ask for preferences? Or does anyone want to make a statement that's not going to be persuasive but that they want to get off their chest?,56
-fomc-corpus,1981,I'd like to make one statement. What we have--,11
-fomc-corpus,1981,On the top half.,5
-fomc-corpus,1981,"No, I am going to leave that one alone. What we have voted for would involve a rate of growth of 3.9 percent between the fourth quarter of 1980 and the fourth quarter of 1981. No, wait a minute; I'm okay. I got mixed up.",59
-fomc-corpus,1981,"It's an expression: I'm okay, you're okay.",10
-fomc-corpus,1981,"Does anybody else want to make a statement? One choice, as I understand it, is to leave the ranges unchanged but say something [specifically] about being low in, or maybe even below, [the M-1B range] if necessary to remain comfortable. But we are not unduly uncomfortable on M2 and M3. We would expect to be high in the M2 and M3 ranges. That's one approach. The other is that we'd still say that we're going to be high in the M2 and M3 ranges but in recognition of the undershoot in M-1B, in effect, we are lowering its range by a half point. Those are the two choices.",140
-fomc-corpus,1981,Lower both ends [of the M-1B range] by a half point?,17
-fomc-corpus,1981,"I'd lower both ends by a half point if we were doing it. I don't think we can widen the range in the middle of the year. Part of the purpose in lowering it actually is to constrain us on the up side and indicate that we are constrained. So, those are the two choices. They seem to be quite evenly balanced, in my judgment. Who does not want to change them, with that explanation? That seems to be the wide consensus, so I guess we don't move them.",100
-fomc-corpus,1981,And I made such a beautiful argument!,8
-fomc-corpus,1981,That was a beautiful argument.,6
-fomc-corpus,1981,Sometimes that happens.,4
-fomc-corpus,1981,Some get rained out.,6
-fomc-corpus,1981,"Hey, Fred, I changed my vote; I voted the [unintelligible]. I looked at it again.",24
-fomc-corpus,1981,"He would have changed my vote, too. But we are still in the minority. Mr. Axilrod raises a question, which reraises a question about what we just said before. I am hesitant to recite it to you but I will out of a feeling of loyalty. He says that in general we are putting some additional emphasis on the broader aggregates and the decision for next year doesn't lower any of the broader aggregates. Is that going to diminish the psychological impact? I guess that reraises the question of M3. Does anybody feel strongly that we should reconsider the question of M3? If not, we won't. So, what we have here is: No change this year with the explanation that I cited; for next year 2-1/2 to 5-1/2 percent tentatively for M1 period, 6 to 9 percent for M2, and 6-1/2 to 9-1/2 percent for M3. Nobody discussed bank credit, which is still what--6-1/2 to 9-1/2 percent?",222
-fomc-corpus,1981,It's 6 to 9.,7
-fomc-corpus,1981,"Are we at 6 to 9 percent? Oh, yes, it's the same. I see. So, 6 to 9 percent on bank credit.",33
-fomc-corpus,1981,We don't have to vote on the whole package [for the two years] do we?,18
-fomc-corpus,1981,"At this stage, I think yes. It's clear that for 1981 there isn't going to be any change.",23
-fomc-corpus,1981,Are we just voting for '82?,8
-fomc-corpus,1981,"Well, let's do it separately. It might affect somebody's vote, I guess. Shall we formally vote on '81? All right, we will have a separate vote on '81.",38
-fomc-corpus,1981,We earn our salaries!,5
-fomc-corpus,1981,"I have a footnote in my mind to all of this, that if the figures for the next two weeks come out widely different than our current expectation, I think we need to have a consultation and relook at all these decisions. So, I will make a [mental] footnote. Maybe we ought to put in our record that we are going to consult at--",75
-fomc-corpus,1981,That will give you time before your testimony.,9
-fomc-corpus,1981,"Yes, we will have a consultation before the testimony to confirm all of this. Maybe just put it like that, neutrally. But I don't expect any change unless we get some radically wild figures in the next two weeks. Now we are just voting on '81.",54
-fomc-corpus,1981,Leaving the targets as is.,6
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,We're not changing '81.,6
-fomc-corpus,1981,Exactly.,2
-fomc-corpus,1981,We could say it both ways!,7
-fomc-corpus,1981,"Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley Yes President Keehn Yes Governor Partee Yes Governor Rice Yes Governor Schultz I guess I have to vote ""Yes.""",48
-fomc-corpus,1981,Have you ever dissented before? Now is your time.,12
-fomc-corpus,1981,I was worried about how I would look if I dissented.,13
-fomc-corpus,1981,They'd think you want it easier.,8
-fomc-corpus,1981,"No, that's not the problem.",7
-fomc-corpus,1981,You can explain your vote.,6
-fomc-corpus,1981,"I'll vote ""Yes.""",5
-fomc-corpus,1981,Governor Teeters Yes Governor Wallich Yes,8
-fomc-corpus,1981,"Okay. That leaves us with 1982. This is all going to be described as tentative. The coloration around it is clear. It's 2-1/2 to 5-1/2, 6 to 9, 6-1/2 to 9-1/2, and 6 to 9 percent, which is no change for any of the ranges except for M-1B.",86
-fomc-corpus,1981,"What was the rationale, Mr. Chairman, on the three-point spread, just so we understand that?",21
-fomc-corpus,1981,"The rationale is ""modified Morris."" Is that clear? There's a lot of uncertainty about what is going to happen to M1 in terms of the technical interpretation of the figure.",35
-fomc-corpus,1981,"And the press headline will be: ""Volcker uncertain.""",12
-fomc-corpus,1981,"That is the problem in explaining. There's so much invested in this now. It's difficult to go up there and say we don't have any faith in these figures. It happens to be the case. We have more credibility, a lot more credibility, saying it when they are low than when they are high. Do you all remember what you are voting on?",71
-fomc-corpus,1981,Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley Yes President Keehn Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters No Governor Wallich Yes,48
-fomc-corpus,1981,"Okay, I guess we are finished. Oh, no. Will you hand out this directive language? Let us suspend the Open Market Committee meeting for the moment and spend a little time on these other things. And while you are uninterested in this other conversation, you can read the directive language and we will reassess that language in 15 or 20 minutes. Let me try and run through some of these other things rather quickly. I have a note here that you are prepared to report on our readiness on the pricing, Governor Gramley, if you would do that. [Secretary's note: The Committee's discussion of the directive language was not recorded. The language adopted, of course, has been published in records of the Committee.]",148
-fomc-corpus,1981,We welcome Mr. Cross as a new participant.,10
-fomc-corpus,1981,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1981,Comments or questions?,4
-fomc-corpus,1981,"Sam, in describing the concerted intervention of the Germans as ""organized,"" do you have any information as to whether there was anything more than their urging others to do something? Were there rate ideas or quantity ideas put out?",45
-fomc-corpus,1981,"Not that I'm aware of. As I understand it, and of course we don't really have a great deal of information about it, it was more in the nature of urging all the participants to act and to act promptly.",44
-fomc-corpus,1981,"Does it look as though they have started something, so to speak--a kind of [organized effort] that can be revived any time?",28
-fomc-corpus,1981,"Well, it involved the EMS and the Swiss. In addition, the Germans did talk to the Japanese. I didn't mention the Japanese. The Japanese did undertake some intervention but it wasn't entirely clear whether they would have done so anyhow or whether it was part of the German's attempt to mobilize a general effort.",62
-fomc-corpus,1981,"I think the fact that the Germans are claiming it was successful implies that they would like to use it as a precedent from time to time when it's necessary to have what they call a common dollar policy, particularly since we don't seem to intervene in what they consider a disorderly market.",56
-fomc-corpus,1981,"If we [encountered] another one of these situations, it would be perfectly reasonable to expect them to do the same thing. Some of the Germans, as you know, have not been very keen on a coordinated dollar policy; they've changed their views on that subject. So it is significant in that respect.",63
-fomc-corpus,1981,Governor Partee.,4
-fomc-corpus,1981,"Sam, you spoke of the possibility of a free fall. I don't know exactly what you mean by that, but suppose there's a 10 or 15 percent drop in the value of the dollar in the next month, say, which I guess might be a free fall--",55
-fomc-corpus,1981,That fits my definition.,5
-fomc-corpus,1981,"There has been a great deal of speculation in the dollar. Just making an analogy with domestic markets, when there is a great deal of speculation in one direction, naturally the end of it comes and when it does there is a stock adjustment. So, I would think you're quite right that there could be a 10 or 15 percent drop--using my figure. But what harm would it do if there were a 10 or 15 percent drop in the dollar?",94
-fomc-corpus,1981,"I was really thinking in terms of a sudden decline of a very major amount. For one thing, it does develop among the participants of the market [a recognition of] the fact that this kind of thing can happen. It would make the participants, I would think, quite chary about the extent to which they would get in there and make a market, if it's going to be subject to that kind of movement. Even pork bellies have a limit on how much the price can decline. It might in a sense undermine the strength of the market.",111
-fomc-corpus,1981,"The market mechanism itself could be harmed, you think?",11
-fomc-corpus,1981,"I would think so, yes.",7
-fomc-corpus,1981,"If 10 or 15 percent is a free fall, would it also be considered a disorderly market?",22
-fomc-corpus,1981,Normally we would have thought that.,7
-fomc-corpus,1981,We might have before.,5
-fomc-corpus,1981,"In fact, normally we would consider a 2 percent drop in half an hour disorderly [unless] there's a special reason.",26
-fomc-corpus,1981,"Well, at an annual rate that's a very high rate of decline.",14
-fomc-corpus,1981,"Could we get a little more information on this disorderly market? Were you able to observe whether spreads widened drastically, whether the two-way market just disappeared and there were no bids at all?",38
-fomc-corpus,1981,"Spreads widened and there was a kind of discontinuous market. It moved down to a point and then the next transaction would move down the next step, all in the space of a very few minutes. There have been newspaper articles on it. People in the market described it as ""madness"" and various other lurid words, but apparently it was, at least to participants in the market, something that did shake them up considerably.",88
-fomc-corpus,1981,The market is very broad and efficient.,8
-fomc-corpus,1981,Most of the time.,5
-fomc-corpus,1981,Did I hear you say that the Germans considered their operation a success?,14
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Why did they consider it a success?,8
-fomc-corpus,1981,They did check the dollar from moving,7
-fomc-corpus,1981,The dollar moved up afterwards.,6
-fomc-corpus,1981,"No, it didn't move up after that. At that point it was close to 2.57 and it has been down mostly around the 2.50 to 2.52 range. And there were a couple drops down to around 2.47.",53
-fomc-corpus,1981,But it did move up.,6
-fomc-corpus,1981,"It moved up once after the German effort; it went up from about 2.52 to 2.54 and then I think it went up a little higher. But it's now 2.47, so it has declined substantially since they first made the effort, and they regard it as a very successful move.",64
-fomc-corpus,1981,"Since they asked for the concerted intervention, they have to consider it a successful move in a certain sense. It was sufficiently successful, I suppose it could be argued, that one can get away with calling it that.",44
-fomc-corpus,1981,It's very hard to argue that this foreign exchange market is operating very effectively at the moment. It has some analogies with the domestic market in terms of the uncertainties and the discontinuities and a lack of confidence.,42
-fomc-corpus,1981,"Yes, it seems to have the same problem of not having anything it can really hold on to. There are no verities on which to operate.",30
-fomc-corpus,1981,And no conviction in it.,6
-fomc-corpus,1981,The last verity I can remember us discussing at length was the question of the viability of the dollar/mark rate when it was 2.00.,31
-fomc-corpus,1981,[Unintelligible.],6
-fomc-corpus,1981,"Actually, it was 1.70.",9
-fomc-corpus,1981,"Well, we thought it was very low when it was 1.70, but as it got back to 2.00 we thought that was about right. And as it got above 2.00, as I recall, we were doing quite a lot of intervening. So, maybe 2.00 is the right rate rather than 2.47.",75
-fomc-corpus,1981,"We calculate that just the movement in July alone probably worsened our current account deficit next year by a further $8 billion. Everybody is looking at this. The Treasury and the New York Fed and the Board's staff are looking at a projection in the mid $30 billion area for the current account deficit for next year. That's very, very substantial. The largest one we've had was, I think, $18 billion; when I was over at the Treasury it was between $15 and $18 billion. And even though markets now are not paying a whole lot of attention to current account surpluses and deficits, when the fashion and the mood change and they go against the dollar, we're going to see a lot of stories about this enormous deficit and our export orders just going [up].",158
-fomc-corpus,1981,"That's why I asked the question, Tony. It seems to me that most analysts would say that the dollar is way too high. And it has been bid up there by speculation in these markets. Therefore, why not get the adjustment over with and have a free fall? Wouldn't it be better perhaps to get the rate down to a more credible level quickly rather than very gradually? That's why I raised the question.",83
-fomc-corpus,1981,"Well, it would have been better. It can keep American industry more consistently export oriented if we don't have such enormous swings, but that requires leaning against the wind. And if we're not going to lean against the wind and we have [the dollar at] these high levels, when a decline comes, it may be better from a purely export competitive point of view if it comes in a month rather than over six months. On the other hand, [a sharp move] is very demoralizing to financial flows and financial markets and politically as well, because it doesn't look as if there's much cooperation left in the system. I think there are tradeoffs on that, Chuck. There are a lot of people who will feel that a rapidly plunging dollar shows mismanagement by the Administration, and to some degree by the Federal Reserve, and is an indication that things are not right in the United States. There is that view.",185
-fomc-corpus,1981,"Well, there's something we ought to do if we get that kind of fluctuation in either direction in my opinion, but we're not going to solve that this morning. Do you have a recommendation for us, Mr. Cross?",45
-fomc-corpus,1981,[Recommendation--see Appendix.],6
-fomc-corpus,1981,"So, the proposal is to give us enough room to accommodate the interest receipts for about the next six months?",22
-fomc-corpus,1981,"If you're close to the German mark limit, how close are you to the overall limit of $4-1/4 billion?",26
-fomc-corpus,1981,Let me see. We have $3.4 billion in total holdings at current market value.,19
-fomc-corpus,1981,We're way below.,4
-fomc-corpus,1981,"I raise the question: Why do we have to increase that limit? I understand the German mark limit, but with that much leeway in the total, one doesn't follow the other, does it?",40
-fomc-corpus,1981,"The figure of $4.25 billion is made up of $1 billion in yen, $2.75 billion in DM, and $500 million in other currencies. I assume it would be legal, I'm not sure, to modify the makeup of that in some way.",55
-fomc-corpus,1981,"If we don't increase the total, we're implicitly reducing the yen limit or the other currencies limit. Is that what you're saying?",25
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,I don't remember the details. Isn't there a distinction between the rigidity of the overall ceiling and the informal ones? The informal limits are somewhat less legally [binding].,32
-fomc-corpus,1981,"As I understand it, all we're talking about are the informal limits and this doesn't require any vote. The formal limit is actually $8 billion.",29
-fomc-corpus,1981,That's correct.,3
-fomc-corpus,1981,Which we're far from.,5
-fomc-corpus,1981,"The Commiteee had established [informal] limits for each of the currencies, so there is an implicit--",23
-fomc-corpus,1981,"If we kept the others the same, then the overall limit would follow [the increase for German marks]. I don't think it would make much difference. Unless we're going to sell some currencies, we have to increase the [informal] mark limit anyway.",51
-fomc-corpus,1981,Do you [need] a formal vote on it?,11
-fomc-corpus,1981,"No, but I think we need an understanding.",10
-fomc-corpus,1981,Did we ever make clear that this means at book value and not at market value?,17
-fomc-corpus,1981,They're recorded at cost.,5
-fomc-corpus,1981,"At cost, yes. If we didn't [use cost], we wouldn't have to raise the D-mark limit, but we might at some time have to raise it without--",34
-fomc-corpus,1981,I assume this is not anything that gets announced; it's just an informal [understanding].,18
-fomc-corpus,1981,"I think that's right. All we have to do is confirm that there's an informal understanding that we'll increase these limits by $1/4 billion in order to allow for interest payments. If that's acceptable, we will assume that that is done. There aren't any transactions to be ratified because there weren't any transactions. I'm reminded that we forgot to approve the minutes of the last meeting at the beginning of this meeting. Could I have a motion to approve them?",91
-fomc-corpus,1981,So moved.,3
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,"If there's no objection, we'll approve the minutes. We have approved informally that increase in the limits [on our foreign currency holdings]. Mr. Sternlight.",32
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,Comments or questions?,4
-fomc-corpus,1981,"There is a significant point or observation--at least it seems to me significant--that even though it was grudging, the fed funds rate did come down somewhat while at the same time the whole spectrum of [other] short-term interest rates went in the opposite direction. We don't seem to have as much direct influence over short-term rates as we did before. There was a movement of the fed funds rate. It's not clear what is causing this situation except I suppose some of the factors that Peter mentioned. Not all of them apply at this particular point. But I guess the heavy volume of Treasury borrowing is probably the biggest single factor.",127
-fomc-corpus,1981,"I'd be inclined to welcome that, wouldn't you? If the funds rate were more detached from other rates, the immediate impact of [a move] in the funds rate resulting from tighter monetary control wouldn't communicate itself so fast and so strongly to the rest of the market. It happens that in this case the rest of the market went in a very expensive direction for the Treasury, and that's not good. But I think there's no damage in looseness.",89
-fomc-corpus,1981,"But [now] they're really coming back together. I think other rates anticipated a drop [in the funds rate], which didn't occur. And now the federal funds rate and the other short-term rates are coming together again. The other rates were an aberration for a period of about four weeks.",59
-fomc-corpus,1981,But aren't the other short-term rates still on the high side?,13
-fomc-corpus,1981,"They're back to the relationship they normally have. The federal funds rate has come back and [other rates] have come up, so they're together again.",30
-fomc-corpus,1981,"Well, I'd like to put a [question] to Peter: If you're following a nonborrowed path that requires a substantial amount of borrowing at the window, and if the surcharge on the discount rate is 18 percent, why should you expect the federal funds rate to fall below 18 percent? It seems to me that it has to stay above.",71
-fomc-corpus,1981,"Well, I think it depends on what that amount of borrowing is, President Morris. If borrowing were up toward that $2 billion level, as it was at the beginning of July, then I would think that 18 percent is very much a solid floor that would be hard to penetrate. As borrowing gets down more toward $1 or $1-1/4 billion, somewhere around that area, there's enough borrowing done by banks that don't encounter the surcharge that there could be penetration [below] the surcharge rate.",103
-fomc-corpus,1981,"Some econometric work we've done recently suggests that the basic rate in some sense is 3/4 of the surcharge and 1/4 of the basic rate, in terms of weight. So the basic rate, if we didn't have a surcharge, was more like, say, 17 [unintelligible] not 18 percent.",69
-fomc-corpus,1981,"Governor Wallich, I'm not sure at all that one ought to accept the view that a looser relationship between the fed funds rate and other rates of interest is desirable. If one could argue that what we're trying to do in the short run is make reserve demand and reserve supply come into balance and one can do that with the federal funds rate alone, then I would perceive the wisdom of your argument. But I doubt that that's the case, because very fundamentally the demand for reserves depends on the demand for deposits. And the demand for deposits will depend on a whole spectrum of short-term interest rates other than just the federal funds rate. So, I'm a little concerned about our ability to get where we want to go, not just in the longer term but even in the shorter run, in regard to control of the monetary aggregates if the relationship gets too loose.",171
-fomc-corpus,1981,"Yes, I'm aware of that point. If there were no movement of other short-term rates in response to the funds rate, it would be more difficult to control the aggregates.",35
-fomc-corpus,1981,"Well, it was a very brief period and an awful lot was going on. I don't know that there has been any great change.",27
-fomc-corpus,1981,"If I could comment just a little further on that: I think Governor Teeters put her finger on a very important part of the reason. By that late June/early July period the short market and the long market, too, to some degree, had gotten ahead of themselves, anticipating declines in the funds rate that didn't come about. To an important degree it was the disappointment in not seeing that develop that permitted this apparent anomaly of the funds rate giving some grudging ground but short rates moving up because the market had expected more of a decline in the funds rate.",113
-fomc-corpus,1981,"I asked for an analysis of 1974 not too long ago and just got it this morning. In looking at it, it indicates that in periods of volatility such as that the relationship among the various interest rates changes considerably and very rapidly. So, I think Governor Partee's point is accurate. It really hasn't happened for very long and it's the kind of thing we probably should expect, particularly at these very high rates with all the volatility going on. I'm not sure one can read that much into it.",102
-fomc-corpus,1981,"Peter, you mentioned that the premium for agency issues, particularly those of FNMA and the Home Loan Banks, has been going up. Has it gone notably higher in the last six weeks or so?",40
-fomc-corpus,1981,"Most of the widening had already occurred by six weeks ago, but there was some further widening, maybe another 1/4 percentage point or so.",30
-fomc-corpus,1981,There has been some further widening?,7
-fomc-corpus,1981,"We just had a long FNMA issue that sold about 140 to 150 basis points above the [comparable] Treasury issue. I think six weeks earlier their premium might have been more in the area of a little over 100 basis points. A more normal [spread], going back six or nine months ago, might have been more in the area of 1/4 to 1/2 percentage point.",84
-fomc-corpus,1981,So it's very much more than it has been traditionally.,11
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,And it also has gone up some [more recently].,11
-fomc-corpus,1981,Would you explain why you're counting the thrift extended borrowing as nonborrowed reserves?,16
-fomc-corpus,1981,I think we are.,5
-fomc-corpus,1981,"Yes, but why?",5
-fomc-corpus,1981,"Well, it is borrowing that's not really subject to the pressure on discount window usage that is associated with adjustment borrowing. And it's a source of reserves to the banking system just as though it came out of float or from an addition to Fed holdings of securities.",51
-fomc-corpus,1981,"So, if we get a large volume of extended borrowing, you'll take that into account as you mark out your nonborrowed reserve path.",28
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,This is just the way you treated First Pennsylvania.,10
-fomc-corpus,1981,"That is right, yes.",6
-fomc-corpus,1981,"Peter, one question I'm curious about: As we look around the country--certainly in our District and I believe nationwide--there's virtually no bank paying the surcharge, as you know. What I can't quite figure out is why the federal funds rate can get much above 18 percent. As it goes to 19, 20 percent, it's rather curious, isn't it, that a few more banks wouldn't step in and incur the surcharge?",89
-fomc-corpus,1981,"Well, I think there's an attitude among banks that there's something rather shameful about having to pay the surcharge. It's like being caught with your hands in the cookie jar or something. So, it's true that there hasn't been very much. There was one week or two when there was a fair amount of such surcharge borrowing. But banks making an effort to avoid that is what tends to keep the funds rate around the surcharge level. And when they are trying hard to avoid it, as banks seem to have been doing yesterday, for example, they're willing to pay 19 and 20 percent just to stay away.",122
-fomc-corpus,1981,"The money desk managers get brownie points for not incurring the surcharge, but they're not given demerits for paying a point or two above the surcharge. That's a rather curious world.",37
-fomc-corpus,1981,"Yes, it is.",5
-fomc-corpus,1981,"I think that's why Frank Morris is right, though, when he suggests that even at fairly moderate levels of borrowing the surcharge rate becomes a de facto floor in terms of the federal funds rate. The other thing that I think is going on here, and I at least don't fully understand it, is the way that these banks continue to manage their reserve positions. If you look at the daily federal funds rate over the past three months, we get almost a perfect 10-day cycle. It just repeats itself as if it's drawn with a machine. Obviously, that has something to do with the way they're playing the game in terms of either letting their deficiency build up or avoiding the window or something. But the pattern is just incredible.",145
-fomc-corpus,1981,"10 working days, Jerry?",6
-fomc-corpus,1981,"These are business days, yes.",7
-fomc-corpus,1981,So it's a two-week cycle.,7
-fomc-corpus,1981,That's a perfect two-week cycle.,7
-fomc-corpus,1981,How long has it been going on?,8
-fomc-corpus,1981,I just took it back to May.,8
-fomc-corpus,1981,Is it two weeks or ten days?,8
-fomc-corpus,1981,"Well, the way I have it plotted is ten business days.",13
-fomc-corpus,1981,Ten business days.,4
-fomc-corpus,1981,But it's a two-week cycle.,7
-fomc-corpus,1981,"What we appear to get, for whatever reason, is a low federal funds rate, and banks underborrow one week and then get trapped at the end of the week and that sets up a higher rate. So they say ""Oops, the funds rate is higher,"" so they overborrow for a while.",61
-fomc-corpus,1981,Even the corn-hog cycle is supposed to be damped!,13
-fomc-corpus,1981,[Unintelligible] the explosive corn-hog cycle. But this one is neither damped nor otherwise on the chart.,26
-fomc-corpus,1981,"Peter, without implying anything untoward in the future, what is the part of your portfolio that is reasonably saleable without great loss or without market disturbance?",32
-fomc-corpus,1981,"Out of a total portfolio of about $130 billion, $49 billion is in Treasury bills, most of them short-term bills. Another sizable amount--I don't have the number at hand--would be short-term coupon issues due within a year. But I would think we'd look mostly to the bill area if there were a need, for example, to allow for a substantial amount of extended credit borrowing by thrifts.",83
-fomc-corpus,1981,That seems to imply [unintelligible] that is something on the order of 1/2 of the portfolio.,25
-fomc-corpus,1981,"The coupons that are under one year, as I remember, amount to about $12 billion or something like that, right?",25
-fomc-corpus,1981,Something like that.,4
-fomc-corpus,1981,That sounds about right.,5
-fomc-corpus,1981,"Well, that would get us about there.",9
-fomc-corpus,1981,Coupons are not too easy to get rid of.,10
-fomc-corpus,1981,"The Federal Reserve does not have the authority to borrow, is that right?",15
-fomc-corpus,1981,Borrow from whom?,4
-fomc-corpus,1981,From the public. Issue its notes in the market.,11
-fomc-corpus,1981,"No, but we can do--",7
-fomc-corpus,1981,We only sell with an agreement to buy back.,10
-fomc-corpus,1981,We can do reverse RPs with the other--,10
-fomc-corpus,1981,We'd have to call them something other than Federal Reserve notes!,13
-fomc-corpus,1981,"Well, I didn't mean that.",7
-fomc-corpus,1981,Commercial paper.,3
-fomc-corpus,1981,Any other comment or questions?,6
-fomc-corpus,1981,"Mr. Chairman, just as a point of interest: Have we established a rate on the thrift borrowing?",21
-fomc-corpus,1981,"No, we have not; we'll discuss that at lunch. We have to ratify the transactions.",20
-fomc-corpus,1981,So moved.,3
-fomc-corpus,1981,Seconded.,3
-fomc-corpus,1981,"Without objection, that is ratified.",8
-fomc-corpus,1981,It should be.,4
-fomc-corpus,1981,Mr. Zeisel.,5
-fomc-corpus,1981,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1981,"Maybe you can go ahead, Mr. Axilrod, and then we'll discuss the two reports together.",21
-fomc-corpus,1981,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1981,Comments? Mr. Roos.,7
-fomc-corpus,1981,"Steve, in setting both M-1B and M2 targets, which apparently currently increases [our exposure to] certain incompatible situations, aren't we putting ourselves in an almost impossible position? Let me phrase it differently. Listening to you, I thought you made a strong case that even though M-1B has some imperfections, its imperfections are not overwhelming and that even if we wanted to control M2, certain parts of M2 are beyond our control. What would happen if we just abandoned M2 and told the world why we were abandoning it and concentrated on M-1B, even though it has some problems?",124
-fomc-corpus,1981,"Well, I'm afraid we're not in a position to come to that conclusion, President Roos, in my view in any event, because we know that M-1B is not really measuring transactions balances--and that's what we're seeking--and we know that M2 is measuring a lot more. We don't have an institutional structure that would enable us to sharply distinguish transactions accounts from other accounts. In that environment, I'm afraid there's probably little choice but to continue to make judgments about each of the aggregates as we view them and as time goes on--in my view, still paying somewhat more attention to M-1B, after making proper allowance for how one thinks the public is economizing [its holdings of transactions accounts], but not ignoring the others because we know there are shifts occurring between transactions accounts out of M-1B into nontransactions accounts in M2.",173
-fomc-corpus,1981,Hasn't the NOW account phenomenon pretty well washed itself out?,12
-fomc-corpus,1981,"Yes, but what I had much more in mind were money market funds and overnight RPs; all those sorts of things do have a transactions account element. One can run a zero balance demand deposit through these other items. One might even run it through things other than what we're measuring. That's one of the problems. It's very difficult, of course, to distinguish the investment element of those very short-term [instruments] from the transactions element, but they have both.",94
-fomc-corpus,1981,"I would tend to argue the other way, Larry, that if we were to target very precisely on just one aggregate, it would put us even more in a box. The object of trying to target on any aggregate is that it's a proxy for GNP. But the problem is clearly that those relationships are not very tight any more; they are getting looser and looser. It seems to me that the events that are taking place argue for looking at a broader range of aggregates and for having wider target ranges for the aggregates that we look at. Now, that may give us some difficulty in terms of the precision of monetary control on a day-to-day or week-to-week basis, but it seems to me that we'd get into a bigger box if we tried to target on any single aggregate and tried to be very precise about it because these relationships are changing. We could easily get into a situation such as the British got themselves into by targeting on sterling M3; suddenly they were just way outside of the target ranges and they had very serious problems. I, for one, would argue for looking at more aggregates with broader ranges than for looking at a single aggregate or a very narrow range.",238
-fomc-corpus,1981,"I was under the impression, Fred, that the research studies that have been done indicate that there is a closer relationship between M-1B and real output than there is between--",36
-fomc-corpus,1981,That's right. But that relationship seems to be getting looser all the time.,16
-fomc-corpus,1981,"What bothers me--and I may see it totally incorrectly--is that a couple of our targets seem somewhat incompatible, just as years ago our interest rate targets were frequently incompatible with the aggregates targets. One can't steer with two compasses if those compasses aren't reconcilable.",55
-fomc-corpus,1981,But then one would really have to--,8
-fomc-corpus,1981,"Still, [would we] be better off with one bad compass? Governor Partee.",18
-fomc-corpus,1981,"I don't want to interrupt this ideological discussion because I don't want to participate in it except to say that the work I have seen doesn't indicate that much additional information is gained as we move from M1, or in this case M-1B, to M2. So, I'm inclined to be sympathetic with Larry's point of view. The Committee has had very good political reasons for not wanting to be tied to one aggregate, and that's another element that would have to be discussed if we were to go just to M-1B. But I am concerned about M2, and particularly the Committee's decision last time to make it a constraint, because I think there is very substantial exposure here to missing by a fairly large margin even what the staff now says the M2 prospects may be. It's true that we didn't get the wild card [certificate], although we may. I don't know how long it will be until there's another court test of that. We did get the small saver certificate, and the early information is that it's selling quite well. Now, not every dollar of that money has come from other bank deposits. It just can't be so. It's a good instrument--a 2-1/2-year term yielding a high rate of return--and will tend, without any economic meaning, to raise M2 somewhat. But much more important now is the all saver certificate, which will be sold for three full months [at the end] of this year, October, November, and December. We had some off-the-wall staff estimates that I saw that assumed sales of a hundred billion dollars of those certificates. I would think most of those would be sold early in the period because of the tax exemption feature; one would want to have the full tax exemption period. So we're exposed to the possibility of one [M2] element going up like gangbusters in the fourth quarter. True, quite a bit of it will come from passbook savings, quite a bit will come from MMCs, and some may come from money market funds. But, again, I would argue that not all of it will. And that will be another factor tending to raise the nontransactions component of M2 in the remainder of this year. My concern last time, and even more so this time, is that if we have a constraint of that kind, we may find that it is running the ball game because it's going up at 13, 14, 15 percent in the latter part of the year, yet it doesn't really mean anything in terms of the economy. We used to cite both aggregates and give more or less equal weight to both aggregates, and I think that was the better position for the Committee to be in. That's sort of a policy comment, and I'm sorry about that, but I was responding directly to the content of Steve's talk.",572
-fomc-corpus,1981,"Well, as a practical matter, does the Humphrey-Hawkins legislation really give us the right to abandon one of them completely?",27
-fomc-corpus,1981,I think we could abandon it and explain it.,10
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"I'd like to ask a question of either Steve or Jerry, or both, relating to what interest rates are implied by the forecast not just for the next few months but on into 1982. How do they relate to the interest rates assumed a month ago, particularly if we're looking at a situation in which our projections of real interest rates are continuing to get higher and higher and higher?",77
-fomc-corpus,1981,"Well, we have the expert here, Mike Prell. Our interest rate assumptions are for relatively little change from the current rates but Mike can elaborate on that.",32
-fomc-corpus,1981,"Well, there isn't really much more to be said than that. We have essentially the same interest rate assumptions in our forecast as we did the last time. In essence, for the current year we had some offsetting developments of greater weakness in the second quarter than we thought, which lowered GNP for the year in our forecast, and a lower money stock for this year in light of the Committee's decision to shoot for the lower end of the M-1B range. And those effects were largely offsetting. We do have on the long-term side some small decline but nothing very meaningful in terms of real interest rates.",125
-fomc-corpus,1981,"I should add, Governor Gramley, that this again assumes that the Committee wouldn't be rigid in relation to M2. But if the Committee made M2 the predominant target, let's say, we're not certain that we could hit even the low end of the M-1B range. And under that assumption, I think interest rates would be higher in the short run and nominal GNP lower in the long run.",83
-fomc-corpus,1981,Mr. Black.,4
-fomc-corpus,1981,"Mr. Chairman, I think Lyle is getting at the heart of the issue. If we should get some change in inflationary expectations and lower rates, we could see a much lower rate of growth in M2 than we're projecting, although I'm a little fearful that what Chuck suggested might really happen. But it is dependent upon an interest rate assumption that probably will not hold. If we convince the public [unintelligible] that we're really serious, I think some of those rates will come down.",101
-fomc-corpus,1981,Why would lower market rates bring a reduction in M2 growth when it has so many interest-sensitive components?,21
-fomc-corpus,1981,"Well, if the rates were lower, I don't think people would be quite as anxious to go into [M2 deposits]. They would just as soon--",31
-fomc-corpus,1981,They would spend instead of save?,7
-fomc-corpus,1981,"Yes, or they'd hold money. There wouldn't be as much incentive to--",15
-fomc-corpus,1981,I see. There'd be more M1 relative to M2.,14
-fomc-corpus,1981,That's what I was thinking.,6
-fomc-corpus,1981,Mr. Smoot.,5
-fomc-corpus,1981,"Steve, a question: In the directive language, can you define a little more precisely for me what ""around the upper limit"" of the M2 range means? Is 11-1/2 percent M2 growth, for example, consistent--",50
-fomc-corpus,1981,That's a policy decision on M2.,8
-fomc-corpus,1981,I think that's getting a little premature. We'll worry about that when we get to the directive.,19
-fomc-corpus,1981,"Well, let me raise a second question if I could. From the standpoint of looking at the federal funds rate, what do you think the likelihood is under these alternatives of seeing the lower ends of these interest rate ranges--15, 16 percent?",50
-fomc-corpus,1981,"Well, assuming that the economy doesn't just fall on its face, a very low likelihood.",18
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"In a recent update of some of our staff work, we seem to get the results that M-1B is a better predictor of prices and that real M2 is a better predictor of real economic growth. It seems in a way that we have the best of all worlds: undershooting M-1B and overshooting M2. I'm trying to inject some optimism in here. But having said that, I'm really very suspicious of those results. Number one, I would associate myself with Chuck's comments in that I think we went a step too far last time in making M2 a constraint on M-1B, and I would like to revert to at least the equal weighting that we used to use. I'd also like to ask Steve if the time may be close at hand when we should be going back to the drawing board trying to put some flesh on the skeleton that you mentioned on the point that we really ought to be aiming at a transactions account. I couldn't agree with that more. In principle, that's clearly what we ought to do. Has enough time elapsed in your opinion, Steve, to be thinking about redefining the content of these aggregates, as awful as that proposal may sound?",241
-fomc-corpus,1981,"Without going into any detail, President Balles, I think developments in the institutional structure of the depository system in the country are such as to make that almost impossible at the moment. I don't want to sound pessimistic, but it's almost impossible because we don't have a way of separating out transactions accounts from other accounts. For example, if we forbade anything to be issued anywhere that was under 14 days in maturity, then we might begin to separate out transactions accounts from other accounts. If it was under 14 days, it would be a demand deposit and have a reserve requirement--to give an extreme example of how we could make a separation. But the way things are going now, it's very difficult to make the separation. We don't even have reserve requirements on money market funds transactions use; that would give us some automatic separation. But now if money starts flowing out of money market funds, I wouldn't be tempted to think that was demand deposits flowing out; I would be more tempted to think it was investment money going out. But I wouldn't know. So, we just don't have any basis for doing that.",224
-fomc-corpus,1981,"Well, if the Chairman's suggestions on how to treat money market funds were adopted, would that at least help alleviate the problems of--?",28
-fomc-corpus,1981,"If they behave as it seems likely they would; that is, if they separate accounts that are primarily transactions and subject to reserve requirements from those that are primarily investment and are not, then we would have a basis for putting those separated accounts into M1, very clearly. That would be an institutional change that would help.",64
-fomc-corpus,1981,"Mr. Chairman, is there any prospect of that getting adopted?",13
-fomc-corpus,1981,"No, I don't think so. Just to amplify and emphasize Mr. Axilrod's point, we got a proposal for establishing a money market fund which would be marketed by VISA but conducted by all the bank members of VISA, which is about--I don't know if I can remember--6,000 banks or more. They would all be able to run this money market fund, if they wanted to, on an in-and-out, automatic, daily basis. People could hold their demand deposit at zero or any other arbitrary figure; there would be no fluctuation in the demand account and all the ups and downs would go into the money market fund in half, or much more than half, of the banking system.",144
-fomc-corpus,1981,Plus VISA would place the resulting investments back with the originating bank--,13
-fomc-corpus,1981,"No, I guess it would be in M3; it wouldn't even be in M2. It would go right from a transactions account into M3, as presently defined. I can cite you the example of my famous banker in Tennessee whom I happened to be sitting beside at a dinner some months ago--this is a $500 million bank--and he said: ""Do you count repurchase agreements in transactions accounts?"" I said: ""No, but it's a narrow question."" And he said they had only begun this two years ago in his bank but they have quite a few corporate accounts and those corporate accounts are swept every day at noon. If they have a balance over the suggested amount, the excess is put into an RP overnight. In two years the RPs were up to 30 percent of their demand deposits. This was some months ago; the figure is undoubtedly bigger now.",178
-fomc-corpus,1981,"Even though it's very crude, suppose, based on a sample survey, we were to make an estimate periodically of the percentage of money market funds that really represents transactions balances. And we'd do it for all these other new instruments. Even though it obviously would be only a rough estimate, adding that by either folding it into M-1B or putting it out as a separate line--",76
-fomc-corpus,1981,"We made an estimate of this sort for money market funds, not on a short-term basis, but looking at the whole first half of the year. We made some arbitrary assumptions--well, not entirely arbitrary, but based upon whatever evidence there was from surveys, etcetera--as to how much of that could be said to be used straightforwardly as transactions accounts, meaning that checks were written on them. And the velocity assumptions were such as to make them, say, comparable to a NOW account. Then we tried to make some calculation of how much that affected M-1B and we got 0.9. I forget whether that is an annual rate or the actual--",136
-fomc-corpus,1981,An annual rate for the first half of the year.,11
-fomc-corpus,1981,"But that made no allowance at all for the degree to which the holding of a money market fund enabled people to economize on a transactions account merely by the fact that they held the money fund and had that reserve available for instantaneous transfer. So, undoubtedly, it's an underestimate in terms of its substitution effect for transactions balances. That was an arbitrary thing which gave us a general order of magnitude perhaps. But we never get at that second kind of influence. What is a transactions balance? I don't know; one can't define it that clearly. But this direct substitution effect is even harder to get at than the direct transfer effect, so to speak. So what do we know? It was enough so that it brought M-1B roughly to the lower end of the target in the first half; that just allowed for the increase in money market funds from December through June or the 6-month period in the first half of the year. I don't know whether it's quarterly or monthly at this point. We can make estimates of that sort, but what confidence do we have in them and what does it tell us in the end? We have a figure that's increasingly an artificial construct to start with, even when we just take the numbers; and then we begin making these adjustments. The adjustment for NOW account transfers is becoming increasingly problematical. I think it was appropriate during the initial stage of big transfers; it gave us a much better feel for what was going on. But after six months these transfers have diminished substantially, and I don't know what it means anymore to make this adjustment because I'm sure we're now getting transfers out of NOW accounts into money market funds or something as well as transfers in.",337
-fomc-corpus,1981,"On that score, Paul, even in the most extreme case--if all our sample surveys were off and it turned out that in practice 100 percent of NOW accounts were coming from demand deposits --the actual M-1B is almost smack in the middle of our range for the shift adjusted M-1B.",63
-fomc-corpus,1981,For the shift adjusted M-1B?.,9
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"That's what our small bankers think is happening. At every one of our board meetings the two small bankers say people are fooling themselves if they think it's coming partly out of savings; it's all out of demand. Of course, that's based on their own experience and nothing else.",55
-fomc-corpus,1981,"My point is that even if that were true, we're not in bad shape.",16
-fomc-corpus,1981,Governor Teeters.,4
-fomc-corpus,1981,"I just wanted to point out that as I look at the shifts and the money issues, the things that we can control directly are either interest rates or reserves. And we really ought to turn back to looking more directly at reserves and seeing how they stand out for all these new instruments that are developing and not try to get back to actual transactions accounts. That would take a lot of research and a lot of education on our part to find out just what we would want to do in terms of reserves. We're targeting now, hopefully, on M-1B. Because we don't control M2 directly, it doesn't seem to me wise to [target M2]. If we get to control M2, we only do it through M-1B, so to make that our major target simply submerges the decision on M-1B rather than doing it directly. The other thing I wanted to point out to you is--",186
-fomc-corpus,1981,Are you saying we should target total reserves?,9
-fomc-corpus,1981,"I think I'm moving slowly in that direction, frankly, simply because I don't know how to cope with all these other things. That is the one thing that we do have some [control]--",39
-fomc-corpus,1981,"Well, with all respect--I don't want to prolong this discussion--I don't understand the point analytically because the reserves are simply a reflection of currency and M-1B.",36
-fomc-corpus,1981,"I realize that. On the other hand, it also gets us out of having to judge between what we're going to target on. But, with all due respect, may I point out that in February the [long-run] targets for M-1B and M2 were not consistent and they've become even more inconsistent. Relative to the midpoint of M-1B, [the Committee] put the M2 midpoint too low. It's not at all surprising that one is at the bottom and one is at the top. It's just that they are more at the bottom and more at the top than we anticipated they were going to be.",127
-fomc-corpus,1981,Governor Wallich.,4
-fomc-corpus,1981,"Well, I think there is some way of looking at M-1B and trying to find out how much it is misleading us. The adjustments one can make by adding the money market mutual funds in some degree and overnight RPs and Eurodollars are pretty arbitrary, but they give us some guide. But more than that, if we assume that velocity is moving at a reasonable rate with respect to what M-1B really is effectively--that is, after adjustments--by holding velocity on a constant trend, allowing for interest rate changes, then we would find out what M-1B would be if there weren't these shifts; and the rest I think logically should be ascribed to a demand shift. Steve has described that something like this may well be going on. It seems very characteristic that when M2 is very high and M1 very low, there obviously is something happening to one of the two; normally they move closely together. Something could be distorting both, but it does not seem implausible that it's M-1B that is being distorted by a rapid velocity change, a reduction in demand due to the substitution of other assets, and that, therefore, we have to treat M-1B very cautiously. Another check of the same question is to look at interest rates. If interest rates were behaving in a totally outlandish way, one would assume that they were being pulled away by the aggregates. But that doesn't seem to be happening; they're very high, but not all that out of line with projections. So, whatever is distorted about the aggregates is probably a distortion of the aggregates and not a real effect, if I may put it that way. Now, the rates we have evidently are too high for some sectors of the economy and are not very restraining on others. That is what leads me to think that they're not outlandish and may be regarded as about normal for this level of inflation. Lyle makes the point that at falling rates of inflation these same nominal rates are becoming heavier in real terms; and that's certainly true if inflation is coming down. Against that I would look at the expectations seemingly embodied in rising bond yields; the buyers and also the sellers of those bonds don't seem to have much confidence that inflation is coming down, so they're prepared to tie themselves to what seem to be very high real rates, possibly on the expectation of rising inflation. Thank you.",484
-fomc-corpus,1981,"We've had no comments on the business situation, which I would suggest we have to look at a bit in order to resolve these imponderables about which direction we want to go.",36
-fomc-corpus,1981,"Mr. Chairman, we have been sitting around waiting for a recession to happen now for a good many years, and I couldn't help but notice driving down yesterday that Lordstown, which is one of the large GM operations, had probably the fullest parking lot I've seen in the last five or six years in terms of employees' cars.",66
-fomc-corpus,1981,The employees having the new ones?,7
-fomc-corpus,1981,"That's right. This may just be a temporary build-up, which could be shut off quickly when the cars don't sell, but I was interested in the obvious employment there. Secondly, I am surprised in talking with my business friends how few of them appreciate that the corporate tax benefits are effective in 1981, not 1982. They were effective on January 1, 1981 and we may have some realizations on that score that give rise to some activity in the fall. On the other hand, when the realization hits of the size of the deficit inherent in the present tax and spending programs, we may get some reactions the other way based upon the amount of budget cuts that still have to be made, if they are going to be anywhere close to it.",155
-fomc-corpus,1981,"We had no comment on the budgetary deficit in the presentation, as I recall. You might say a word about that, Mr. Zeisel.",30
-fomc-corpus,1981,"The budgetary deficit is not one of all joy. The Administration has moved to adjust upward its estimate of the fiscal '82 budget [deficit] to about $60 billion from what had earlier been $40 plus billion. Our estimate is a deficit of about $88 billion for that period. The major differences are the assumptions, or shall we say conclusions, regarding the state of the economy and its implications for spending and receipts, and we have some higher assumptions for interest rates as well. On an NIA basis, as we move to the second half of '82 calendar year, we really begin to see the effect of the second stage of the tax cut--that is, the 10 percent phase that comes in on July 1 of '82. And we have a deficit that runs about $150 billion on an NIA basis for the second half of '82. That's a very substantial shift in those terms and in high employment terms as well.",192
-fomc-corpus,1981,"You have total borrowings, including the agencies, next year at what: $108 billion or something like that?",23
-fomc-corpus,1981,$106 billion.,4
-fomc-corpus,1981,It's $106 billion. That's fiscal year?,9
-fomc-corpus,1981,That's fiscal year.,4
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"Mr. Chairman, you invited some comments about the economy and I just asked a question earlier. I would like to say a few things about where the economy is going. Basically, the staff has the right handle on the immediate future. I'm not so sure about the longer-term future, but then I really don't see how the kinds of real interest rates we're projecting can be tolerated for that long a period of time. But quite clearly, there is not a recession under way. We have an economy that is quite flat, with a lot of mixed signals coming in from different sectors and a lot of geographical diversity. I see evidence of substantial improvement on the inflation front, a good deal more than I had expected over the course of this past year. I don't think we can say anymore that we don't have any signs of improvement in the underlying rate. We are seeing significant signs of wage moderation. I'm going to reserve judgment until I see the employment cost index for the second quarter before I decide how much, but there is quite clearly improvement under way. And I think expectations about inflation are changing; I just don't think one can look at what has been happening or talk to the business community and say that they aren't changing. I don't get the same impression from talking to businessmen now that I did six months ago. And when you put those--",267
-fomc-corpus,1981,You talk to different businessmen than I do.,9
-fomc-corpus,1981,"Well, that may be. I put this evidence together and I don't come to the conclusion that Governor Wallich does: That because bond rates got high, we shouldn't worry too much about that because that means expectations of inflation are still strong. If expectations of inflation are improving and our operations are keeping short-term rates at historic peaks, then one has to expect that long-term rates will stay there too, until such time as short-term interest rates begin to come down. So I think we ought to be looking more carefully now at what is happening to interest rates than perhaps we have needed to up to this point because the behavior of the money aggregates is becoming increasingly difficult to interpret. And when we have difficulty interpreting the aggregates, I think it's incumbent upon us to see what signals interest rates suggest about the impact of monetary policy on the economy.",167
-fomc-corpus,1981,"How do we do anything about interest rates when credit demands are the way they are? What did you estimate that the Treasury has to [raise] in the fourth quarter, counting sponsored agencies--$41 billion? These credit demands are very disturbing. I don't know how in the world we make--",59
-fomc-corpus,1981,"I bet our staff's estimates of total credit flows for the last half of this year as a proportion of GNP are nowhere near the peaks that we have seen in past years. Isn't that right? These numbers look big because we have a huge deficit in the federal budget. And one of the major reasons, though not the only reason, we have a huge deficit in the federal budget is because the economy has been very sluggish and revenue growth has been slow. I can recall the same sort of argumentation going on in the first part of 1975 when people said it was impossible to bring interest rates down because the federal deficit was so big. The federal deficit is not the only factor that affects the interest rate. It's one of them. But a major reason why interest rates are high is because we have had a monetary policy that has been very, very tight in the context of an economy that has been relatively strong. But it's an economy that is showing a lot more signs of weakness, an economy that is looking--",205
-fomc-corpus,1981,"That's the point, though: Unless the economy slows or the deficit comes down, how do we get the credit demands down? I don't see how there is much--",33
-fomc-corpus,1981,"Well, you work on the supply side; that's the answer.",13
-fomc-corpus,1981,The funds raised by nonfinancial sectors in the third quarter are estimated at 12 percent of GNP. That was 15-1/2 percent in the fourth quarter of last year and it was 18 percent in 1979; it's really quite a low number.,55
-fomc-corpus,1981,It doesn't seem to correlate very well with interest rates.,11
-fomc-corpus,1981,"But, Governor Gramley, would you not agree then that if the Fed were to be seen as pumping out reserves at a rapid rate, it would have a severe expectational impact and would, in fact, put upward pressure on interest rates?",49
-fomc-corpus,1981,"I don't agree with that. What I believe has happened in the past that has led people to that thought is that when we've had very, very large increases in the stock of money, it has primarily come from the demand side. And the markets have reckoned with the fact that they know we are going to lean hard against that and, therefore, that interest rates will begin to move up.",79
-fomc-corpus,1981,"There is one factor in the level of interest rates that we seem to overlook sometimes. At the time we set these targets [for the aggregates], we looked at GNP projections. We first made these decisions in July of 1980. The projections were under [the actual outcome] for the first half of '81 by about $170 billion, of which $50 billion was due to a revision in the numbers. The other $120 billion or thereabouts was the result of a stronger economy in the fall of '80 and early '81. So, the economy is much bigger [than we projected]. And the money supply also has slipped because we used the base drift at the end of 1980 to start from a higher base than we could have anticipated when we set those targets. Nevertheless, the economy has moved well beyond the targets as we thought of them when we set the ranges in July 1980, so that has probably introduced some continuing interest rate pressure. I say that just as a comment on why the rates are so high.",211
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Mr. Chairman, I'll just make a couple of comments on inflation and the business situation. On inflation, I would align myself with Governor Gramley; if anything, I think we have been guilty perhaps of underselling even where we are, much less where we might be. In that regard, I would point to food and energy prices where there is a tendency to pass them off as transitory technical factors; but even in those areas monetary policy and high interest rates have had a bearing and have reinforced the underlying market forces that have been working. So, I do feel better on that score. Looking [ahead] on the inflation situation, I get the clear sense from both my own staff and from some of the people in the District that the food prices, while they will show some acceleration, may not show the kind of acceleration that the staff is suggesting over the balance of the year. Certainly, I can't find anybody who agrees with the latest Agricultural Department estimates of food prices over the balance of the year. So we may have a little more good fortune going our way in that respect than some are suggesting. There is another aspect of the staff's analysis of prices that I just can't reconcile, and that is the data that they are still finding on home prices. Nothing that I run into of an anecdotal nature supports anything like the 8-1/2 or 9 percent increases in home prices that your raw statistics are still pointing to. So there, too, things may be a little better. A couple of other developments have come to my attention. I am beginning to see a lot of scrambling in state and local governments as they begin to assess the implications of this change in budget policy on their problems in the near term, both in terms of taxation and their own spending policies. I would also say that the high technology firms in the Minneapolis area report to me that there has been a very, very sharp increase in defense activity, even over the last month. None of that has yet gotten to the point of contract signing, but there is a tremendous increase in the amount of discussion and negotiation on what seem to them to be major commitments in the defense area. On this deficit question, I would just add that while we can all dance on the head of a pin here as to what it means and what percent it is and all the rest, to me it is a major overhang both in the markets and in the perceptions of business people and consumers in the public at large in terms of what is going to happen to the economy and interest rates over the next 6 to 12 months. Notwithstanding whether the economics and the theory of it are quite right, that clearly is the impression I get, no matter whom I talk to.",551
-fomc-corpus,1981,"Mr. Zeisel, we have gotten some retail trade figures recently and some inventory figures since the GNP figures came out. Do you have assumptions regarding that? When do the new GNP figures come out--next week?",45
-fomc-corpus,1981,"Yes, it should be next week. Well, GNP comes out on the 19th, which is tomorrow. The retail sales figures came out with a 1.3 percent increase, but a very substantial amount of that gain was a rebound in car sales from the very low post-rebate level of activity. The sales rate in any realistic sense is still very weak. It is sufficiently weak to result in producers adjusting down their assembly rates significantly. Excluding automobiles and household repair kinds of expenditures, retail sales were about unchanged in current dollar terms between--",112
-fomc-corpus,1981,The numbers were higher than what the BEA staff thought when they made the [first] GNP estimates. I'm just asking a technical question: Are they likely to revise the GNP number up or down or sideways?,44
-fomc-corpus,1981,"It looks as if there is about a balance as far as the GNP figures are concerned. There were some upward revisions in retail sales, and some downward revisions in housing are likely; in general it appears as though it might well be a wash and end up close to what we have.",58
-fomc-corpus,1981,Mr. Forrestal.,5
-fomc-corpus,1981,"Mr. Chairman, as we look around our District and talk to directors and other business people about business activity, we see a very mixed picture. It's pretty clear that the economy in the Sixth District is softening, as I suppose it is in most other parts of the country, but it's not entirely clear that that is true throughout every sector of economic activity. For example, total employment and retail sales have been fairly buoyant in the very recent past. Nobody I have talked to expects any kind of major recession at all and, in fact, there is some feeling that business activity is going to pick up in the fourth quarter and certainly in the first and second quarters of next year. Part of this reflects a sense of optimism now on the part of business people and bankers as a result of the President's tax cut victories in Congress. On the inflation front, we certainly have made a lot of progress and people do tend to recognize that progress, but I think inflationary psychology and expectations are still very much in the forefront of people's minds. And to a large extent they are taking a wait-and-see attitude toward what the Federal Reserve is going to do. On that score, just looking ahead a little to the policy decision, on the basis of my conversations with people, I think any interpretation by business people and the markets that we are easing either on M-1B or M2 is going to continue to fuel inflationary expectations. I think our credibility is very much on the line at this particular point. One of the things that really troubles people in our area of the country, and I suppose other places too, is the plight of the thrift institutions. There is a good deal of concern, particularly on the part of bankers, that there is going to be a spillover effect if even smaller institutions get into trouble. The S&Ls themselves in the Sixth District are in a little better position, I believe, than those in other parts of the nation. But even so, it's a matter of time; they are looking down the barrel of the rifle, as they put it. So, that is a source of real concern in our area.",431
-fomc-corpus,1981,"We are approaching 11:30 a.m. I have about four people on the list at this point: Governor Partee, Governor Rice, Mr. Winn, and Mr. Balles. Do you have short statements or long statements?",48
-fomc-corpus,1981,I don't have it written down. I don't know how long it will be.,16
-fomc-corpus,1981,"You're next on the list, so you ought to make up your mind right now.",17
-fomc-corpus,1981,"Well, I just wanted to agree with Lyle, in that I don't think there's evidence of a cumulative decline in business now setting in. It's very difficult to tell whether we are in a recession or not because we have had zero growth for ages, and we have it projected for ages to come. Of course, that is made up of stronger sectors and weaker sectors; if you happen to be in a weaker sector you surely think there's a recession. But the fact is that I don't see a cumulative decline taking place, barring a financial catastrophe of the kind Bob Forrestal mentioned. That is, assuming we can hold the financial system together, I don't think there's a major recession at hand. The big thing is this fiscal change, which I just want to emphasize again. There's a tremendous amount of fiscal stimulus in prospect; it starts right now and grows and grows and grows over time. And people will come to recognize that, as Willis says, and will take it into account in their spending plans. So, what we get is a difference in the fiscal/monetary policy mix, as we used to refer to it, which is quite a bit wider than anything I can recall. I think it means that the areas that are affected by monetary policy are going to be in a permanent depression and the areas that benefit by tax cuts--and they are a little harder to tell than just the specific spending things--will be supported by that. But I think the staff's view of about a zero rate of gain in real activity for some considerable while in the future is a pretty good basis for the Committee to operate on in deciding its policy.",330
-fomc-corpus,1981,I think we better quit for a short coffee break.,11
-fomc-corpus,1981,Governor Rice.,3
-fomc-corpus,1981,"Mr. Chairman, most of what I'd planned to say has already been said, so I can be very brief. I agree with earlier comments that the staff's projection seems to be the most probable outcome. The only area where I could imagine some possible deviation is in the consumer spending projection. It seems to me possible that, based on expectational and improved confidence factors, there could be higher growth in consumer spending than is forecast. Despite the recent data on employment, retail sales, and industrial production, it appears that there is still considerable slack in the economy, even sluggishness. At the same time, as has already been pointed out, there is no evidence of any marked tendency toward deterioration or further weakening or of cumulative weakness. With the unemployment rate stable at the present time and perhaps even declining most recently and with inflation easing as it certainly appears to be, the economy would seem to be behaving pretty much as I think one would like. The trick seems to be how to keep it behaving this way. And in my judgment we wouldn't keep it behaving this way by further restraining growth in the aggregates, nor would we keep it behaving this way if we try to force interest rates down. Now, that doesn't mean that I would not like to see interest rates come down; I would. But I don't think they should come down as a result of changing our short-run or even longer-run monetary objectives. Rather, I would prefer to see them come down as a result of developments in the economy. I think the best chance of keeping things delicately balanced, as I believe it was described, is to stay with the monetary objectives we've stated in the targets and try to maintain Federal Reserve credibility to the extent possible. Obviously, at the present time we don't think we can keep both M1 and M2 within our target ranges. I would favor, at this time at least, giving at least equal weight to M-1B [and M2] and not having M2 as a constraint. If we tried to constrain the growth of M2, that would further restrict our monetary growth objectives and would of course run the risk of significantly higher interest rates--higher interest rates that we do not need at the present time. So, I would for the moment try to stick with the objectives that we adopted at the last meeting. I would not restrict them further. That has the effect of pushing M-1B closer to the lower bounds of the target range.",493
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"Just one comment, Mr. Chairman: I'm not sure I understand completely the economic implications of the redistribution of the retail sales figures, in which the upper end of the price range is the big factor in supporting sales and the lower end is having a real struggle. When you add on to that the implications of the tax bill, I think we're seeing a rather widespread shift in the distribution of income and I'm not sure I understand all the economic implications of that.",91
-fomc-corpus,1981,"Well, with that confession of ignorance--widely shared, I'm sure--we'll go to Mr. Balles.",24
-fomc-corpus,1981,"You asked for some comments on business conditions. Just to give you a thumbnail sketch as far as the West Coast is concerned--Governor Gramley really put his finger on it a little while ago for the whole country--we have big geographical differences and big industry differences. I would underscore that by saying that the crosscurrents that exist on the West Coast are just about as strong as I have ever seen. Our lumber and forest products concerns are in very poor shape, obviously, and they are just screaming for some kind of relief. The auto industry, of course, is in very bad shape as it is around the rest of the country. In pretty good shape are companies that are active in defense work, energy companies, and commercial construction in some of our bigger cities. Electronics firms are going strong and the aerospace business is in stable condition right now, neither going uphill nor downhill. In California, agriculture, the biggest single industry--about a $14 billion industry--is under an extremely serious threat from the Mediterranean fruit fly. It has us all pretty darn concerned, with the recent action of Japan, for example, of putting an embargo on our exports of fruits and vegetables. California supplies about half of all the fruits and vegetables in the country. The rest of you might find prices going up a little if we don't get this problem under control. It's a very serious problem. I don't know if it's going to get licked or not.",288
-fomc-corpus,1981,Mr. Keehn.,5
-fomc-corpus,1981,"To add a very negative note, but certainly one you've heard with some consistency from the Middle West, our basic industries continue to be very, very hard hit and are really deteriorating further. I'll just comment on a few. On the automotive side, which we've talked about at some length, I think any improvement that has occurred in auto sales really is a result of rebates. I'm told that the rebate structures that now exist and will be put in place in the near future cannot be afforded by the industry but they simply have to use them. On the capital goods side, machine tools are very, very soft; farm equipment is down again, of course; construction equipment is grim and I'm told that among some of the smaller companies in that industry bankruptcies are coming because enough has taken place that nothing can really turn them [around]. Railroad equipment [manufacturing] isn't just slow, it has all but stopped. It's an industry that is in really deep trouble. On the agricultural side, though production is up, which ought to bode well for prices, interest rates are having a negative impact on the cost of carry for that industry as well. Net, with regard to the Middle West, there's a growing fragility, if you will, in the system. At some point I think we are going to see some bankruptcies erupt across some of the industries that are the most troubled, and the fabric will be torn in such a way that it's very possible we will not get the kind of recovery that we need for good sustained growth. So, the word from the Middle West is really one of a very somber outlook.",324
-fomc-corpus,1981,What's the story on International Harvester right now?,10
-fomc-corpus,1981,"If you're asking about the credit, they have not completed the renegotiation of credit. Some banks are giving them a very difficult time on it.",30
-fomc-corpus,1981,"If things are so bad in the Middle West, why haven't they fired more people?",17
-fomc-corpus,1981,"Well, employment is down.",6
-fomc-corpus,1981,Is it down substantially?,5
-fomc-corpus,1981,"It's down 4 percent as compared to '79, and that would be substantially lower than the rest of the country.",24
-fomc-corpus,1981,"Do you see declining house prices in California, John?",11
-fomc-corpus,1981,Not absolute declines; we see a severe tapering off of the rate of increase.,17
-fomc-corpus,1981,How about Chicago? Do you see house price declines in Chicago?,13
-fomc-corpus,1981,"I can give you an anecdote: I just bought a house and there has been no decline in the prices! Seriously, I think the rate of increase is clearly being tempered. Sales of houses, particularly in the middle price sector, are very, very slow and the prices are beginning to come down.",61
-fomc-corpus,1981,What kind of financing is going on?,8
-fomc-corpus,1981,17 percent plus 3 points.,7
-fomc-corpus,1981,"In California we had that court decision called Wellenkemp which precluded the enforcement of due-on-sale contracts. There is a lot of creative financing going on; it's the only thing that's keeping things alive at all--[that and] the assumption of old, low rate mortgages.",57
-fomc-corpus,1981,Mr. Black.,4
-fomc-corpus,1981,"Mr. Chairman, I've been a little puzzled by these various statistics showing more strength than I [anticipated]. It seems to me that both consumer and business pessimism is at a fairly high level right now. I know it was particularly marked at our directors meeting this last time; almost everybody there was pessimistic for some reason or other. And there was a very somber note in the Redbook this time. Also, the point that Si just made about bankruptcies is part of the tip of the iceberg; there may be some repercussions when some of these begin to appear, as they inevitably have to, with the small business situation and the high rates that people are paying. So, my guess is that the apparent strength in employment and sales in July may be temporary. We've had a pretty sharp deceleration in the aggregates, and real interest rates are pretty darn high, so I would expect the economy to weaken somewhat further in the third quarter. I think the staff's forecast of an essentially flat economy in the third quarter is about the best that we could expect and my guess is that it will be a little weaker than that. But looking at it out a little further, I think we might get a little more rebound than they are projecting, too, particularly if inflation continues to moderate. If this sluggishness in economic activity that I think might happen does materialize, there ought to be some downward pressure on interest rates and that ought to help. And if we can get any significant move toward deregulation, that's a further factor. So, I guess I'm pessimistic in the short run but maybe a little more optimistic in the long run than [the staff].",333
-fomc-corpus,1981,Mr. Boykin.,5
-fomc-corpus,1981,"In the Eleventh District, we continue to enjoy a little stronger economy than other parts of the country. In terms of housing, houses are still selling down our way. Of course, we have people coming in all the time. I've not seen anything that would resemble a price decline. Commercial construction has been very strong, as you know. The interesting thing there is that for the first time I have heard a couple of fairly large developers say they are beginning to wonder if there might be a bit of overbuilding in Houston and Dallas, and I haven't heard that kind of comment at all in the last several years. Automobile sales are not all that strong but they're probably not as weak as in other parts of the country. On the agricultural side, I have been told, particularly in regard to the [feed]lots, that the cattle going in are going to come out at loss situations now. On the big ticket items you talked about on retail sales, that's the business is in; he calls me about once a month and he says nothing is slowing down. Their sales are really still going strong.",220
-fomc-corpus,1981,What does say about commercial construction?,7
-fomc-corpus,1981,"He is one of the ones who is thinking out loud that we may be into an overbuilt situation for a year or two. I don't think it's interfering with what he is doing. He's completing a We have 7 buildings under construction in downtown Dallas that are 40 stories and above. Two more have been announced that are going to be 70 stories each plus about a thousand room hotel along with it. Plaza of the Americas, which you're familiar with, has just announced that they're going to start a new office tower next month.",107
-fomc-corpus,1981,"Well, action in going from is probably significant.",10
-fomc-corpus,1981,"Yes, but then there's another 60-story building being built in Greenway Plaza by a competitor.",20
-fomc-corpus,1981,They're thinking in terms of 60 stories and not 75; that is what I was--,19
-fomc-corpus,1981,"Well, the height is limited by FFA regulations because they are in the flight path. The two 70-story buildings in Dallas are across the street, so they are going to squeeze by.",39
-fomc-corpus,1981,Have you any idea what your in-migration is?,11
-fomc-corpus,1981,"No, Governor, I don't. I'm trying to recall the figure for the new cars hitting the streets of Dallas every day.",25
-fomc-corpus,1981,How many strange new accents do you hear in Dallas?,11
-fomc-corpus,1981,"Well, there are very few people I can talk to anymore who can understand me!",17
-fomc-corpus,1981,"That's a good indicator, I think!",8
-fomc-corpus,1981,"Before this gets out of perspective, I should point out that if you look at the Boston Globe's business page today you'll see that most of the states in New England have a lower unemployment rate than Texas.",41
-fomc-corpus,1981,"We had an aberration for one month in that the statistics showed 6-1/2 percent [unemployment]. We corrected that very, very quickly.",32
-fomc-corpus,1981,"Since we export a large part of our manufactured products, our people are very concerned about the big jump in the value of the dollar, which is hitting new orders very hard. And they'd love to see that free fall that Sam talked about.",48
-fomc-corpus,1981,So would our hotel owners in New York City. Tourism has dropped by about 25 percent; hotel occupancy is way down.,25
-fomc-corpus,1981,"Are you in the Eleventh District, Mr. Czerwinski?",14
-fomc-corpus,1981,"No sir, the Tenth.",7
-fomc-corpus,1981,"I was going to speak to the Tenth District, just having been there.",16
-fomc-corpus,1981,"I'll let you have that privilege, sir.",9
-fomc-corpus,1981,"Having observed Denver, if they are not becoming overbuilt, something is the matter because they certainly are building. I don't know what is going to happen when they complete it all. There are lots of beautiful people in Aspen who seem to have a lot of money to spend and I'm sure that's characteristic of the country.",63
-fomc-corpus,1981,Do you suppose things are ever bad in Aspen?,10
-fomc-corpus,1981,"I don't know. They'd be a little worse if [unintelligible]. If you want to make a real estate investment, you can go to Aspen and get on the muddy side of the mountain and buy a half acre lot for $200,000! Well, I think we'd better get to our policy decision. It isn't any great secret that we're in a difficult period here; we shouldn't have expected otherwise, I guess. The industry differences that have been alluded to seem to continue. I don't know what to make out of the latest figures, but the economy surely doesn't seem to be falling apart, despite the Midwest and some other gloomy reports that there are enormous pressure on some sectors of the economy. Some concern has been expressed here about a tearing of the financial fabric and bankruptcies and all the rest. I think those are very real and legitimate concerns. On the other hand, I guess one has to question whether we can get through this kind of period and deal with inflation without running into at least the threat, and maybe the actuality, of that. That is what we've been struggling with all along, and I suppose past history is that we were never willing to face up to this. We're facing up to it already, more than I think we have for many years, but we're going to remain in this extremely uneasy position for some time. I wish there were some refuge in mechanics, of following one figure or another assiduously and feeling that this was going to solve our problems for us. I have no confidence that we can take such refuge in mechanics against the palpable knowledge that any one of those figures is potentially, and probably actually, distorted. We're in one of those periods for which we get paid--some of us better than others--for making a few judgments about what is going on. And I think those judgments do encompass what is going on in a most general view of the financial world and the business world when we get mixed signals from the more mechanical indicators of policy. We're obviously high on some and low on others. And I don't find any very convincing stories, looking at the past and putting together what we know of the distortions of those figures, that we can make much of a choice between relying on those that are high or those that are low. When we look at the business picture, there is a lot of talk about recession. It's a political fact of life. We're going to get a lot of talk about recession every time the economy deviates below a zero growth pattern for a short period such as a quarter. Then people say, ""Is the next quarter going to be below zero?"" and that makes a recession. We've been on an even trend, as a number of people have pointed out, for several years. If you're on an even trend, half the quarters, roughly, have to be below zero and presumably half above. I'm not sure it's a significant recession if you put together two quarters in a row below zero; I'm not even sure it's entitled to be called a recession if [the deviation below zero] is a very small number. In that context, the business picture isn't very bright, I guess we all agree. On the other hand, the latest data don't suggest, as many people have said and as I just said, that it's falling apart. On the inflation side, I don't fully share--maybe out of natural caution--some of the optimism that has been expressed around the table. It's not that I'm unhappy to see the indications of lower prices. I think prices certainly have been affected, even on those things that tend to be called accidentals such as food and energy prices, by monetary policy. But it seems to me that we're at a stage where monetary policy has squeezed in an obvious way the things that can be squeezed and has helped affect the price numbers. What I'm not at all confident of yet--and I say not confident of yet to express my strongest optimism because I actually feel a little weaker than that--is whether lower price trends and lower price expectations have really been built into behavior. In a way that has to be built into behavior if the favorable price trends are going to continue when interest rates do come down and there's a sense of more monetary availability. I think what has happened so far is a reflection of the intense pressures on financial markets. If they were relaxed--if we waved our hand and relaxed them in the next two months--that favorable price impact on commodity markets, on food, to the extent it has been influenced, oil with a little greater lag, and that kind of thing, would dissipate very rapidly and we'd be back where we started. [Although] we see some glimmerings on the wage side, I think that could be reversed pretty quickly, too, if there were a sense of no restraint on the economy at this point. We have to play the game long enough so that we have a degree of confidence in the price outlook that begins to be inbred in behavior, including wage negotiations; I don't believe we're there yet. But there is a better chance than we have had in a long, long time, I think, that we can get there in the fullness of time. How much time it will take is another matter. As for policy: I don't know how you measure it but in terms of the aggregates, the reserve aggregates in particular, the fact is that, taking into account the very latest money numbers, we've gotten easier again. I think there is some appreciation in the market that we've gotten easier. That will be reinforced by the announcement that comes out at the end of the week as to what our objectives were last time and people see whatever it was--9 percent growth in Ml?",1146
-fomc-corpus,1981,7 percent.,3
-fomc-corpus,1981,"Growth of 7 percent, which is much bigger than what it has been running. I don't know whether that will attract much attention or not. While we've been getting easier in that quantitative sense, interest rates haven't reflected it. I take it they're up again today. I guess there's a lesson in that: That we literally don't know how to affect interest rates these days. We don't know all the things at least in the market that are affecting interest rates. We don't know how that interacts with our policy to get any very reliable change in interest rates, assuming we want that. There certainly is an enormous desire on the part of the country to have lower interest rates at this point. That pressure is building and it's going to build further. I'm sure the Congressmen are getting an earful as they go around the country during their recess--unless they're all at Aspen, and I didn't see any there. And that background is going to become more difficult. Looking at this problem, which is reflected I suppose in the projections of the staff, right or wrong--and not many people have said they can make a better forecast this month, in contrast to last month when everybody seemed to be more optimistic and saw interest rates down--it seems to me that this is not a period we're going to be out of in a hurry, if you take that as a benchmark. The staff is projecting that with policies of anything like what we have the current interest rate structure is going to continue indefinitely without killing the economy in any sense; [in the forecast] the economy stumbles along anyway at a level course, gradually building up if we go out enough quarters. It's not a very happy picture for us to be in, looking ahead. Given that we are in the early stages, if I can put it that way, of any success in the anti-inflationary effort--given that kind of outlook and given the demonstrated apparent resilience of the economy in the face of very high interest rates despite the distortions in the economy and the very different impacts on different sectors--it seems to me that there is still a considerable danger, and maybe an overriding danger, of underkill rather than overkill. [I think that's true] whether one looks at it in short-term economic terms or in terms of the longer-range problem we foresee over the next year, 18 months, or two years, with the fiscal stimulus that's coming along and has been remarked upon here, the big government deficits, and the demonstrated resilience of the economy. It would be lovely to steer those interest rates down if we knew how to steer them, which I don't think we do. But if we did, what are the risks that in a few months we will [witness] another rebound in the economy and Henry Kaufman's [unintelligible] scenario will come true? Then we will be in an even more difficult period, losing time at the very least in the fundamental fight on inflation; and we will [face] a more awkward market and I suppose a [worse] political situation not very many months down the road, with higher interest rates, more concern about financial institutions, bankruptcies, the outlook for the economy, and all the rest. When I add this together [I come out] with a posture that is not overriding but is convenient at the least, and makes some sense at the best. We are in a mid-quarter meeting; we set some objectives after some careful consideration at the beginning of the quarter and I'd say that unless there's a pretty strong reason for changing, let's stay where we are in terms of the directive. Where we are in terms of the directive is not bad. If these recent M1 figures hold up--while they look big in the short run and that has some unfortunate repercussions and shows the other side of our dilemma--it brings us at the moment anyway about on track in terms of the M1 figures that we set forth in the directive last month, taking July and August together. The M2 figure was slightly lower in July than was consistent with the directive. It didn't bring any pressure on us to tighten up. There is a fear and a concern, which is understandable, that the M2 figure will bulge at least in August because of some figures we have for the first week or so in August. And with M1 going up more rapidly, that also tends to support M2. So there is some danger, if danger is the right word, of overshooting in the narrower sense on M2 in August anyway. Part of that, but a fairly small part depending upon how big the overshoot is, can simply be looked at as making up for a slightly low figure in July. So, while we are more uncomfortable on M2, the discomfiture is not yet at least at an acute stage. And I have some question as to whether fine-tuning at a mid-quarter meeting--to do too much tinkering on the basis of short-term expectations about M2--is worth it. In terms of the expectational and imagery question, we have to maintain the policy course. We have not yet had whatever public impact there will be, if any, of the apparent raising of the M1 target, depending upon how one interprets it. It obviously hasn't been raised in the broader sense of the target for the year; indeed, it has been lowered by one interpretation. Regardless of that, I don't know how people will interpret both a higher rate of increase in the directive and a higher rate of increase that seems to be in store for August nor what that's going to do to expectations. But I wouldn't want to press our luck, if indeed we have luck on that score, of not being interpreted as having overtly eased policy by taking another step now that for two months in a row would seem to push in an expansionary direction, when nothing much has happened during this month to suggest that that's appropriate other than that people are sick and tired of high interest rates, which I well understand. But the business news, in fact, in this past month has been better than anything that was expected when we last met. I think almost every business figure has been better than one would have anticipated at that time. So, I would suggest to you that the most prudent course of action at this particular meeting is just to write a directive which continues the wording we had the last time and in effect says the Committee continues to seek what we sought a meeting ago, which is equivalent roughly to alternative A, the more liberal alternative given in the Bluebook.",1319
-fomc-corpus,1981,Are you going to leave the M2 part in it?,12
-fomc-corpus,1981,"[Yes.] At this stage I have not discussed questions of tactics and interpretation in a fine way, regarding just what we would do if one of these figures goes off. We've already had some discussion at this meeting, which the record will make clear, that we are aware that M2 may be distorted by these all saver certificates and the other kind of saver certificates. The difference between the all saver certificate and the small saver certificate is ""SM"" and I think this whole thing is somewhat of a sadomasochistic operation, so maybe that's appropriate.",110
-fomc-corpus,1981,"If we hit the 14 percent increase for M2 for August that the Board and New York staff are projecting, that takes growth up for the year to 9-1/2 percent? Or is it higher?",44
-fomc-corpus,1981,"I don't have in mind a QIV-to-August growth rate, but it would be somewhat above 9 percent. I don't have the exact number.",31
-fomc-corpus,1981,"It might be worth getting that number when we get to tactics, because my sense is that it wouldn't carry us way above these targets and we could talk about generally being around the upper end of the range. But how far it carries us would come to the question of tactics and how September looks and all the rest. The current projection--and I put as little stock in these projections as anybody--shows a much slower growth in September after this bulge in August. If that [were to materialize], the bulge in August wouldn't look all that enormous.",112
-fomc-corpus,1981,"Well, whenever there is some strong growth, I'm told it means that weaker growth will always be projected in the subsequent period as a smoothing of the path. I don't think it means anything at all, but--",42
-fomc-corpus,1981,"It depends, I suppose, how much this early August growth is affected by these small saver certificates. I don't know whether [the staff] projection for August is right. They had a big jump in these small saver certificates; whether that's a one-week phenomenon or whether it will continue--",57
-fomc-corpus,1981,"Anyway, what you are saying I gather is this: That if we got this kind of growth in August and we are running, say, 9-1/2 or 9-3/4 percent on M2, you wouldn't see any need to call for a consultation and a change in the signals. But if M2 started exceeding what--10 percent--you would? What is your thinking here?",83
-fomc-corpus,1981,Alternative A has 10-1/2 percent for M2.,14
-fomc-corpus,1981,That's the growth from June to September.,8
-fomc-corpus,1981,"I'm talking about the long-term target, fourth quarter '81 over fourth quarter '80.",18
-fomc-corpus,1981,But we wouldn't know whether what was happening in August is going to make that much difference in the Q4-over-Q4 increase.,26
-fomc-corpus,1981,"Governor Gramley, we are calculating that if August came out as we are projecting, while it would look strong relative to the path the Committee adopted last time, relative to the longer-run target the growth from, say, Q4 to August--the answer we were working on--would be something like 9.2 percent. It's a tad above 9 percent just because of the longer--",79
-fomc-corpus,1981,But we would presumably be looking at an M-1B that is equally below the lower end of its bound. Your projection for August is what--$424 or $424.5 billion or something like that for shift adjusted M-1B?,50
-fomc-corpus,1981,"Yes, $424 billion.",6
-fomc-corpus,1981,That's still $4.5 billion below the lower end.,12
-fomc-corpus,1981,"Oh yes, it's below the lower end for that.",11
-fomc-corpus,1981,"If M2 crept up above or up to the upper band from Q4 to August, I wouldn't think one would be unduly excited about that.",31
-fomc-corpus,1981,The problem is interpreting that directive. It has an absolute proviso on M2.,17
-fomc-corpus,1981,"Well, that's what I was trying to get from Paul. At what point does he feel that the caveat bites? Is it at 9-1/2, 9-3/4, or 10 percent? It may not be triggered at all. He may not have to face up to it.",64
-fomc-corpus,1981,"Well, I can't give you a precise answer. You have to tell me what is happening in M1 at the same time and what is happening otherwise. It obviously makes us more restrictive than we would otherwise be. It would have some influence if M2 were moving well above its range. If it's moving slightly above--I don't know what the exact--",71
-fomc-corpus,1981,"It says ""provided that growth in M2 remains around the upper limit."" We should have said, I think, ""remains substantially around the upper limit,"" but I don't think we can change it now.",42
-fomc-corpus,1981,"[The Bluebook] is projecting 11-1/2 percent for the next two months under alternative A. The proviso was in terms of the upper limit for the year as a whole, basically. There was a chance that it would have an influence last month. I don't think it did have an influence last month because M2 came in fairly low. If it appears to be coming in high and persisting, it has an influence. That's the purpose of the proviso.",98
-fomc-corpus,1981,And then what would you do--call a conference?,11
-fomc-corpus,1981,I don't think I'd necessarily call a conference. It's in the directive.,14
-fomc-corpus,1981,And if we are wrong about rates--,8
-fomc-corpus,1981,That's the trouble. I think it's an automatic instruction to the Manager. You could intervene and say we better have a conference. But it is an instruction. The Manager is to provide nonborrowed reserves below the path he otherwise would if M2 is at the point where the proviso takes hold.,60
-fomc-corpus,1981,But it also depends on what is causing M2 to be high.,14
-fomc-corpus,1981,Not in the directive.,5
-fomc-corpus,1981,That's why I think it would be better to talk about why M2 is high rather than to automatically--,21
-fomc-corpus,1981,"Well, as I say, I think that requires some interpretation, which we would reflect in the discussion at the least. But there's nothing that's going to affect M2 that we didn't know about last month when we put this [proviso] in the directive.",52
-fomc-corpus,1981,"Except that last month we were looking at a situation in which we thought that nominal interest rates were going to end up somewhat lower than they were at the time of the FOMC meeting. In fact, they've ended up somewhat higher with the exception of the funds rate. That's something, it seems to me, that we ought to take into account in thinking about where we want to be. I agree with your general prescription of what we ought to be aiming for. I don't think we know enough about the trends in the economy to make any significant change from what we wanted a month ago. But what we wanted a month ago was not higher nominal interest rates. And that colors my thinking. It seems to me that we ought to do something like Tony is suggesting and put in a ""significantly"" above the upper limit for M2 to give us a little flexibility there, particularly in light of these developments regarding the small savers and all savers certificates, which are going to have effects on M2 that are awfully hard to predict.",210
-fomc-corpus,1981,"Paul, I would agree totally with your analysis of policy. One thing bothers me, though. It seems to me that what we do and how the world generally perceives what we do may be two totally different things. With the sensitivity of the markets and with the enormous importance of what we want to achieve and how we are trying to [affect] people's expectations, is it conceivable that the directive, which is a pretty formal, cold, delayed statement of what we do, could be supplemented with a more foreceful explanation of what we are doing? Do these times call for something like that rather than relying to the extent we do on the directive? In the early segment of your remarks a little while ago, you said, for example, that the policy record that is going to come out at the end of this week might be interpreted as some easing in policy. Now, it seems to me that if we stick by our annual target, which we are doing, that nobody who knows or who receives an explanation of what we're doing could imply that the Fed has all of a sudden eased in the sense of abandoning its anti-inflationary policy of restraint. Is it possible under these circumstances, where everybody hangs on every little hint or signal of what we are trying to do, to say occasionally in a white paper form the sort of thing you just told us, which in effect says: ""Look the Fed hasn't eased up."" Would that be in order? Are we so tied to the tradition of a central bank sending signals in a rather obscure way through directives that that's the best we can do in communicating?",324
-fomc-corpus,1981,The Chairman is going on the MacNeil Lehrer program tomorrow night. There are some of us around here who hope very strongly that he would be willing to go not only on MacNeil Lehrer tomorrow night but that there will be a couple of other opportunities for him to speak over the next month or two. Those of us who feel that expectations are absolutely critical are trying to push him to do a couple more public appearances.,83
-fomc-corpus,1981,I have a little more modest view of my capabilities.,11
-fomc-corpus,1981,I would hope you wouldn't tell them that we increased nonborrowed reserves at the annual rate of 23 percent!,23
-fomc-corpus,1981,"I think this is the problem Larry: There's nothing we can tell people that is going to convince them because everybody will have different interpretations. I can assert that [we haven't eased] but somebody can come back with a different viewpoint and say that's a lot of baloney. I think it's right in our terms; I'm not saying it's wrong. But somebody will say that he looks at reserves and at nonborrowed reserves--and that's what they do most immediately--and those measures have gone up at an annual rate of 20 percent for two months. Or someone will say: ""I look at the reserve base and the Fed had that under control for a while, but now at the end of August for two months in a row growth in the base has been 9 to 10 percent. So, he's blowing a lot of smoke because those are the indicators I look at and they've eased [because] total reserves are going up by whatever."" There's nothing we can say to convince a person who looks at those indicators that we haven't eased. This is the state of the confusion we have in the markets, even though in my terms it's a misinterpretation. There it is. And they are not going to change their minds because we issue a white paper or anything else.",255
-fomc-corpus,1981,The sustainable monetary policy should have only half the country against you instead of everybody.,16
-fomc-corpus,1981,"I hope that the gentleman sitting at your left, Governor Schultz, will convince you to get on; I think you undersell the impact of your ability.",31
-fomc-corpus,1981,"I'm not saying I'm not going to get on. All I am saying is that I don't think that's going to solve in any complete sense the kind of problem that you suggest. We are stuck with it in this peculiar period, when so many people operate on different theories and they are all uncertain. There is no action to be taken that everybody is going to interpret the same way.",76
-fomc-corpus,1981,"Mr. Chairman, I agree with that substantially. But the directive will be released on Friday and I would like us to authorize you to explain that 7 percent when you go on MacNeil Lehrer --to point out that the 7 percent on the face of it looks higher, but it would only take us to the low point of the range.",70
-fomc-corpus,1981,It doesn't get us to the low point of the range.,12
-fomc-corpus,1981,"Well, it does, but by the end of the year.",13
-fomc-corpus,1981,But it did from last month. Now we've got to have 8-1/2 percent.,20
-fomc-corpus,1981,It is consistent with getting to the low point by the end of the year.,16
-fomc-corpus,1981,By the end of the year.,7
-fomc-corpus,1981,By the end of the year. That's all I meant.,12
-fomc-corpus,1981,"Let me remind you that the directive has a bracketed phrase, which says ""resulting in a quarterly average of less than 2 percent"" or something like that. So, it's already there.",40
-fomc-corpus,1981,"That's right. But the 7 percent is what they are going to look at, Chuck. And if the Chairman can say the 7 percent is not a ridiculous number--and in fact I would have preferred it to be higher than that myself and I'm usually quite tight--",55
-fomc-corpus,1981,The markets surely are going to remember the decision to aim toward the lower end of the range for '81 and to revise down the figure and establish a target for '82 which was still lower. It occurred at the same meeting.,46
-fomc-corpus,1981,"You know, the really sophisticated people won't have this interpretation. But I would suggest that there is nothing much we can do. I am very sensitive to the fact that last July I pronounced in all splendor that M1 was low, we weren't uncomfortable about it being low, and we weren't going to force it up. And I think that's true; we did not in those terms ""force it up."" But the market remembers that we had a couple of months of big increases and a lot of momentum and we ended up slightly overshooting the target. A lot of people will go look at that; I hope it's not the predominant view, but I just can't project it.",135
-fomc-corpus,1981,But don't forget rates dropped very sharply before that happened. Rates haven't dropped this year.,17
-fomc-corpus,1981,"Rates did not drop. They dropped before. At the time I made that statement they were at the bottom, as it turned out, and we had the great overshoot while rates were rising very rapidly.",41
-fomc-corpus,1981,From a relatively low base.,6
-fomc-corpus,1981,I'm not saying that it's going to repeat itself. All I am saying is that there are a lot of skeptics in the market who are going to say that it's going to repeat itself.,38
-fomc-corpus,1981,"Well, I think there's some reason for thinking that because if the growth acquires any momentum, it will take more effort to break that momentum. If we now have 8 percent growth, let's say, for a month or two in order to get that down, interest rates will have to go up. So, I think we have a choice possibly of being a little tighter now or being a little less tight later on.",85
-fomc-corpus,1981,"I don't think this makes a lot of difference, frankly, on what we talked about--the most you could assume is that those of us who are more sensitive to interest rates might like to see them a point or a point and a half lower--because one can't have an impression that the Federal Reserve is sharply easing monetary policy. I don't think the real crunch is coming now. The real crunch is going to be next year when, basically, I think we are going to be blown out of the water. Unless we can show an inflation rate decline to 5 percent, when the Administration is disappointed in all of its projections and we have a stagnant economy and the supply-siders are beginning to turn against us and everybody else is turning against us, it's quite clear that people will not understand why we are still continuing with such a high level of interest rates. And it's going to be very hard to explain unless we can show an inflation rate of 5 to 6 percent and say ""Yes, we have a stagnant economy but look at what we achieved, and we achieved it in the face of huge budgetary deficits."" Aside from that kind of defense, I don't think we will be able to sustain this kind of monetary policy next year. I don't think we are at the crunch yet, and I think it's a very minor decision whether we do--. If we really want to get interest rates down a point to a point and a half, we have to put in an initial borrowing assumption of about $1.2 billion or maybe even a fraction lower. If we put it at $1.4 billion, then I think we will have to add--and we probably wouldn't want to add--a 1 percent cut in the discount surcharge in order to get it down there. But then we would be giving a policy signal. We wouldn't appear to be following the market. So, I don't have any problem in a certain sense with Paul's taking such a hard line as he is, but I just don't think this [policy stance] is going to be sustainable well into next year if we continue running such a stable, stagnant economy with certain sectors getting into a crisis situation.",437
-fomc-corpus,1981,"If you're worried about next year, and there's a certain legitimacy in that, surely your best defense is not to be easy prematurely this year. There will be some tradeoff between lower interest rates now and lower interest rates then. I don't consider my line a particularly hard one. It seems to me it's on the upper crust of the choices given us. But whatever that interpretation is, my general point is: What has happened between last month and now, except better employment figures, better retail sales figures, and less concern about an immediate deterioration in the economy that induces us to change the directive in a way that will be interpreted as an easier mode?",129
-fomc-corpus,1981,A one percentage point increase in interest rates.,9
-fomc-corpus,1981,Higher interest rates.,4
-fomc-corpus,1981,"I think the difference is this. This is the same point that Lyle has made, that Emmett has made, and that Chuck has made, I think. We assumed last month when we set these targets that short-term interest rates would ease--very, very slightly, but somewhat. Instead, short-term interest rates are higher even though the fed funds rate has erratically come down. But even that is not down now; it has been running over 20 percent in the last couple of days, although the average is about 18-1/4 percent. So, basically, we miscalculated the interest rate effect of the targets we set last time. Now, I don't think we can set a target [that differs from] 7 percent, but we could--if we wanted to see some slight easing of interest rates--set an initial borrowing of about $1.2 billion.",181
-fomc-corpus,1981,You are assuming that the object of policy somehow is to try to manipulate the short-term interest rate.,20
-fomc-corpus,1981,I keep one eye on it.,7
-fomc-corpus,1981,It's a traditional New York view; I agree with it.,12
-fomc-corpus,1981,"I don't object to keeping one eye on it, but it's a pretty old bird.",17
-fomc-corpus,1981,"My concern is not so much that we adopt something by way of a directive that will assure a drop in interest rates. What I would like to see adopted is a directive that makes sure that we don't have a rocketing upward of interest rates just because M2 is above the upper end of the range. If your concern is that you don't want to change the wording of the directive now because of the signals that may send, that I can understand. If we can just have an understanding among ourselves that we will tighten if M2 is significantly above its range--if that's in our minds--then, fine. I would be very reluctant to see a marked further increase in interest rates just because we have one month of big money supply numbers. This is a projection. You've said that many, many times yourself. As yet we only have one week's data for August; we have some partial data for the second week. We don't really know what is going to happen. We may have a sudden reversal. And I just don't think we ought to jump to hasty conclusions about the need for tightening just because an M2 number happens to go above the upper end of the range.",235
-fomc-corpus,1981,"I don't think anybody is jumping to hasty conclusions, from anything I know now.",17
-fomc-corpus,1981,The wording has been changed to that effect.,9
-fomc-corpus,1981,"I know. We're operating on a directive that now produces borrowings of $1.4 billion and produces an increase in reserves in August of what, Mr. Axilrod?",36
-fomc-corpus,1981,"That's a projection, but total reserves in August could grow at around 10 percent and nonborrowed reserves could grow at around 18 percent or something like that.",33
-fomc-corpus,1981,"I don't see anything now that suggests we should change that technical path that we are now on, which implies at the moment $1.4 billion of borrowing.",32
-fomc-corpus,1981,"It's not quite $1.4 billion, is it, Steve? What is the target, $1.37 billion? I understand that's pretty close.",31
-fomc-corpus,1981,"That's this week, and for the three-week average we have about $1.285 billion or so.",21
-fomc-corpus,1981,That's 1-1/2 basis points!,10
-fomc-corpus,1981,Mr. Morris.,4
-fomc-corpus,1981,"Mr. Chairman, I think you are right: We ought to keep the same directive for the reasons you suggested. On this issue of M-1B and M2 and their divergent behavior, I think there's nothing in economic theory that suggests to us which one of these we ought to be pursuing. Therefore, not having a theory, we are thrown back on common sense and I am beginning to think common sense suggests that we shouldn't be trying to control either one of those. But that's a subject for the future, it seems to me. If we are going to be governed by common sense, we ought to start looking at the state of the economy and the state of real interest rates. And it's clear that the economy is flattening and that real interest rates, if we knew how to measure them, are at the highest level since the 1920s.",173
-fomc-corpus,1981,That's not true.,4
-fomc-corpus,1981,That's not true?,4
-fomc-corpus,1981,"[No,] having made a little study of it recently--",13
-fomc-corpus,1981,When were they higher?,5
-fomc-corpus,1981,"First of all, heaven knows what real interest rates are. After taxes, they're half what they appear to be. And if you cut them in half, they're not even up to the inflation rate. Now that [assessment] is legitimate for some people and it's not legitimate for other people. But it's a very mixed up picture.",66
-fomc-corpus,1981,After taxes they are more than they were a month ago because the tax bill reduced the tax rate.,20
-fomc-corpus,1981,"That is fair. I think this tax reduction will have some impact on this. Somebody put together for me the existing studies on real interest rates. And the one that was most impressive--it went back to 1791 and covered just the United States because the picture is very erratic if you look abroad--shows no consistency of real interest rates at all. And I thought the concluding comment from this study was rather interesting. It said, in effect: ""If there is a law of economics that the real interest rate must be maintained at a positive 2 or 3 percent or something like that, it is a law that Moses must have brought down from Mt. Sinai about 1950 and retreated back up on Mt. Sinai a few years ago"" because there is no evidence for it at all before 1950. The rate goes all over the place. Forgetting about the tax issues--and that makes a big difference because we never had these kinds of income taxes earlier in history--there are quite a few periods, which look short on a long-term chart but were periods of a year or two, of high interest rates that were [at current levels or higher]. What is unusual about this period, and quite unusual, is that those periods of high real interest rates in the past typically accompanied a period of declining prices. We had enormously high real interest rates from 1929 to 1933 and in similar periods of recession. You can't find, I think, without examining these charts more carefully, any time when real interest rates, forgetting about taxes, were so high during a period of inflation. Typically, the opposite happened: Real interest rates became negative during inflationary periods as was true in the '70s up until fairly recently. It's all consistent with an explanation of what we've had, maybe for the first time in history during peacetime, which is an expectation of a continuing peacetime inflation. That was never built into expectations before. Before when we've had inflation--including in the postwar period--people thought that prices would subside, so real interest rates went negative during inflationary periods, as they began to do in the '70s. But we've had a heck of a difference in the interest rate structure since '79, in those terms, which one can interpret as the American people giving up on the idea that we were ever going to return to price stability. I don't think we get a lot of wisdom from looking at real interest rates, even though I don't object to the theory that there ought to be some tendency to go toward a low real positive rate.",524
-fomc-corpus,1981,"Well, if you look at nominal rates, I would have the same conclusion, because we have a flat economy and we have nominal interest rates at historic highs. It seems to me that alternative B would suggest a deliberate policy of needing still higher interest rates, which to me is a policy that is pretty hard to sustain at the present time. So, I think alternative A with the same directive, which you are proposing, is correct.",87
-fomc-corpus,1981,But can we talk about the initial borrowing assumption?,10
-fomc-corpus,1981,"Mr. Chairman, I would like to [correct my earlier comment]. Borrowing is not $1.370 billion; it is $1.409 billion this week.",34
-fomc-corpus,1981,That's for this week?,5
-fomc-corpus,1981,That changes the whole situation!,6
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"I, too, am fairly comfortable with ""A,"" but I may look at this a bit differently than [implied by] a lot of the comments that have been made so far. I do think that M-1B growth in a real sense is artificially low and that the equivalent of what it should be is probably growth at a rate of more than the 0.9 percentage point measured rate that we can attribute to the direct effect of money market shares. I also still think that in some sense interest rates are either artificially high or technically poised to come down, partly because of the view that I happen to take regarding what that surcharge rate is doing to behavior. So to me it is still conceivable that we could get some give, particularly in short-term interest rates, under either of the scenarios that are being talked about here, particularly if we could find a time slot within which that surcharge rate could be changed. But that's not easy to do.",192
-fomc-corpus,1981,I thought everybody wanted a penalty discount rate.,9
-fomc-corpus,1981,"At the surcharge rate, which now could be lower.",11
-fomc-corpus,1981,Not put it at a penalty?,7
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,"What do you mean by ""everybody""?",9
-fomc-corpus,1981,That was a generalization.,6
-fomc-corpus,1981,"The other thing is that there is some upside danger here in terms of these money growth rates. We're looking at two months where we'll have pretty steep growth with a clear need later for such growth to come back down. That's where this tradeoff between interest rates and the problems we have now has to be viewed in the context of similar problems later on. So, while I think you are right in suggesting that we would be ill advised in the current circumstances to change the directive, I for one am sensitive to the potential for an overshoot now in terms of money growth and other things. And, as I suggested, I think we may at least in the short run be able to have the best of both worlds. If we can, I wouldn't mind that at all.",154
-fomc-corpus,1981,What's the best of both worlds?,7
-fomc-corpus,1981,The best of all worlds in the short run would be to get some give in short-term interest rates while having money growth rates that are perhaps not as steep as those associated with alternative A.,38
-fomc-corpus,1981,"Well, I don't know what is going to happen to M1. I don't think it's inconceivable, looking at the July pattern which is the most recent we have, that we could get a decline in the second half of August that would bring M1 below the growth pattern implied here and would be consistent, then, with some easing in the borrowing level. But I don't know whether that's going to happen.",83
-fomc-corpus,1981,Neither do I.,4
-fomc-corpus,1981,For M-1B we only have the first part of August. What is given for the whole quarter is--,23
-fomc-corpus,1981,"And we know that that has some funny money in it from this merger business, which should be out by the following week, I guess.",28
-fomc-corpus,1981,But it might be into M2 by that time.,11
-fomc-corpus,1981,"When it does, they're [unintelligible].",11
-fomc-corpus,1981,To some extent.,4
-fomc-corpus,1981,[Unintelligible.],6
-fomc-corpus,1981,Back to Europe.,4
-fomc-corpus,1981,I don't know if there'd be much in M2; there'd be [some] in M3 at least. What would be in M2?,31
-fomc-corpus,1981,They might park it temporarily in money market mutual funds.,11
-fomc-corpus,1981,I don't think Dupont--,6
-fomc-corpus,1981,"But we can't identify the money that the stockholders got. We're identifying the money that Dupont and Seagrams were keeping for making payments. When that disappears, it ought to go into M3 or other type assets.",44
-fomc-corpus,1981,Stockholders' money could go into M2.,10
-fomc-corpus,1981,"Yes, I thought that's what you were talking about. You're talking about the other side of the transaction.",21
-fomc-corpus,1981,"Well, I think that is another caveat on the M2 numbers, if we had some sense that this merger was affecting it. It's swelling up both sides of the balance sheet and I would suggest some caution on M2. I think all of these concerns ought to be reflected in the record somewhere.",61
-fomc-corpus,1981,"Well, there's a lull in the conversation, and it's a good time for me to comment. I continue to think that we must not lose sight of what we're trying to do long term. We just have to get inflation down this time. If we don't, I'm afraid that we will have an awful period ahead of us lasting a great many years. We're making some real progress. I get concerned, as Tony does, about getting blown out of the water next year. I get concerned about it maybe even from a little different point of view. I get concerned that if this economy continues to hold up and doesn't break--and it's remarkably resilient--and if the Administration doesn't do something to stretch out defense expenditures or hold down spending in some way or find some way to cut the budget further, these interest rates are going to stay very high. Next year is an election year, and I think we could easily get blown out of the water because I think the Administration could well come under enough pressure at some point early next year either to go for credit controls or to cut and run on supporting a firm monetary policy. So, I think we have a tough, tough period to go through here. What we're trying to do is to walk a rather fine line. It strikes me that we do have some restraint on the economy at this point in time. These interest rates do seem to be high enough to bite, but they don't seem to be high enough to bite as badly as everybody thinks they ought to. I continue to be amazed at how well small businesses are holding up, at how well they continue to be able to be viable entities. They're learning how to price; everybody is learning how to adapt. I would not like to see further restraint on the economy, but I certainly would be afraid to start letting up. I don't know about the rest of you, but I look at those retail sales and I hear my wife talk, and we haven't changed any consumer's ideas about [inflation]; they all still talk the same way. They say: ""I better buy it now because it's going to cost more next year."" We haven't changed many of those perceptions in the marketplace. All those market participants are still [behaving] the same way. They've been burned and burned; it took us 15 years to change their expectations and we aren't going to change them back very fast. It's going to be a slow process. So, it seems to me that we ought to continue to move on the course we're on. Things might clear up a little after Labor Day. Governor Gramley, as you say, things do tend to get a little clearer in the economy after that time. But they're murky enough right now that I think that we ought to continue with the course we're on.",558
-fomc-corpus,1981,"Let me just remind you of something that I think is true. I don't know what to do about it, but it isn't going to make life any more comfortable. If the expectations that Fred Schultz is talking about do change, it's going to have some impact on the economy. What is holding up house prices? The expectation that house prices are going to rise. What's holding up farm land prices? The expectation that farm land prices are going to rise. What's holding up retail sales? To some extent, I assume it is the assumption that prices are going to be higher next year. If we could snap our fingers and have that perfect world in which nobody expected prices to rise next year, I think the inevitable implication is that house prices would decline, farm land prices would decline, there'd be less construction activity in the short run, and retail sales might take a short-term nose dive. I don't know how to avoid that. That's assuming our policy was a great success in terms of inflation.",198
-fomc-corpus,1981,"That, of course, is a reason for trying to follow a middle course, Paul. I continue to be impressed by the potential for monetary growth to fall below our specified ranges. And I think that could be very harmful, particularly if in the course of this the economy begins to weaken.",58
-fomc-corpus,1981,I'm not sure there is a middle course. That's my concern. I don't think there is. I don't see any way to fine-tune this situation.,31
-fomc-corpus,1981,Scylla and Charybdis have overlapped.,12
-fomc-corpus,1981,Governor Wallich.,4
-fomc-corpus,1981,"Well, I have no desire to raise interest rates at this time. I think they're high enough now.",21
-fomc-corpus,1981,"Certainly, we've achieved something!",6
-fomc-corpus,1981,"I'd like to qualify that [by adding] ""but barely.""",13
-fomc-corpus,1981,After tax.,3
-fomc-corpus,1981,"They're high enough, but barely, because the economy is bearing up very well under these interest rates. There is one sector that is very badly damaged and it is bearing up poorly. But the rest are curiously unaffected and on the whole the economy is standing up remarkably well. So, I can see no grounds for going down on interest rates. I can see the danger of a great boom as these tax cuts take hold later in '82, and I think we'd be a lot better off if before then the economy had been slow rather than beginning to move, because it will get enough or more than enough movement out of that tax stimulation. So, keeping [economic growth] at zero seems to me about right. One can't positively look for a reduction and feel good about it, but we certainly ought not [foster] any stimulation at this time. We just have to sit with the high interest rates, painful as that is. Now, I am concerned about a repetition, on a small scale, of last year: namely, that we start below the lower end of the M-1B band and shoot through the band. It would be the third time that we've done that. It doesn't seem likely at this time, but it has happened twice before. And that makes me concerned about anything that looks like a rapid growth of M-1B, suspect as that variable is. I'm also concerned, if we imparted to it any degree of momentum, about how we would bring [that pickup] to a halt once growth has gotten more or less back on track. At that time we'd have to have higher interest rates. And that's something we had better avoid. So, I lean toward a low growth rate for M-1B, as described in alternative B. One could mitigate the interest rate consequences of that by being cautious about setting the borrowing requirement. In any case, I think the setting of the borrowing requirement is a much more powerful instrument than the change of the path by 1 percentage point up or down. That would get me to alternative B, possibly rephrased as it is in the second version of the directive [shown in the Bluebook] where the possibility of accelerating M-1B is allowed. I'm really not happy about the acceleration. I just don't want to put too much of a burden on M2 because of the doubts that are attached to it at this time.",483
-fomc-corpus,1981,"I'd like to clarify something with Steve. My understanding of the wording of the M2 constraint in alternative II is that it's completely different than the meaning of the M2 constraint in alternative I. As I read alternative II, it says ""Provided that growth of M2 remains around the upper limit of, or moves within, its range for the year, growth of M-1B at an annual rate somewhat higher than the _ percent specified above would be acceptable..."" In other words, it permits an easier monetary policy on M-1B. It does not say, though, the way alternative I does, which tracks what we did last month, that it's a cap. Is that deliberate?",138
-fomc-corpus,1981,"Well, alternative II was written only to provide an alternative in case the Committee did not want to continue specifying the third-quarter growth rate it adopted at the last meeting for M-1B. That is, if the Committee wanted to adopt a lower rate, this is written so you could have a lower growth rate that is consistent with alternative A, what you adopted last time, but permits it to rise in case M2 happened to come in all right.",91
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,"It's just written to start off with a lower M-1B growth rate, should the Committee wish to do that.",24
-fomc-corpus,1981,I understand that.,4
-fomc-corpus,1981,Mr. Forrestal.,5
-fomc-corpus,1981,"Mr. Chairman, I just want to say very briefly that I wouldn't have any trouble with maintaining the status quo policy. But, as you indicated earlier, I think we've already had some easing in terms of the increases in total reserves and the monetary base. As I look at alternative A, and even alternative B, I think they could be interpreted as being somewhat stimulative, particularly with respect to M2. The concern that I'd like to express is: Will the market interpret an action such as you've indicated as being stimulative with respect to M2 [since there is no provision for] bringing the growth of that aggregate down and thus question the will of the Fed to tackle that particular aggregate?",139
-fomc-corpus,1981,"We'll find out on Friday, I guess, when it is published.",14
-fomc-corpus,1981,"Well, the question is: Would that action excite the market to the extent that interest rates could go up?",22
-fomc-corpus,1981,"I don't know. In answer to that question, I don't feel so confident that it won't [excite the market] that I would want to take another action here that a month from now is going to be interpreted as further easing.",47
-fomc-corpus,1981,What I was coming to is suggesting that perhaps at some point the Committee ought to look at an alternative that would be even more restrictive than alternative B with the purpose of bringing M2 growth down further into the range and not leave it above the range set by the Committee.,54
-fomc-corpus,1981,"Well, we have had a variety of opinions expressed. But I detect, with some prejudice, a willingness to live with last month's directive, though with some concern about how it's going to be implemented. I don't find entirely answerable those questions because [they require] too many assumptions about what is going on. In the immediate sense, [an unchanged directive] doesn't imply anything but staying on the path that we're now on. That involves borrowings of around $1.4 billion, as I understand it, and in the first instance borrowings would be reduced if M-1B comes in weaker than now projected for the month. Presumably, they would tend to go higher if M-1B came in higher than projected for the month. But those judgments would be shaded by what is happening to M2, particularly. If after several weeks M2 appeared to have a lot of momentum and was continuing high into September, we would shade the decisions on the tighter side. And if the reverse happened, we would not.",206
-fomc-corpus,1981,"What is the projection for M-1B for August? Is it the same as in the Bluebook, 11 percent? Is that what we're talking about?",33
-fomc-corpus,1981,"Yes, alternative A is essentially the projection.",9
-fomc-corpus,1981,It is a current projection as well as a target?,11
-fomc-corpus,1981,"Well, that's right. It works out, of course, that alternative A, August to September, is consistent with that 7 percent [for the quarter], so that September growth would have to come down.",42
-fomc-corpus,1981,"Does that mean in alternative I, in the wording that relates to M2 remaining around the upper limit of its range for year, that you're going to take out the words ""or moves within""?",39
-fomc-corpus,1981,"Well, I would not, but we can do that. I wouldn't just because everybody reads these things with an electron microscope and will say: ""Why did they do that?""",35
-fomc-corpus,1981,"Mr. Chairman, I'm with you one hundred percent on this but I wonder if it wouldn't make some sense--this is the point I was trying to develop awhile ago--if we added a sentence in the draft directive right after that sentence at the top of page 12 in the Bluebook that said something like ""In view of the shortfall in M-1B in July, this would imply growth in M-1B at an annual rate of 8-1/2 percent between July and September.""",103
-fomc-corpus,1981,Why do you want to say that?,8
-fomc-corpus,1981,"Well, I think we ought to tell the public more about what we're doing. If they see 8-1/2 percent growth coming in, they're going to interpret that as easing unless they understand that's what it takes to get to the low point of the range by the end of the year. It's the same reason I suggested awhile ago that we ask you to say on the McNeil-Lehrer program that we adopted a 7 percent rate [for the third quarter] but people must not think that that is an easing of policy because all that would do, if it's achieved, is get us to the lower limits of the long-run range we indicated in the testimony in July.",137
-fomc-corpus,1981,We seem to get very little credit for our earlier shortfalls. All the public sees is the rapid rise in that particular month.,26
-fomc-corpus,1981,I think that's partly because we have never said as clearly as we should what this implies month by month.,21
-fomc-corpus,1981,"I respectfully disagree. I can't think of anything worse than starting to use numbers on public television aside from the year-over-year number. If we start talking about intermeeting numbers of 7-1/2 or 8-1/2 percent, or whatever it is, I just don't think people would understand that. I think it's much more convincing if we talk in somewhat more general nonquantitative terms.",82
-fomc-corpus,1981,I think they will understand it a whale of a lot better than if we get 8-1/2 percent growth [over August and September] and we haven't put that in the proper perspective.,40
-fomc-corpus,1981,"Well, we may get 11 percent right here in August. What do we do with that? That will come out before the policy record is [made public].",33
-fomc-corpus,1981,"Unless we've said something about what those numbers are ahead of time, I think we'll scare people to death.",21
-fomc-corpus,1981,"But you're assuming that we're going to get it. Suppose Paul says it's 7 percent or 8-1/2 percent and then we get something completely different, lower or higher?",37
-fomc-corpus,1981,What I'm saying is that I don't want someone to think that in choosing 7 percent last month we made a move toward ease. I don't think we did.,32
-fomc-corpus,1981,"No, I think we tightened.",7
-fomc-corpus,1981,"I think we tightened, too; I would rather it had been above 7 percent. But when the market sees 7 percent, unless we say why it is 7 percent, they are going to oversimplify things and look at that one number. I'm trying to say we should tell them how we look at those numbers so that they'll interpret them right.",73
-fomc-corpus,1981,"I hate to tell you, Mr. Black, but I really don't believe there are very many people out there who understand the difference between these kinds of numbers you're talking about. I would hope the Chairman would not speak in these specific terms but would give, in effect, a broad overview of what is going on.",63
-fomc-corpus,1981,"Well, I don't think we have to worry right now about what I'm going to say on McNeil-Lehrer tomorrow. We have to resolve this directive.",31
-fomc-corpus,1981,"I agree they don't understand, Fred, but that's why I think we ought to be trying to explain it to them. And that's where we differ. I think this will help a sensible person understand it whereas [now] they misunderstand it in every possible way, as the Chairman indicated awhile ago.",59
-fomc-corpus,1981,"Well, let me make a slightly different suggestion. I think we can say something along the lines of what you're saying in the policy record someplace. I don't know that we have to put it in the directive just after it says that it implies 7 percent for the quarter as a whole. That sounds awfully fine-tuned to say it implies 8-1/2 percent for two months out of the quarter. We're probably not going to come anywhere near the figure anyway.",96
-fomc-corpus,1981,"Paul, are you going to stick that number in the first part? No, I guess not; in this version we have 7 percent. Okay.",31
-fomc-corpus,1981,"The problem revolves around the M2 issue and I don't think I can fully resolve it. There should be some discussion in the policy record about the problems, of which we have several. What was the last one? Oh, this takeover thing. We have the takeover, the new institutional thing, and that was all in my statement. Well, the takeover was not, but my statement in July mentioned the other things. And we did not say it was going to make us terribly happy with a big overshoot in M2 only three weeks earlier.",110
-fomc-corpus,1981,"And then in the fourth quarter we have the tax exempt certificates, which could blow this aggregate out of the water.",23
-fomc-corpus,1981,"Well, there is evidence of somewhat more interest in the small savers certificates than had been expected.",20
-fomc-corpus,1981,New technical differences.,4
-fomc-corpus,1981,"Well, I have no problem with reflecting in the policy record that these things may have unexpected results that we can't anticipate and that they would have to be taken into account in judging M2. I would prefer to keep it out of the directive just in the interest of continuity. But if we made any change in the directive, I'd make it in that next artificial sentence, which is put in there routinely, that says shifts in the NOW accounts will distort measured growth. We could say other things will distort measured growth in M1 or M2 and we will take account of those distortions. But I think we could say the same thing in the discussion within the body of the policy record text. That's what I would prefer, just in the interest of not complicating this further.",156
-fomc-corpus,1981,It's okay with me. I think there's a broad agreement with this sort of formulation so long as we have some understanding that the mere fact that M2 is starting above the upper end doesn't lead to an unusual--,42
-fomc-corpus,1981,I am not saying that because M2 is projected high at the moment for August we would do anything but remain on the path that we're now on.,30
-fomc-corpus,1981,So it's not going to automatically trigger any reaction?,10
-fomc-corpus,1981,Not right now.,4
-fomc-corpus,1981,Not right now.,4
-fomc-corpus,1981,"No. Things will change and M1 will be higher or lower or M2 will be higher or lower; and we just have to look at it as time passes. I don't know what other answer I can give you. If the growth in M2 is high but that in M1 is low, it obviously has a different implication than if they are both running high. If M1 is right on the bottom and M2 is beginning to run still higher than we project now and it begins to look [high] in September, then I think it does have some implications.",116
-fomc-corpus,1981,I think that's all we can expect.,8
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"I guess we're ready to vote. I would make one change in the directive. I would say ""In the short run the Committee continues to seek..."" just to emphasize that we're not changing anything.",39
-fomc-corpus,1981,This implies initial borrowing of $1.4 billion?,11
-fomc-corpus,1981,"Or ""In the short run, as decided at the last meeting, the Committee will seek..."" I'd use one of those two.",26
-fomc-corpus,1981,There's no thought here that we would be implicitly tolerant of short-run money growth of a little less than perhaps these 8-1/2 and 11-1/2 percent numbers.,38
-fomc-corpus,1981,"Well, I think it's consistent with what I just said. If we have a significant drop in the second half of August beyond what is anticipated now and the M2 figures are just what we anticipate now, that would have at least a modest effect of reducing the borrowings. If M2 were coming in high at the same time--by high I mean higher than now projected--we'd probably shade that judgment.",83
-fomc-corpus,1981,"I have some predisposition or a mild prejudice in the direction of money growth being a little slower, if it turns out that way, simply because I still think it's in our better long-run interest to have it work that way than the other way. But I am comfortable with the overall formulation.",59
-fomc-corpus,1981,"And consistent with not changing anything, we just repeat the current federal funds range of 15 to 21 percent. Am I right? We're somewhere in the middle of it.",35
-fomc-corpus,1981,"And add this language in the sentence that starts ""It is recognized that shifts...""?",17
-fomc-corpus,1981,"No, I was not going to add that. I'd put that in the text, in the discussion about adopting the same [short-run objectives].",29
-fomc-corpus,1981,"You mean in the policy record, not the directive.",11
-fomc-corpus,1981,"Well, we're getting awfully close to having a cooked directive. It doesn't really mean that [in] the directive. That's a bothersome fact, Paul.",32
-fomc-corpus,1981,"Well, I don't know that I--",8
-fomc-corpus,1981,"Well, if you read the directive it says one thing, but there's some side agreement that we'll do it a different way. I just think that's a very bad procedure.",34
-fomc-corpus,1981,"Well, that's your interpretation, not mine. The directive says ""provided that M2 growth remains around the upper limit."" The current projection, as I understand it, meets [the description] ""around the upper limit.""",44
-fomc-corpus,1981,I ought to correct what I said: The calculations with the hand computer came to 9.4 percent for August.,24
-fomc-corpus,1981,And what's the upper limit?,6
-fomc-corpus,1981,9 percent.,3
-fomc-corpus,1981,But I don't know whether it's 9.3 or 9.4.,16
-fomc-corpus,1981,"It says ""remains around or moves within."" You want to leave that phrase in there. Now, I suggest that 9.4 percent is certainly right on the very border of violating, if it doesn't already violate, the directive.",48
-fomc-corpus,1981,"Oh, I think 9.4 percent is ""around the upper limit."" That 9.4 percent is for August?",26
-fomc-corpus,1981,From Q4 1980 [to August].,10
-fomc-corpus,1981,"And in September on the current projection M2 growth would come down. I think that is around the upper limit. I don't disagree with that, but I don't think it's beyond it; that's all I'm saying.",42
-fomc-corpus,1981,"We're leaving the ""or moves within"" in there, Mr. Chairman?",15
-fomc-corpus,1981,"I'd just leave it in on the basis that it may well move within, though I don't know, by the time we get to September. Why change it?",32
-fomc-corpus,1981,"Yes, if we leave it out, a lot of the Fed watchers are going to think that that's a significant easing. And I don't know--",29
-fomc-corpus,1981,Then they will think we've eased.,7
-fomc-corpus,1981,"But in reality, we're not going to follow this. That's Chuck's point, that it's a violation.",21
-fomc-corpus,1981,"Well, I don't think that's right. Obviously, it's a question of interpretation. But ""around the upper limit"" does not mean the upper limit.",30
-fomc-corpus,1981,"Yes. I'm almost surprised, Chuck, that you say that. If we're talking about something like 9.3, 9.4 percent, isn't that around the upper limit?",37
-fomc-corpus,1981,"Well, I had the impression that one would read the whole phrase, ""moves within or remains around the upper limit."" And I think that gives less tolerance to being above the upper limit than it does being below.",43
-fomc-corpus,1981,"Oh, there's no question about that. I think it gives less tolerance for above than below.",19
-fomc-corpus,1981,It's difficult. There has been over the years a tendency for the Committee to want to have things [in the decision] that we don't say in the directive. I think that needs to be resisted because the directive is our only record of what we've done. We don't have minutes of the meeting that go through all this discussion and--,66
-fomc-corpus,1981,I proposed this on the basis that we're not changing anything from last time. We knew about the special [small] savers certificates and we knew about the all savers certificates. We didn't know maybe quite so much about the takeovers. What we didn't know was that we'd have a bulge in the beginning of August. But presumably that's what we were forewarning ourselves against.,76
-fomc-corpus,1981,"Just to clarify, we didn't know that the all savers certificates would become law.",17
-fomc-corpus,1981,[On] October 1st.,8
-fomc-corpus,1981,I think that is true. We did not know. We were only 99-1/2 percent sure.,23
-fomc-corpus,1981,I just wanted to repeat that position so that you can change it next time.,16
-fomc-corpus,1981,"Well, when we hit the two-year anniversary of October 6th or 8th or whenever--",21
-fomc-corpus,1981,"Actually, the all savers certificate is probably reducing M2 at the moment because the savings banks are all offering RPs in the anticipation of the all savers certificates. Instead of putting money in a money market certificate people are using RPs, which are not in M2 and the money market certificate is.",62
-fomc-corpus,1981,"Well, I know the passbook savings at least are going up.",14
-fomc-corpus,1981,"So, we may be getting an artificially low M2 at the moment.",15
-fomc-corpus,1981,"Mr. Chairman, I'd just like to raise an important technical question. In this material that was passed out called the general paragraphs, in the operational paragraph on page 3 line 57, I hope the language there is a mistake. It says ""provided that growth of M2 remains at the upper limit.""",62
-fomc-corpus,1981,"Yes, that was a mistake. That should say ""about.""",13
-fomc-corpus,1981,"Okay, if it's still ""about,"" then there's some leeway.",14
-fomc-corpus,1981,That was a mistake. It's a transcription error. [The intended wording] should be exactly as it was in the Bluebook.,26
-fomc-corpus,1981,"""Around"" is the right word.",8
-fomc-corpus,1981,"Okay, otherwise we would be taking--",8
-fomc-corpus,1981,I'm just wondering. This part is not the part where we can put in some sentences about the possible artificial factors affecting M2.,26
-fomc-corpus,1981,That might be a good idea.,7
-fomc-corpus,1981,Artificial factors affect M-1B too.,9
-fomc-corpus,1981,"Yes, but that's mentioned. I think it's alluded to, yes.",15
-fomc-corpus,1981,"If we come in at the end of the year within the target range on M-1B, we may not want to stress the artificial factors that much.",32
-fomc-corpus,1981,Then we can say we're really in the middle.,10
-fomc-corpus,1981,"That's right. I agree. I wouldn't suggest to you any more emphasis. This says ""...the shortfall in M-1B growth in the first half of the year partly reflected a shift in public preferences""--that's good Federal Reserve language--""toward other highly liquid assets."" It adds that growth in the broader aggregates has been running somewhat above the upper end of the ranges for 1981, but ""in light of its desire to maintain moderate growth in money over the balance of the year the Committee expected that growth in M-1B for the year would be near the lower end of its range."" Is there any reason why we can't insert a phrase there? We could add ""at the same time, growth in the broader aggregates might be high in their ranges, an expectation reinforced by..."" Or let's put in another sentence. ""It was recognized that changes in the institutional setting might have an effect on M2 and M3 in the second half of the year"" or some such language. Is this language sacred? Do we have to repeat exactly what we had the last time?",218
-fomc-corpus,1981,"Well, it was [sacred] two minutes ago.",13
-fomc-corpus,1981,"No, we're not talking about that part. We're talking about the longer run. It's page 2, around lines numbered 39 to 40. Is that where you are, Paul?",38
-fomc-corpus,1981,"Yes. Well, I'm on line 44. I just don't know if that's a more convenient place to insert it.",24
-fomc-corpus,1981,"Paul, as an alternative to putting it at line 44--",13
-fomc-corpus,1981,"The trouble is that this says what we did last time, which doesn't--",15
-fomc-corpus,1981,"I was going to suggest, Mr. Chairman, that if we want to add an extra sentence that would call attention to artificial distorting factors in M2, we might slip it into the sentence that now begins on line 58. ""It was recognized that shifts in NOW accounts would continue to distort measured growth in M-1B and...""",69
-fomc-corpus,1981,"That's what I was suggesting before, but that gets into the operational part of the directive. It could be put there, but--",26
-fomc-corpus,1981,Just add a phrase there that M2 may be similarly distorted by recent developments in new savings instruments. Insert a phrase that we would then follow an operational reserve path to be developed in light of evaluations of those distortions.,44
-fomc-corpus,1981,"That is the place we can put it if we want to change the operational paragraph. If we don't put it there, I guess the best place to put it, if we put it in the directive at all, is in line 25. That discusses what happened in July. Growth in M2 accelerated; the level wasn't very high. The level of M2 was slightly below the upper end of the range. ""It is recognized that during August and potentially in October the introduction of new certificates may...""",101
-fomc-corpus,1981,"Well, we once had a sentence in there which we took out because it included the early estimates for the week of August 12th. But we could easily say: ""Available data for early August suggest acceleration in growth of M-1B and M2, in the case of M2 reflecting..."" It depends on some of our preliminary estimates, but that would be a reasonable sentence to put in there.",82
-fomc-corpus,1981,I think we can put it in there and then put in the body of the [policy record] discussion again our concern about this factor. Let's assume we will do that and let's vote.,38
-fomc-corpus,1981,"Mr. Chairman, I hate to do this, but I have one other small technical point on line 6, where it says the increase in retail sales reflected some recovery in sales of new cars. It's probably more used cars than new. I would suggest it say ""some recovery in sales at automotive dealers,"" which is more likely to be the case.",71
-fomc-corpus,1981,"I think that will be accepted. Well, with all that, I would propose just sticking in the word ""continues"" on line 52: ""In the short run the Committee continues to seek..."" Are we ready to vote? Vote.",49
-fomc-corpus,1981,"Chairman Volcker Yes Vice Chairman Solomon Yes President Boykin Yes President Corrigan Yes Governor Gramley Yes President Keehn Yes Governor Partee Well, I have to vote against it again since I voted against it the last time and it is exactly the same as it was before.",56
-fomc-corpus,1981,You could have changed your mind.,7
-fomc-corpus,1981,"No, I haven't changed my mind. I think more than I did the last time that it's the wrong thing to do.",25
-fomc-corpus,1981,"Governor Rice Yes Governor Schultz Yes Governor Teeters Yes Governor Wallich Yes President Black Yes Eleven to one, Mr. Chairman.",25
-fomc-corpus,1981,"Okay, thank you. We have some sandwiches out there. Do we have anything else?  The next meeting is October 6th. There's nothing else on the agenda for this meeting.",38
-fomc-corpus,1981,Any comments or questions? Mr. Winn.,9
-fomc-corpus,1981,Just one question: To what extent did the Libyan pull-out [of funds] from this country affect the rate movement?,25
-fomc-corpus,1981,The impact on the rate movement?,7
-fomc-corpus,1981,"Yes. If I understand, there was a big withdrawal of Libyan funds from this country.",19
-fomc-corpus,1981,"There was a large withdrawal--well, not a withdrawal, but a--",15
-fomc-corpus,1981,Transfer.,2
-fomc-corpus,1981,"There was a run-off of securities--Treasury bills and notes that the Libyans held here--of a fairly substantial amount. But I don't think and have not heard that it was an important factor in the exchange rate situation. But as Treasury bills and notes matured, the Libyans have drawn down their holdings.",63
-fomc-corpus,1981,Governor Wallich.,4
-fomc-corpus,1981,Do you find that the closeness of contact and quality of information with European central banks and with the market in general is being maintained at present?,29
-fomc-corpus,1981,"Well, we're certainly doing everything we can to maintain it. It's always a little easier if we're more involved in the operations, I think. But we're trying to do what we can, of course, to keep in close contact and to get all the information we can. There had been some talk by one or two of the lower level people in some of the European central banks that if the United States isn't going to be in the game, so to speak, perhaps we should not participate to the extent we have in the exchange of information. At this point, it has not been anything other than a statement by one or two officials, and I don't see any reason at this point that they would not continue [to exchange information].",146
-fomc-corpus,1981,"Let me just raise one thing informally and I'll ask for your comment, if you have any, tomorrow morning so you can think about it a little. We have had an informal inquiry from one central bank not in the swap network to be placed in the swap network. It is a small country",59
-fomc-corpus,1981,We turned down,3
-fomc-corpus,1981,"They have been given no particular encouragement, but I told them I would raise it for a general reaction, not for a decision. I told them I thought there was a certain reluctance to extend these arrangements, partly because of the inquiries that would trigger from still others. I think it's fair to say, Mr. Truman, that the They are on their own, so to speak. [Participation in the swap network] would be of some assistance to them in their reserve management and, I would suspect--although this weighing is mine and not theirs--even more assistance in terms of their prestige and as a member of the in good standing. Weren't those about all the considerations they raised, Ted? They've raised this from time to time in the past. I will not ask for your comment this minute, but apart from Mr. Corrigan's let you reflect on it for a very brief period [and ask] tomorrow for any comments you want to make.",193
-fomc-corpus,1981,I'll make a bet that it took longer to ask for it than you just outlined it.,18
-fomc-corpus,1981,"Yes. Their numbers are smaller, they are an Article IV country or whatever it is, and they are in the EMS. Article VIII is what we're looking for, isn't it? Article IV is those other guys. So, it depends upon one's attitudes toward this kind of thing. Domestic open market operations, Mr. Sternlight.",66
-fomc-corpus,1981,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1981,How much did the bond market go up today?,10
-fomc-corpus,1981,"By the end of the day 1/2 to 3/4 of a point. It had been up more than that earlier, but [the gain] got trimmed back.",37
-fomc-corpus,1981,Was this a rally that hasn't been accompanied by any lightening of spirits?,15
-fomc-corpus,1981,"I think attitudes are still mostly cautious. They're not really seeing extensive investor buying [though] there has been some. Until they see more of that, it has more of the characteristics of a technical rebound with short covering and not a lifting of spirits.",50
-fomc-corpus,1981,Any further comment?,4
-fomc-corpus,1981,I'd just raise a question about the margin and the valuation [for System repurchase agreements]. What is the margin requirement?,24
-fomc-corpus,1981,"Well, there's a whole scale of valuations when we value securities for repurchase agreements. And it's a sliding scale; it depends on the maturity of the issues. For example, with Treasury bills over one month [in maturity] we went from 10 to 25 basis points. That is where we would value the securities against the current quoted market. In very rough terms it was about a doubling of the margins.",83
-fomc-corpus,1981,"Is that commonplace in the market now, Peter?",10
-fomc-corpus,1981,"A lot of lenders have been raising their margins, and I'd say our margins are in line with those of the more conservative lenders. I wouldn't say everybody is up there. Some lenders still rely primarily on whom they're lending to rather than looking to the margin itself for protection.",54
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"I just wanted to get Peter's thoughts, if he has any, on what happened to M-1B shift adjusted in the last two weeks, in that it suddenly fell out of bed and gave us an unexpected, at least to me, 4 percent decline. Earlier in [September] it looked as if it would be coming in close to 2 or 3 percent.",77
-fomc-corpus,1981,"Right. Well, I don't know. Steve might have a comment on it. I have given up trying to explain short-term variations in the money supply.",31
-fomc-corpus,1981,A shift in the demand for money.,8
-fomc-corpus,1981,Of course! MR. GRAMLEY(?). We're possibly moving along--,15
-fomc-corpus,1981,"Well, maybe I should ask Steve.",8
-fomc-corpus,1981,"We don't have any very obvious explanation. There is nothing special that we can see. Just as a word of caution, I would hold my breath a little until October 7th. We're not projecting a large increase in that week; we're projecting something on the order of $2 or $3 billion, but it's not impossible that it could come in quite a bit larger and could begin to make up for that decline. So far as the economics of it go, it could indicate some weakening in real GNP, which is quite consistent with the nonfinancial data that are coming in. But again, that's somewhat speculative.",124
-fomc-corpus,1981,Mr. Kaufman is projecting a large increase [for the week of] October 7th.,20
-fomc-corpus,1981,A lot of market people expect it because it's one of those weeks in which we have the Social Security payments on Friday in the first week of the month. Often in the past that has been accompanied by large increases.,43
-fomc-corpus,1981,We don't know what [last] week's figures are much less the figures for the 7th. These preliminary figures have gotten very [unreliable]. One of the strange things is that currency is so weak. Does anybody know why currency is so weak?,52
-fomc-corpus,1981,"Maybe the drug business is slowing down. We're about to publish an article that indicates that a large part of the net increase in currency is not related to any normal economic activity, but is--",38
-fomc-corpus,1981,"M1 has really been lower, drug adjusted!",10
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,"Any other comments or questions? If not, we shall adjourn. But first we have to ratify the transactions.",24
-fomc-corpus,1981,So move.,3
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,"Without objection, we'll ratify the transactions and adjourn until 9:00 a.m. tomorrow.",21
-fomc-corpus,1981,"Well, gentlemen--lady and gentlemen--we can resume and spend just a few minutes on any reactions or comments or feelings you have about swaps, with particular reference to not necessarily confined to that.",39
-fomc-corpus,1981,"Well, let me make a point. The argument that and, therefore, should have a swap line, has some weaknesses in it because becoming a member.",31
-fomc-corpus,1981,Their answer to that is is not becoming a member but also--. Are they an Article VIII country?,21
-fomc-corpus,1981,"Yes, they are.",5
-fomc-corpus,1981,"No, they are not an Article VIII country; they are not part of the consultation in the EMS and they're not part of the VIII group. So that's their distinctive--",34
-fomc-corpus,1981,But they are Article VIII?,6
-fomc-corpus,1981,They're not Article VIII.,5
-fomc-corpus,1981,They're not Article VIII?,5
-fomc-corpus,1981,They're not Article VIII? I thought Article VIII meant simply that a currency is convertible.,17
-fomc-corpus,1981,That's right. And is not a convertible currency in that sense.,13
-fomc-corpus,1981,I see. You mean there are certain types of formal exchange--,13
-fomc-corpus,1981,"Well, they haven't given up the right to have [exchange controls].",14
-fomc-corpus,1981,"Oh, I see, even though in practice there are no exchange controls on at the moment. Still, I don't think that ought to be the main reason for giving a swap line to Have they presented a reason other than prestige why they should have a swap line--a substantive reason?",57
-fomc-corpus,1981,"Well, the argument is that we turned them down ten years ago or thereabouts apparently on the basis that they were members of the sterling area and that they ought to look to London for assistance. They are no longer members of the sterling area so that reason is no longer valid for turning them down. They do have independent reserve management, and it would be of at least modest help to them in reserve management to know they have this backstop.",89
-fomc-corpus,1981,"So, if we went ahead with came in again, would this change your attitude about giving one to",20
-fomc-corpus,1981,"Clearly, a major problem with this is the precedent we create for others. It's not ; we also get asked by countries.",25
-fomc-corpus,1981,"Some of which are [now] Article VIII countries, like whom we turned down in '67 solely on that ground. There are also who might think that they were on the right side.",38
-fomc-corpus,1981,Turned them down solely on what ground?,9
-fomc-corpus,1981,Primarily on the Article VIII grounds of 1967; but subsequently they've become part of our [unintelligible] article.,27
-fomc-corpus,1981,"Oh, they've become a member.",7
-fomc-corpus,1981,"My [view] would be that unless there's a substantive reason, we open up more problems by agreeing to it. I think we ought to be in a posture that unless it's one of the countries that we deal with [and is] important to the [effective functioning of the international] monetary system, the extension of a swap line ought to have a substantive reason behind it.",75
-fomc-corpus,1981,Any other comments?,4
-fomc-corpus,1981,I agree with Tony. I think it opens up a can of worms. I don't know how we could turn down the countries that are bigger trading partners and bigger countries and everything else-- --if we let in,42
-fomc-corpus,1981,I would think we could perhaps [say no] on the basis that this is not the right time. I don't want to preclude this for all eternity.,32
-fomc-corpus,1981,They could get a closer tie with sterling and then have--,12
-fomc-corpus,1981,They could take it up in 1990.,10
-fomc-corpus,1981,That is possibly the correct--,6
-fomc-corpus,1981,"Well, I don't detect any enthusiasm. They have already been told that a major problem is the precedential character of it. Well, we can proceed to the staff reports on the economic situation.",39
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,Maybe we should just pause here and get reactions on the business scene as such. You made the comment that you don't see any precipitous drop likely. That's one question that I suppose arises. Comments on that or other points about the business scene are in order at this point. Mr. Boehne.,61
-fomc-corpus,1981,I think the economy does have a downward tilt to it. I doubt that we're in for a precipitous drop but I do think that financial conditions have worsened. The small business situation--the stretch-out of accounts payable--has put considerable strain on these companies and I'm hearing more and more cries of complaint from them.,64
-fomc-corpus,1981,"From whom? Where are you getting that? I keep trying to get a feel for this--I've talked to bankers all over the country--and it's hard. In general, when I talk to big bankers, they say things don't look so bad; they look pretty good. Even the ones that have special divisions that lend to small businesses say they have checked and the people they have loaned to are under a lot of pressure but none seems about to break. Then when I talk to the little bankers, they say the cataclysm has arrived.",111
-fomc-corpus,1981,"I'm getting this not from the biggest banks in our District but from, say, the $1-1/2 billion size ones who tend to specialize in lending to small and medium size businesses. Their cries of concern are getting louder. I'm also hearing this directly from the small and medium size businesses. I've talked to a number of them; I had a luncheon last week with people from small and medium size firms in manufacturing, services, and consulting type businesses, and they're talking about accounts receivable that are going out 120 days and higher. The worst offender appears to be the federal government, which is very slow in paying its bills. The kind of comment I heard at the luncheon was: ""I'm just hanging by the tips of my fingers over the edge of the cliff; I can see the edge of the cliff."" We had a go-around and almost to a person they mentioned this cash flow problem as being very, very serious. It was in various degrees depending on who was talking. But the tone of ""Am I going to survive or not?"" was clearly there. That was a real question.",222
-fomc-corpus,1981,"Just to be specific about your District, I had lunch with who has a very good program for small business lending. He said the small businesses are all under pressure but he didn't see any that are going [under]. That's the problem that I have. The [small businesses] all are saying that they're in really difficult condition but if you ask the banker who has lent to them, he says he thinks they're going to make it okay.",87
-fomc-corpus,1981,I've tried to keep in touch with this and my reading is that the seriousness of the slippage in financial conditions is significantly greater now than it was a couple of months ago.,35
-fomc-corpus,1981,"Would this affect their inventory attitude, though?",9
-fomc-corpus,1981,"Some of them mentioned that even if the [demand] were there, they wouldn't be stocked up to take care of it because they can't handle the inventory.",32
-fomc-corpus,1981,"The reason I asked is that Jim had the conclusion that inventories weren't a sensitive sector. But it does seem to me that if a firm's cash flow is poor and if the costs of carry are very high, it could liquidate inventory. We have different circumstances than in the past for judging these stock/sales ratios and so forth.",66
-fomc-corpus,1981,Anyone else?,3
-fomc-corpus,1981,"I can confirm Ed's finding. I've talked to a number of small and medium size bankers who have reported that just recently, in the last few weeks, for the first time this year they're looking at some loans that are turning sour. It's a very recent development. Bankers not only in Massachusetts but in New Hampshire and Maine have said the same thing. But they've mostly been the small and medium size banks, not the big ones.",87
-fomc-corpus,1981,Mr. Solomon.,4
-fomc-corpus,1981,"I don't know how much this adds or how much light it throws on it. I had a meeting with about a dozen business leaders in New York City and, even though they tend to be larger size businesses, many of them have companies or product lines that have been very adversely affected by current conditions. The curious thing I noticed was that even the ones who said they were in great difficulty in regard to those particular product lines all said that there were other product lines that displayed some strength, as proof of the fact that they didn't feel they were near any cliff. These are not huge companies; they are what I guess we call medium size companies; some have sales as small as $200 or $300 million. But to a man all of them--even the ones who said that were [hurting]--said they hoped the Fed would continue its tight monetary policy. They said they thought it would eventually work. As I say, it probably doesn't throw any light on this, but it's the only contact [of this kind that] I've had.",210
-fomc-corpus,1981,"We have some data on bankruptcies and failures which throw some light, don't they, on the degree of strain? My impression is that they are up significantly, about 40 percent, but that this is also influenced by the new bankruptcy law. Certainly [that affects] the bankruptcies; less so perhaps the failures. Do you have any more data? Is 40 percent unique historically?",78
-fomc-corpus,1981,"Your people had some data yesterday, Jim, relating to failures--I forget whether the term used was failures or not--per 10,000 firms. It wasn't all that much, was it?",40
-fomc-corpus,1981,"Right, it was failures--Dunn and Bradstreet's failure index, which tries to adjust for the size of business population. That was up substantially; I don't have in mind the percent. It's still below the peak in that series, which occurred in 1960-61.",57
-fomc-corpus,1981,"It was high, but it didn't look so high historically.",12
-fomc-corpus,1981,"There are other indicators, such as adverse dividend actions or ratings changes. They are looking more adverse now compared with a year ago, but they're all well below what happened in 1974-75, which obviously was extraordinary. Nevertheless, they have been creeping up in recent months, and one gets a sense that the corporate sector is experiencing some deterioration. But it's not dramatic at this point.",78
-fomc-corpus,1981,"The bankruptcy rate is up 41.5 percent over last year. But one has to remember that the new bankruptcy law has this new Chapter 13, which is very attractive for these smaller businesses who can go into that and keep running under their management. It's a different kind of animal than they've ever had to work with before.",66
-fomc-corpus,1981,"Of course, that was in effect last year, too.",12
-fomc-corpus,1981,"Well, only in the latter part of last year.",11
-fomc-corpus,1981,"No, it [became effective] in late '79.",13
-fomc-corpus,1981,That's right; it was late '79.,9
-fomc-corpus,1981,I think I read someplace that 30 states have overridden it.,13
-fomc-corpus,1981,"Yes, that's right.",5
-fomc-corpus,1981,"One wants to remember also that historically numbers of failures have not been procyclical; they were countercyclical for many, many years. The reason was that when business activity speeded up, the rate of business formation accelerated and there were so many new firms coming out that there tended to be more failures. But when there is a prolonged period in which the rate of net business formation is low and there's a very sharp acceleration in failures, I think it is an indication of growing difficulty. The other thing that ought to be said is that one knows just from raw logic about interest rates that small businesses will have difficulty when they are paying 20 percent for credit and are looking at a rate of increase of basic industrial and service prices of between 8 and 9 percent. You can talk all you want about how the interest cost is less taking taxes into account; but as a firm gets closer and closer to the edge, the less relevant this tax calculation becomes and the more the firm is going to be staring at the need to pay 20 percent for credit. So, just abstracting, the problem has to grow and grow and grow as time goes on. It's not surprising that Ed is finding more and more signs of this.",249
-fomc-corpus,1981,And now you can sell your tax credit.,9
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"We had a group of people from about 20 medium and large size businesses in last week and the reaction we had was very similar to what Fred reported. In some specific fields and areas there are relatively serious problems, but by and large we got the feeling that there is an underpinning of strength. And there was unanimous sentiment--as has been the case in the past--that if the Fed were to do a flip-flop and become really expansive, it wouldn't solve their problems. In other words, their message to me was: For heaven's sakes hang in there. And we didn't sense any danger of a precipitous decline. Of course this is a diversified Midwestern area.",138
-fomc-corpus,1981,Mr. Ford.,4
-fomc-corpus,1981,"We're getting the same picture. In terms of specifics, the optimistic points I found are the high-tech companies in the Southeast, such as and so on, which I visited in the last few weeks. They are all super optimistic about the way things are going. Their earnings are growing in the 20 to 30 percent range or higher. The technical service industries of that type are doing very well. The weaknesses that we find are in the areas that one would expect. We're seeing more and more classified loans to developers. We also have in our section of the country--in Atlanta, for example--a very high office vacancy rate that is beginning to approach the problems we had in the mid-1970s in terms of percent of vacant floor space and things like that. So, we're finding significant signs of weakness both in commercial and residential construction and in the lending institutions other than banks, i.e. the thrifts. I find these days that just about every S&L executive carries around in his pocket a schedule of weeks to go or months to go in terms of how long the S&L's equity will last based on its current earnings. There's a lot of worry in that industry. The tourist industry in southeast Florida is way off. The state had its slowest [tourist] season in the last ten years in the southern part of Florida and that also affected related industries. The lumber industry, which is big in our area, is also in dire straits because of the housing situation; the carpet industry in Georgia, where we have the capital of the world's carpet business, is beginning to come under some stress. Putting all of this together, my feeling is that overall we have a mixed picture. The economy is moving sideways. Some of the industries are prospering and the ones we would expect to be hurt are being hurt.",370
-fomc-corpus,1981,"I must say that among the bankers I have talked with there's a growing sense of concern about small and medium size businesses. Several of the bankers have commented that there are bankruptcies that are in [train]--that at this point, nothing can be done to defer them and they're just plain going to happen. Despite that, just to echo Tony's comments, I haven't talked to anybody I would regard as a responsible individual who would suggest that we ought to change what we're doing. [They think] the course is certainly the right one. I just want to comment a bit on bankruptcies. Though that is a statistic that is available and is followed, there are also a lot of people who are just quietly going out of business at this point, and that is not a statistic that we can follow very easily. And there are a lot of people who feel that some of these small and medium size companies are simply getting what they can out of the business before they actually have to go into bankruptcy. So, this is having an adverse impact on that group. Let me ask Jim Kichline something on what he said about construction. My impression is that major construction is holding up pretty well in terms of orders and that kind of thing. Is that right?",252
-fomc-corpus,1981,You mean nonresidential?,6
-fomc-corpus,1981,"Yes, big construction.",5
-fomc-corpus,1981,"Yes, the orders in the last couple of months have bounced up. On average they had been about flat from last winter through much of the summer. But in the last couple of months we've had two really big increases; it's a very volatile series. I'd say the longer-term trend is rather flat in real terms.",63
-fomc-corpus,1981,"It seems to me a little surprising not to see some weakness there, in the orders anyway. I understand there's a lot in the pipeline. Mr. Winn.",32
-fomc-corpus,1981,"I'll say a couple of things. One is that many of the small businesses are holding on and as such they're delaying or [canceling] any orders for new equipment and delaying expansion, so we're going to get some secondary effect from this curtailment. Many of them have worked out financing arrangements at under prime so they get a little relief on that score, and the banks have been cooperating with them on that to hold them together. They complain about the large companies not paying their bills more than [about] one another; they say the large [companies are] carrying themselves through the impact on some of the smaller companies. And this is a source of complaint. Strangely enough, none of them that I've heard really [favors] a change in Fed policy. They realize it's tough, but they want us to hang with it still. Another point is that if we look at large capital investments and that sort of thing, it's interesting to see the changes that are taking place in the debt/equity ratios. It used to be that a firm financed a building [entirely with] debt and no equity and now the ratio is up to about 50/50, which is an interesting turnaround in terms of the financing arrangements in our area. My concern is largely that the crunch is going to come with some of the financial institutions, not with some of the business firms, and that the unexpected fallout or the repercussions may send shock waves through the system. They talk about months until the end of the line.",306
-fomc-corpus,1981,You're talking about thrifts?,6
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Not banks.,3
-fomc-corpus,1981,"No, there are a few banks.",8
-fomc-corpus,1981,"Well, it's a large other subject, but one can get a bit concerned about what one sees going on in the banking system: companies being held alive by not very good lending and loans to foreign countries being rescheduled with loans on top of loans.",50
-fomc-corpus,1981,That's right. That is the thing I think is the real [unintelligible] side of it.,22
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"We also see evidence that soft spots are spreading, and it's not necessarily limited to small business. In the Pacific Northwest, of course, there has been a long period now where all kinds of small lumber mills have either closed their doors permanently or have gone on indefinite furlough, but things are spreading now even to the commercial side in the aerospace business. Employment is down noticeably from where it had been at its peak earlier in the year. Big aluminum companies are cutting back. These are suppliers for housing, automobiles, and so forth. Even some of the bigger companies are reporting capital spending cutbacks. Agricultural prices--and agriculture is one of the big industries in California--have been dropping partly due to a slippage in overseas demand because of the strength of the dollar. We get fairly widespread reports from our directors about further slowdowns in retail sales. This pretty much confirms the prospect that we've been looking at for some time now of a soggy economy. I'm not sure it adds up to a cumulative serious downward spiral, but it's enough to give some cause for concern.",213
-fomc-corpus,1981,"John, I noticed that 3 or 4 small banks in Oregon are on the troubled bank list. Is Oregon particularly hard hit at this point?",30
-fomc-corpus,1981,"It really is. I think with one exception all of our so-called problem banks are in the state of Oregon. And that's a direct feedback from the very high unemployment rates, the closings of these lumber mills, and so forth.",47
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"I don't think there's any doubt that in the last month or two or so the signs of the long awaited credit quality problems have begun to emerge in ways that bankers and other people can see them. Frankly, I run into that point of view from virtually all the bankers that I have had an opportunity to talk to. Indeed, one prominent banker told me not too long ago that any banker who says he's not seeing that either isn't looking or is lying. Be that as it may, the one somewhat qualitative thing that I would add is that, in a number of cases where people are willing to talk about these problems, they tend to tell me that these were semi-marginal to marginal credits to begin with. Maybe they shouldn't have extended to begin with; and if they were having trouble at 10 or 12 percent, certainly they're going to have trouble at 18 or 20 percent. I run into that kind of attitude with some regularity, the point being that it's not just the question of, say, housing or wood products or farmers, it's also a question of the well-run business versus the not-so-well-run business almost regardless of the nature of the business. But I don't think there's any question that the problem is increasing. Two other quick comments: One I find very curious, and that is that throughout all of this I begin to sense a little backing away, if I can put it that way, in terms of people's outlook for inflation over the next months, which I can't attribute to anything except that some of the euphoria of those really good consumer price index numbers earlier in the year has worn off and people are now starting to get back to reality. Those wage rates are there and those medical prices are there, and the view is that, indeed, the next step on the road is going to be a damn tough one. I perceive that now that we've gotten to the point where businesses are starting to look hard at the question of ""Where do we go from here?"" They are coming back to reality, as it were, in terms of what still lies ahead with regard to their own pricing decisions in an environment in which they obviously all are looking for every opportunity they can find to pass through costs to try to regenerate cash flow and profit margins. And I think that is a curious thing to find at this point--the reevaluation of how far we can really expect to go in the near term on inflation, given all the forces that they see pushing on them in terms of their own wage and price decisions. On the economy, I would certainly agree that it's moving downward. I don't see at the moment any evidence of a pervasive or precipitous decline, but I would align myself with Willis Winn in suggesting that the potential for that is clearly there. The biggest single vulnerability in my judgment would be not so much that something will happen to the thrift industry--I think that's all been discounted--but that some other sizable financial shock may be looming out there and none of us seems to know quite where it is or where its ugly head might pop up. I think that risk is there. And if that kind of thing were to happen, that might well change my view as to whether or not there is some potential on the down side beyond what one would find just by looking at the numbers in front of us today.",671
-fomc-corpus,1981,"You touched upon the wage picture. I must say I get a little discouraged sometimes when I look at wage attitudes. The gentleman on my left is very optimistic on this score. We had some big bankers in here a month or so ago who are all planning to increase clerical salaries in a range of 11 to 15 percent next year and who I understand believe this is typical of industry generally. I suspect it is. How that is consistent with getting inflation down, if this generalizes very far, I don't know. Not many people have commented on that. If there are any additional comments to lend insight as to how business or labor are reacting in this situation in terms of prospective wage settlements, that's an interesting variable.",145
-fomc-corpus,1981,"Well, you said I was optimistic; I am optimistic. I'm optimistic because of just what Jerry Corrigan said. I have never felt that there was any way to get inflation down without putting pressure on business and labor. Put pressure on business and they have to find a way to cut those costs because they don't have [available] the path of least resistance of raising prices. And if you put pressure on business, labor begins to get the point that if they get too much in wages they won't have a business to work for. I think that really is beginning to happen now and that's why I'm more optimistic. Every business I know of out there is doing everything it can to cut costs. When the Teamsters open the master contract because they see some of their truckers going under, when the UAW talks about job security instead of wage increases, and when Pan Am workers are willing to take 10 percent cuts because the airlines are in trouble, I think those are signs that we're at the point where something can really start to happen. So, that's why I tend to be optimistic on the subject.",221
-fomc-corpus,1981,There's no question that there are some scattered signs. I won't prejudice [the discussion]. The question is how widespread they are.,25
-fomc-corpus,1981,Scattered here and there.,6
-fomc-corpus,1981,"I tend to feel the way Fred feels. At that same lunch of business leaders I raised this question: What kind of wage increases do you expect to pay next year? And much to my surprise a lot of them who had factories that were in very depressed conditions said they had already quietly begun to renegotiate and were coming in with very low settlements. For those who had factories that were doing much better, it was a different story. But there was a rather selective approach; they were implying that if it was kept quiet, they were getting trade union cooperation in the area.",115
-fomc-corpus,1981,"In terms of my own remarks, I didn't want to leave [the impression] that all of it was on the wrong side of things. In one sense I was trying to suggest that it was on the right side of things because people were aggressively thinking about what to do. And that in itself says something, because heretofore I think the decision was almost automatic when the corporate business plan came up. They just filled in the numbers and didn't even think about it. So, I was trying to suggest that it's not all bad.",108
-fomc-corpus,1981,"Well, [unintelligible] the typical big businessman up until recently--he may be changing his mind--was ready to give a 10, 11, 12 percent wage increase like falling off a log. He thought that was a normal thing to do. That may be changing, but I--",63
-fomc-corpus,1981,Some of our large national companies have quietly renegotiated the COLA contracts out of their labor agreements. I think that's a very positive step.,29
-fomc-corpus,1981,It sounds to me--,5
-fomc-corpus,1981,"Well, it has to be seen in the light of the fact that there's a big tax cut in 1982. Nobody seems to take that as a reason for having a lower wage increase. There would be more of a real income increase than one would otherwise expect.",54
-fomc-corpus,1981,You're right; nobody relates a wage increase to the fact that taxes are coming down.,17
-fomc-corpus,1981,It comes from different parts.,6
-fomc-corpus,1981,In most years that would get us in a lot of trouble.,13
-fomc-corpus,1981,Does anybody have a feel for what federal government policy is going to be on this score?,18
-fomc-corpus,1981,"Well, the federal wage increase is set at 4.8 percent or something like that. Oh, you mean in the private [unintelligible]. I meant in the government itself. They broke the comparability link, so it moves in that direction. Of course, I think the attitudes on the controllers' strike have had some bearing on this climate in general, accidentally or otherwise. Mr. Boykin. We have the good news coming up!",92
-fomc-corpus,1981,I'm a little embarrassed; I was trying to hold off for a while. It's obvious from our comments in the Redbook that the Eleventh District economy continues to be a bit of an outlier. We haven't really seen any major change in economic activity down our way in recent months. It's still pretty strong. The drilling boom for oil and gas just seems to keep right on going. We don't see any signs of weakening there.,86
-fomc-corpus,1981,"You have so many holes in Texas that after a while, it's going to--!",17
-fomc-corpus,1981,You're talking about Texas [unintelligible]?,10
-fomc-corpus,1981,"No, it's the [unintelligible].",10
-fomc-corpus,1981,It's far and wide; it's headquartered out of Houston is what it is.,15
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,There have been more oil wells drilled in the continental United States than in the rest of the world put together.,22
-fomc-corpus,1981,"The unfortunate thing is that they don't always [succeed]. I know of one plot that was a dry hole. Nonresidential construction continues very strong. And there are a number of local government construction projects under way. Just as an example, in Dallas at the end of last year we had a little over 41 million square feet of office space. We are projecting an additional 29 million in the next four years. Most of that is under construction or firmly announced, so we'll be up to 70 million square feet. Houston, of course, is now as strong as Dallas or even stronger. It's going on in San Antonio [and] even out in Midland, Texas, in the western part of Texas; a lot [is related to] oil activity. On the [unintelligible] they're putting up a 40-story building; I just hope it will stand up when a sand storm comes. As for manufacturing strength, it's just concentrated in those industries supplying the energy and nonresidential construction sectors. On the financial side, I've not heard what Ed has heard. I will say, as opposed to questions of immediate concern, that I do sense that people are beginning to wonder a bit about what the next few months are going to hold down our way. But, as far as any specifics, we don't have any. I was talking to one small businessman in the franchising business and he said they've slowed down a bit because they're trying to franchise nationwide and it's a little slow in other parts of the country but in Texas they're still opening new stores.",315
-fomc-corpus,1981,You need a McDonald's by every 70-story office building!,13
-fomc-corpus,1981,You mean an oil well by every 70-story building!,12
-fomc-corpus,1981,Mr. Guffey.,6
-fomc-corpus,1981,"I'd just like to follow Bob to say that one half of our District--the western part comprised of two or three states plus Oklahoma--would fall in the category that he has just described, and it's largely related to energy and energy development. They continue to put down holes, successfully finding gas and oil in Wyoming, Colorado, and in Oklahoma. There is a commercial building boom in Denver, as Bob has described in Dallas and Houston, whereas the rest of our District--and I'm speaking largely of Kansas City and the Omaha area--does not share in that particular activity. On the other hand, in the agricultural sector we've enjoyed one of the best crop seasons that the District as a whole has experienced in many years. The cattle and hog industries, although marginally profitable, appear to have a somewhat brighter outlook. However, the--",166
-fomc-corpus,1981,You think the cattle is marginally profitable?,9
-fomc-corpus,1981,"Yes, marginally profitable at the moment.",9
-fomc-corpus,1981,Thank you. I had a bunch of cattlemen in here on Friday and they weren't very happy.,20
-fomc-corpus,1981,"Well, some of them say they're losing from $30 to $100 a head, but they continue to lose that every year and remain in business and drive Cadillacs. It's a rather strange operation. But the fact of the matter is that the outlook for the profitability of the red meat industry [in] the high plains area is much brighter than it was, say, a year ago. By the same token there just does not appear to be any evidence of additional upward pressure on food prices stemming from the cattle/hog meat prices that may result from the [somewhat brighter outlook].",118
-fomc-corpus,1981,What do you see going on in land prices--I was asking those fellows on Friday about that--and in house prices too? These cattlemen who were very upset conceded that land prices weren't going down and might still be going up a little because of all the outsiders coming in and buying land.,59
-fomc-corpus,1981,"The latest information we have is that farm prices have gone up but only marginally. They have been essentially flat recently, with some increases in prices but not nearly to the extent that they rose over the last 3 or 4 years. The rise has slowed considerably. And residential prices are flat or actually decreasing, at least in the eastern part of the District. In the western part of the District, they can't build houses fast enough to accommodate the growth, particularly in the Denver area. So, prices have not subsided there.",107
-fomc-corpus,1981,"They're still building houses in Denver, Roger?",9
-fomc-corpus,1981,"Yes. As a matter of fact, within the last 30 days there was an announcement of one of the largest developments in the Denver area--the project is over $1 billion--to be undertaken. It's well financed, no question about it being--",51
-fomc-corpus,1981,"You have some boom towns, don't you? Up in the Wyoming and Montana areas, don't you have some towns that are starting from scratch and--",29
-fomc-corpus,1981,"Perhaps not from scratch, but some of the areas are [unintelligible]. In the coal or other energy-related industries, both oil and gas, we have some camp cities where people are housed essentially in temporary housing simply because they are in boom communities. That's particularly true in Wyoming and on parts of the western slope of Colorado. One thing that I would like to mention is that I have met with the homebuilders in our District and probably the rest of the presidents at least and perhaps the Board members will have an opportunity to meet with homebuilders also. I hear two curious comments. One is that they're about to go out of business and they need some relief. By the same token, and almost in the same breath, they say that they believe Federal Reserve policy to be the correct policy and thus they feel uneasy about even coming to talk with us. They recognize that the relief they need is legislative relief rather than an easing of interest rates through monetary policy. It seems to me a rather curious turn. I understand that today is the day they're going to present keys to everybody. I met with them last week and their message is for the Federal Reserve to hold tight but that they need relief.",240
-fomc-corpus,1981,"That's the [view] nationwide. It's everywhere. It's really remarkable. I have been meeting a lot with homebuilders; I went up to Boston to talk to the board of directors of the National Association of Homebuilders. Would you believe that their board of directors is 1800 people? That was exactly the [sentiment]: I'm dying, what are you doing to me? But you have to hang in there and get rid of inflation.",89
-fomc-corpus,1981,"As a matter of fact, I know that you were up there. Our homebuilders spoke of your speech to the board of directors.",27
-fomc-corpus,1981,"They talk about the federal deficit. I've met with some of them and they talk about how the deficit ought to be shrunk. They realize that's not the Fed's problem but they just want us to listen. I found the same thing, actually. They were remarkably understanding; there was a commitment to what the Fed is doing [along] with these same cries that something has to be done. But when you talk to them they tend to push the blame off on Congress or wherever and not so much on the Fed. In their more emotional moments, they--",112
-fomc-corpus,1981,"You have to understand, though, that when they talk to Congress, they turn the whole thing around.",21
-fomc-corpus,1981,"Don't kid yourself. I think without question there's a lot of support now. There's a lot of concern about the budget deficit and a lot of understanding among business leaders and association leaders in many areas. But there's a lot of anger growing out there. It tends to be: The Federal Reserve controls interest rates and the Federal Reserve ought to do something about them. It's not exactly below the surface. And when it will erupt like Mt. Vesuvius, I don't know.",95
-fomc-corpus,1981,"But the reaction in the Congress since they came back is exaggerated in terms of business opinion for the reasons that have been talked about. The Congress is frustrated and is receiving an enormous amount of criticism, much of it having to do with the budget deficit. And when members of Congress talk to you and other members of the Board here in Washington I think they are reflecting not a focused criticism of the Fed but a general criticism of conditions by their constituents. I'm not saying that the Fed is exempt, not by any means, but I wouldn't interpret the Congressional complaints regarding how their constituents feel about the Fed and conditions as being focused on us. That is the way it comes out of Congressional mouths. I have talked to a few Congressmen up in the New York area and we got into this shading--",158
-fomc-corpus,1981,"Well, I think you have to make a distinction. A lot of [the criticism] has been focused on the budget deficit, fortunately, which is where it should be. On the other hand, for both political and real reasons, I'm very skeptical of how much progress is going to be made on the spending side. The Democrats don't have much incentive; they're fairly happy. The Republicans are worried; they feel they've cut spending. It's going to be very hard to make the next cuts. There will be some but how much relative to the size of the problem is very questionable. I think you've talked to fairly sophisticated people; I'm talking about the people who are a little less sophisticated perhaps. And they're just getting angry.",144
-fomc-corpus,1981,"It's compounded by the fact that the original rounds of cuts are just being felt. Most of them just started the middle of last week so that the reactions, particularly by state and local governments and recipients of transfer payments, are just now being felt.",49
-fomc-corpus,1981,"I had 8 or 9 people in for lunch a couple weeks ago and I asked them how many of their Congressmen who voted for the tax and budget cuts last time would vote for them this time. I found about eight Congressmen represented and the group thought that two would not support another round of budget cuts. It wasn't a very big margin at the beginning, so two out of eight represents--",81
-fomc-corpus,1981,Mr. Keehn.,5
-fomc-corpus,1981,"I want to make just one additional comment about the agricultural sector because it's a change from what I have reported at previous meetings. I have commented in the past that rates have had a negative impact, but within the last few weeks there has been a growing wave of pessimism. I'm really now talking about the grain side as opposed to the meat side. Production figures keep going up and, therefore, prices keep coming down. And net cash income for the farmers in our area is being reduced rather continually. It now looks as if income for this year will be lower than in any year since 1977. And that's unadjusted for inflation. If you adjust for inflation, you have to go back a long, long way to have a year that is going to be like this year. About 40 percent of the farms are debt free and are not impacted by [high interest rates]; 60 percent have some debt and, therefore, this is a very significant problem for them. Here again, the lenders are beginning to get very uneasy about their agricultural credits. They're worried about debt coverage ratios, the leverage, etc. So, the farm industry in our area is getting very concerned.",238
-fomc-corpus,1981,"Well, we've exhausted this subject. We can turn to Mr. Axilrod.",17
-fomc-corpus,1981,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1981,"The subtleties of Mr. Axilrod's analysis may not be fully grasped by the Chairman in all respects, but we can perhaps clarify [them in] the discussion. Mr. Roos.",42
-fomc-corpus,1981,"Steve, would you repeat the part near the end of your statement where you spoke of an increased demand for M-1B having some effect on the necessity of trying to get M-1B up to the lower end of the range? I was lost.",52
-fomc-corpus,1981,I was just thinking that in the last 3 months of the year it's possible that there may be some rebound from this very low growth that we have had in M-1B. The rebound in itself could tend to increase M2 because I was assuming that it wouldn't necessarily mean that people were taking deposits out of other components of M2 and putting them in M-1B but simply were putting more money in M-1B in general that they would have put other places because they realized their cash was low relative to what they normally would expect it to be in relation to income.,118
-fomc-corpus,1981,"In terms of positioning ourselves, Mr. Chairman, it seems to me that we have to think of our vulnerability from a public opinion point of view if the economy remains soft, as it probably will, to the end of the year. If we visibly fail to bring M-1B into its range, won't people who are exaggerating the effect of so-called tight policy by the Fed have something to hang us with when they actually see that M-1B has come in below [its range]? I don't know whether that's a greater danger than the possibility of some misinterpretation of [the growth that] would be necessary to bring it into the range. It seems to me, if we are thinking of public opinion --and maybe we shouldn't be--that the question is whether the heat of coming in below the range and being accused of precipitating a recession is greater or less than the possible misinterpretation of a degree of temporary expansiveness to bring M-1B into the range. Those are two fundamental issues [that bear on] public response. But maybe we shouldn't be concerned about that aspect of our policy.",225
-fomc-corpus,1981,"Steve, didn't you say 12 percent growth from September to December does not get us back to the range? That is, December is back to the track, but people will still be able to read the fourth-quarter-to-fourth-quarter growth even then, as I read the Bluebook, as 3 percent rather than 3-1/2 percent.",72
-fomc-corpus,1981,"That's right, given the patterns of the months within the quarter. If it so happened that October was a very strong month instead of November and December, you might hit [the lower limit of the range]. We were assuming October will be--",48
-fomc-corpus,1981,"This arithmetic gets rather drastically changed by the estimates of the money supply for the past two weeks, of which one week is still doubtful. And the first week in October may also be doubtful; we don't know very much about it. Let me ask one purely statistical question, Mr. Axilrod, so we know what we are talking about here. It may be covered in the Bluebook. Even in alternative C, let's say, which is 9-1/2 percent for M2, we are above the range. That half percent is your estimate of a somewhat extraordinary impact of all savers certificates or something?",125
-fomc-corpus,1981,"Well, the best we could come up with is that the range of impact would probably be on the order of 1/4 to 3/4 of a percentage point.",36
-fomc-corpus,1981,There is some assumption that [money] comes into all savers out of what would otherwise be in M2. Where is that from and what evidence would you have for it when it happens?,39
-fomc-corpus,1981,We have virtually no evidence.,6
-fomc-corpus,1981,You haven't any evidence; you wouldn't have the evidence now because you don't know the statistics. But where would you find that evidence?,26
-fomc-corpus,1981,"Well, we are going to ask questions in the Michigan survey of an admittedly small sample. We are going to ask those who have all savers certificates, what was the immediate source of those funds. That would be the only direct evidence we would have; otherwise it would be a matter of analyzing the data that we have available.",66
-fomc-corpus,1981,"Well, presumably, you would look where: for individual holdings of Treasury securities or something?",18
-fomc-corpus,1981,We would want to look for unusual behavior of time and savings deposits and money market funds. If they began to behave unexpectedly relative to what--,28
-fomc-corpus,1981,"Yes, but they are all in M2, let's say.",13
-fomc-corpus,1981,"Oh, yes. But if we could account for everything that happens to all savers certificates from that, that doesn't leave much residual for [funds coming from] elsewhere. Essentially in this assumption we have assumed that in the fourth quarter only about $3 to $5 billion comes out of non-M2 assets other than retail RPs, and we have assumed that two-thirds of the retail RPs--$10 billion out of $15 billion of RPs--goes into all savers certificates. The reason that I am uncertain between the 1/4 and the 3/4 of a percentage point is that we have to make a further assumption regarding how much of those retail RPs would have come out of M2 to begin with or how much would have come out of non-M2 type assets. We have essentially assumed very little, really, coming out of non-M2 assets. It's practically negligible if you eliminate the retail RPs and they were in M2 in any event.",201
-fomc-corpus,1981,Will you assume those are in M2? And you say apart from that you are only estimating $5 billion or so.,25
-fomc-corpus,1981,"Yes, $3 to $5 billion. About a 1/4--",16
-fomc-corpus,1981,That only makes 1/4.,8
-fomc-corpus,1981,That only makes 1/4 added to this.,11
-fomc-corpus,1981,Is that an addition to this 9-1/2 percent [growth for the year] in alternative C or is that [included]?,28
-fomc-corpus,1981,"No, [M2 growth for the year] would be 9-1/4 percent, abstracting from that.",25
-fomc-corpus,1981,"Steve, did I hear you say that if we tried to increase M-1B so that it moves back toward the lower end of the target range from where it is now, given the demand for M-1B, that would in effect be inflationary because we would be giving people more money presumably than they want to hold? Is that correct?",71
-fomc-corpus,1981,"Well, what I said was there's a degree to which it would be; we think it would entail a sharp drop in short-term interest rates over the next 2 or 3 months.",38
-fomc-corpus,1981,Any increase in M-1B?,8
-fomc-corpus,1981,"No, [raising its growth] to that 12 percent, which would be needed to get it back [into the range]. And if you happen to think that there's a sizable pent-up demand for goods and services, as some of us on the staff think--some may not--then we could have a very sharp rebound in spending and a sharp rebound in interest rates later in order to keep money under control. And if that large money growth sets off a sharp rebound in spending, I think the progress made in curbing inflationary expectations would be lost. That's one analysis that one could make. If you think the economy is extremely weak in any event and no one is going to do much when short rates go very low, then you might not come to that conclusion. That's what I was saying at the end of my statement.",167
-fomc-corpus,1981,"Steve, does it make sense to continue doing the adjustment for the shifts into NOW accounts?",18
-fomc-corpus,1981,"Well, I think it made a lot of sense earlier, obviously. It has been making a degree of less sense, but I think we need to have a shift adjusted series to evaluate the year properly. Therefore, it has been our thought that we might as well continue at least until year-end, just because that is what we have done for the last several months, and at that point change over. We would have to keep presenting a shift adjusted series even if we didn't shift adjust each month. If we said the shift adjustment was now in effect zero, we would still need a shift adjusted series for the year. So it just seems simpler to continue on to year-end; the differences are small now.",142
-fomc-corpus,1981,Do you have currently any direct evidence of what the basis for this shift adjustment is?,17
-fomc-corpus,1981,Very little. We are getting less frequent data on the shifts and we have not changed our assumption. One piece of evidence is that we do have data that new NOW accounts are still being opened at a sizable pace. But we can't tell what is happening to the deposits in the NOW accounts that were opened earlier this year. That money could be going out.,71
-fomc-corpus,1981,But you have evidence that new NOW accounts are still being opened and that some significant proportion is coming from outside of demand deposits?,25
-fomc-corpus,1981,"Well, we have stuck with our past assumptions; we only get survey data on that about every three months now instead of every month, so I'm not exactly up to date on it.",37
-fomc-corpus,1981,"Steve, I have a technical question on a different subject. I can't quite understand the recent relationship between the reserve numbers and the money numbers. One of your tables shows, for example, that you estimate that total required reserves in September grew by 17.9 percent. I know we have all these shifts going on in terms of reserves phasing up and down and across and all the rest, but when I look at the components across the board, it's very hard for me to see where one can find anything that would account for that much of an increase in required reserves.",115
-fomc-corpus,1981,"Well, in September, in terms of amounts--this is under a lagged accounting regime--we have a $592 million dollar increase in required reserves, which is the 17.9 percent at an annual rate that you referred to. Of that amount, $319 million is in savings and time deposits, which is mainly large CDs in that period. [Most of] the rest of it is in transactions deposits, which include OCDs, demand deposits, U.S. government deposits, net interbank deposits, and telephone transfers. And the remaining $4 million--I had to do this accounting--was in nonmember commercial banks and others and can be accounted for, with the large bulk of the increase coming from items that are not in M-1B. If you pretend that the accounting was contemporaneous--",164
-fomc-corpus,1981,"Oh, that's right; you're picking up that big August jump.",13
-fomc-corpus,1981,That's right. It would be a quite smaller increase.,11
-fomc-corpus,1981,But in September M-1B went up not at all.,13
-fomc-corpus,1981,"That's right; it's only the last two weeks of August and the first two weeks of September that get into this. If you pretend that it's contemporaneous, then the transactions deposits part is in September and instead of being [an increase of] $269 million it's only $49 million. Don't forget that currency was quite negative. So, if the rate of growth in total reserves in September on a contemporaneous basis, so to speak, is 7 percent, [growth in] total required reserves is 7 percent. Total reserve [growth] on a lagged basis is much higher.",118
-fomc-corpus,1981,Those large CDs are still at what--3 percent?,11
-fomc-corpus,1981,"They're phasing down to where they're 5/8ths of whatever they were originally, which was, I keep forgetting--maybe 6 percent.",30
-fomc-corpus,1981,I think it was 6.,7
-fomc-corpus,1981,5/8ths of 6.,8
-fomc-corpus,1981,"Oh, that's right.",5
-fomc-corpus,1981,They're down now. Starting in September they are 5/8ths of 6 percent.,19
-fomc-corpus,1981,Is it 5/8ths of 6 or 5/8ths of the difference between 3 and 6?.,26
-fomc-corpus,1981,It's 5/8ths of the difference between 3 and 6--that's where we are--slipping to zero.,26
-fomc-corpus,1981,"You may be interested--this sounds like a little more reliable report--that Mr. Sadat clearly was hit, but they say no vital organs were hit and he's being operated on and said to be not critical. The observation was just made--it's a peculiarity and I don't know if anybody has a logical explanation--that the weakness in M1 partly reflects an extraordinary weakness in currency in terms of general trends. Governor Gramley.",88
-fomc-corpus,1981,"Well, I want to compliment Mr. Axilrod on his statement this morning. I've heard him and his predecessors make many statements over the years, but I don't think I've heard a more weighty or meaty set of comments given to this Committee. I particularly liked his comments about the need to look at what is going on in the real economy to make some ultimate judgment.",76
-fomc-corpus,1981,We do tend to forget that.,7
-fomc-corpus,1981,"That's particularly apropos when these monetary aggregates are so slippery and so difficult to interpret. I think we have ended up with an economy that has had more restraint on it during the course of this year than we had expected earlier. And, frankly, we have had more restraint than I personally would have wanted in the sense that I think our objectives over the long run are not likely to be maximized by permitting the economy to slip into a couple quarters of negative growth like this. If we could somehow fine-tune--and I'm not suggesting we try--and keep the economy growing at zero or a slightly positive rate, I think we would be better off. The pressures to do something to turn it around are going to intensify if we continue to have negative growth. The structural damage that is being created is also growing, and I strongly agree with Ed Boehne that we have a real problem there. [Steve's] comments about M2--as to why M2 can be a very slippery guide--I thought were particularly interesting. When we watch M2 and try to limit it, we induce innovations that in turn tend to make M2 continue to grow. As a consequence, interest rates go up and that weakens the economy. So, if we slow the growth of M-1B even more--. I look back at the past couple of months and I wish I had listened to my colleague, Governor Partee, about why we need to pay more attention to M-1B in a period like this. I think one of the things we need to do in our decisions today is to make sure we don't do what in effect we have done in the past couple of months, which is literally to ignore M-1B. We have given almost entire weight to M2, the way the period worked out. That wasn't what we intended, but that's the way it happened. I don't think we can adopt a policy today that is designed to make M-1B get back up in the target range by the fourth quarter or by December. That would just induce a collapse of interest rates. We would have the economy growing like gangbusters in the first half of next year and then we would be in real trouble. But what we do have to do, I think, is to make sure we pay more attention to M-1B than we have in the recent past.",481
-fomc-corpus,1981,Let me just pick up on one point you made. I have no doubt about the enormous weight of Mr. Axilrod's presentation. But the point about M2 I must confess went right over my head.,43
-fomc-corpus,1981,Maybe we ought to have him repeat it. It was a good point.,15
-fomc-corpus,1981,"He can repeat it, but he's going to have to repeat it in different words so far as I am concerned.",23
-fomc-corpus,1981,"All I had in mind, Mr. Chairman, was that M2 is increasingly becoming like that because it has money market funds, money market certificates, and small savers certificates in it. If the System is holding back on reserves, let's say, in a period of strong money demand, interest rates go up. If the return on these instruments that are in money deposits doesn't go up, then you'll get restraint on money relatively easily, in effect, because people will shift out of deposits into something else.",101
-fomc-corpus,1981,You'll get restraint on M2 relatively easily.,9
-fomc-corpus,1981,"If the money definition covers only things that have market interest rates on them, then as we hold back on reserves in the face of [strong] money demand, market rates tend to go up. The banks and other financial institutions raise their offering rates on these deposits so that the gap between the market rates and the deposit rates, in effect, doesn't change very much. People still demand those things because that gap hasn't changed. We have to hold back on reserves even further; that forces rates up more.",100
-fomc-corpus,1981,I understand all that; M2 doesn't decline the way it used to when we would run into deposit ceilings.,22
-fomc-corpus,1981,"Well, no, I didn't mean that. What I meant was that interest rates move more rapidly than they used to.",24
-fomc-corpus,1981,And interest rates may move more rapidly as a result of that. I don't understand that it follows that M2 is in some sense artificially swelled by this and gives you a--,36
-fomc-corpus,1981,"No, I didn't say that. I said the nontransactions component will rise relative to M-1B in this present environment.",26
-fomc-corpus,1981,That I agree with. It rises relative to M-1B. But I don't understand that it follows that M2 is in some sense artificially--,30
-fomc-corpus,1981,"No, no.",4
-fomc-corpus,1981,Artificially isn't the word. I don't understand that the expansion in M-1B is giving a false signal as to the credit growth in the economy or the monetary growth in the economy.,38
-fomc-corpus,1981,"No, my only point was that given this behavior of the assets in M2, if there was increasing need in the context to constrain M2, it would follow that M-1B would be weaker than one might have ""expected."" I also think short rates might have been somewhat higher than the staff was predicting all along. They probably are a bit higher. And my only evidence that this was real restraint is that the short rates in real terms were quite high. They are not only nominally high short rates; they are also high, in quotes, ""real"" short rates.",118
-fomc-corpus,1981,"I guess I don't see the conclusion from what has happened that in some sense we were tighter than we intended to be. Also, if I may just make a point here, I don't think it is accurate to say we haven't been following M-1B. The borrowings have gone way down, particularly with the sinking spell at the end of September. M-1B obviously isn't as high as we intended, but I think that is why borrowings have gone down. We didn't make some discretionary adjustments we could have made. But, certainly, the fact that pressures on reserve positions have eased as much as they have is because we were looking at M-1B.",135
-fomc-corpus,1981,"No, what I was saying is that to the degree the Committee gives more weight to an aggregate that has market rates as offering rates, you get a prompter response in interest rates, I think, than you would if you give weight to something that doesn't have such rates. And in the limit--",61
-fomc-corpus,1981,I [don't] know if it's prompter; you certainly get a larger one.,18
-fomc-corpus,1981,"That's right. And, in the limit, if you had an aggregate that only had market rates in it, I would see almost no way to control it except through control of the economy itself. If you conceive of something where rates kept going up, finally you'd get GNP so weak that the transactions demand for that aggregate or the savings demand--. But, obviously, we are not at that stage.",81
-fomc-corpus,1981,What is the rationale that if short-term interest rates decline that might result in stimulus to the economy beginning next year? And what were the negative consequences of that? I don't know whether it was Lyle or someone else who said that.,47
-fomc-corpus,1981,"Well, I can tell you what I would regard as the negative consequences, and that is that I agree with Governor Schultz that we have the potential for a big breakthrough on union wages next year. Union wages have gotten way, way out of line with non-union wages. You close that gap in one or two ways: Either non-union wages catch up or union wage growth slows down. We need a very sluggish economy in 1982 to make reasonably certain that that gap is going to be closed by a slowdown in union wages. But I don't want an economy that's sluggish by having it nosedive and then come roaring back again.",129
-fomc-corpus,1981,"We have all kinds of problems. You mentioned one kind of perceptual problem, Larry. I guess Lyle and others are worried about both perceptual and real problems in other connections more related to interest rates. Let me tell you just from a public relations standpoint that there is great restiveness and anger, as I said before, growing out there. That would be relieved, obviously, by some decline in interest rates. But in some way the worst thing that could happen to us is to have a great sense of relief for a month or two or three that interest rates are coming down--I'm now talking public reaction and not policy--and then have them racing up again. I think the public patience for climbing up the hill very rapidly again may be extremely limited.",153
-fomc-corpus,1981,Public patience for staying on top of the hill won't last.,12
-fomc-corpus,1981,"Hence, public patience is getting limited in all directions. It's a question of--",16
-fomc-corpus,1981,"A technical point on M2 that I would make, Paul, is that we have to remember that we are factoring in new elements of market-related rates as time goes on. That can give a first difference in M2 that we are coming to a steady state.",53
-fomc-corpus,1981,"Well, to the extent funds come in from outside M2.",13
-fomc-corpus,1981,"They tend to because we have more [components of M2] that are at a market rate, and the staff didn't take that into account when they gave us their ranges at the beginning of the year. And, by the way, the Committee didn't take those ranges; we reduced the ranges, as Nancy often points out.",65
-fomc-corpus,1981,"It's a simple common sense analysis that I have used on many occasions. There are some institutional changes that have depressed M1 and increased M2. It must be the case since there is a discrepancy between them. We didn't have to operate on both of them, I suppose, but certainly the discrepancy is bigger than expected. Governor Rice.",67
-fomc-corpus,1981,"Well, Mr. Chairman, first of all I'd like to say that I agree with a lot of what Governor Gramley said the first time. I'm not sure about his second statement.",37
-fomc-corpus,1981,Why not all?,4
-fomc-corpus,1981,"What he said the second time he said the first time, too.",14
-fomc-corpus,1981,"No, not quite. I think the staff forecast is about right. I agree with their view that there's no solid evidence at present that the economy is in the process of a sharp downturn, despite the softening tendencies that we see. But it seems to me there is a danger that the weakening that we see in progress will gain momentum and could possibly become cumulative. That is just a possibility. I don't see it, but it's possible. And much of what I've heard this morning increases my anxiety that there may be more financial strain out there than we recognize at the moment. One possible result of that is that a downturn could gather momentum. In the circumstances, I think our policy should seek to avoid encouraging any process of a cumulative downturn. It would not do that, I believe, if we accepted a much lower rate of growth in M-1B than was targeted. On the other hand, I think policy should avoid any attempt to achieve a precipitous easing of money and credit at this time. What we should do is to aim at maintaining current conditions while gradually trying to nudge M-1B back in the direction of the lower end of its target. It may well require some slight reduction in interest rates to maintain current conditions, but I think that would be desirable at the present time. This suggests to me that alternative B would make the most sense in the current situation.",278
-fomc-corpus,1981,"Let me just suggest that we can break pretty soon for coffee but that anybody who wants to make some general comments of the sort that have been made do so. I think that is useful. Let's dispose of that before asking everybody to make a [specific policy] comment. If the spirit doesn't move anyone, we'll go and have some coffee and come back and get more specific.",75
-fomc-corpus,1981,"Well, it seems to me we're seeing again what is the nature of a stable money supply target. It leads to very wide swings in interest rates. That in turn leads to possibly wide swings and very quick swings in the economy, with a ceiling placed over expansion and a floor probably placed under any contraction, but unfortunately with a great deal of damage being done to the machinery while these gyrations proceed. So, I'm concerned about a move to get back on track with M-1B. I think we're better off considering that as progress against inflation and money in the bank and not trying to undo it. I think we're in danger of repeating 1980. And back in 1980 I said that we were in danger of repeating 1971-79. We didn't do that; we did much worse. [I'd] preclude any risk on this score here. I do have to say, contrary to the implication of what I've said so far, that if I understand Steve correctly about M2, it sounds as though he is saying it's perversely interest elastic. That is, the higher interest rates go, the faster it grows. For that there is a precedent in the British experiment with sterling M3. They made that their number one target and it kept growing very fast. The implication seems to be that it attracted funds from outside the monetary aggregates, out of non-monetary assets, and so it grew faster the higher interest rates went and, therefore, substantially misled them. Evidently the aggregate they should have looked at was more nearly M1.",315
-fomc-corpus,1981,I'm not quite sure I heard Steve saying that.,10
-fomc-corpus,1981,"No, I was saying--",6
-fomc-corpus,1981,"I thought I might have heard him say that the first time around; the second time around, I don't think so.",24
-fomc-corpus,1981,"No, I was saying that there would be a tendency for that to occur because the depository institutions would raise the rates pari passu with market rates. And to the extent to which the Committee was determined to hit M2--and it probably could--that meant that rates would have to move up even faster, at the limit to the point where income was so affected that there wasn't enough savings to put in M2.",85
-fomc-corpus,1981,"Well, that's exactly what happened in England. Income was affected so much by high rates that M2, which after all is largely a function of income, slowed down as they achieved their sterling M3 [objective]. They got it under control but precisely by the route you described.",56
-fomc-corpus,1981,Which was a big recession.,6
-fomc-corpus,1981,"It was a big recession. Now, on the other hand, I see M-1B--",20
-fomc-corpus,1981,I'm not sure that's saying anything but that that's the way monetary policy works whatever M you use.,19
-fomc-corpus,1981,"No, it worked excessively. In other words, had they been guided by M1, they probably would not have been as tight as they were in pursuit of an ever rising sterling M3.",39
-fomc-corpus,1981,I think that's right.,5
-fomc-corpus,1981,"Well, I have the same doubts about M-1B. However, I think it is underspecified, whether you call that a very strong demand shift, high velocity growth, or whether you say that some part of money market mutual funds or other [liquid assets] ought to be included as transactions balances. In any event, it seems to me that it is potentially misleading to take it at face value and, therefore, some undershooting of M-1B as now specified doesn't seem to me to be as important as it would otherwise. That gets one back, of course, to looking at the real economy and looking at interest rates. Now, as I see the real economy, I recognize that we've had a very poor growth performance. But we've not had that bad a performance in unemployment; 7.5 percent is bad but it isn't as bad as one might have thought we would get from this degree of restraint; presumably, productivity is the main cause. So, I think we have to resign ourselves to low and occasionally negative growth for a while. Interest rates presumably will come down somewhat. I think if the public perceived that as an easing action, we would throw off altogether the wrong signal; we would get people saying that we've stopped fighting inflation and are starting to fight recession. And, I think the businessmen and bankers who say ""We're hurting, but hang on"" are precisely conscious of that. Then we would get another round and face the same problems at higher rates of inflation and, therefore, higher rates of interest. It's better to sit it out this time.",318
-fomc-corpus,1981,Governor Schultz.,3
-fomc-corpus,1981,"Well, I want to take off from a comment that Mr. Roos made on the subject of credibility. That's an issue that all of us have wondered about and thought about, particularly in view of the fact that there is a lot of pressure on this institution. We've had a lot of bills introduced in the Congress to restructure the Federal Reserve or to do away with it or, perhaps the one that makes the most sense, to impeach all members of the Open Market Committee! At any rate, it strikes me that our credibility is not at issue when it comes to whether we hit the bottom of the target on M-1B or not. Our credibility is really at issue in the more basic question of whether we are going to do the job that I think we were in essence created to do. It seems to me that the basic function of a central bank is to avoid deflation on one hand and inflation on the other. And I'm not terribly sure how successful we can be fine-tuning in between. My feeling is that maybe we shouldn't call this the moment of truth because it's going to be a lot longer than that. It's going to be a period of truth. I don't fear all of these bills that are in the Congress to change the Federal Reserve if we do our basic job of finally getting inflation under control. If we don't do that job, then what the heck is our reason for being? How do we justify our existence under those circumstances? It seems to me our basic raison d'etre would be gone. So, I think that's where the credibility issue is: whether we are in fact going to do the job that we were created to do. We've been criticized in the past, and I think a lot of that criticism is proper. But now we're at the point where we have to carry through and get the job done. I'm certainly not attempting to say that we ought to crush the economy but we just can't lose sight of the basic fact that what we're trying to do is to keep that steady pressure on--we have some luck here in food and fuel prices--and if we keep the pressure on, we can get some movement in the wage-price structure and begin to get this spiral going in the other direction. So, I for one think alternative C is the one that makes the difference. I agree that M-1B has problems and that M2 has problems, so it seems to me sensible to look at both of them and in some way to incorporate both of them in the directive. I would get terribly worried about going much faster than [alternative C] on M-1B because what happens, then, when we get to January? Not only do we run the risk of stimulating these latent demands--. Mr. Roos asked what difference interest rates make. Well, it strikes me that we've been keeping the interest-sensitive sectors of the economy under a great deal of pressure. And if interest rates do go down, that has a stimulative effect on those sectors of the economy. And then what do we do when we get to January if we're not going to pick targets that are lower than what we have here? If we're going to go to 6 percent or even faster [M-1B growth at this point], what happens then? Do we then tighten the screws and get the up and down effect again? So, anything that's faster than ""C"" would worry me.",687
-fomc-corpus,1981,Mr. Solomon.,4
-fomc-corpus,1981,"Well, I'll just make a general comment.",9
-fomc-corpus,1981,Pardon me? We're just making general comments.,10
-fomc-corpus,1981,"Yes, I understand. The conventional Wall Street view that you can't get inflation down without a significant recession is still heard in the financial community, but they all admit that if it's a typical short, sharp recession--six to nine months of downswing--it probably won't do much for inflationary expectations. People in the financial community and in the business community would expect that when the economy recovers the inflation level would then be back again at somewhere near the earlier level. I feel very strongly--I think many of us do, and I think Lyle and Henry were both saying this although in slightly different sounding ways--that we really need a sustained period of zero or very low real growth to change inflationary expectations. And, politically, in terms of the tolerance for our monetary policy, it also is somewhat better than the roller coaster. In addition, this time, given our present techniques, if we have a roller coaster in the real economy, we're likely to see the Henry Kaufman thesis prove true: That if we have a sustained upswing next year, interest rates will go to levels even higher than they did in the earlier peak. From all that, I conclude that we should try to follow a policy that focuses on what interest rate levels [we need] over the next few months and what path we should take to give us an economy that is neither in significant recession--or not even in technical recession if possible--and yet avoids the kinds of conditions that will lay a basis for an explosion later on. There is an enormous amount of pent-up demand. I find [staggering] the amount of bond issues that corporate executives passing through my office talk about being ready to start placing if interest rates come down just 2 or 3 points. Now, obviously, some of that will recede when interest rates do come down, if they do, 2 or 3 points in the long end of the market; some of them will want to wait for another 1- or 2-point drop. Even so, there will be an enormous volume of activity in the bond market and activity in the economy if we have too big a decline, if we repeat the 1980 pattern. So, given the confusion in the aggregates--given the fact that we're undershooting one and overshooting the other and all these changes that have been talked about--it seems to me that we ought to be a little more sensitive to the implications of interest rate movements in terms of their impact on the real economy in order to achieve, hopefully, the zero or slightly positive real growth that we've been talking about.",523
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"Mr. Chairman, I would mention the fact that the fiscal outlook has changed rather substantially since our last meeting, and that's going to have an expectational effect that will probably put us to a much greater degree at the friction point here in terms of our struggle. I don't think we should ignore that aspect.",61
-fomc-corpus,1981,Governor Partee.,4
-fomc-corpus,1981,"Well, I just have a quick comment. I agree with Tony that what we have to do is run our strategy for the long pull because it's going to take the long pull to get inflation down. I think it would be a very serious indictment of the Federal Reserve if it encourages a recession of size in this environment. I read the history of the Federal Reserve as indicating it was set up to provide an elastic currency, not that it was set up to stop inflation and pay no attention to the economy, Fred. Indeed, I think that's the thrust of the whole first 50 years of the System and its origins. What we have to do is to avoid seeming to add to a strong recessionary thrust, because I think we will lose the ball game if we do that. Now, I believe that serious protracted shortfalls from the lower end of our targets will give us exactly that image. I would not be so worried if M-1B in the next three months goes up 7 or 8 percent. That would be all right; we'll be below the target, but that's all right. What I'm worried about is that we'll have another 5-point shortfall from what we expect in the fourth quarter as we did in the third. And I think we have to guard greatly against that problem.",263
-fomc-corpus,1981,"If nobody else is thrusting their hand upward or whatever, we'll go have a coffee break.",19
-fomc-corpus,1981,"[In response to your question about Mr. Sadat,] he's either dead or alive, and that's all we know.",25
-fomc-corpus,1981,Has there been a market reaction?,7
-fomc-corpus,1981,"The dollar was up some, but not all that much. The gold price is up pretty far. Our intervention policy isn't associated with it. Well, I think we can proceed with somewhat more precise comments at this point. I don't know right now if I have anything in particular to add. I don't have much faith in any of these projections, I must say, as to the statistical relationships between borrowings and the money supply or interest rates or whatever. I think we have to assume that those relationships are highly unstable, to say the least. And the probability distribution around these estimates, if they are perfect as a measure of the central tendency, is enormously wide. I don't think anybody really has the faintest idea what the money supply is going to do on its own in the next month or three months. And I think we have to take that into account in making our decisions. The volatility of interest rates is a problem. The economy is soft; in some sense in the very short run there may be some risk of it getting softer rather than stronger. But there is a major risk, which a number of people have alluded to, of a yo-yo performance of the economy. That isn't going to be very helpful in terms of our longer-range objectives if it gets up a head of steam again in a time perspective of 6 months or so. Having said that much, let's proceed. Mr. Ford.",285
-fomc-corpus,1981,"Building on the remarks that a number of people have made, including what you just said, I would come down on alternative B. Our feeling in Atlanta, in looking at behavior of the aggregates, is that the alleged undershoot on M-1B is probably overrated as a worry. We feel that some adjustment should be made for the money market funds. Even if we put it at a tiny fraction of the money market funds, we would say that M-1B has been somewhat stronger than it appears in the adjusted figures. So I'm not too concerned about the undershoot, although the direction of the shift would be toward getting us back into the range. Looking at the alternatives that the staff has prepared, the one that looks most reasonable to me is something like ""B"" with a side constraint of some sort on M2 so that we stay around the upper end of M2 while we are at it. The fed funds range, if we are going to continue with the process, is sort of centered on where the fed funds rate has been in the last day or two, so that doesn't look bad to me either. So, I'd pretty much go with the targets of alternative B.",240
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"Well, Mr. Chairman, before we get into my specific comments on the alternatives, I'd again like to raise the question I brought up last month, which has to do with the relative weighting of M2 and M1. Yesterday I was asking Peter and Steve whether they had any particular insight about what looks to be a sudden very sharp collapse in M-1B. Steve made a very germane comment --I think we've often noticed this before--that these monetary aggregates may be telling us something about spreading weakness in the economy. One never knows that until well after the event. In any case, I would again like to refer to the way we used to give about equal weight in a judgmental sense to both M1 and M2. It seems to me that over the past several months, with the way the proviso clause has worked, there has been a risk of what I would view as overemphasis on M2, and I would hope to get back to a more equal weighing of those two [aggregates]. If we don't, we may have a real problem--at least in a public relations sense and possibly in an economic sense--of letting M1 go down too far.",241
-fomc-corpus,1981,Let me just inject that there is an official report here that Mr. Sadat is dead. Did you complete your comments?,25
-fomc-corpus,1981,"At the moment, yes sir.",7
-fomc-corpus,1981,Mr. Boykin.,5
-fomc-corpus,1981,"Yes, Mr. Chairman, I would associate my views clearly with Governor Schultz. I think alternative C is where we should be. He did a very fine job expressing the reasons, so I won't be repetitious by going through them again. But I'm strongly for ""C.""",55
-fomc-corpus,1981,Mr. Guffey.,6
-fomc-corpus,1981,"Thank you, Mr. Chairman. It seems clear, at least to me, from the discussion around the table that the informational value of M-1B particularly--and maybe M2 or all the aggregates--is suspect. As a result, I think we have to refer to what I believe Governor Gramley first cited, and that is the state of the economy. The fact that we are at zero or thereabouts in real growth seems to be exactly the objective we set out to achieve. The risk may be for a further downturn in the economy; I think it's a risk that we must take. To back away from it now would be a great mistake for the Federal Reserve. Having said that, my prescription would be for something similar to the current money market conditions and, in my view at least, alternative C comes closest to setting forth what we [recently] have been experiencing. Alternative C would be my choice, with the fed funds range that is shown there of 13 to 18 percent. On the other hand, I would prefer to have a borrowing level someplace in the $850 to $900 million range, at least initially, to insure that if weakness in the aggregates does show up very quickly in October, we won't precipitously push the funds rate down and, thus, other interest rates down.",265
-fomc-corpus,1981,Governor Teeters.,4
-fomc-corpus,1981,"I would come out for alternative B; I think we have been too tight. If we go for ""C,"" we might see the funds rate go back up to the top of the range, and I don't want to see the funds rate go up. I would like to see it in the 14 to 15 percent range. I think most of you who have been opting for the tighter alternatives also had the higher growth rates. I'm not sure that you have readjusted your perception of how slowly the economy is actually growing to the degree of tightness that has been prevailing over this year. So, I would opt for ""B"" with an average funds rate of about 14 percent, and I'm not worried about the $200 to $300 million in borrowing. I think that's about right because they will pay back as they have the opportunity. If we go with ""B,"" we will get some easing in the long-term rates, which is what we need very badly at this point, particularly in the mortgage area and in bond rates.",210
-fomc-corpus,1981,Mr. Morris.,4
-fomc-corpus,1981,"Well, Mr. Chairman, I think that the economy is already in a recession and that the fourth quarter is likely to be weaker than the staff has projected, which is not a very good climate for inducing rapid growth in M-1B. But I like the objectives of alternative B, and if we could come out with a result that showed us with a small shortfall in M-1B, a slight overrun in M2 and M3, and with bank credit in the range--and if I'm right about the recession bank credit should be well within the range--it seems to me that that package should be defensible to Congress and the public.",133
-fomc-corpus,1981,We have more than a slight overrun in M3.,12
-fomc-corpus,1981,"What I mean is that if the economy is weaker than the staff projection, then we will have a run-off of big CDs, which should bend the M3 line down. I would, however, change the Federal funds range to 12 to 17 percent. It seems to me that before we go below 12 percent on the funds rate, we ought to have a conference call to discuss the state of the economy. I would agree with Lyle: I would be very reluctant to see us repeat the mistakes of the spring of 1980 and in our monetarist zeal allow interest rates to get to levels that produce the big reactions. That's why I pick 12 percent as the floor.",141
-fomc-corpus,1981,Governor Wallich.,4
-fomc-corpus,1981,"Well, I would go with ""C."" I observe that there is no alternative this time that would allow for a tightening from where we are now. It's not offered on the menu and I wouldn't know how to go about producing it.",47
-fomc-corpus,1981,Just reduce all those numbers for the aggregates.,9
-fomc-corpus,1981,"But 6 percent on M-1B is a slight reduction from the 7 percent we were aiming at last time--though, of course, not achieving--and it seems to me fairly safe from being misconstrued. On the funds rate, I would note that a survey of 38 market people projects the funds rate by the end of 1981 at 15-1/2 percent, up slightly from where it was when the survey was taken. So, the market doesn't seem to be expecting a large decline, and the 13 to 18 percent range of alternative C, therefore, seems to me quite reasonable. I'm also reassured that these paths are likely to produce reasonable looking--in fact very tight looking--paths for nonborrowed reserves and total reserves. In retrospect, this 20 percent growth of nonborrowed reserves for the last three months looks peculiar, even though there were reasons why it had to be so in constructing the path. But a nonborrowed path of 4 percent and a total reserves path of 3 percent look extremely moderate. I think that's a plus for this alternative. My inclination for borrowed reserves would be on the high side of the $900 million to $1.2 billion range. Thank you, Mr. Chairman.",258
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"Well, I'm worried about the economy going down deeper than what the staff has forecast before it comes back again. I don't disagree with the overall forecast, which goes to 1982, but I think we are looking at a prospective weakness that may be of larger dimensions than the staff has put down on paper yet. In adopting a directive this time, I think we've got to give more weight to holding up the growth of M-1B and focusing less on M2 than we have in the past. I would do that by going back to a formulation in which we incorporate both M-1B and M2 into the initial stipulation rather than having a proviso clause for M2. We ought to avoid a 1980 kind of drop in interest rates, but I don't think any drop in interest rates is going to be damaging to us. Some drop in interest rates in the context of a weakening economy and very slow growth in M-1B is essential if we are going to maintain a public posture that it isn't very heavy handed inflexibility on the part of the monetary authorities that is causing all this damage. So, if we could get to an agreement on directive wording which places some additional weight on M2 [rather than have M2 in a proviso clause], then I could buy something like halfway between ""B"" and ""C."" I think Frank has made a good point: That lower limit on the funds rate in ""B"" of 11 percent is quite low. I could go with something like a 12 to 17 percent range.",316
-fomc-corpus,1981,Mr. Boehne.,6
-fomc-corpus,1981,"I feel most comfortable between ""B"" and ""C"" and balancing the need to get some more growth in M1 while avoiding a bulge. Also, I'd like to align myself with those who would drop the proviso clause for M2 and put it in the Committee's initial stipulation. I think we have to give M1 and M2 equal weight and I would underscore that.",79
-fomc-corpus,1981,Mr. Keehn.,5
-fomc-corpus,1981,"Given where we are now, and supporting Governor Schultz's comments about the possibility of making significant gains [on the wage/price front] next year, if I had to come down on one of the alternatives, I would come down on ""C."" But if there is a growing feeling that we could have something midway between ""B"" and ""C,"" I would opt for that. I sense that there is enough noise and confusion in M2 that I would put greater emphasis on M-1B and would suggest that when we set the target for that aggregate we really try to achieve it.",119
-fomc-corpus,1981,Mr. Schultz.,4
-fomc-corpus,1981,"Well, I've made my general comments. I feel that the economy is going to be weaker in the fourth quarter than the projection. I think we are going to have trouble keeping M-1B even at the level of alternative C. I don't see that alternative as being very restrictive, frankly. So, I would come down on alternative C, with initial borrowing at $800 million, an M2 proviso, and a fed funds range of 12 to 17 percent.",96
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"Well, Mr. Chairman, I would preface my remarks by saying that I still consider myself to be as hawkish in my desires to give top priority to dealing with the problem of inflation as one could be. On the other hand, as I recall when we set our annual target ranges this year, they represented a gradual reduction from the previous year and they were intended as an anti-inflationary program. By opting for alternative B, which I would prefer, I don't think I would in any way be relinquishing my underlying concern about inflation. On the other hand, if we are too restrictive--if we go for ""C"" or more of an undershoot of our targets than that--we are really digging our own grave because I think there is a relationship between the rate of M-1B growth and real output; and if real output continues to [weaken] significantly, we are going to have in our economy and in our body politic a reaction for strong stimulus next year to get ourselves out of a recessionary situation. And that poses a real threat to our long-term efforts to cope with inflation. So, alternative B is a reasonable middle ground. We will be getting up toward the lower end of our target, which was an anti-inflationary target. We cannot be accused of tolerating a continuing and persistent undershoot, which in many people's minds would be a factor in causing a further softening of the economy. I think ""B"" is the best solution, remembering that it is an anti-inflationary and not an expansionist alternative.",319
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Mr. Chairman, I am not as disturbed as some members of the Committee are by the so-called shortfall in M-1B, even though I would concede in the ideal order of things that M-1B is probably what we should be looking at. When I look at that aggregate this year, shifts into money market funds, mutual funds, and even the possibility that all savers money might come out of there leave me quite comfortable with the general pattern of its behavior, particularly in the context of the broader aggregates, and in the context of what it would take to get it back near the bottom of the range for this year. Somebody mentioned earlier that we should be conducting policy with an eye on the long haul and I certainly agree with that. I very much agree that we must avoid another of the very sharp swings in interest rates. And the point that Governor Schultz made about the trajectory for 1982 is rather critically important in that context. In the current setting, obviously, there is a great deal of attention and sensitivity focused on this Committee. [There is] a particular element of sensitivity out there to any major signs of some give on the part of the Fed. That sensitivity is particularly important among the group of people who really are important in determining what happens over the next couple of years: the business leaders who set prices; the union leaders who negotiate wages; and the institutional money managers who have to make decisions whether to buy some long-term paper or not to buy some long-term paper. Given all of that, when I look at alternative B and see that the staff says, for what it's worth, that ""B"" would involve monthly growth rates of M-1B shift adjusted of 7-1/2, 10-1/2, and 11-3/4 percent out through December, I am very, very troubled by that. I think that pattern of monthly behavior, even in the context of the shortfall that we have seen earlier in the year, would run a real risk of compromising what has been achieved to date in this effort to get inflation down. And in the context of that trajectory question, it might well leave us in the worst of all worlds. In that light, I think that we clearly should be taking a very, very go slow attitude. That is reinforced, in my judgment, by the recent behavior of the reserve aggregates. And on a less technical note, it's also reinforced by a thought that the law of averages is running against us in some sense. One of these months interest rates and everything else notwithstanding, the money supply is going to jump for whatever reasons. And, in terms of the economy itself I draw some consolation from the fact that there are very sizable latent demands out there that will resurface as interest rates come down and will have a tendency to surface in any event in the environment of the tax cuts that are now on board and will be coming on line next year. In the light of all that, I come out rather squarely on alternative C, with some disposition toward initial borrowings of around $1 billion or so. As usual, the big question is what do we do if we are not on that track as the period unfolds. There is one other comment I would like to make, too. We've all been talking about this credit problem and financial shakiness or whatever it is out there, and obviously we should be talking about it. When I think about that, the worst of all situations there for me would be for us to find ourselves getting blindsided by some development that we have totally missed in our intelligence gathering and other activities. That, too, could compromise our ability to hang in there. I also would suggest that there are things that we can do, at least in our intelligence gathering activities, to try to minimize the likelihood of getting totally surprised. And I for one would like to see some efforts made in the direction of redoubling that intelligence apparatus to try to sensitize ourselves fully to what may be out there.",810
-fomc-corpus,1981,"Mr. Balles, I guess we're back to you.",12
-fomc-corpus,1981,"I didn't express myself on the alternatives earlier, Mr. Chairman. But I do want to allude to what I thought was very interesting work that the Board's staff has done on the likely downward shift that is taking place in money demand. Our staff was taking a look at that and pretty much concurs. What that says in practice, to me at least, is that observed M-1B may in fact be about where we are in terms of the effects of money. That takes some of the sting out of the apparent undershoot in shift adjusted M-1B. But having said that, I would hate to see us fall further behind in the transactions component. In view of my hunch that there has in fact been a significant downward shift in money demand, I would be in favor of alternative C to get us up to the lower end of the range for shift adjusted M-1B by year-end. Again I would urge that in following those paths we ought to give equal weighting, as I mentioned earlier, to both M1 and M2.",213
-fomc-corpus,1981,May I add one [comment]?,7
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"I think it's important that we think ahead to the end of the year into February when we're going to have to set our targets for next year. If we opt for ""C"" and M-1B really comes in as projected in ""C,"" we'd have average money growth of M-1B for this year of about 1.9 percent. Then what are we going to do in February when we have to set next year's targets? Are we going to indicate at that time that we've all of a sudden become very expansive and set the ranges up to where they would be 1 percent below this year's announced targets, or are we going to reduce them further from the 1.9 percent average growth this year? In other words, if we don't bite the bullet now--if we don't get [M-1B] up there in the range--we're going to face that same concern of public perception of an expansive policy next February. And it will be even more dramatic when we set annual rates if we set them from a very low growth rate for this year.",217
-fomc-corpus,1981,"Larry, that's not the problem, though. If we did ""B,"" M-1B would be running at a 12 percent annual rate in December. Then we'd go into the new year and let's say we set [the midpoint of the target for M-1B growth] at 4 or 5 or 6 percent or whatever we want to do for next year. That's a lot of leeway; then we'd really have to turn that screw. That's the problem we run into: If [M-1B growth] is going up like that and all of a sudden we have these lower targets, then we really have to shut down on the economy. And it seems to me that's what we want to avoid. We want the continuity of running along from here rather than getting into the kind of box that you're thinking about.",169
-fomc-corpus,1981,"Well, I think there's a middle course between the expansionists--I won't use the expression you did--a difference between going high and going low. I do see a problem next year. If our growth has been very slow this year, we're going to have to raise it next year, aren't we? Even though it would only be in the last month, we'd have to explain if we took a more expansive approach that it was merely to get us to or near the lower end of our anti-inflationary targets for the year 1981. I may be off base. Am I?",120
-fomc-corpus,1981,I just want to avoid this yo-yo.,10
-fomc-corpus,1981,"We got ourselves into the problem by permitting ourselves to undershoot to the extent that we did, I would guess.",23
-fomc-corpus,1981,"Well, on that point, Larry, I think one has to average through. We can face the question when we get to February as to what we say. One thing would be to base it on the fourth quarter of 1980 and look at the two years combined if we're way short. That would also tend to take care of your problem, Fred. I agree with Jerry that we're going to have volatility in the money supply. I just wish we would have some volatility on the up side because it has been quite a while--April I think was the last month when there was a really strong [M-1B] number--and we're about due. I'm a little concerned that we may not get it because if we are in fact moving into a somewhat faster decline in business--I avoid the word ""recession""--it seems unlikely that we're going to have strong money growth. So, we may in fact be facing this over the next several months. As I said before, I think we have to fall short on the year. We just can't ask for a 12 percent increase in M-1B from September to December, and even that won't quite get us there. The public wouldn't understand. It's just too radical. I could accept ""B."" I could shade M-1B in ""B"" to 8 percent, which I think would be a reasonable objective. I don't think the monthly pattern the staff has in those numbers means anything. We could have an 11 percent growth rate for December or we could have 3 percent or 18 percent. We don't have any idea what the month of December is going to bring. But I think the central thrust of our policy ought to be to begin to return to the bottom of the M-1B range, and 8 percent seems to me suitably fast to plan for. I'd consider ourselves very lucky if we get that high of a number in those last three months. I would also agree with several who have suggested that maybe the federal funds rate range ought to be 12 to 17 percent. That's not because I don't think rates are going to come in low. Let me point out to you that the staff projection for the rate of inflation next year is 7.1 percent. Now, assume they're wrong. A lot of people think they're too low. Assume it's 8 percent. Still, these rates are too high for that rate of inflation. And in a recession environment we can't have much of a real rate and expect to get the stimulus to the economy that will bring it back. So, we might have a temporary problem with borrowers coming into the market because rates are lower than they have been. But I don't think it will last if, in fact, the rate of inflation does tend to wind down, as most forecasters now are anticipating. So, we really have to get from where we are to a level of rates, it seems to me, of about 8 to 10 percent. It's a question of how we manage that reduction in the rate level over a period of time if we want to have a reasonably bland economy. And I would, of course, change the emphasis, as suggested, away from too much emphasis on M2. I think the way that Lyle suggested is a good way of doing it. That $200 million for borrowings is at the end of the period, I believe. Steve has left the room, but I think the idea is that borrowings might work out to be $200 or $300 million by the end of the period. I think the [initial level] ought to be about $800 million or something like that.",738
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"Mr. Chairman, I get a little nervous about the 42-day gap before our [next] meeting with any of these specifications. I don't know how to assess the Sadat situation. I don't know whether we're faced with the problem of increasing retardation in business activity or whether this is temporary and the economy will bounce back. I'd hate to see us with any of these limits with a negative rate of growth of M-1B in October. That's not viable in terms of the political side. On the other hand, I don't want a precipitous rate decline. I'd rather put some sort of limit on the M-1B growth and a narrower funds range and in 20 days consult again as to what the implications some of these rather dramatic events are going to have for us. To set up wide specifications for a 42-day period I think is a mistake at this juncture. I'd prefer something between ""B"" and ""C"" in terms of the aggregates and I'd like to consult at the 13 percent level [on the funds rate]. But I'd sure hate to see that [rate] go up over 16 percent at this time until we have a better feeling as to which way to turn. By the end of the period we may have to make changes on both of these.",261
-fomc-corpus,1981,Mr. Solomon.,4
-fomc-corpus,1981,"Well, following up on what I said earlier, and I think a lot of other people had the same kinds of objectives: If one makes the assumption in this most uncertain of uncertain worlds that a gradual interest rate decline of a couple of points over the quarter provides the best chance of maintaining an economy that avoids recession and yet avoids an upsurge for the next quarter or so, then I would prefer the objectives of alternative B. But I don't think we will achieve the objectives of alternative B if the economy is as weak as I think it is. We have a curious situation. If the economy is as weak as I think it is, we're not likely to get even the growth that is outlined in alternative C. And, I don't want to see too big a drop in interest rates. I don't know quite how to reconcile this. It seems to me that we have to start off with something that is not a precipitous change in borrowing. So, we have to start off with something like $800 million. It's perfectly all right to have a target [for M-1B growth] between ""B"" and ""C"", say, 7 to 7-1/2 percent. I don't think it's too meaningful. It's more meaningful if we relax the constraint of M2. I wasn't quite sure how Lyle wanted to formulate the relaxation of the M2 constraint. How did you want to formulate that?",285
-fomc-corpus,1981,I'd take it out of the proviso and put it up on a collateral basis with M-1B.,22
-fomc-corpus,1981,Does that include a target?,6
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Oh, yes. We'd specify reserve aggregate behavior consistent with growth of M-1B and M2 at such and such percentages, respectively, taking into account NOWs and all savers.",38
-fomc-corpus,1981,Okay. But I have a problem there because I think M2 is likely to be stronger than the 10 percent indicated here for alternative C. I think it's still likely to be about 11 percent.,41
-fomc-corpus,1981,"That's ""B.""",4
-fomc-corpus,1981,"If you did that, would you also put in this language about the all savers?",18
-fomc-corpus,1981,Yes. MR. PARTEE and,7
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Your worry that we may have a weaker economy is a real one, Tony, and I share it. And we don't want a precipitous decline of interest rates. What would happen is that it would trigger a consultation.",44
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,"We would have to ask ourselves at that point if the incoming news was sufficiently weak that we ought to lean in the direction of slightly lower interest rates or not. So, we'd revise our targets.",39
-fomc-corpus,1981,"That's why I would recommend a fairly tough [floor]--in other words, a 13 to 18 percent range--in order to have a consultation. Even 13 percent represents a drop of about 2-1/2 points and I think we ought to have a consultation at that point to avoid just following it blindly all through the quarter if it looks as if it's going to press way below 13 percent. In summary, where I stand is a 7 to 7-1/2 percent target in M-1B, relaxing the M2 constraint language somewhat--although I'm not sure that we should put in a numerical target if there's another way of doing it--a 13 to 18 percent fed funds rate range, and an initial borrowing level of $800 million. I don't think we're going to end up anywhere near these numbers if the economy is as weak as most of us, including the staff, think it is.",191
-fomc-corpus,1981,"Well, M2 could still be pretty strong, but M-1B could fall well short.",20
-fomc-corpus,1981,"Yes, that's right. The reason I'm so confused is that we've pumped in nonborrowed reserves at the rate of 20 percent but we have had an increase of only 1.8 percent in M-1B. And I'm thoroughly confused. I know what I want in the way of objectives; I don't see how to have these paths lead us there.",73
-fomc-corpus,1981,Lags kill you every time!,7
-fomc-corpus,1981,Mr. Monhollon.,7
-fomc-corpus,1981,I'm encouraged by some of the price statistics and the prospect that union settlements next year may be smaller than they have been.,24
-fomc-corpus,1981,What are you encouraged by? Tell me.,9
-fomc-corpus,1981,"Oh, by some lower rates of growth in the consumer price indexes. And I certainly wouldn't want to do anything that would worsen inflationary expectations. But, as has been discussed around the table, I think there's some danger that the liquidity bind that a number of businesses are in could produce a wave of bankruptcies that might result in a sharp slump. My concern on this score is reinforced by the extremely sharp and sustained reduction we've experienced in shift adjusted M-1B this year. As for M2, the possibility that it will come in over target doesn't disturb me as much as it does some. As has been discussed, there is a great deal of noise in the nontransactions component of M2 and it's difficult to interpret what it means. In addition, it's difficult to control the nontransactions component of M2. Given the changing composition of this component, I wonder if we can be sure whether it's positively or negatively correlated to the funds rate. In some way the work that we're doing suggests that it may be positively related and that efforts to hold down [M2] may produce the principal result of keeping M-1B well below the lower limits of its range. And that would be unfortunate. So, I would concur with the idea that the M2 proviso be dropped from the directive. I think there are some distinct risks in failing to get M-1B growth up fairly close to the lower end of our target range. The issue of credibility has been discussed. I don't know on what credibility hinges exactly, but I think there's some risk to our credibility in failing to hit the 3-1/2 percent [lower end of the] target range that we announced in July. There's a risk, too, of contributing unnecessarily to what appears to be a developing recession. And there's a risk, as was discussed earlier, that a very low rate of growth for M-1B in 1981 will complicate our targeting for 1982. So, this leads me to suggest that we try to get as much growth in M-1B as we can by the end of the year without unduly upsetting the markets.",431
-fomc-corpus,1981,"That's impossible, if I may say.",8
-fomc-corpus,1981,"We certainly wouldn't want to encourage people to think that we've thrown in the towel on the inflation fight. How much we can do, I don't know. But maybe ""B"" is about the best we can do, starting off with a borrowed reserve target of around $750 million and pushing it down as we find necessary to accelerate the growth of M-1B.",73
-fomc-corpus,1981,"Mr. Rice, you expressed yourself earlier, I believe, and so did Mr. Guffey.",21
-fomc-corpus,1981,"On M-1B I would go along with raising the lower end of the federal funds range up to 12 or even 13 percent and I would like to see borrowing fall no lower than, say, $500 to $600 million.",49
-fomc-corpus,1981,You don't have a very clean-cut alternative.,9
-fomc-corpus,1981,Not that that makes a difference.,7
-fomc-corpus,1981,"I'm sorry, I didn't catch all these.",9
-fomc-corpus,1981,"Well, I said I'm for alternative B. I said that earlier.",14
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,But in light of the discussion I would go along with raising the lower end of the federal funds range under alternative B from 11 to perhaps as high as 13 percent. And I would not want to see the borrowing fall below $500 million or maybe even $600 million.,56
-fomc-corpus,1981,You mean no matter how weak M-1B is? You'd put a floor on borrowing?,20
-fomc-corpus,1981,On borrowing I would be inclined to want to do that.,12
-fomc-corpus,1981,"Look, I think we've been through the list. I just want to take care of another matter for about three minutes, if you will just excuse me, and we will come back to this.",39
-fomc-corpus,1981,Maybe we should resolve never to meet on October the 6th.,14
-fomc-corpus,1981,"It is a bad day, isn't it?",9
-fomc-corpus,1981,"It's a matter of whether we should intervene in this market. [The dollar] went up a bit, a percent or more, on President Sadat's death. Since then it has come back. I don't see any urgent need at the moment but we will be in contact with the Bundesbank and make sure that they know we're willing to be helpful if we can be of any help. But at the moment we're doing nothing.",86
-fomc-corpus,1981,It was up to 2.29--,9
-fomc-corpus,1981,"I may have to talk to the Bundesbank, so if I get interrupted again, that's what it is. There may be some thread to all of this, for all of the confusion. The problem is that none of us can rely very well on any of these statistical projections. Certainly this is a time when we may have to stay closely in touch because we don't know what is going to happen. Things will look quite different than they look today. We had a 7 percent increase in M1 in August, and September looked as if it would be up until we got some [new] figures, one of which hasn't even been confirmed yet. And, if we had the pattern that Mr. Corrigan is suggesting that was in the paper, I think it would look awful. If we had growth, but because it was a big bulge suddenly in October which we didn't have to react to, it would look quite different. I think [the money growth numbers] are just plain unpredictable. So far as the threat of recession is concerned--it depends upon how you define recession--that's not the forecast that has been given to us, which people did not take great exception to, but I share the feeling that there's a danger in balancing the risks in the very short term. There could well be a risk that things will get significantly worse rather than better in terms of that forecast. I'd just repeat that in a sense I think those are the risks we have to take. We have a very restrictive policy; I think those risks were there all along. That doesn't mean we should go out of our way to aggravate it or create a provocation, but I don't think we should be surprised if those risks arise, given the configuration of economic policy generally and the kind of problem that we have. Indeed, it would probably be a miracle if we get through this without a recession--something that goes in the books at least as a mild recession--because everybody loves to have recessions and they're very quick about calling things recessions. There is an automaticity in all of our policies in that as this pronounced sluggishness remains, interest rates should tend to go down as short-term rates have been tending to do for a couple of months. And, presumably they would continue to do so under those circumstances. The big problem, and maybe the only question there, is that an enormous amount of Treasury financing has to be done. We've had a glorious period of short-term rates going down 2 or 3 percentage points and long-term rates going up, which is not very helpful in some sense, and there's nothing we can control just by pumping out money. It may have the opposite effects, but we have the hard reality of all that Treasury financing out there.",553
-fomc-corpus,1981,Aren't they projecting $50 billion for the next quarter?,13
-fomc-corpus,1981,"Well, we're projecting $37 billion, I think; it's only about $3 billion a week or something of that kind! Well, I'm including the off-budget finance to the Treasury, but I'm not including the other. But it's an enormous amount of financing.",52
-fomc-corpus,1981,You're talking about the financing need in the fourth quarter?,11
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,I think the Treasury looks for something in the mid-$30 billion area; $35 billion or so is what the market expects.,26
-fomc-corpus,1981,"Or it just could get higher. In any event, frankly, getting M-1B in the range is very much a two-edged proposition so far as I'm concerned. It has the moderate merit of looking great when we're testifying, but it doesn't look great even when one is testifying if M2 and all the other aggregates are above the range. I'd rather have [M-1B] below the range if the others are above, quite frankly, just in the pure presentational sense. But a great big increase [in M-1B] is not going to look good to what I will call the market or to people wondering what we're doing and whether we're easing aggressively in the face of sour business news. Also, just in terms of the performance for the year as a whole, while it's very hard to evaluate the quantitative magnitude, there are reasons to believe that M-1B should be lower than we thought when we set the targets, particularly in light of the effects money market funds, which have only doubled or more this year, have on that particular aggregate. I also recognize that it may have the other kind of effect on the other aggregate. But the interpretation that is going to be put on this and its real effect depend upon whether we have to push or whether we accept it, and that's what we've been struggling with here. I think there is--if I detect it correctly--some fair reluctance to push M-1B growth too high. It's a matter of judgment what too high means. On the other hand, there's quite a willingness to accept a high number if it can come without pushing too hard. I don't know whether that's possible or not. That's about where I am anyway, and I suspect that sums up the feeling that a lot of people have. If we take this backwards, what is your infamous borrowing number at the moment--$875 or $884 million or thereabouts?",387
-fomc-corpus,1981,$880 million is the present implied level.,9
-fomc-corpus,1981,"And that has come down a lot, of course. As a matter of instinct, although it is alleged to be inconsistent with alternative C in being too low, it doesn't seem to be inconsistent with interest rates where they are and moving lower if M-1B continues weak, which is the normal repercussion we would have to that. So, starting out around that level may tempt us to be slightly lower than where we are and it seems to capture the midpoint of what is proposed anyway. The same thought is reflected in all these feelings; [namely], that we should have a consultation if the federal funds rate gets around 12 percent. I don't have any problem with that. In some sense, those are the two most operational decisions we will make here. We'll see what happens with that approach.",161
-fomc-corpus,1981,A beginning [borrowing] level of what?,10
-fomc-corpus,1981,Around $800 million.,5
-fomc-corpus,1981,And a funds rate [lower limit] of 12 or 13?,15
-fomc-corpus,1981,"Well, I've not specified that at the moment. One or the other.",15
-fomc-corpus,1981,Does that give the staff enough information to construct the reserve path?,13
-fomc-corpus,1981,"I'm not going to stop there, but I'm just saying that the operational [decision] that's important would be how we handle the concern. Just in terms of these various alternatives, I myself think the weight of the argument is on something like ""C"" in terms of its presentational and other effects. That doesn't mean that if we got a burst--if October turned out to be the long awaited month of some bulge in M-1B--we would react. It would imply to me that we wouldn't react to that at all fast or at all, if it's just in October. If we ended up above the ""C"" specifications as a result of a bulge in October, it's not going to make anybody terribly unhappy. On the other hand, I don't really want a specification that forces us to ease and push so hard that it conflicts with what I think was the tone of what people said--in effect, that they don't want to push that hard simply to get within a range. And I would attach some importance to M2. Now, whether that's put in the form of a proviso or of equal weighing, which some people have suggested, isn't a crucial issue to me. I think that's what it amounts to anyway.",249
-fomc-corpus,1981,I would prefer the equal weighing.,7
-fomc-corpus,1981,"I suppose that would leave me at something like ""C,"" with borrowing of $800 million; and if you want to make it equal weighing of the two aggregates, that doesn't bother me. I don't know, but 13 to 17 percent is fine with me as a benchmark to trigger a consultation, which is what [the bottom of the ""C""] range is. I do not have a strong feeling that if money were really weak we would stop at 13 percent. That's not my gut feeling at the moment. But if that's an appropriate place for consultation, it's perfectly satisfactory to me.",120
-fomc-corpus,1981,"Mr. Chairman, could we have an understanding of consulting but at the same time not narrow the fed funds range in the directive to a 4-point spread? That's going to be interpreted as our moving back toward concentrating on controlling interest rates rather than what we've really said we're doing.",56
-fomc-corpus,1981,"Well, it's a pretty subtle point, but we have sometimes had 4-point ranges and sometimes 5-point ranges.",24
-fomc-corpus,1981,It's been 5 or 6 most of the time. MR. CORRIGAN(?). [13] to 18 percent?,28
-fomc-corpus,1981,[I prefer] 12 to 17 percent. Do you really want a target of as low as 10 percent on M2 and 6 percent on M-1B?,36
-fomc-corpus,1981,"[We could] continue last quarter's intermeeting target of 7 percent. I don't think it's very important, frankly, this time; it's not as important as the other decisions.",37
-fomc-corpus,1981,"We could say ""7 percent or somewhat more,"" or something like that.",15
-fomc-corpus,1981,"I'd have some preference for that. If we said 7 percent last time and say 6 percent this time, I think we're saying the wrong thing.",31
-fomc-corpus,1981,After having missed 7 percent so clearly.,9
-fomc-corpus,1981,"Well, I think one can argue just that. It's what we said before and that [will be announced soon]. It's not going to surprise anybody if we say 7 percent again. I'd be a little concerned about the ""or somewhat more"" if that implied that 7 percent was the minimum to which we were going to push at all cost.",70
-fomc-corpus,1981,It's a very high number anyway.,7
-fomc-corpus,1981,"Well, I was thinking of accepting a higher number. That's why I asked.",16
-fomc-corpus,1981,"As I said, we just cannot predict. If the higher number came about without our pushing it that hard, that's one thing. We'd accept it and say: That's fine, we were low on the target; there's no great strain here and we don't have to tighten up promptly because it's above 7 percent or whatever.",64
-fomc-corpus,1981,"Does a 10 percent number for M2 mean that we take out of the actual number whatever we're attributing to all savers in there and the 10 percent means an underlying growth of less than that? We'll get, I think, very [unintelligible].",55
-fomc-corpus,1981,"How much impact, just on a quarterly basis, say, are we talking about here?",18
-fomc-corpus,1981,"Well, if you took our lower estimate of 1/4 of a point for the year, it would be 1 percentage point on a quarterly basis.",32
-fomc-corpus,1981,"Quarterly average, Steve, or for 3 months?",12
-fomc-corpus,1981,"No, that's 3 months.",7
-fomc-corpus,1981,"How about ""10 percent or somewhat more"" for M2 to convey the idea of a less constraining influence of M2 on M1 growth.",30
-fomc-corpus,1981,"I don't think it's a good idea to put the numerical target for M2 in the directive. I think we ought to relax the constraint very slightly by saying ""at or slightly above,"" which gives us some leeway.",44
-fomc-corpus,1981,At or somewhat above the range for the year? That's 9 percent.,15
-fomc-corpus,1981,"Right, ""at or somewhat above the range."" So, I'd say we're talking about up to 10 percent. I don't think we're going to hit the 6 percent [lower end of the range], so even though 10 percent is low if we were figuring on reaching 6 percent, I doubt we're going to hit the 6 percent with the economy as weak as it is.",78
-fomc-corpus,1981,"But if we stick that in the proviso clause, then in effect what happens is that the weakness in M-1B has a very, very small influence on what happens at the Desk. I think we have to give more weight to what is going on in M-1B. The danger that you worry about we handle with the consultative process by specifying the federal funds rate more tightly.",80
-fomc-corpus,1981,I must say that I see little difference between numbers and the proviso. They're both there in the directive.,22
-fomc-corpus,1981,"Well, does it make a difference in the way the Desk operates as to whether it's in a proviso?",22
-fomc-corpus,1981,The difference would be only if it reflected a different understanding of what the Committee preferred. That's what it would depend on. It wouldn't be a matter of wording but what the Committee actually prefers.,38
-fomc-corpus,1981,"Well, as I said last time, technically a proviso is much more limiting than giving equal weight. A proviso means you give total weight when the proviso is in effect. Now, that may not be the understanding that everybody has. But reading the English, that's what one would conclude it means.",62
-fomc-corpus,1981,"In fact in this last period, M2 would have been significantly--I guess that's the right word--above the proviso except for the information we got a week ago. It suddenly revised downward in September 10 days ago.",46
-fomc-corpus,1981,"But we had decided last time, you remember, that even though it was a proviso, we were going to regard it as not a proviso.",31
-fomc-corpus,1981,"I do not accept that language, but in fact it was running higher than the top end of the range and we did not cease providing more nonborrowed reserves for that reason [unintelligible].",41
-fomc-corpus,1981,Why didn't it act as more of a constraint in August when M2 was growing at 12.1 percent? Why didn't it result in a change in the nonborrowed reserve path?,38
-fomc-corpus,1981,It was sort of in the range that was expected for August at the time of the meeting.,19
-fomc-corpus,1981,The Committee accepted a high M2 in--,9
-fomc-corpus,1981,The path for M2 was something like 14 percent.,12
-fomc-corpus,1981,"Oh, I'll be back in just a second.",10
-fomc-corpus,1981,"Based on the last quarter, you're saying that it was running at what, about 9.4 percent? Was that the highest it reached in August?",31
-fomc-corpus,1981,"Yes, over the fourth quarter. It probably was a little less than that; but if we put retail RPs back in, it would be more like that.",33
-fomc-corpus,1981,"But we don't have any idea how many all savers certificates have been sold, or where they're coming from. We're buying a ""pig in a poke"" if we constrain ourselves with M2.",39
-fomc-corpus,1981,"I think the argument was reasonably solid a month ago--what Governor Partee put forth--but I just didn't go with it. But the argument seems to me overwhelmingly strong now when the M2 number is being affected by something that we simply cannot measure. We will have no idea for some months, if then, what the all savers certificate has done to that number.",75
-fomc-corpus,1981,"Whatever weight we put on M2 at the last meeting, we have to put less on it now, I would think, because of the all savers distortion. And we have less information to guide us on an all savers adjustment than we did with the NOW account adjustment for M1. We really have nothing to go on for all savers. What we could do is publish an adjusted M2.",82
-fomc-corpus,1981,"Steve, adjust it.",5
-fomc-corpus,1981,You want to publish an adjusted M2?,9
-fomc-corpus,1981,"No, please.",4
-fomc-corpus,1981,Take out half the all savers.,8
-fomc-corpus,1981,"Is there another nonquantitative way, or non-numerical way, of formulating M2 other than with the phrase ""at or slightly above"" that I suggested earlier? Lyle, can you reach your objective without putting in a numerical target?",51
-fomc-corpus,1981,"Well, if we don't put in anything for M2, then no one knows definitely how to interpret any words we might use. If we use words and M2 growth goes up to 15 percent, what do we do given those words? If it goes to 10 percent, what do we do? We have to be able to specify what specific action will follow upon a particular pattern of growth of M1, otherwise M2 will be totally ignored. If we totally ignore M2, then what will happen is that M-1B will become the only target of policy. And then we have the possibility of having a tremendous decline in interest rates. So, it seems to me that the reasonable way out of this is to put M1 and M2 on a collateral basis in the directive and specify something about the uncertainty with which the M2 number is going to be [viewed].",180
-fomc-corpus,1981,"We can say ""about"" or ""around,"" and fuzz the actual numbers.",16
-fomc-corpus,1981,"There is another option, which I don't think much of, but we could do it. And that is to start out the way that Chuck and Lyle are saying but to put in the directive that to the extent M2 departs significantly because of all savers certificates or for whatever reasons we would have a consultation. So, it would be couched in terms of triggering a consultation rather than triggering a shift in the reserve path.",87
-fomc-corpus,1981,"Well, if we narrow the fed funds range somewhat, that's in effect what happens.",17
-fomc-corpus,1981,Not if it's all because of all savers certificates.,11
-fomc-corpus,1981,"We tried to allow for that with the suggested wording in the directive that says: ""It is recognized that the behavior of M2 must be evaluated in the light of effects of recent regulatory and legislative changes, particularly the public's response to the availability of the all savers certificate.""",56
-fomc-corpus,1981,"Whatever way it goes in there, there ought to be some sentence to that effect. We have to evaluate that.",23
-fomc-corpus,1981,"Steve, do you have enough of a gap between M1 and M2? For the year it looks as if the differential is going to run about 7 percent and none of these for the fourth quarter is coming anywhere near that much of a difference.",51
-fomc-corpus,1981,"Well, we do think there will be some rebound in M-1B relative to M2, which will narrow the gap that has developed thus far this year. We could well be wrong on that, but that's our view at the moment.",49
-fomc-corpus,1981,"Let me just go back. I still don't see particularly that it makes any difference how this is worded, frankly. What we did last time was that we didn't react very fast to M2 being high, and the Committee understood it would be high in August. What we did was pretty directly to follow the reserve path for nonborrowed reserves, which left total reserves short. We would have had--if we were just operating on M-1B--a greater case for making a so-called discretionary judgment to push up nonborrowed reserves even faster. They were going up at a rate of 20 percent a year. For several months we did not take that discretionary action, partly with an eye toward the proviso; but since we thought it was strictly above the annual target until 10 days ago, the fact that it was slightly above the annual target didn't stop us from continuing on the full nonborrowed reserve path. This business of a shortfall, if it holds up in September, brings us almost exactly to the top of the annual target.",213
-fomc-corpus,1981,"But, as was pointed out, it doesn't include retail RPs.",14
-fomc-corpus,1981,"That's right, and we were aware of that, so--",12
-fomc-corpus,1981,A lot of those are going to go into all savers.,13
-fomc-corpus,1981,"But the recorded M2 figure undoubtedly understates the functional M2 figure because it just doesn't happen to have retail RPs defined in it and they should be in it. So, we're really running above. And that will be reflected when we talk about the change to the all savers; part of that looks like an artificial jump that's real. It's just catching up to the recorded shortfall on M2 already.",83
-fomc-corpus,1981,Which means we should take a higher number for the M2 specifications at this time.,17
-fomc-corpus,1981,It depends upon whether you're worried about M2 running high enough. The fact is that it's running high in a real sense.,25
-fomc-corpus,1981,"Well, if there has been a shortfall, Paul, we already have had it; and therefore if it comes in high, we shouldn't respond to it. My point is this: Let's say we had $6 billion in retail RPs and we accepted them; now we shouldn't react if the $6 billion in retail RPs goes into all savers.",72
-fomc-corpus,1981,I certainly don't think we should react in that week in which they go in. One can still be worried about M2 being a little high.,29
-fomc-corpus,1981,"In addition to saying ""at or slightly above,"" could we leave that proviso and then go on to say that the Committee would tolerate an overrun in M2 due to the movement of funds from RPs into all savers certificates?",48
-fomc-corpus,1981,I don't think I would say it that way. What we really should be tolerating is the movement into all savers certificates from funds that aren't and shouldn't be in M2.,36
-fomc-corpus,1981,"Yes, that's right. That's a more concrete way.",11
-fomc-corpus,1981,"We need some sentence to that effect in there, whichever way we do it. We have to say we will evaluate M2 in the light of this. I see nothing the matter with the language that [the staff] wrote here. But some language to that effect, whatever it is precisely, should be there; people ought to notice that we may get an artificial bulge in M2 that we are in a sense discounting. I have no problem with that, whether we put in the numbers for M2 and M1 directly or put it in the form of a proviso indicating a range around the annual equivalent or slightly above, if that's what you're suggesting.",134
-fomc-corpus,1981,I'm just uneasy about coming up with some numerical target that we're not going to hit.,17
-fomc-corpus,1981,"We won't have any difficulty making a numerical target, presumably, for M2.",16
-fomc-corpus,1981,You're afraid of going over the target for M2?,11
-fomc-corpus,1981,"We are much more likely to be close to this number for M2 than we are for M1, just in terms of the randomness of the numbers. We can argue about it; I frankly don't think it makes a lot of difference. We can say: ""In the short run the Committee seeks behavior of reserve aggregates consistent with growth of M-1B from September to December at an annual rate of 7 percent after allowance for the impact of the flows into NOW accounts and growth in M2 around""--I don't know what are we saying.",110
-fomc-corpus,1981,Why don't we take the 11 percent from alternative B and at least allow some leeway.,19
-fomc-corpus,1981,"I'd rather put in a lower number and say ""or slightly higher.""",14
-fomc-corpus,1981,"Sure, why not say ""10 percent or somewhat more""? And then we have a proviso later about taking account of all savers certificates. That seems all right.",34
-fomc-corpus,1981,"Even 10 percent or somewhat more bothers me a bit. If we are going to say ""somewhat more,"" we can always use a lower number.",31
-fomc-corpus,1981,"Oh, come on, Paul, you know it's going to be a big number.",17
-fomc-corpus,1981,You are going to get the relationship between the two growth rates so far off--!,17
-fomc-corpus,1981,Does the 10 percent include the all savers or not? Is that where your--,18
-fomc-corpus,1981,"It isn't clear. This language simply says that it has to be evaluated. That's why I said ""tolerate.""",24
-fomc-corpus,1981,"We can say ""10 percent or slightly more, recognizing that the behavior of M2 will be affected by the recent regulatory and legislative changes.""",28
-fomc-corpus,1981,That sounds reasonable.,4
-fomc-corpus,1981,"October will probably be a good-sized month, and then growth may fall off. But October will be a good-sized month--maybe 13, 14, 15 percent.",36
-fomc-corpus,1981,Recognizing particularly that in October.,7
-fomc-corpus,1981,"Yes, and that [unintelligible] forecast of interest rates.",15
-fomc-corpus,1981,"What would go with that, then: an $800 million initial borrowing level and a fed funds range of what?",23
-fomc-corpus,1981,13 to 18 percent.,6
-fomc-corpus,1981,13 to 17 percent.,6
-fomc-corpus,1981,"Well, the Chairman said at one time either 12 or 13 percent at the bottom.",19
-fomc-corpus,1981,I have some sensitivity to what Mr. Roos said about narrowing that range.,16
-fomc-corpus,1981,"Yes, I do too.",6
-fomc-corpus,1981,"I think we really ought to retain a 5-point range anyway, and I would have no problems with 12 to 17 percent. MR. FORD(?). Even that seems to me to be restrictive because funds are trading at 14 percent today; they were down in the 13 percent range yesterday. We don't want to have to call each other up tomorrow with 12 percent.",79
-fomc-corpus,1981,"Well, I think we would want to if it got down that fast. How precipitous the decline occurs is of some importance, don't you think?",30
-fomc-corpus,1981,"We have had trading at 14 percent as the low but the 14 percent range may be a little artificial today. We have too many reserves out. You are selling today, I take it?",40
-fomc-corpus,1981,Right. We are absorbing the excess.,8
-fomc-corpus,1981,"We had excess reserves, Bill, because of the move to same-day settlement.",16
-fomc-corpus,1981,"Yes, but we have had a number of days in the last two weeks when it has been down around 13 percent, haven't we?",28
-fomc-corpus,1981,14 percent.,3
-fomc-corpus,1981,All I'm saying is: Let's not lock ourselves in so tightly. Let's go in with something like the alternative B range.,24
-fomc-corpus,1981,It wouldn't lock us very tightly anyway.,8
-fomc-corpus,1981,"What do you expect the borrowings to do, Steve? If we start at $880 million, do you expect them to drop off?",28
-fomc-corpus,1981,"Well, the degree of error around this is vast. We've assumed that that level of borrowing implies a funds rate of something like 14-1/2 to 15-1/2 percent. I don't know if Peter thinks it is exactly in that range. We probably are going to get M-1B growth on the order of 6, 7, or 8 percent; so if that's right, I wouldn't assume any further drop in borrowing and the funds rate.",97
-fomc-corpus,1981,"Steve, you may be right. I hope you are right in this sense. But what we are probably running into here is this: If the low money figure for publication this week is confirmed and next week is low, this $800 million that we started with will probably be lowered pretty promptly. If we get a bulge in the first week of October, it won't be. But if the first week in October is another low number--meaning it might be positive but only $1 billion or so--we'll probably get the borrowings down further.",111
-fomc-corpus,1981,"Yes, in constructing this path we have allowed for an increase on the order of $2-1/2 billion in the first week of October.",30
-fomc-corpus,1981,"I don't know what the number is. But let's say it's distinctly below $2-1/2 billion; we will probably gradually be lowering the borrowing right off. If it's $4 or $5 billion, we wouldn't be.",46
-fomc-corpus,1981,I'd be very nervous about not consulting if the funds rate got down to 12 percent in such a short period of time. That could be misinterpreted by the market.,35
-fomc-corpus,1981,"Well, we can do what we want to do there. We can put in 12 to 17 percent; there's nothing to stop us from consulting before that if we don't like what is happening.",40
-fomc-corpus,1981,Depending on the behavior of the pattern.,8
-fomc-corpus,1981,We could also put in a range for the fourth quarter instead of coming down on [a specific growth rate].,22
-fomc-corpus,1981,For the aggregates?,4
-fomc-corpus,1981,"For the aggregates, yes.",6
-fomc-corpus,1981,That bothers me a little just because if we put in a range it sounds as if we are really in trouble on either side of that range.,29
-fomc-corpus,1981,I just thought that's about where we are.,9
-fomc-corpus,1981,"But the staff has to construct a path, you see. We choose the number and then they construct the path.",23
-fomc-corpus,1981,"They can take it out of the center of the range, which apparently is where we're coming down.",20
-fomc-corpus,1981,"If we put in even a 3-point range, the probability, at least early in the period, is that it would not occur. And as a result, [I would like to suggest that] we set the initial borrowing at something near the $880 million we have been experiencing--say, $850 to $900 million--rather than going to $800 million and risking a drop to 14 percent very quickly and having to take some action on the discount rate.",95
-fomc-corpus,1981,"I should just give the figures. In the last three complete statement weeks the funds rate averaged 16.09, 15.33, and 15 percent. That 15 percent was for the week ending September 30, the quarterly statement date. For this week to date, I don't have the figure, but it must be over 15 percent.",72
-fomc-corpus,1981,"We had borrowings over a billion dollars with the first figure, right?",15
-fomc-corpus,1981,"Yes, because we had high funds rates.",9
-fomc-corpus,1981,"We had a high funds rate early in the week so the average level of the funds rate hasn't really gotten below 15 to 15-1/2 percent, if you take out the exception week.",41
-fomc-corpus,1981,An exception week being what?,6
-fomc-corpus,1981,"September 30th, which might have some funny--",11
-fomc-corpus,1981,The borrowing was higher than the $900 million or so.,12
-fomc-corpus,1981,I have no problem with $850 million.,9
-fomc-corpus,1981,"If we do all this, we may get to a position very similar to last year where it looks as though we cut the funds rates in half; other rates won't have moved quite that much, but it will look like a very big drop.",49
-fomc-corpus,1981,So what?,3
-fomc-corpus,1981,Cutting interest rates in half is just showing that we are giving up on inflation and are starting to fight recession; that's very much what it seems to me we are tempted to do.,37
-fomc-corpus,1981,"We're not cutting them in half, Henry. The funds rate never averaged over what, 20 percent?",21
-fomc-corpus,1981,"It was 21 percent, I think.",9
-fomc-corpus,1981,The estimate in the Bluebook is that $200 to $300 million of borrowing is consistent with a 14 percent funds rate. That's not cutting interest rates in half.,34
-fomc-corpus,1981,"We are letting it go to 12 percent before we consult, which indicates that we are willing to let it go very far.",26
-fomc-corpus,1981,"But if we keep borrowing up at $800 million, we are not going to have to worry about a 12 or 13 percent funds rate.",30
-fomc-corpus,1981,It moves pretty fast.,5
-fomc-corpus,1981,"But maybe the 20 percent was way too high. We shouldn't have let it go to 20 percent. If we're going to control interest rates rather than aggregates, maybe we shouldn't have let it go to 20 percent.",45
-fomc-corpus,1981,"No, I'm concerned with the picture that we present if interest rates drop sharply. You can say all you like about the fact that we are below target on the money supply, but the public will perceive this as easing and 90 percent of the commentators will say that the Fed has eased very substantially.",60
-fomc-corpus,1981,I think the one comment that everybody agreed on here is that we didn't want a precipitous decline in interest rates. I don't see why we can't have a consultation at 13 percent. It's quite a move down from the current 15 or 15-1/4 percent level.,57
-fomc-corpus,1981,"I would rather post it at 12 to 17 percent and just agree [on when to consult]. I don't like the idea of narrowing this range to 4 points. We really are not supposed to be paying that much attention to it, although I know we are.",55
-fomc-corpus,1981,Some of us are.,5
-fomc-corpus,1981,Would you have a consultation at 13 percent even though the range is 12 to 17?,20
-fomc-corpus,1981,Because it would be approaching it--moving down to 12 percent--and before it got there we would have a consultation.,25
-fomc-corpus,1981,"All right, that's a reasonable compromise.",8
-fomc-corpus,1981,"I don't think we have to decide that with any precision. If it reached 13 percent in mid-November and everything is weak, nobody is going to be disturbed about it. If it reached 13 percent two weeks from now, people would be disturbed. You have to assume a certain amount of competence, some minimum level, in the Chairman.",70
-fomc-corpus,1981,That's the weak part of the whole thing!,9
-fomc-corpus,1981,"Paul, I understood a while ago that you were leaning toward putting a numerical target in for M2, with cautionary language following it.",28
-fomc-corpus,1981,I'm not leaning either way.,6
-fomc-corpus,1981,"If that were done, followed by the cautionary language that evaluation of M2 would have to be made in light of all savers, etc., one way the directive could handle it would be at the end of the last paragraph that calls for consultation when the funds rate is persistently outside a range to add a phrase ""or if M2 growth is substantially higher than currently projected."" So, consultation would be triggered [either] by the departure of the funds range persistently from whatever range we end up specifying or by M2 growing faster than the numerical target, if one is put in.",119
-fomc-corpus,1981,"What I am suggesting is one version; let me just run this one up the flag pole and see who salutes: ""In the short run the Committee seeks behavior of reserve aggregates consistent with growth of M-1B from September to December at an annual rate of 7 percent after allowance for the impact of flows into NOW accounts and 10 percent or slightly higher for M2, recognizing that behavior of M2 will be affected by recent regulatory and legislative changes, particularly the public's response to the availability of the all savers certificate."" I will modify my proposal slightly to say borrowing at $850 million and a federal funds range of 12 to 17 percent. If the funds rate dropped out of bed here and got around 13 percent promptly, we would probably have a consultation. We won't necessarily have a consultation if that arises at the end of October or the beginning of November when we have a lot of weakness in the aggregates and it's obvious why it is down there.",196
-fomc-corpus,1981,"I don't mind that. I prefer a little less than 7 percent on the growth, but I prefer a little less than $850 on the borrowings, so they balance off.",37
-fomc-corpus,1981,"I would prefer 8 percent on the growth, but I'll buy 7 percent.",17
-fomc-corpus,1981,That's quite acceptable to me.,6
-fomc-corpus,1981,Acceptable to me.,5
-fomc-corpus,1981,I accept it.,4
-fomc-corpus,1981,"Well, unless somebody has a strong preference for the proviso type language, we will proceed with this language. Call the roll, Mr. Altmann.",31
-fomc-corpus,1981,"Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley Yes President Keehn Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters Yes Governor Wallich No Eleven for, one against.",54
-fomc-corpus,1981,"Okay, thank you.   We can proceed to lunch.",12
-fomc-corpus,1981,We need approval of the minutes.,7
-fomc-corpus,1981,So moved.,3
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,Without objection. There's a short report on foreign currency operations. There weren't many operations.,17
-fomc-corpus,1981,I've had to suffer a lot of comments on that! [Statement--see Appendix.],17
-fomc-corpus,1981,Any comments or questions?,5
-fomc-corpus,1981,What was the second occasion when you considered intervention?,10
-fomc-corpus,1981,It was an occasion when the dollar was moving up very rapidly toward the 2.30 to 2.32 level. It occurred at a time when questions were being raised about the German situation after the Chancellor's health problems and after some money figures here had suggested that interest rates might be required to go up again at that point. The dollar spurted up from about 2.28 to 2.32 and that caused a considerable amount of consternation. But [the advance] lasted only a matter of hours and the dollar then began to retreat.,114
-fomc-corpus,1981,There was no one particular event except the Chancellor's health?,12
-fomc-corpus,1981,I don't think the rise could be associated with a single event at that point; it was certainly not comparable to the assassination of President Sadat.,29
-fomc-corpus,1981,You have a recommendation for us?,7
-fomc-corpus,1981,"Yes I do, Mr. Chairman. All of our swap arrangements will be coming up for renewal before the end of the year, and I would request the Committee's approval to roll them over for another year in the normal way. Since last year [there have been changes] in three cases. The central banks of England, Canada, and Mexico have specified the investments against which the interest rates should be calculated in the event that the Federal Reserve were to draw on those swaps. For good order we would propose that the change in the arrangements with these three central banks be incorporated in the language at the time we renew them.",124
-fomc-corpus,1981,Are we symmetrical in all these now in terms of that?,12
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Well, symmetrical--",4
-fomc-corpus,1981,"The change was made last year for all the cases where we would draw at the foreign rate. When we did it for the Germans, we did it for all of them. The problem was that not all the countries were ready to come forward with a rate at that time, so the swaps for those cases were rewritten to say ""an appropriate domestic rate"" which in our case--",76
-fomc-corpus,1981,And these three do not correct all of them. There are still some in that unspecified category.,19
-fomc-corpus,1981,"We had a long negotiation, you remember, with the Japanese; it was not so long with the Germans.",22
-fomc-corpus,1981,"Well, there's a question of the interest rate. There's also a question of the exchange rate, which I now forget--",24
-fomc-corpus,1981,"Well, that was eliminated, too.",8
-fomc-corpus,1981,The exchange rate was different when one side was drawing than when the other side was drawing.,18
-fomc-corpus,1981,"That has all been put on a symmetrical basis. On the one hand, it's on a symmetrical basis; on the other hand, the interest rate was adjusted at the same time.",36
-fomc-corpus,1981,Some of them are not specified.,7
-fomc-corpus,1981,"Our biggest problem with the Japanese, which we finally solved, was not getting a market rate because their Treasury bill rate was But we finally worked that out. I had to put a lot of pressure on the Ministry of Finance as well as on the Bank of Japan. There are two different versions; but they're completely satisfied now with the arrangements over at the Treasury.",72
-fomc-corpus,1981,"Well, we seem to be in reasonable shape on these arrangements regarding the terms. Do we have a motion?",22
-fomc-corpus,1981,"Mr. Chairman, I think you're remembering the risk-sharing, and that is what was dropped in all the cases. The substitution that was made was that we would at the same time take--",38
-fomc-corpus,1981,"I'm remembering the risk-sharing. I don't remember the specifics of it at this point, but I won't--",21
-fomc-corpus,1981,"For the five that we had drawn upon in the post-1973 period, they had a provision that they would share the risk on our drawing. That was the--",34
-fomc-corpus,1981,"Yes, 50-50. Well, do we have motion?",14
-fomc-corpus,1981,So moved.,3
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,"If I hear no objections, you are authorized to negotiate these on substantially the same terms as they now exist.",22
-fomc-corpus,1981,Thank you.,3
-fomc-corpus,1981,Mr. Sternlight.,5
-fomc-corpus,1981,Statement--see Appendix.,5
-fomc-corpus,1981,Questions or comments?,4
-fomc-corpus,1981,"Yes, Mr. Chairman. Peter, at these meetings we set desired rates of growth for M-1B. In the last 7 or 8 months [M1-B growth has been] significantly below the lower end of the target ranges that we've set. As I listened to you, I got the impression that one of the reasons for that is that borrowings, as they actually evolved, were at a lower level than the assumptions we had made at our meetings. Under our procedures, when borrowings are below what we anticipate they will be, do you adjust the nonborrowed path or the total reserve objective to compensate for that reduced level of borrowing?",133
-fomc-corpus,1981,"The decline in borrowings over the past six months was a consequence of the lower-than-path money growth. Money grew less than was targeted, [but the target] was the basis for setting path patterns for total and nonborrowed reserves. In particular we pretty much stuck with our path for nonborrowed reserves as money grew more slowly and the banking system needed less reserves. Because of that slower money growth borrowing came down, and that has been reflected in a considerable decline in rates.",97
-fomc-corpus,1981,"Well, I was under the impression that we set targets and then we do whatever we think is [necessary] to achieve the M1-B target, for example. So, if money growth is coming in below, and if borrowing comes in below, don't we take some action to counter that situation so that we can achieve the target that we've set for ourselves? It seems to me that if we adjusted upward the nonborrowed reserve path, we'd get total reserves at a higher level and thereby we'd be able to achieve, or at least come closer to achieving, our M1-B targets. Or am I [wrong]?",124
-fomc-corpus,1981,"Well, there have been adjustments of that kind. There have been adjustments in the other direction when money growth ran way ahead of desires. There was a small adjustment of the nature that you've described within this last period; the nonborrowed path was raised because we were falling below in money growth as the period unfolded.",63
-fomc-corpus,1981,"But as I listened to your report, I got the impression that these adjustments were very small and slight. Why aren't they made to the extent necessary to achieve the targets that we set?",37
-fomc-corpus,1981,"President Roos, the Committee also had an M2 constraint.",13
-fomc-corpus,1981,"Well, had we adjusted nonborrowed reserves to achieve our M1-B--. Let me put it differently. You're suggesting that we did not respond as might have been necessary to achieve our M1-B target because we would have overshot the M2 target?",53
-fomc-corpus,1981,"If the Committee had only an M1-B target and was determined to achieve it no matter what was happening to M2 or anything else, then, of course, we would have had to push reserves in and raise the nonborrowed reserves path enormously, with a resulting drop in interest rates and presumably more marked expansion in M2 and other things.",70
-fomc-corpus,1981,"So, Steve, we're almost back to where we were when we had incompatibility of achieving interest rate targets and aggregate targets. Now we have two aggregate targets that sometimes are incompatible. Is that what you're saying?",42
-fomc-corpus,1981,"Well, yes, in some sense maybe they are incompatible. You can choose one or the other; you can't choose them both. But given the [recent] changes in financial technology and the way people are behaving, the Committee inevitably has to make the judgments it has been making: That it's going to take this attitude toward one in case the other goes off and vice versa.",75
-fomc-corpus,1981,"Could we set those, if we really wanted to, and lock the doors? Could we set those two aggregate targets so that they would be compatible so you could accomplish both of them?",37
-fomc-corpus,1981,"Only if God were sitting at this table! Let me tell you, it'd be--",17
-fomc-corpus,1981,Would you care to designate him?,7
-fomc-corpus,1981,Now that Mr. Axilrod has consulted all of us--,13
-fomc-corpus,1981,It depends on whether you're a smoker or a non-smoker.,13
-fomc-corpus,1981,Mr. Black.,4
-fomc-corpus,1981,"Steve, do you believe pretty confidently that if rates had come down M2 would have speeded up in view of the rate sensitivity that's so much in [evidence] now?",36
-fomc-corpus,1981,"Well, in the short run our experience is that [growth in] money market funds tends to speed up with rate declines because of the lag in [the adjustment of] their rates. As rates declined this time, we found a rather unusual experience in that savings deposits at banks accelerated. I assume it was just some sort of cautionary inflow. But all the evidence we have is that, yes, as rates decline we still tend to see growth in M2 as deposits become a little more attractive relatively speaking. Now, this doesn't hold quite to the extent it did before because we do have components of M2 that move with market rates.",129
-fomc-corpus,1981,That would be interesting to watch over time. I'm not sure that that will [continue].,18
-fomc-corpus,1981,"Well, it is atrophying a little, that's quite right.",14
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"Just following up on your comment, Steve: Earlier in the year, of course, we did have that M2 constraint as we all know, but at the October 6th meeting that proviso clause on M2 was dropped and we set sort of independent paths for M1-B and M2. It was my impression, and you probably have more recent data than I've been able to look at, that in this latest period since the October meeting both M2 and M1-B have fallen below the path we set. Is that true?",109
-fomc-corpus,1981,"The M2 figure for October has fallen below by about a couple of percentage points; our expectation at the time that we [constructed] the path was [a growth rate of] 11.8 percent and it was published at 9.3 percent. In very recent weeks, the latest data show an upturn in M2 because of the persisting strength in money market funds and, as I mentioned to President Black, some strength that we've observed in savings deposits at commercial banks. So we think we're on a trajectory that gives us a very high November. Again, most of that is just extrapolating the trajectory of the last couple of weeks.",132
-fomc-corpus,1981,"Well, in view of the fact that we apparently have fallen below the paths set at the October 6th meeting on both of the Ms, I was a little curious about Peter's remark about the very small upward adjustment made in nonborrowed reserves. I think it was pretty darn small. Do you happen to recall the amount, Peter? Wasn't it about $60 million?",77
-fomc-corpus,1981,$55 or $56 million or something like that.,11
-fomc-corpus,1981,It was $100 million for a week; in terms of a 3-week average it was $56 million or something like that.,27
-fomc-corpus,1981,"If I could add one other point that seems relevant to me: As you know, there has been a considerable decline in rates as money growth has weakened relative to the longer-run paths. I think we've gotten away with that in the market in the sense that the basic credibility of the Fed's longer-term restraint policy has not been seriously questioned. A minority of voices--maybe one or two--has been heard here and there on the fringes raising a question, but by and large the Fed's credibility has not been questioned. I think a very vigorous response to achieve an M1-B target when it was falling considerably short would have very much endangered that [credibility] to the point where it would have been questioned in this period.",147
-fomc-corpus,1981,"Any other questions? If not, we can ratify the transactions if you are prepared to.",19
-fomc-corpus,1981,I move it.,4
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,Without objection; that wasn't enthusiastic on the [motion] and the second. Mr. Kichline.,21
-fomc-corpus,1981,"Excuse me, Mr. Chairman. Is it too late to ask Mr. Sternlight a question?",21
-fomc-corpus,1981,"No. Excuse me, Jim.",8
-fomc-corpus,1981,It certainly isn't.,4
-fomc-corpus,1981,If it's one short question.,6
-fomc-corpus,1981,"Well, I'd like Peter to expand on that last statement. What makes you so sure that the credibility of the System would have been called into question more vigorously had we tried to keep money growth closer to the targets? Isn't that just your impression? You don't have any hard [evidence].",58
-fomc-corpus,1981,"It's judgment, Governor--I can't prove it--just from the way that our responses are watched so diligently by an army of Fed watchers in the markets. They are watching to see what our response will be and there are suggestions from various quarters that money is falling short and we ought to be doing this or that to repair that situation. I had the impression that we were getting close to the point where credibility could be questioned each time we made some overt move, whether it was on the discount rate or putting in reserves at some particular funds rate level or something. We've always run little risks of that kind. We came through it without really setting off any significant reaction but I don't think we were that far from that on various occasions as we came through this declining rate period.",154
-fomc-corpus,1981,"I might add that we always have the luxury here of looking at these things ex post. As I remember this intermeeting period--and I may have my timing off a little--we had a big increase in M1-B early in October. And the reason October turned out to be low was the figures late in October that we didn't know about until we were in November. Now, in the middle of November, we look back and October looks low. When we were in the middle of October, it looked high.",104
-fomc-corpus,1981,"Also, pumping in more reserves when the economy is weak to compensate for a [shortfall] will not necessarily result in an increased money supply. What one may find is that it just causes a further drop in borrowing and more downward pressure on interest rates. We may end up not being any closer to our monetary target and it may bring about a more precipitous [rate] decline.",77
-fomc-corpus,1981,"Well, that's what interest rates do. They get you closer to your monetary target if you move--",20
-fomc-corpus,1981,"Yes, but there's a delayed effect.",8
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,It may not show up for quite a few months.,11
-fomc-corpus,1981,Mr. Kichline.,6
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,Why don't we go ahead with Mr. Axilrod and then we'll call it all open [to questions].,22
-fomc-corpus,1981,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1981,"Well, both statements gave us a little menu of concerns. I think the time has come for comments on the economic scene and related comments you might want to make on the financial scene.",37
-fomc-corpus,1981,"What's your peak-to-trough projection, Jim?",10
-fomc-corpus,1981,"About 2 percent if one were to go from Q1 1981 to Q1 1982, and that compares with a mean of postwar contractions of about 2-1/2 percent.",42
-fomc-corpus,1981,"One question, Mr. Chairman: The third quarter inflation rate turned out to be quite a bit higher than we had expected and I wonder if there are any special factors there or is it something that's likely to continue? What are the risks on that side?",51
-fomc-corpus,1981,"It was a couple of special factors. One relates to the inventory deflator and a technical problem that we think will be reversed. Another was actually a positive feature that turns out to be negative in the short run. We had a much steeper decline of import prices and in that quarter, since they're subtracted, it tended to boost the inflation rate. But we think on average the changes that we've made to the third and fourth quarters don't represent a fundamental change in the inflation outlook, although I would say some things, such as service prices, have been coming in higher than in our previous forecast. But it's not a big problem at the moment.",130
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"I have a question, Steve. As I understood your rationale, you're concerned that if interest rates fall more quickly than somehow would be warranted by present economic conditions, that would have adverse consequences. Am I not correct in saying that the only way to stop interest rates from declining at what anyone might think is an excessive rate is to withdraw money, which has a depressing effect on M1-B? Is that correct so far? The only way to keep interest rates from dropping by what anyone might think is a precipitous amount is to be frugal in the way we supply reserves?",115
-fomc-corpus,1981,"That's one way, assuming GNP. GNP could be different.",14
-fomc-corpus,1981,"All right. Let me ask this then. If we believe, and maybe we don't, that there is some relationship between economic activity and the rate at which the aggregates grow, especially the narrow aggregate, and if in order to keep interest rates from plummeting we keep the aggregates below what we think is [an appropriate] targeted range, can't that exacerbate the recession? And if the recession is more pronounced, won't that cause interest rates to be low anyway? In other words, where does that string of reasoning --if you can dignify it by calling it reasoning--break down, Steve?",120
-fomc-corpus,1981,"Well, the context that I had in mind was that the Committee is making a short-run decision for, let us say, the next six weeks. And whether that decision is for 5 percent growth in money, or 6 or 7 percent--if money growth turned out to be any one of those [rates]--and then the Committee went ahead and attained its 1982 tentative targets or something like them, I simply didn't think that the difference in those growth rates would matter very much.",101
-fomc-corpus,1981,Nor do I.,4
-fomc-corpus,1981,And they won't affect the year as a whole--the result for the year 1981--because in large part that's given. Or at least the year isn't much affected by those growth rates.,39
-fomc-corpus,1981,"Yes, but I thought it--",7
-fomc-corpus,1981,"So, that drove me to worrying about what kind of volatility might be promoted in credit markets with effects on expectations from short-run efforts [to increase growth], given the fact that I assumed the Committee was going to phase down into its 1982 targets, or phase down as the year began. That drove me into these muddy areas of how people perceive what happens in credit markets. And I felt that if rates dropped sharply before anyone felt that a sustained economic weakness was in train, that would start a speculative bidding on commodity markets, use of credit for those purposes, and things like that.",118
-fomc-corpus,1981,"Well, I would share your thinking that what we do today in the short run isn't important. But my question--and maybe I was premature and it should be considered when we make our longer-term plans--was on this whole question of the relationship of [declining] interest rates and the aggregates. I think that should be considered at that time, though maybe not today. I thought that you were really addressing the longer-term game plan and--",89
-fomc-corpus,1981,"I was trying to say, President Roos, that an element in today's short-run decision probably should be how the Committee wants to phase into the targets for next year.",34
-fomc-corpus,1981,Mr. Ford.,4
-fomc-corpus,1981,"In looking at your calculations of the effects that the different alternatives we're considering would have on rates, I noticed that you're projecting that from today until our next meeting in December, which is a period of 5 weeks I believe--and coming into this meeting I thought Peter said that the fed funds rate is running a little over 13 percent right now--",70
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,"So, you're saying that were we to choose to expand M1-B over the next 5 weeks at a rate under 9 percent, we could have a 100 basis point drop per week in the fed funds rate potentially. That is the worst we could have, is that right?",58
-fomc-corpus,1981,"Well, that isn't the worst. That's our best guess of what these relationships are.",17
-fomc-corpus,1981,Is that right?,4
-fomc-corpus,1981,Best estimates until--,4
-fomc-corpus,1981,"Well, that did happen for a while. As I recall, when we put on credit controls over a year ago, we did have the rate dropping 100 basis points a week.",37
-fomc-corpus,1981,Even more for a couple of weeks in April. It was between 100 and 200 basis points a week for a few weeks.,27
-fomc-corpus,1981,"I'm wondering what is in your modeling. That was a very unusual period. If we were trying to achieve some step-up in M1-B to get back to our announced targets for this year, I'd be surprised, in the absence of credit controls, if we were to get anything like the kind of precipitous drop in rates that we had under credit control. Wouldn't you? How does your model generate this?",83
-fomc-corpus,1981,"It depends on where we put the borrowing. If those borrowings get too low, then rates can drop pretty fast.",24
-fomc-corpus,1981,"Well, the model would have generated much bigger drops in rates than--",14
-fomc-corpus,1981,"Do you mean, in other words, that this is an adjusted number [from what the] model--?",22
-fomc-corpus,1981,"Well, no. The credit control program [produced] drops in money supply well below what was targeted at that time. So, in order to hit the target, the declines in rates would have been even more--much, much larger. So, this sort of assumes hitting the targets. Moreover, it does it with only 6 weeks to go; so you have to get a lot of movement in it.",84
-fomc-corpus,1981,"On the credibility question that you mentioned, Peter, are you concerned also about our credibility in terms of the aggregates and whether or not we're trying to keep reasonable the [deviations from] the long-term paths we've set? Isn't that also a credibility problem in addition to the worry about what happens if the rates drop?",64
-fomc-corpus,1981,"I think so, sure.",6
-fomc-corpus,1981,"In making your judgments, then, how do you judge one kind of credibility against the other?",19
-fomc-corpus,1981,"Well, carefully.",4
-fomc-corpus,1981,"We had some builders circling the statue in front of the Atlanta Fed and they were thinking about hanging Mr. Volcker in effigy. Their argument was: What are you guys doing? You're not taking care of things. You ought to stop worrying about these rates and let them come down. We are dying. In that connection, I noticed in the Greenbook that your housing forecast for the fourth quarter, Jim, shows 870,000 starts on average. That must mean there's a bottom below that, which we're going to face either this month or next month, where housing starts are going to be reported at under 800,000 units. Is that what you [expect]?",137
-fomc-corpus,1981,"No, not necessarily. We have 918,000 or something like that in October. So, it's below 900,000 on average for the next--",32
-fomc-corpus,1981,"It has to be. If you have an average of 870,000 and you have 918,000 for the first month, where is the bottom? I'm worried. They came circling our statue of the eagle when starts were 900,000. What are they going to--?",59
-fomc-corpus,1981,"840,000 is our low in [the quarter].",11
-fomc-corpus,1981,We'll have a bald eagle!,6
-fomc-corpus,1981,"Having resolved that piece of arithmetic, we'll go to Mr. Winn.",14
-fomc-corpus,1981,"Mr. Chairman, it disturbs me to sit here and let us contemplate what is really a fiction, which is these numbers that we're going by. I'm watching the volume of our check clearings in Columbus suddenly shoot up, which is an unusual phenomenon at the moment. If you look into that, it's unbelievable the money fund transfers that are being put through by one our Columbus banks. I wonder if the numbers we are dealing with here were closer to the reality of transactions balances if we'd have the same kinds of reactions we're having to these numbers. To play these numbers out seems to me to be a serious mistake in terms of transactions balances against the economy. I think these are too low in terms of reality if we adjust for the money funds, which are growing very rapidly [based on] the push being made, at least in our District, not only in terms of large corporations but of individuals moving into these money funds. The pressure is really very great to get individuals to convert into money funds, which are transaction balances. It seems to me that it would behoove us to move promptly to find out what proportion of these money funds is in fact transactions balances and to start to factor that into our thinking about these aggregates, if this becomes a guide in terms of our policy. My second point is that it seems to me we're stuck not only with arbitrary numbers but that our perspective is too short. If we think a bit longer term about what we're trying to do, we get away from some of these extremes in our thinking concerning this 5-week period. Third, to try to get away from this damn base drift problem, which is going to kill us on the one side as it did last year on the other, I'd put this in perspective by going back to the fourth quarter of '79 and then making some growth rate projections out into these periods for what it takes to get us on a reasonable path from that level until the March figure gives us somewhat different numbers than have been presented to us here. So, this is a series of things that we need to think about in our policy considerations. On the economic front, I have a concern which is not shared by my colleagues, I must confess. I think we've kind of gotten over the interest rate bulge temporarily here in terms of pressure on corporations. But I have a feeling that the profits squeeze is setting in and that some managements are going to throw in the towel and that we're going to have more financial problems in the months ahead than I think are factored into some of these forecasts. I don't know what the fallout of that is going to be in terms of psychology [and the effect on] this turnaround that is projected in the months ahead. This really is causing me concern because of the fallout that would have for financial institutions that think they're in pretty good shape and could suddenly wake up with some rather sick loans on their hands that really aren't [known by] the public.",590
-fomc-corpus,1981,"Well, let me make a couple of comments on your comments. On that one, I am somewhat encouraged in a perverse sort of way that the bankers I have been talking to recently realize that they may have some credit problems on their hands, if realization is the first step toward appropriate policies.",59
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,"On your first point on money market funds, I agree with the general direction of your comment. It's very hard to make statistical analyses. We've tried to make some. I forget all the assumptions, but on what I think would be considered the most conservative assumptions that adds somewhat over 1 percent to M1-B in terms of transactions balances. But that kind of calculation allows nothing for indirect effects, for example that an individual minimizes his transactions balance simply because he has a money market fund and knows he can draw upon it even if he doesn't draw upon it frequently or at all. [The problem] is a matter of continuing concern. But there's no figure that comes out that says this much of the money market funds is transactions balances and that much isn't because--",151
-fomc-corpus,1981,Can't we go back and take a look at some of these accounts and see to what extent they really have--?,23
-fomc-corpus,1981,"Well, these calculations derive--and I don't know how good the basic data are--[from information] that says there's this much turnover or this much check usage on these money market funds. [That is, if] they had a normal kind of velocity and if they were NOW accounts instead of money market funds, they'd be this big. And that accounts for a relatively small fraction of money market funds. But still, they've been growing so fast it does make an impact.",95
-fomc-corpus,1981,We also had an informal Michigan survey where we asked people what percentage of the money market funds were transactions accounts to them and what were such and such? A very small percentage was transactions.,37
-fomc-corpus,1981,What strikes me is the number of people one talks to who are becoming aware of them and now starting to use them. That really is accelerating.,29
-fomc-corpus,1981,"Well, this survey was conducted a few months ago.",11
-fomc-corpus,1981,That's the thing. I think in the last few months we've seen a really marked shift into this sort of account.,23
-fomc-corpus,1981,"I don't have the figures with me to look at these things in a longer-term perspective, but I'd like to look at that. I should get those figures, Steve.",34
-fomc-corpus,1981,I have it in a chart.,7
-fomc-corpus,1981,The year-to-year changes are quite orderly.,9
-fomc-corpus,1981,"If you took the '79 base that [Mr. Winn] mentioned and [drew] a cone out from '79--in other words, if there were no base drift--the growth of M1-B that we've had would put us inside the range, just below the middle according to my chart.",62
-fomc-corpus,1981,"Mr. Chairman, as a matter of interest, I've put the 1981 average over 1980 in the Bluebook.",26
-fomc-corpus,1981,"Yes, it's there in the back of the Bluebook.",12
-fomc-corpus,1981,Where?,2
-fomc-corpus,1981,"It's on page 6; it's the last line for M1-B. This happens to be a year where the difference between the Q4-to-Q4 figure and the [yearly] average-over-average is a lot bigger than it is ordinarily. The difference is ordinarily more like 1 or at the most 2 percentage points. As you can see, it's close to 2-1/2 or 2-3/4 percentage points. That is, M1-B looks like it will grow about 4-1/2 percent year-over-year whereas for Q4-to-Q4 it's only growing--",124
-fomc-corpus,1981,These are adjusted figures?,5
-fomc-corpus,1981,"Yes, this is shift adjusted.",7
-fomc-corpus,1981,That's because we got [growth] early in the year; so far it has been high.,19
-fomc-corpus,1981,"Yes. I'm not sure in this calculation whether we ended up shift adjusting 1980, but that would lower it from 4.5 to 4.4 or 4.3 percent; it wouldn't be that much of a difference.",49
-fomc-corpus,1981,We started high?,4
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"This would reverse next year, Steve. If it starts low, then it will end up--",19
-fomc-corpus,1981,"Oh, yes. It averages out that over [the two] years they both come out the same, I think.",24
-fomc-corpus,1981,"I might also say that I have no confidence in this shift adjusted figure anymore. I think it was an appropriate thing to do earlier in the year. But at some point it loses me, in terms of significance. I think we have already passed the point where it loses me, but it's not--",60
-fomc-corpus,1981,It's having very little effect now.,7
-fomc-corpus,1981,"Well, it had a quarter of a percentage point or more [effect] in the second half of the year, I think.",26
-fomc-corpus,1981,"Well, it's not--",5
-fomc-corpus,1981,It's nothing drastic.,4
-fomc-corpus,1981,"It's not unreasonable to say, Mr. Chairman--I hesitate to mention it--that the staff, and in a sense all of us, underestimated the offsetting downward shift we would get [along with] the upward shift in M1-B from shifts in savings accounts. There were downward shifts in movements of demand deposits into other things.",67
-fomc-corpus,1981,"Well, that's the money market fund question.",9
-fomc-corpus,1981,That's right. In some sense we have two offsetting errors here.,14
-fomc-corpus,1981,"But it seems to me that it all works in the same direction. If you go back to the beginning of the year and look at the spread between the M1 and M2 targeted growth rates, it was going to be 2-1/2 percentage points. But we had fudged that; it was really something like 3-1/2 points. Now, if you look at where the year is probably going to come out, that spread that we thought was maybe 3-1/2 is going to be 7-1/2 percentage points. The 4 percentage point difference in the observed spread versus what we thought the spread was going to be suggests to me that the weight of the argument is overwhelmingly in the direction of M1-B being understated, whether it's because of money market mutual funds or whatever. While I'm under no illusions that we knew exactly the relationship last January either, that alone leads me to the conclusion that I simply am not nearly as preoccupied with what the statistical measure of M1-B is versus what I think the reality is.",217
-fomc-corpus,1981,Mr. Partee.,5
-fomc-corpus,1981,"Well, I just wanted to point something out--not on this subject--[though] I agree that the velocity of M1-B has increased because of the money market funds. After all, we'll probably have a 9 percent increase in nominal GNP this year with growth of only a couple percent on M1-B, which is unprecedented. That has to mean a considerable shift has occurred. But what I wanted to point out was that when Steve speaks about the trajectory--plotting a course that would take us through the winter and into the spring--he has been very careful every time he has referred to it in a statement to say ""assuming the economic projection."" And I would argue that this begs the question, because I have a certain amount of sympathy with Larry's first question. I held my hand up when he asked it, though it has been some time since Larry made his comment. There could be a circularity here that in effect has a trajectory to no place, or as we say in regard to the discount rate ""a bridge to nowhere."" That's because, in fact, we may find that the nominal GNP numbers fade as we move ahead. We've had a little of that, certainly, in the fourth quarter [with GNP] being quite a bit weaker than we were anticipating all year. I have a sense of a little shortfall from our projections as we've gone through the year. We've certainly had big shortfalls in relation to our expectations on M1-B. I looked at it and we have been below our expectations of M1-B at these meetings for six consecutive months, and the average shortfall has been 7 percent over that 6-month period. We've even been short on M2 compared to our expectations, the paths that we selected when we went into the period. In the case of M1-B, that's partly because of this velocity problem. But I think it's partly because of shortfalls in economic performance, too. It's hard for me to believe that there will not be an economic recovery commencing in the second half of next year, given the size of the deficit that we'll have and the further cut in taxes that will occur as of July 1st. But it's a fair piece until the middle of next year, and I'm not at all sure that we can say with great confidence that the economy might not decline a good deal further below the projection, [say, by] the end of the first quarter, which could give us quite a serious problem as it occurs. If that is true, and if we hold up interest rates, then we will get the contraction in transactions balances that will make possible a continuation of poor business. So, I just wanted to point out that Steve has been very careful every time he referred to the longer-run planning always to assume as a caveat that the economic assumption was right.",574
-fomc-corpus,1981,Mr. Boehne.,6
-fomc-corpus,1981,"I keep hearing, particularly from small businessmen, that there is a lot of pent-up demand both in terms of consumer spending and investment demand, if only interest rates would come down. They're referring mostly to bank rates and mortgage rates. I wonder, Jim, if there's any reason why that should be more true this time around than in previous recessions--that there would be more interest rate sensitivity on the demand side. One can say that maybe rates were so high that people backed off. But if it's true that there is this pent-up demand, that seems to me to argue for a shorter recession of a more traditional V-shape. But I haven't been able to come up with any really convincing reasons why it's necessarily true that there ought to be more pent-up demand waiting on more interest rate [declines] this time than other times.",168
-fomc-corpus,1981,"Well, I think it's a mixed picture. A couple of years ago we had what were really fairly strong forecasts, given the interest rate assumptions. Our thinking there was largely conditioned by the inflationary experience and a rough calculation of real interest rates. We didn't think real rates were that high and we had relative to the model forecast--at least our own model--a fairly strong GNP projection. Looking at it now, the argument is a bit different. Our inflation forecast, looking ahead, is coming down. In the mortgage market there is a good deal of underlying demand that's related to demographic factors, and the interest rate is a constraint. But I'm not sure I'd frame it in terms of the interest elasticity having changed; we've just choked off a lot of potential demand in the last two or three years. In the auto area, our view is that interest rates are probably a small factor in the depressed state of the market. It is prices and incomes but not interest rates so much. So, I don't perceive the notion that rates coming down a bit--say the mortgage rate goes from 18 to 16 percent--as a dramatic factor. Now, if you talk about the mortgage rate coming down into the 12 percent area, for example, then I think big things will happen. So, rather than focus solely on the interest rate effects, we believe there are many things going on in various markets. It's not just that the interest rate elasticity is so high that we're going to get a big bounceback, given where we're starting.",309
-fomc-corpus,1981,"One other comment on the inflation front: I had a number of meetings with groups of 15 or 20 people and I asked them what kinds of assumptions on inflation they were building into their business budgets. I didn't find an overwhelming number of people who were reducing their own internal assumptions on inflation. Out of a group of 15 or 20 people, maybe 2 or 3 people were actually lowering their budget assumptions. But I did find a difference in businesses that are unionized and those that aren't unionized. Unionized businesses tend to see noticeably less feistiness on the part of the unions in terms of wage demands, but in the nonunionized areas I don't find that happening.",140
-fomc-corpus,1981,What do you find to be the typical inflation forecast in these planning budgets?,15
-fomc-corpus,1981,"I would say most are in the 9 to 10 percent range, with a few outliers down around 8 percent.",26
-fomc-corpus,1981,"That accords with my experience, but I find more outliers above than below.",16
-fomc-corpus,1981,"Well, I hear people who talk about [inflation] above 10 percent. Probably more people say they see it above 10 than see it at 8 percent; but most of them are around 9 to 10 percent.",48
-fomc-corpus,1981,"The people say that they're planning on a 5 to 6 percent wage increase next year. But they are nonunion. They pay relatively low wages; they [start with] the minimum wage, I think.",43
-fomc-corpus,1981,Mr. Rice.,4
-fomc-corpus,1981,"Mr. Chairman, at the last several meetings I've been saying that the economy was sluggish, bumping along somewhere between no growth and very low growth. I thought that was a good thing in terms of a desire to reduce inflationary pressures and I thought it would be good if we could keep the economy in that mode. But now we see that the economy has not remained in that pattern. Nearly all of the indicators point to a recession. And, as the Redbook indicates, pessimism is widespread among businessmen. It appears to me that the only question really is how deep the recession is going to be. My own judgment is that the staff forecast is about right. I would differ only slightly as to the timing of the turnaround. The staff sees a mild upturn in GNP in the second quarter of next year. I do not see a turnaround appearing as early as the second quarter. I do not see the mild pickup in housing and in automobiles and in inventory that the forecast is based upon. I think a turnaround has to await the tax cut of midyear and that it probably will be toward the end of the third quarter before we see any real signs of recovery. So, I would put the recovery further back in time, which means that we're likely to see very low economic activity continuing longer. In other words, the duration of the recession would be longer than is projected. I'm also more optimistic about the inflation picture for next year. In my view the course of inflation will be somewhat less. The staff is projecting an average inflation rate of something like 8.8 percent, and I would expect it to be slightly lower than that. I was interested to hear Mr. Axilrod say he saw significant differences between this downturn and the one that occurred in the spring of last year. I certainly agree with that. This is a much more classic recession. I don't think it will be V-shaped; I don't think there will be a very quick snapback because the conditions are different and the basis for a quick snapback in consumer and business spending seems not to be present now. The main issues that seem to be before us then are: (1) How much of a drop in interest rates would we find acceptable in the current circumstances; and (2) How much of shortfall in the growth of M1-B from its target range would we find acceptable. And related to both of these questions is, of course, the credibility issue. What happens to our credibility if we allow interest rates to fall below whatever level we find acceptable and what happens to credibility if we continue to allow money growth to fall substantially below the target range? I see our credibility being called into question much more when we are seen as letting up in a situation where inflation is gathering momentum and when interest rates are rising [than if] money is tight and we appear to be letting up--and I emphasize appear--in a situation when interest rates are falling and the economy is weakening. In current circumstances it's much more important to be perceived as sticking to our objectives and taking our monetary growth target seriously. Therefore, at present--and I refer now to the period over the next six weeks to two months--it's important to be seen as not contracting the narrowest monetary aggregate, M1-B, further than we had intended to six weeks ago. I would think that our credibility depends a great deal at this time on whether we are willing to appear to move in the direction of trying to achieve our target for M1-B.",704
-fomc-corpus,1981,Governor Schultz.,3
-fomc-corpus,1981,"Well, one comment about what Mr. Boehne said: As far as latent demand is concerned, we've had a policy of monetary restraint for a couple of years now and it does stand to reason that in the interest sensitive sectors, which have been under pressure for that length of time, there would be some latent demand--certainly, for example, in housing. The auto sector would seem to have some latent demand because of scrappage on the one hand and because of the recent very rapid rise in used car prices; one would assume that would have some connection. I happen to feel that auto sales may be a bit more interest sensitive than the staff does, as a psychological factor, if nothing else. I recognize the sticker shock phenomenon. Another interesting thing to note is that in the quarterly survey of the National Association of Small Businesses a large percentage of respondents say that their biggest problem is interest rates. But only a portion of those people say that the problem is that they are under terrific pressure. A lot of very solid small businesses say that they'd like to expand if interest rates would come down, so I think there's considerable latent demand in that area as well.",234
-fomc-corpus,1981,I think you're quite right about that.,8
-fomc-corpus,1981,"Let me speak to what Bill Ford had to say, because I think that's the crux of the matter at this point in time. I believe that the very high interest rates have been a primary cause of the recession we're in. If that's the case, then we certainly need to have lower interest rates before the economy begins to pull up. And I think we clearly do need lower interest rates. There are three things, though, that bother me a great deal about the speed and depth of that drop [in rates]. The first is that if we let borrowing go too low--I'm not sure about Steve's frictional level of $50 to $100 million because I have a feeling it may be a little higher--we get into a situation where the funds rate could drop very precipitously. And if the funds rate were to drop to a negative real rate, that would be an indication to the market that would not be very favorable. You asked Peter what his judgments were about expectations. The fact is that the army of Fed watchers out there has history on its side in feeling that we are going to cave in. We have in the past and they continue to expect history to repeat itself. So, I think a very sharp and precipitous drop in the funds rate could have serious expectational consequences. The second part follows on that expectational point. It is important that we get mortgage rates down if we're going to get some recovery in housing. Now, how do we go about doing that? Well, if we get more savings flows into the thrifts, that helps. If the rates on all the other alternative investments come down, then the mortgages will look better. But the fact is that the thrifts have been killed by investing in mortgages over the years, so the expectational factor is very important for them in terms of when they're going to start making mortgage loans again. The California thrifts keep coming in and telling us that they're not making any mortgages at all even with these very high rates. So, how do we get them to [make such loans]? I'm not sure that a very precipitous drop in short-term rates is the kind of thing that would make the thrifts feel that they'd want to go out and start making mortgage loans again. The expectational factors are important there. I don't really know how to assess that, but it's something to be considered. The final thing that just scares the devil out of me--it gives me some nightmares--is what will happen if we do get this recovery in the first or second quarter and then the tax cut comes in; I just have to feel that interest rates are going to start back up again at some point in time. Now, 1982 is an election year. What kind of problems will this country face in its anti-inflation efforts if we are in a period of rising interest rates in a political campaign? On the question of how rapidly interest rates come down and how rapidly they come back up, in talking to small businesses of all different kinds, my sense is that there are thousands of them out there that are hanging on by their fingernails and they're going to continue to hang on when they see interest rates coming down. But when they see those interest rates start to turn back up again, I think a lot of them are going to let go, and we could be facing a really, really serious problem. Willis Winn brought in a letter this morning which he says is typical of what he has been getting from businessmen. In effect it says that the Fed is being too tight and it's causing the recession and not letting the President's program work. It's that kind of argument. Now, what happens if we get into the summer in a political campaign under those kinds of circumstances? I just have a feeling it could wreck the whole anti-inflation campaign and then we're in deep trouble. I think we do need to get interest rates down. It's important. But the speed and depth of that drop and the potential for the rebound is something that we really have to keep in mind.",816
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"Well, some of the things I'm going to say echo what Fred has just said. As I listen to the staff, they are telling us, I think, that we are in a classic recession now. It is quite pervasive across sectors; it has cumulative characteristics, but the economy is by no means falling apart. We are not looking at a 1974-75; we're not looking at a second quarter of 1980. I find myself in broad agreement with that, and I think that is what the tone of the Redbook is saying also. But, frankly, I don't like what we're going through. I would much rather have seen a continued more or less sideways path instead of heading into a recession. If we look back at what has been happening in the last two years, we find that the economy got too weak in the early part of 1980 and it got too strong in the last half of 1980 and then it was too weak again. In all candor we have to acknowledge that the behavior of financial variables has been principally responsible for that. I don't think we ought to cast any blame. If I had been responsible for running the whole thing myself, I don't know that I could have done any better and I may well have done worse. I certainly agree with Willis Winn's comments that we're looking at the behavior of a measure of transactions balances that we have not the foggiest notion of how to interpret. But I don't think the answer is simply to recast our statistics, because what we're going through is a wholesale change in ways of portfolio management on the part of both businesses and individuals. And it's going to take a long, long time for this to shake down until we finally understand what these monetary aggregates mean. I think what we have to do is to take into account what is happening to interest rates, at least to some degree; and there just isn't any doubt in my mind that interest rates have gone through much too wide swings in the past couple of years. In retrospect, I come to the conclusion that when we let the fed funds rate get up to the 18 to 20 percent range, the behavior of the economy subsequently has become too weak. And when we let it get down into the 8 to 10 percent range, the economy has become too strong.. Now, those are rather wide limits, but somewhere between those two limits is where we want to be. I agree with Mr. Axilrod's comments that the economy is different now than it was in the second quarter of 1980, so we're not going to see the same kind of response that ensued upon removal of credit controls when interest rates on short-term securities were slightly below 10 percent. But let us remember also that we have an enormous amount of fiscal stimulus coming along in the latter half of next year, and that's going to work the other way. And I agree with Ed Boehne that we have a lot of pent-up demand out there that could begin to affect the economy if interest rates come down a lot further. The most important policy question we need to focus on as a Committee today is how far and how fast we want interest rates to fall from here. I would remind you that interest rates are already lower than the trough level of interest rates that underlies the staff forecast. The staff forecast has a trough level of Treasury bill rates--that is, on short-term securities--of 11-1/2 percent in the first quarter of 1982. We're already below that. I think we will see a significant further reduction in important rates of interest like mortgage rates if short-term rates stay where they are for a while. It may well be that some further decline in short rates is appropriate, maybe even desirable, but we need to be extremely cautious in how far we let them go because inevitably if the economy begins to recover strongly, with a combination of a relaxation of financial constraints and fiscal stimulus, the rates are going to rocket back up again.",806
-fomc-corpus,1981,"Well, I don't know how many people we can get through here, but let's try a couple more. Mr. Wallich.",26
-fomc-corpus,1981,"Well, in every recession there is a period where one becomes alarmed if it looks worse than one had expected. And that is the period that I think we're passing through now. But I think the staff is right that there is a foundation under the economy. It's partly the tax cut next year. I think the pent-up demand in housing, automobiles, and investment, as it gradually comes alive, will prevent a very deep drop. So, I think concern of a very severe recession isn't justified. If the economy is worse than it seemed a few months ago, so is the inflation outlook, or at least it hasn't improved. If I may go back for a moment to the targeting problem that Larry Roos raised, the way I understand this is that the Committee sets the money supply path and the borrowing assumption. The staff derives from that a total reserves path and a nonborrowed reserves path given the borrowing assumption [and] we then target the nonborrowed. And a change in the nonborrowed [path] would simply amount to going back to total reserves targeting. A change in the nonborrowed [path] is the analogue of a discount rate change. It's a major decision and it should be made by the Committee, not just made routinely because we're not hitting the money supply target. The same could be said about changing the total reserves target. That too, it seems to me, can miscarry as a result of excess reserves building up or being drawn down, and the target should not be changed without a Committee decision. On the aggregates, I share what has been said about M1-B. It's not a sacred number; it's a very profane number. It has been misspecified. There's a member of the Shadow Open Market Committee in New York who has an adjusted M1-B that is growing at a 10 or 12 percent annual rate. All he does is put in 50 percent of money market mutual funds and overnight Eurodollars and RPs. You can--",402
-fomc-corpus,1981,"So, he's not complaining about the shortfall?",10
-fomc-corpus,1981,"He's not complaining. He has been complaining about our excessive reserve expansion, you see. Everybody can find something wrong with us.",25
-fomc-corpus,1981,"Who's that, Heinneman?",7
-fomc-corpus,1981,"Heinneman. I think that Willis is perfectly right that the bank in Ohio is in effect making it possible to have a zero balance checking account. And I think we're moving further in that direction. So, M1-B is highly suspect. Well, I guess I won't say any more on the aggregates. Just a word on interest rates: What has been said here is exactly what I think. If we stick firmly to an aggregates target, we're going to have very wide swings in short-term rates. After a while long-term rates will cease to follow this rate race and will probably remain high because people have the experience, if they ever buy bonds, of losing money as bond prices rise. If we get a V-shaped interest rate [move], we'll lose credibility. I think our credibility is really much more linked to interest rates; many millions of people are more interested in them than in the monetary aggregates in which, at least in Washington outside of three buildings not including this one, there isn't all that much faith.",204
-fomc-corpus,1981,"It depends on what phase of the cycle we're in, Henry.",13
-fomc-corpus,1981,Three buildings?,3
-fomc-corpus,1981,"I'll tell you the addresses in a minute. There are two buildings on each side of it. I'm simply trying to say that I think we ought to aim at a saucer-type movement of interest rates. I recognize that we need to have some compromise between not completely letting go of our aggregates targets and avoiding excessive moves in interest rates. That's what we need. And in that process, we ought to avoid getting to negative real rates, as Fred said. Thank you.",94
-fomc-corpus,1981,"Well, maybe we'll go drink coffee and then get through the list. I won't blame it on you at all, Governor Wallich. It's a rather long--",32
-fomc-corpus,1981,Let's welcome Mr. Balles.,7
-fomc-corpus,1981,Out our way we happen to have a big worldwide engineering outfit called Bechtel Engineering and they've just had some publicity about a brand new kind of business they're getting into. They think there's a great future in it. It's called decontamination and decommissioning from nuclear power plants.,57
-fomc-corpus,1981,I thought they were decontaminating the M1 figure. That's what George Schultz said!,19
-fomc-corpus,1981,"Maybe we should have George's boys take a look at our problem with the Ms and see if we can get some decontamination and decommission! I was kidding Dave Lindsey that if I were his boss, I'd give him an assignment to answer the question: ""Will the real money supply please stand up?"" What I have to say today is that I'm torn between Lyle's point that we don't really know what these Ms mean anymore--and I am very sympathetic to that--versus my feeling that we want to avoid a procyclical monetary policy. As I look back over the last couple of years, we took very positive action in focusing on a gradual deceleration of monetary growth. I think that was a bold action and we had a lot of guts in letting interest rates rise to unprecedented levels in carrying that out. And I guess I would be a little uncomfortable if we weren't symmetrical on the down side. But given the recession we're now in and our guesses as to how long it will last, it wouldn't bother me to see interest rates come down somewhat further. I'm considerably influenced in that by the real risks I see of this downturn getting more serious than the staff projects, although I can't really disagree with their forecast. But the risks are there; we all know about them. There are very serious risks in the thrift industry, extremely serious recessions--and that's the only word for it--in the forest products industry and the auto industry, and there is a cost-price squeeze going on in agriculture. To the extent that we can give them some near-term relief, lower rates, it would simply head off the risks coming from those sectors of converting this present recession into a major contraction. I'm hoping that we'll avoid an actual shrinkage in the money supply such as we had in the mid-1970s. And while I certainly wouldn't want to see the extreme fluctuations in interest rates that we witnessed in 1980, I don't see very much risk of that happening in late 1981 and early 1982. Maybe I've been brainwashed by being too close to the forest products industry, but I recently appeared on a panel discussion along with Henry Reuss and they were ready to hang me in effigy, Mr. Chairman, instead of you, maybe as your proxy.",460
-fomc-corpus,1981,"That gives [unintelligible] more important. If they hang them all, that's all right.",21
-fomc-corpus,1981,"To Henry's credit, I'm glad to say that he supported what we have been doing. He said it was necessary and was what just had to be done. That was a pleasant surprise; I didn't have to fight with him. But I'll tell you, I do have to fight with the builders and the forest products people who say they are bleeding to death or hemorrhaging. They say: What can you do for us? And do it soon because if you don't do it soon, it's going to be too late.",105
-fomc-corpus,1981,End of story?,4
-fomc-corpus,1981,End of story.,4
-fomc-corpus,1981,Mr. Keehn.,5
-fomc-corpus,1981,"Just to comment on the situation in the Chicago District, the problems, of course, have been serious all year but there certainly has been further deterioration since our last meeting. And it's clear that [just about] all of the sectors have now been affected, with very few exceptions. Turning to the auto situation, October can only be classified as a disaster. Any hope for 1981 at this point, of course, is gone. The optimism that some of them have for 1982 is significantly eroded and I think the automotive situation, therefore, is very serious. Capital expenditures in our area have been further curtailed, particularly in the automotive industry, with significant cutbacks. The Christmas shutdown schedules, which were already going to be heavy, have been extended considerably. This recession is a little different in the Midwest than other recessions have been. In the past the agricultural sector has offset the industrial sector. This time that is not the case. Because of high production, farm incomes are down and, as a result, the agricultural area is also in a very serious predicament. And that has impacts on people who manufacture products for that sector, several of whom have gotten themselves into very weakened, precarious positions. In turn, the banks that extend credit to the farms are beginning to see some slowdown in payments, and I think it is inevitable that there will be some problem loans developing among those banks as they go through a foreclosure procedure. I am considerably more pessimistic than most with regard to the outlook for '82. I admittedly come from an area where there is a very heavy concentration of industries that have been most affected. But I am beginning to wonder if the consensus view that we will all come to work on the first of July and find that someone has turned the lights on is really going to come to pass. I think we're placing an awful lot of hope that the tax cut will produce significant benefits. I think the recovery will begin to take place as we see a permanent or more lasting impact on inflation. And until we get into the contract settlements next year, I don't think one can forecast how that will come about. I don't want to imply that any of this should indicate a significant change in policy for us. On the contrary, we continue to have the broad support of the business and financial industry and I think they would encourage us to stay with the general direction of our current policy. But my hunch is that with the economy as weak as it is rates will continue to come down and we can continue to maintain a fairly restrictive stance on the aggregates without necessarily having a negative impact on the recovery prospects. So, I would urge that we continue with this. But I do want to report that the situation in the Chicago District continues to be serious and is deteriorating.",559
-fomc-corpus,1981,Mr. Morris.,4
-fomc-corpus,1981,"Well, Mr. Chairman, until the last two people talked it seemed that I was perhaps one of the few people in the room who wasn't confident that I knew what we ought to be doing. But I do sense a clear trend around the table that we're fighting last year's war, which of course is always a danger. It seems to me that the latest Maginot line is that if the federal funds rate drops below 10 percent, the economy is going to turn on the dime and shoot up rapidly. That seems to me, at least for the first half of 1982, to be highly unlikely. Quite the contrary, I think there is a risk that if we're too rigid in following this particular [policy] line, we could well end up with a much deeper recession than we're projecting. I don't have the confidence that that would be the case, but that risk is clearly there. With that background, I tried to read some of the euphemisms that Steve Axilrod is now developing for the Bluebook. I agree with him, looking at the options, that we're not going to affect the monetary growth rates in the last weeks of this year. But he talks about a more restrictive policy producing a ""smoother transition to targets for 1982"" and that's the euphemism that I've been trying to interpret. What I think it means--I'd like to ask Steve--is that we're going to have some very low monetary growth rates early in the year, which would be helpful in offsetting very rapid growth rates later in the year. But if we set out to produce overtly very low monetary growth rates in the first half when the economy is very weak, we could generate a larger recession than any of us would think was constructive in the situation. Have I interpreted you wrongly, Steve?",366
-fomc-corpus,1981,"Well, what I meant was that that alternative would reduce the odds of the funds rate going to 5 percent between now and year-end and rising back up to 15 to 20 percent early next year as an effort was made to hold the aggregates next year down to, say, in the 2-1/2 to 5-1/2 percent range tentatively adopted. That's literally what I had in mind.",86
-fomc-corpus,1981,"Finally, looking at the options for this meeting, two of the options call for a more restrictive policy than we announced at the last meeting. It's hard for me to envisage what economic data have come in over the past five weeks that would lead us to support a more restrictive policy than we did the last time. I could certainly buy ""B"" because we could still say that we're shooting for 7 percent growth through the rest of the year, which is a number we put out last time. I find it very difficult to figure out how we would explain coming out with the 5-3/4 percent target under alternative C, after having given our sanction to a 7 percent growth rate before we knew how sharp the decline in the economy was going to be. I should think that would take some doing.",163
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Mr. Chairman, I certainly would agree that the economy is soft. We even have some sense of that in the Ninth Federal Reserve District at this point. And that softness is well reflected in statistics and in business behavior and sentiment. My own personal hunch would be that the fourth quarter at least could be even softer than the staff is now suggesting. But at the same time I also sense that there is at least a residue of optimism in terms of the longer-term outlook and expectations. In part that grows out of people looking ahead to the tax cut and in part out of some of these pent-up demands that people have been talking about. There also is still some lingering hope that the inflation rate may be coming down in a meaningful way, although recent events perhaps have not worked in the direction of reinforcing that. The relevant point here is that if we want to talk about a sustained recovery--whether it starts in the second quarter or the third quarter--the sustainability quotient is going to depend on two or three critical things. One is bending down that inflation rate, including the wage side. Another is the budget situation, which hasn't even been mentioned here, and as I would look at that right now recent events seem to have worked in the direction of making it harder rather than easier to get on with the further adjustments that have to be made in that area. The other thing that is very important in connection with sustainability is that we simply have to create and maintain an environment in which some of these very serious liquidity and balance sheet strains that are all over the economy can be turned around. And achieving that turnaround under the best of circumstances is not something that is going to be done quickly or easily. It's going to take some time, which in turn implies that it will not be done in an environment in which we have these zigzag patterns of interest rates and these zigzag patterns of economic activity. That leads me very much in the direction that Governor Gramley suggested. And fundamentally it leaves me with the view that we ought to be proceeding slowly and deliberately with respect to this interest rate situation, even though I, too, obviously would conclude that there is some further latitude that can be constructively used here. But I think we have to be cautious and we have to try to avoid some of the problems of the past as we try to walk this very thin line.",472
-fomc-corpus,1981,Governor Teeters.,4
-fomc-corpus,1981,"Some of my concerns have already been expressed. I have a strong feeling that we're monetarists when the economy is expanding and we're interest rate targeters when it begins to collapse. If we move in and put a floor on the interest rate, which is what it sounds like around here, we'll be in real trouble. We haven't kept up with what we said we were going to do. I think there is still latitude to lower interest rates from where they are now. This staff forecast has a bottom rate on mortgages of 16-1/2 percent; that doesn't speak of any revival in the housing market next year. I think we can move it down. I agree with Lyle that we have let interest rates swing both too high and too low. Or rather we let them swing too high; I have seen very little evidence of their swinging too low at this point. I think we will probably want to pay more attention on the high side as well as on the low side in the next cycle. There's also a tendency to be very unconcerned when rates rise and then to sit and agonize for weeks about lowering them. We did that last summer and a few other times on the discount rate. It seems to me that we should be symmetrical and not try to fudge or change our philosophical point of view as we go along. If you look at this forecast--and we have had a lot of surprises in the forecast on a quarterly basis over the past three years--it takes until the end of 1982 for real GNP to get back to where it was at the beginning of 1980. Now, that's a very, very slow-growing economy; and although there have been lots of ups and downs, we end up at the end of 1982 with an 8.8 percent unemployment rate for three solid quarters. That is not my definition of a reviving economy. And we have 8.8 percent [unemployment] projected primarily because interest rates are assumed to rise next year. When an economy is growing as little as this one is projected to grow with no impact on interest rates, some policy parameter is wrong. And this is even after a very large tax cut at midyear. We're not talking about an exuberant economy next year anyway; we're talking about an economy that is just barely keeping its head above water. If we then come down and set a floor on interest rates at 12-1/2 percent, we're going to end up like the supply siders did with the Stockman article; somebody is going to notice that the emperor doesn't have any clothes on and that we aren't accomplishing anything. Our inflation rates for the past three years have been 9.7, 9.8, and 9.4 percent and this is after three years of monetary restraint. Every time we think we're going to get a dip in the inflation rate, something comes along and [drives] it back up again. I think we should become increasingly concerned about the rate of real growth in this economy and do what we can on inflation. But [we also need to] realize that we don't have complete control and that we could do extreme harm if the economy continues to run at these very low levels of real utilization.",656
-fomc-corpus,1981,"Well, that's forthright, anyway.",9
-fomc-corpus,1981,Mr. Black.,4
-fomc-corpus,1981,"Mr. Chairman, I have to align myself with those who think that the downturn is apt to be more serious than the staff has suggested. With a sharp deceleration in M1-B growth and the very high real interest rates here in the summer and the point that Willis Winn made that there seem to be a lot of [potential] bankruptcies--which many of our contacts are telling us will surface pretty soon--the downturn may be somewhat greater than the staff is projecting. By the same token, I'm somewhat encouraged by the reaction of some of the labor unions in the softening economy and [by the fact that] the money supply has been kept under good control. So, I would be a little more optimistic about how much we might be able to do in the way of containing inflation. Now, when we get to the policy issue, I think there are two clear alternatives here. Everyone recognizes that we can't do much about the aggregates issue [this year]. But what we do will make some difference for next year. Most people have focused on the first choice, the desirability of maintaining our credibility by not appearing to have thrown in the towel by overreacting and letting interest rates come down too fast. But that deals with only one of the two credibility problems we have. That one relates to the belief on the part of a lot of people that generally we've erred on the side of ease [in the past]. But there's another credibility problem and that is that we haven't had a very good record of hitting our targets. And that is the one that impresses me more. So, I'd like to focus on the risk that the continuation of the shortfall in M1-B might worsen the recession and thereby impede our efforts to reduce inflation over the longer run. If this downturn is really serious, the pressures are going to be pretty unbelievable for us to ease later on. So, I would favor this second course of action. And if we do follow that, it's certainly likely that we're going to have to let rates fall significantly. I don't know how far and no one else does. But I don't think the market would necessarily conclude that we have thrown in the towel if this is the path that we follow, so long as M1-B is not moving above what we set as our long-run target. So, that's the way I would like to go. I'm well aware of the limitations of M1-B; but even with its imperfections, I believe it's a better target than anything else we have. And that preference of mine has been strengthened by the considerable weakness we've had in the economy following the weakness in M1-B. We've had strong M2 growth and yet the economy has weakened pretty considerably. So, my preference is for alternative A, Mr. Chairman.",557
-fomc-corpus,1981,Mr. Guffey.,6
-fomc-corpus,1981,"Thank you, Mr. Chairman. I would like to align myself with comments made earlier by Governor Schultz and Governor Gramley. It seems clear to me that the weakness in the economy that we're experiencing now is something that we've been looking forward to. We've achieved it and we hope it doesn't go any deeper. But it's a point at which, if we make a mistake with regard to interest rate levels, in my judgment our credibility will indeed be in jeopardy. Let me just make one other observation. For those who have commented about achieving an M1 growth represented by alternatives A, B, or C, I'd like to observe that we are talking about only a two-month period remaining in this year. I believe Frank Morris spoke of adopting ""B"" or ""C,"" which are somewhat more restrictive than what we adopted at the last meeting. At that meeting we were looking at a three-month period, and the incoming evidence suggests that we cannot achieve what we set out to do in September or October. To try to do so in the remaining 6 weeks of this period would not be my prescription. I think the focus should now be on the interest rate level; to moderate the interest rate reductions to smooth the transition into the first quarter of 1982 is important. I would also observe that the interest rate levels have been reduced rather significantly over the last 60 days; the lagged effects of those interest rate reductions are not clear, but they are significant. Let me remind you that as of the first of September, for example, the federal funds rate was averaging close to 16-3/4 percent; it's now at 13-1/4 percent, I believe Peter said, and rates on short-term governments have had an even further reduction. We don't know what the effects of this will be but they should be positive on the economy. As a result, just to turn loose and let interest rates continue to fall to achieve an aggregate growth target for the year over the remaining part of the year is not what I would prefer. I would suggest a prescription of alternative C with an 11 to 16 percent federal funds range, a borrowing level in the neighborhood of what it is now, which I understand is about $350 million. However, to avoid the possibility that things might turn around and we would get much stronger growth in the aggregates than was forecast in the Bluebook, I'd like to suggest a change in the language of the directive. I'd say growth of 5 percent from September to December, as suggested by alternative C, ""or somewhat higher,"" thus accepting higher growth if it occurs. I think the [chances] are that it will not be that high. But if it is that high, in view of the past record over 1981 we should accept it for these last two months without moving interest rates back up.",573
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"If I were to express a preference among the three alternatives, I'd lean toward ""A"" or ""B."" But, as has been stated before, this decision is a very short-run decision. If what has happened in the past few months were to happen over the next two months, regardless of whether we choose ""A,"" ""B,"" or ""C,"" we probably won't hit our choice right on the nose. So, I don't think what we do today is all that important. I do think, though, that what we do in our next two meetings is extremely important, and I'd like very briefly to address myself to a couple of concerns that I've had as I have listened to the discussion today. First of all, regardless of the terminology that tends sometimes to disguise it, there is significant sentiment being expressed that we should revert to paying primary attention to interest rate stabilization. That was our practice prior to October 1979. This [view] is apparently based on some very real skepticism as to whether the aggregates are meaningful, whether they're definable, and whether they're controllable. I've heard a lot of people say that M1-B should be discarded because M2 somehow or other fits somewhat better today. I would remind those people that if M2 were really the meaningful aggregate and were growing as strongly as it has, we wouldn't be faced with a problem of the slow economy and recessionary characteristics that we're facing today. However, I think there's an even more fundamental concern as we look ahead and that is the decision as to whether or not we ought to revert to our former practices. We know that our mission is to try to achieve reasonable price stability and to achieve steady economic growth. As some of you have said, it's not desirable to have [large] variations or ups and downs in interest rates. Well, I would remind you that prior to October of 1979 we spent precious hours discussing whether or not interest rates should be set 1 point or 1/2 point higher or lower. We attempted to conduct monetary policy by targeting on interest rates. And I would remind you, unless I misread what happened, that when we convened on October 6, 1979, after many years of carefully attempting to guide the ship by controlling interest rates, we were very concerned that we had seen significant fluctuations, cyclical and other types of fluctuations, in economic activity and we also were experiencing shockingly high rates of inflation. Now, even though we may assume that our efforts to control the aggregates have not been as fruitful as we might have wanted, if you review what has happened since 1979, I think you would conclude that there is some relationship between the behavior of the aggregates and price stability, lagged, and economic growth. Compare the times when the aggregates grew above our ranges and see whether or not there was a stimulative effect on the economy a few months afterwards. Indeed, [consider] whether the slow growth we've had isn't reflected somewhat in the present weakness in economic output that we're experiencing. So, I would conclude my remarks merely by saying that if we decide that [what we did in] October '79 was wrong, then let's tell the world that we're going to go back to where we were prior to October '79. I would submit that if we do that, we would have the most violent upward movement in the interest rate pattern imaginable and our credibility would be forever destroyed, because our Chairman has done a very effective job of convincing people that we are determined to pursue this new course. But if we start equivocating, if we start waffling, I think we're in for severe problems. These are some of the issues that perhaps we will discuss in the next couple of meetings. Certainly today there are a lot of people who would say: ""Let's pitch out [the decision of] October '79 and go back to interest rate stabilization.""",780
-fomc-corpus,1981,I don't think I heard anybody at the table say that.,12
-fomc-corpus,1981,"Well, [Roger] just said it.",9
-fomc-corpus,1981,It's implicit in setting a floor on interest rates.,10
-fomc-corpus,1981,Not at all.,4
-fomc-corpus,1981,I didn't think so. I don't believe you'd get anybody to vote for that.,16
-fomc-corpus,1981,"Fred, it was certainly implied when people said we have to avoid upward and downward gyrations in interest rates which, of course, contradicts any ability to control the aggregates. At least I think [it does].",43
-fomc-corpus,1981,I think it's fair to say there are differences in emphasis.,12
-fomc-corpus,1981,That may be; I agree with that. But I don't think anybody wants to--,17
-fomc-corpus,1981,I think it's also fair to say that equivocation is in the eye of the beholder.,19
-fomc-corpus,1981,Governor Partee.,4
-fomc-corpus,1981,"Well, I didn't say anything about my preferences on the alternatives before. I agree almost totally with what Frank Morris had to say. I would choose alternative B. I don't know that it's all that important to get a 7 percent increase in M1-B in November and December, but I certainly would like to have an appreciable increase. As you know, we've chosen 7 percent since July. And we've only had 7 percent in one month of the months that have gone by. So, I'm not really sure what it means when I say I'd like the 7 percent alternative because it may not be that at all. But I guess what I'm saying is that if M-1B growth turns out to be significantly below 7 percent--and significantly below I would define as being below 5 percent--I would assume that we would not regard the federal funds rate range as being a [constraint] that would stop [us from] trying to get more growth. So, I'm prepared to accept 10 to 15 percent on the federal funds rate range, as stated in the directive. But if the aggregates continue as weak as they have been--not what the staff is projecting, but what they have been--I would want us to break below 10 percent on the funds rate.",260
-fomc-corpus,1981,Mr. Solomon.,4
-fomc-corpus,1981,"I think the split among us is sharper today than it has been in a long time. It turns, really, on the question of how much importance one gives to a moderate, orderly decline in interest rates as against a more rapid drop. I'm concerned about the reaction in the bond markets if there were a rapid drop in the fed funds rate. There could be a very negative reaction and this moderate decline that we've been seeing--and yields in bond markets have the best chance of influencing and bringing down mortgage rates--could be cut off very abruptly if markets see a precipitous decline in short-term money rates. I think it's true that many of us here are more concerned about declines in [real] interest rates when they threaten to drop too precipitously, in our judgment, and become negative. But I don't think there's anything inherently immoral, let alone unaesthetic, Nancy, about asymmetry. The--",180
-fomc-corpus,1981,It creates a very poor economy.,7
-fomc-corpus,1981,"Well, I'm not too sure; it depends on where our priorities are.",15
-fomc-corpus,1981,"That's not the argument I heard when they were going up, either.",14
-fomc-corpus,1981,"I've never argued that there has to be a mechanistic asymmetry in conducting a complicated monetary policy. In any case it, I align myself with Fred Schultz, Lyle Gramley, Roger Guffey, and although he's somewhat elliptical, I think Jerry Corrigan, Henry, and a few others.",61
-fomc-corpus,1981,I didn't say anything--,5
-fomc-corpus,1981,"You're just elliptical looking, Jerry!",7
-fomc-corpus,1981,"Well, I've always been elliptical looking!",8
-fomc-corpus,1981,"I would argue that we should have something close to alternative C, say 6 percent, for October to December.",23
-fomc-corpus,1981,"That's ""B.""",4
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,"Oh, for the two months, October--",9
-fomc-corpus,1981,"Or 5 percent for September to December, if you want to use that, but I think it would be silly to formulate it that way in the directive. Secondly, I also think a funds rate range of 11 to 16 percent makes sense because we've had this sharp decline of about 300 basis points in the fed funds rate. And if it were to drop to 11 percent from 13-1/4 percent within the remaining six weeks of this year, that's a very substantial drop. I would find it surprising that people would want to see it drop faster than from 13-1/4 to 11 percent within a 6-week period. I believe that the recession will continue into early next year and that there will be further pressures to continue the downward [trend] of rates, which I think we have to accept. My only point is that [the decline] be moderate and orderly or we will have a perverse reaction in the bond market. Now, I would assume we would start with an initial borrowing of $350 or $400 million. I also would agree that if growth in the money supply comes in higher, we could accept that. The disadvantage of targeting higher monetary growth is that there's a greater likelihood that we will get a decline in interest rates at the front end of the period at a much more rapid rate, instead of spreading it out over a period of months in a more moderate way.",288
-fomc-corpus,1981,"Before we have a lot of debate back and forth, I think we ought to get through our list here with Mr. Boykin. Then we will attempt to draw all these conflicting stands into happy harmony.",41
-fomc-corpus,1981,"I've been sitting here, Mr. Chairman, trying to be sure I had the strength of my convictions. If I can figure out what my convictions are, maybe I'll have the strength! I would like to comment very briefly on the economy down our way, particularly since I have a slightly different story to tell this time around. I think there has been a decided change in attitudes in the Eleventh District over the last six weeks. We see weakness starting to spread in our area. Of course, like the rest of the nation, retail sales, autos, and housing have been weak for some time. We are starting to see some increased layoffs in the manufacturing area--in the aircraft and the electronics industries. Also, there are some early signs of possible weakness in the energy industry. The drilling boom seems to be slowing a little. I'm told that one can actually see a few rigs stacked in the yards, and that has not been the case for quite some time, although the demand for the deep offshore rigs remains strong. We have had unusually heavy rains, particularly in the north central Texas area, and that is going to cause quite a bit of crop loss, particularly in cotton and wheat. People are estimating a loss of about $25 million in that area. Also, we're beginning to hear concerns expressed about the possibility of over-building in the commercial area, particularly in the Houston and Dallas markets. As far as the staff's outlook on the economy, that is about the way I would see it. It's a reasonable outlook and it's consistent with what I'm hearing. On the policy side, a very sharp decline in [the federal funds rate] right now would cause me a lot of concern, particularly for the implication for the long-term rates. [As for] credibility and perceptions, I think there's more likelihood of serious criticism from the majority of people on the interest rate side rather than on not meeting the stated targets. Steve's explanation of how alternative C was constructed and what it's intended to do I find very persuasive, and I'll line up on alternative C.",411
-fomc-corpus,1981,"Well, let me try to summarize a bit. There are some differences in emphasis, but I'm not sure--we'll find out--whether they're as great as they appear to be. Oh, let me ask you a question, a side issue, on this energy business. You say there are some early signs of a much [less] rapid increase at the very least. I've heard the view expressed that a lot of the activity currently in the energy area is based upon an assumption that the oil price is going to be--I'm trying to remember the figure now--$80 or $90 a barrel in the 1990s. And then if that assumption is a disappointment--",136
-fomc-corpus,1981,In real terms? In constant dollars?,8
-fomc-corpus,1981,In nominal terms.,4
-fomc-corpus,1981,"In nominal terms. Presumably, they're doing the drilling. It isn't all that clear to me, but the point was that the price [assumption] was high enough that a lot of people might begin questioning it. Do you have that feeling?",50
-fomc-corpus,1981,"Yes, that does seem awfully high. On the other hand, we get a few scattered reports of some shutting in going on, just not producing. They know it's there and ready to go but are holding back because of the supply side.",49
-fomc-corpus,1981,"A price of $90 a barrel, if it's in nominal terms, isn't even an increase in real terms if these 10 percent inflation forecasts are correct.",31
-fomc-corpus,1981,"May I ask a question in line with that? As you pointed out, most of the drilling going on is deep drilling.",25
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,That's natural gas drilling?,5
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Is there any oil at those [deep] levels? Are they doing a lot of betting on natural gas decontrol? Is that [a major factor]?,31
-fomc-corpus,1981,"Yes, I think it almost has to be, Fred. We heard a report, and the Chairman heard it also, of some deep wells down in the Laredo area where [it cost] about $4 million to drill one well and $8 million to drill another. As the director who was reporting on that said, somebody has to be thinking something that he was not aware of. I would think they have to be betting on decontrol.",91
-fomc-corpus,1981,"Well, I think there are a lot of assumptions in the gas business that the price of gas is going to be $12 or more a cubic--",30
-fomc-corpus,1981,MCO.,3
-fomc-corpus,1981,"Foot or MCO or a thousand cubic feet, whatever it is.",14
-fomc-corpus,1981,Thousand cubic feet.,5
-fomc-corpus,1981,Not in the 1990s but in 1985 or 1984.,17
-fomc-corpus,1981,"Even under the present law, newly discovered natural gas will be fully decontrolled by 1985.",20
-fomc-corpus,1981,"It is today, I believe, for newly discovered. But they have to compete with the old gas.",21
-fomc-corpus,1981,But isn't there still a question of whether it's interstate or intrastate?,15
-fomc-corpus,1981,It's my impression that that's not true. Any new gas is--,13
-fomc-corpus,1981,"If it's below 15,000 feet, but it's almost all--",14
-fomc-corpus,1981,"We were told the other day by one energy economist that there are 17 different price levels for gas, if you can believe that. It's based on all kinds of combinations, as you say: the depth, the age, whether it's going interstate or intrastate. But there are 17 different price brackets.",63
-fomc-corpus,1981,Is it also based on how it smells?,9
-fomc-corpus,1981,The cheating must be enormous.,6
-fomc-corpus,1981,I'm not even sure what that director was assuming with regard to $80 to $90 a barrel. I think it probably was in real terms.,29
-fomc-corpus,1981,"Well, in nominal terms, 10 percent--",10
-fomc-corpus,1981,"In ten years, 10 percent is nothing. That's right. He must have been talking in real terms.",22
-fomc-corpus,1981,[Unintelligible] is 7 years.,11
-fomc-corpus,1981,"Let me just make one point. We did an awful lot of talking about M1. It has been pointed out by a couple of people that M2 has been in the directive as well and that somehow M2 wasn't as reliable because [its relatively rapid growth implied] we wouldn't have had a recession. I'm not so sure about that. We thought the M2 range was very tough and restrictive when we adopted it. We thought we'd be at the higher end of the range if we were within it at all. I guess the velocity of M2 hasn't changed much, has it? This year the assumption was right on the button. There wasn't much [change in] velocity. Anyhow, that's a side comment. While I listened to all the comments around the table, I have the impression that there are some problems that only time will solve and I think we have one of those. I don't think we should suffer from an excessive hubris that whatever we do is going to produce a nice, neat answer to our problems. A sour view of business is rather common around the table. I didn't hear anybody not express that. And I heard quite a few views that, when one has to look at an uncertain world, the staff's projections are as good as any. There was a certain amount of talk about the risks on one side of [the economy] getting worse. Let's talk about the risks on the other side of it being better. I think they exist, too. There's certainly a view around--maybe the most common view--that the economy may not perform very well in the short run, but we're going to have one hell of a recovery in the second half of the year. A lot of people are probably operating on that basis. I'm not saying that's the right view, but it is a view that a lot of people hold. And that probably has some implications for activity. Currently, there is a risk of some cumulative difficulty, complicated not just by normal kinds of cumulative difficulties in recessions but by financial problems that we can't see very clearly but may be there. We have an uneasy feeling they may be there. I don't think we can put a lot of money, speaking for myself, on any of these particular projections. And while I agree that the staff view is as logical as any, the range of dispersion around any forecast, I suspect, is going to be pretty high. In any event, we've got sour business in the very short run. We still have high inflation expectations. I suspect they may be improving a little, but I get the same kind of reports that Mr. Boehne commented on, and I think inflationary expectations are going to be very sluggish to change. Part of the nature of our problem is that the business picture can move much faster up or down. At the moment it is down. Then some other things may change, such as inflation and inflationary expectations and long-term interest rates in particular after all those markets have gone through. That in itself means we're in a kind of no-win situation. If we deal with the inflation and long-term interest rate problem, we cannot deal with the business problem; or if we deal with the business problem aggressively, we can't deal with the long-run inflation, long-term interest rate problem, I suspect. There is no way we can do it with the limited tools that we have. We can get more relaxed about the whole inflation issue; I'm not sure that would help. But I'm not ready to go with, as Nancy was suggesting, a basically new approach. I'm not going to suggest that at the moment and [that is] a little outside the range of consensus for this meeting anyway. How favorably this will develop depends not only on all these uncertainties about business that we can't resolve, but on how fast people become more confident that we can get on an orderly long-term path. I think a lot depends upon wages. I alternatively get hopeful and discouraged about that depending upon the latest report. In fact, we don't know much. But in terms of financial dimensions, it does seem to me, in a sense, that the key is how to get long-term market rates down and bank rates down. Those are the rates that are going to be most important for the economy. But it's not really just a problem of getting them down; it's a problem of getting them down so they stay down. I don't think any short-term relief on interest rates is going to mean a thing, if they begin bouncing up again pretty quickly or with any possibility of that happening. And I'm not thinking primarily in the political terms that Fred Schultz mentioned. Our basic problem is how we stimulate the economy. That may be expressed more happily at the moment as avoiding an excessive decline, without the threat of interest rates moving right up again as soon as the economy levels off and shows some signs of life. I think there is a real possibility of a turnaround at some point; how fast depends partly on what we do. But at this second--to exaggerate just a bit--we're going to run into a stone wall, assuming the kind of monetary targets we have for next year. We will find markets very sensitive to an increase in the economy or an increase in the aggregates, which normally accompanies an increase in the economy. And without either enough experience with declining inflation or enough confidence in the future generally [unintelligible] movement, as I see it at the moment, from being very abrupt. If we have a sizable turnaround in the economy in a hurry--expectations of a buoyant economy and expectations of higher interest rates or whatever--I don't think we're going to have much time for all those balance sheet adjustments and changes in behavior that are necessary to restore more balance to the financial system. And we'll be up against the same dilemma this year that we had last year. I don't know how indefinitely one can go into the future. There is a question of how confident people feel about the outlook for inflation. Not much has been said about the budget. The question of the upturn in interest rates after whatever downturn we have is going to be importantly affected by what people think the budgetary outlook is. That doesn't look very good at the moment. But I must say it's also affected, at least as importantly, by what people judge our own behavior will be--whether we're going to react or come out of the shoot in a hurry the next time the money supply shows a little bulge on the up side, because that's the way they are sensitized to think we're going to behave. And so long as the monetary growth rate is low, they are sensitized to think interest rates will go down, and that's what is happening. In a way, if we want to get interest rates lower, the best thing that could happen is to have the monetary aggregates continue to look low, because the minute they begin to look high, I think that will be the end of the interest rate decline, at least in the long-term market. In the space of some months, I doubt if that can be avoided. If we were successful at the moment in getting a big increase in the money supply, I would not bet very much on long-term rates coming down--for a good many months in any event. I don't particularly think that's going to happen. There's great difficulty in knowing what the money supply is at the moment. That has been adequately discussed. I would just make one other general comment in reaction to what some people have said. I do think that we've had too much interest rate instability and too much exchange rate instability. If this persists into the future in the range that has occurred in the past couple of years, at some point we're going to shake these financial markets apart so much that nobody will know where in the world they stand and a long-term investment will be three days. That's not very encouraging, particularly with regard to the long-term interest rate problem that we have. Something occurred to me during the discussion when Frank Morris accused--if that's the right word--Steve Axilrod of saying something I don't think was in Steve's mind. But let me say that I don't think it's so bad if it was in Steve's mind, because it's somewhat in my mind. We get a natural force toward moderation of monetary growth when we get downward forces in the economy. We get a certain natural push upwards on the money supply when the economy is beginning to expand. And if we literally [evened off] the money supply through those demand forces, we'd have a violent change in interest rates. I don't see that there's any way to avoid it. Let me come back to Lyle's point about how violent a change in interest rates we want and whether we really are achieving anything. I don't think that calls into question in a fundamental way the trend of monetary growth over time. What it does call into question is how hard we should fight against essentially cyclical movements in demand forces on the money supply. When we get these waves in the money supply, we have lots of problems explaining ourselves to the iron-clad monetarists in the part of the market that's [persuaded] by that kind of argument. But I don't think it is or fundamentally has to be interpreted as a departure from the general idea that we've got to get a lower trend. It's not a question of how much cyclical amplitude we allow around the trend. We don't allow any cyclical amplitude that's going to raise questions among the questioners. But one has to ask what the lesser evil is. In any event, getting down to the nub of what we have to decide, let me try some verbal formulations. We may have a problem writing a directive that people can understand and agree with. But I'm not sure--we'll find out--how far apart we really are. I think what we're debating is the aggressiveness, in a sense, with which we move to push the money supply up or deal with weakness, if that's what we're going to have. I don't think I really hear anybody saying that we shouldn't move in the direction of easing bank reserve positions and be prepared to see some decline in interest rates if the money supply is on the weak side. I don't think I hear anybody saying that if the money supply took a little jump, we should be sitting here resisting it in any sense. Having said all that, we need to quantify what we mean and how we express it. It's almost easier to talk in terms of the operational variables rather than the targets themselves, recognizing that the actual movement in the money supply over the next few weeks probably is not going to be affected much by what we do and we'll have to take the figures as they come. Some consistency in our operations as we set them now--not knowing what those money supply figures are going to be--with further declines in interest rates of a moderate character doesn't bother me. I think that's probably appropriate in all the circumstances. I would think that means something like a $350 million figure for borrowing or $400 million, or someplace in that area. We'd be prepared to move down on that if the money supply is weak and not prepared to move up on it if the money supply is strong unless [it's extremely strong]. But I can't conceive of it being strong enough so that we'd want to move [borrowing] up, frankly. But we would have to be prepared, I think, to move it down somewhat if the money supply remained weak. Just how to define weakness is going to be an issue. We have had the pattern recently of a 5-point band in the federal funds rate range. It's an artificial contrivance in many ways at best because if we put a 5-point band on any of these numbers I'm not sure anybody sitting here would want to think of the federal funds rate going up to 15 or 16 percent as some of these [Bluebook alternatives show]. In current circumstances the rate probably is not going to go up at all significantly from where it is for any length of time. It is slightly over 13 percent now. I suppose, on the convention we've used in the past, that would make the range 10-1/2 or 11 percent to 16 percent or someplace in that area; but the upper part of that range isn't very relevant. I'm sure that this feeling would not be unanimous, but there is a considerable amount of feeling that we'd want to take a very hard look at this if the rate got down toward the lower end of the range, as it well could. It is probably not apt to do that unless [the Board] reduces the discount rate in the near term. I think the discount rate is clearly going to be in question during this period and should be in question in terms of a downward movement. I think we would assume that that move might well come sometime before the next meeting, unless there is quite a change in the business picture. When one thinks in those terms, we could begin getting down toward those funds rates quite easily but probably after a period of time. The discount rate isn't going to be moved right away. Now, as to how to formulate the actual directive, I think basically we have two choices: We can put in a relatively low number and say we're not bothered if it's higher; or we can put in a relatively high number and say we're not bothered if it's lower. Maybe we could have a little more discussion of those options.",2701
-fomc-corpus,1981,"Well, I've said my piece on the interest rate issue. I'm not bothered by the fed funds rate getting down below 10 percent, but not between now and the next meeting. I would go with the idea of a target and then say ""or somewhat lower."" My choice would be alternative B with initial borrowing at $350 million and a federal funds range of 11 to 16 percent. It's basically ""B,"" but with a different funds rate [range]. After all, that's a consultation point. I think we ought to consult if it gets [to 11 percent]; remember, the next FOMC meeting is only 5 weeks away, so it's a very short period of time. I suspect, as I said yesterday, that we're going to have to move that basic discount rate pretty soon. And I would have some concern about the rate going [down] faster than that, which is why I say 11 to 16 percent. I'd have some concern about the borrowing getting down any lower than $200 million during this period of time.",212
-fomc-corpus,1981,"Well, I buy the $350 million and I buy the ""B"" [specifications] but I would want the funds rate at 10 to 15 percent. I certainly can't imagine it over 15 percent, and I would want us to consult very promptly if 10 percent is going to hold us up and we would not have a good growth in the money supply.",76
-fomc-corpus,1981,"Incidentally, I'd be willing to go 11 percent with 15 percent on the top end; the only problem is that it's only a 4-point range. I don't think we're going to hit that [upper limit] anyway.",47
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,"I had Steve draft a couple of alternative directives. Let me read them to make sure I understand them first. Well, let me just try this on you. The concept is simple enough; the language can be worked on, obviously. One option follows a practice we have used at least once and maybe more than once, and I think it's a good practice unless we have to deviate from it because it doesn't sound like so much fine-tuning. It starts with exactly the same directive that we had at the last meeting, but it puts it in the past tense, so to speak. It says that at the previous meeting we decided on 7 percent and 10 percent, [respectively as the quarterly targets for M1-B and M2]. Then ""In reviewing these quarterly targets, the Committee felt that shortfalls in growth would be acceptable if they are generally consistent with phasing into the tentative monetary growth targets set for 1982 and as they may occur in the context of declining interest rates."" Then it goes on with the federal funds range. So, it says in effect: This is the target we had set for the quarter; we recognize we set it; it looks like we're low and we'll accept the shortfall provided interest rates are declining; and we're not too unhappy with the shortfall in the light of phasing into next year. The other option, presumably, would be consistent with doing something like ""C."" We'd put in those numbers for the next two months, but say a somewhat higher growth rate would be acceptable as consistent with the quarterly target set at the previous meeting and just repeat the targets of the previous meeting. That doesn't say anything about--. What I was looking for was whether there's any interest rate allusion in that one. There is not, I guess. But in that one we put in the low number and say we're perfectly happy to raise it to where we set it at the last meeting. The other says that what we said at the last meeting is okay, but we're happy with a shortfall [in money growth] if interest rates are declining, and it's logical for moving into next year anyway.",431
-fomc-corpus,1981,What if you're not happy with a shortfall?,10
-fomc-corpus,1981,"If you're not happy with any shortfall, you're not going to be happy with either of these formulations because they both are low.",26
-fomc-corpus,1981,That's my reaction.,4
-fomc-corpus,1981,What if you're not happy with next year's targets?,10
-fomc-corpus,1981,"Well, if you really want it much higher--if you want a 7 percent target next year--then you wouldn't buy this one. But I think all it's saying basically is that the number is something less than 7 percent. It's more consistent with what we're tentatively thinking about next year than 7 percent.",64
-fomc-corpus,1981,Why does 7 percent for the next [5] weeks mean that we favor 7 percent growth next year?,23
-fomc-corpus,1981,It doesn't.,3
-fomc-corpus,1981,I didn't think so.,5
-fomc-corpus,1981,"It doesn't say we favor 7 percent growth next year. What it says is that if we have 7 percent growth--. Well, the thought expressed around the table by a number of people was that if we push hard for large growth now, then we will have to slow it down next year, and that may be undesirable.",67
-fomc-corpus,1981,"We will have a lot of shortfall to make up, though, when we get into next year.",21
-fomc-corpus,1981,"Well, we still have--",6
-fomc-corpus,1981,It may not be as clear as I was trying to make it. The 7 percent was for the quarter.,23
-fomc-corpus,1981,"Yes, that's for the quarter. This is just repeating what we said at the last meeting.",19
-fomc-corpus,1981,"Last meeting we said we'd like the quarter to be this way. The operative sentence says we're going to accept the shortfall from that so long as interest rates are declining, which could mean that 7 percent over the next two months would be a shortfall from the 7 percent for the quarter. It wouldn't preclude a vote from a Committee member who favored that.",74
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,But it's open [ended]. It could get to zero with interest rates declining. It still seems to me a test of the directive.,27
-fomc-corpus,1981,"Well, I was trying to say that you wouldn't really like it much below where you were going into next year.",23
-fomc-corpus,1981,We have a smaller--,5
-fomc-corpus,1981,"What is ""some shortfall""?",7
-fomc-corpus,1981,"Chuck, we have to give some verbal guidance on how much of a shortfall is acceptable.",19
-fomc-corpus,1981,"Well, we better have it in the directive because it sounds as if it could be zero or minus 10 percent as long as interest rates were declining.",31
-fomc-corpus,1981,That's why a shortfall--,6
-fomc-corpus,1981,"We've used language of this sort before, Chuck. That's ridiculous, if I may say so.",19
-fomc-corpus,1981,It's not ridiculous because we're 7 percentage points off our expectations on average for the last six months.,20
-fomc-corpus,1981,We are not when you take account of M2. That's just wrong.,15
-fomc-corpus,1981,"Well, I thought M2 was below--",9
-fomc-corpus,1981,"M2 is still in this directive. M2, in fact, is currently projected to be on target.",22
-fomc-corpus,1981,"I agree with Chuck, but for different reasons. My concern is that the markets will assume that we mean only a very modest shortfall if we say a shortfall will be accepted. Secondly, I'm concerned about the [possible] interpretation of the caveat about declining rates. We'd have to say at least an ""orderly"" decline of rates, or something like that, which doesn't imply that we're pushing gung-ho for that. I think on balance there's less danger of misinterpretation if we use the other alternative--if we put in something like alternative C and say we will accept something lower than that.",123
-fomc-corpus,1981,What are you going to do in your conception if growth comes in less than alternative C?,18
-fomc-corpus,1981,Then the fed funds rate is going to go [down] until we change it.,17
-fomc-corpus,1981,"I have been thinking about alternative directive formulations this morning, too. I must say I struck out because of the very problems we're running into here already. My preference at this point would be to have the directive state the aggregate numbers for October to December that are in alternative C with the language ""or somewhat higher"" with borrowings at $350 to $400 million. I could accept combining that formulation with a federal funds rate of 10 to 15 percent, simply because I think it's going to be hard to get the aggregates specifications even in alternative C, given the economy. But I do think that kind of language formulation, notwithstanding Frank Morris's concerns, is more prudent and safer in terms of people understanding what we're doing. And obviously, if the aggregates were soft, we still would have the opportunity to use the consultation procedure to make further judgments as we go along.",174
-fomc-corpus,1981,"I had Frank down for ""A."" Are you saying you agree with Frank?",16
-fomc-corpus,1981,"No. I said notwithstanding his concern about how to explain why we're now at 5-3/4 percent instead of 7 percent. I think that can be dealt with. No, I'm talking about ""C"" or somewhat higher and, as I said, I could go with 10 to 15 percent for the funds rate band simply because I think it's going to be hard to hit any of these things.",84
-fomc-corpus,1981,"I would join in that, except that for the federal funds band I would prescribe 11 to 16 percent simply because of the shortness of the horizon; we're [only] looking at the next [5] weeks. If the funds rate drops to the tune of another 2-1/4 points, that is close to being a precipitous drop over the last three months.",78
-fomc-corpus,1981,"That's my preference, too. I'm saying I could live with it.",14
-fomc-corpus,1981,"Oh, I see.",5
-fomc-corpus,1981,"I would agree with Roger, and I would prefer the 11 to 16 percent. I do think the alternative formulation, the first one that you read, is awfully fuzzy. It's sufficiently fuzzy that I don't know whether anybody would know exactly what we're talking about.",54
-fomc-corpus,1981,Unlike the other one?,5
-fomc-corpus,1981,"Well, I would prefer alternative B just as it is written. I don't know how many others feel that way.",23
-fomc-corpus,1981,I would prefer alternative B with the 10 to 15 percent. I think there is a real problem of perception in that it looks as if we've tightened monetary policy at the wrong time if we go with the 5-3/4 percent target for M1-B.,55
-fomc-corpus,1981,"I would prefer to see alternative A, but I'd be willing to accept the money growth figures for alternative B with the borrowing at $200 million and a federal funds band from 9 to 14 percent.",41
-fomc-corpus,1981,$200 million is awfully low as a start for borrowing.,13
-fomc-corpus,1981,I'm willing to do that.,6
-fomc-corpus,1981,I prefer alternative B with a funds range of 10 to 15 percent and an initial borrowing level of $350 million.,25
-fomc-corpus,1981,"I'm concerned in formulating this directive, Mr. Chairman, that it certainly will appear odd that we have adopted the alternative C specifications at a time when we know the economy is worse. And that leads me to join those who have spoken up in favor of alternative B. It's a minimum of what I'd like to see.",64
-fomc-corpus,1981,"Mr. Chairman, no one has really [addressed] Frank Morris' point about what has happened since the last meeting to justify making our targets more [restrictive] than they were.",38
-fomc-corpus,1981,A big decline in interest rates and a shortfall in M-1B in October.,18
-fomc-corpus,1981,I don't think that justifies it.,8
-fomc-corpus,1981,The shortfall in October is the easiest one in the world to--,14
-fomc-corpus,1981,I don't think that justifies anything.,8
-fomc-corpus,1981,"I may have to agree, but you asked me what justifies it.",15
-fomc-corpus,1981,I think Tony is absolutely right. We've now separated the interest rate people from the aggregates people. And it's very hard to bring them together.,28
-fomc-corpus,1981,"Can't we to some extent cover the problem of appearing to be tightening by commenting about moving into next year? Consistent with what you said, we could say we are positioning ourselves by this particular choice to move into the band that we will select for next year.",52
-fomc-corpus,1981,That will scare the market out of its mind if you do that because they would interpret it to mean that we're heading again for the lower end of the range next year.,34
-fomc-corpus,1981,"No, I'd say we would be positioning ourselves to move into the band that we will select for next year.",22
-fomc-corpus,1981,I don't like next year's targets; I think they're too low. I hate to commit myself to them; it gets to the point that we can't do anything about them in February. We're supposed to take a new look at them in February. This freezes us in concrete as to what we're going to do for next year's target.,65
-fomc-corpus,1981,That's what you've said all along.,7
-fomc-corpus,1981,"Well, do we have any other comment?",9
-fomc-corpus,1981,"Well, I'm concerned mostly about the possibility of the funds rate falling below the discount rate and of very low borrowing. Then things could get out of hand and confront us with the need to keep lowering the discount rate in order to prevent that. For that reason, I would start off with a [relatively high] borrowing assumption and I would like to consult at a somewhat higher [funds rate] level on the way down. Consulting doesn't mean that one stops there. But at least at a time when much higher mobility of interest rates is a possibility, we ought to look at it earlier rather than later. So, I would go for $400 million for borrowing and 12 to 16 percent on the funds rate without any expectation that it would go to 16 percent. But neither would I like it to drop below 12 percent without talking about it.",173
-fomc-corpus,1981,"I'm concerned about the appearance of setting a goal. Maybe I have a problem with understanding the philosophy of these statements even after hearing them discussed so often. As I understand it, the philosophy when we set a target is that it is a target and we may not always achieve it. We have a problem now because we've been underachieving both the short-run and the long-run targets on one of the things we look at, M1-B. Were we to put out a directive that appears to have set tighter targets as we're facing the prospect of what may be a very serious recession, starting from a disastrously low level of economic activity in major industries such as housing and autos, we could scare the devil out of everybody by having people perceive that we're trying to be very tight. So, the concern and all the talk about how to couch this is very important. I'd be inclined to err on the side of staying with the target that we may not achieve, the one we had last time, and not narrowing the funds band again but allowing it to have a little more leeway on the down side. I'd go with something more like Emmett Rice's prescription of a ""B+"" or ""A-"" type prescription, with a borrowing assumption of perhaps a quarter billion dollars or somewhere in that range and a wide funds rate range. If I counted right, 4 or 5 times earlier this year we set a 6-point range. Why not set a 6-point range of 9 to 15 percent, sort of centered on where we are now and allow ourselves a little more leeway?",321
-fomc-corpus,1981,"That 9 to 15 averages 12, not 13-1/4 percent.",19
-fomc-corpus,1981,The basic problem we're dealing with is a repetitive problem. We are setting a target for the next six weeks and nothing we do here is going to affect what those numbers are over the next six weeks. We have to have a little longer perspective.,49
-fomc-corpus,1981,"You're right. There's only a difference of $2 billion in M1-B on ""A,"" ""B,"" and ""C."" It's less than the amount of change we've had on the last two Fridays.",41
-fomc-corpus,1981,But that argues more for the appearance of it and that we stay with the 7 percent. I agree with you that nothing we do is going to affect what happens over the next six weeks.,39
-fomc-corpus,1981,We all agree on that.,6
-fomc-corpus,1981,"So, the whole question is what the market [will think]. If they think we're tightening--",19
-fomc-corpus,1981,"I would still stay with ""C"" the way it's prescribed with a borrowing assumption of $350 million.",21
-fomc-corpus,1981,I don't know. We're not going to resolve this before lunch. I guess I come back more strongly to my gut feeling that we're better off not horsing around with the target that we set last quarter in a formal statement. But I'd clearly admit that we are prepared to see a shortfall under certain conditions. It seems to me we clearly are.,70
-fomc-corpus,1981,And that we wouldn't be surprised.,7
-fomc-corpus,1981,I think that's more like it. It's not that we're willing to see a shortfall but we expect that it's going to happen.,26
-fomc-corpus,1981,"Well, I think that's about the same as saying we're willing.",13
-fomc-corpus,1981,Maybe we should simply say there are only six weeks left to go and there's no point in--,19
-fomc-corpus,1981,Is it the difference between [desiring] and accepting?,12
-fomc-corpus,1981,What we do in the next 6 weeks will impact what happens to the money supply in the first quarter.,22
-fomc-corpus,1981,That's right. The world doesn't stop.,8
-fomc-corpus,1981,We buy a little more insurance that the money supply is not going to fall out of bed.,19
-fomc-corpus,1981,"The next six weeks matters, too, if we get borrowings down to whatever that frictional level is. I agree with Governor Schultz; I have a hunch that the frictional level of borrowing is higher than Steve was suggesting, although I can't be sure.",53
-fomc-corpus,1981,"Well, I happened to look back at the data, President Corrigan, and it might be of some interest to the Committee that in June and July of last year the level of adjustment plus seasonal borrowing--and I think the funds rate ran a little below the discount rate at times in that period--came out [in millions of dollars] at 104, 34, 127, 44, 75, 20, 121, and 145 for 8 straight weeks in June and July. So, it can run quite low. There's no guarantee, but it can run quite low.",122
-fomc-corpus,1981,Look what happened in August and September.,8
-fomc-corpus,1981,"Well, borrowing sort of goes up. It doesn't give you any scope for shortfalls in required reserves because you create large excess reserves. That can happen. That's the danger.",35
-fomc-corpus,1981,"The question though, Steve, is: When we first hit that frictional level what happened to the funds rate? That's what gets me concerned. There's a point at which the drop in the funds rate gets very rapid in that kind of period.",49
-fomc-corpus,1981,"That's only, Governor Schultz, if this so-called frictional level, which might happen in any event, is also accompanied by a very sharp rise in excess reserves. Then the funds rate could drop very substantially.",42
-fomc-corpus,1981,Did that happen in those weeks that you mentioned last year?,12
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,"Let me talk a little less theology and a little more practically at the moment. Suppose we start at $350 million as an assumption. Make the figure a rounder number and start at $400 million, Mr. Axilrod. In the ordinary course of events, you set a nonborrowed reserve path. You start it, just as an assumption, at $400 million and you will put in a growth path for M1-B. Let me give you two hypotheses for that growth path you put in for M1-B: One is 6 percent, just to keep the numbers round, which is close to ""C;"" and for the other extreme, say, 8-1/2 percent, or round that down. Now, if the money supply comes in around 6 percent, the borrowings would remain at $400 million or whatever the [initial] level is, if we adopt ""C. Presumably, that's what would happen. If we put in the [higher] number on the basis of ""A"" and the money supply comes in at that same 6 percent, how much would the borrowing level go down?",231
-fomc-corpus,1981,"Well, roughly it would be $200 million lower on that, having started the path at--",19
-fomc-corpus,1981,It would be $200 million lower by the latter part of December?,14
-fomc-corpus,1981,"Yes, I was looking at a monthly average, but it would be in that area in December. It's $2 billion divided by 10, roughly. It's not quite precise.",36
-fomc-corpus,1981,That is the range of what we are talking about in nondiscretionary action.,17
-fomc-corpus,1981,What does that $200 million difference mean in terms of the implied fed funds rate?,17
-fomc-corpus,1981,"Well, sometimes it means nothing. One of our rules of thumb has been 25 basis points per $100 million; another has been 20 basis points. They've all been wrong at various times. So, one could say somewhere between 40 and 50 basis points is represented merely by that. But, as the Chairman has said, misses in money supply are often much larger than this little range.",81
-fomc-corpus,1981,"What I think I am saying, in practice, is that we might set that path, depending upon where we start it, close to the ""A"" specification; we're probably not going to be very quick about making discretionary upward adjustments in the path if the shortfall is anywhere within the range of ""A"" to ""C."" We might consider one if it came in at 3 percent or less. It depends on what happens in M2 and all the rest, but that's what we're talking about.",101
-fomc-corpus,1981,"You have practically no room for discretionary upward adjustments in nonborrowed reserves because even under the circumstances you have cited--and remember we set a monthly average--if we're 3 points off, we're down to the frictional level of borrowing by the end of the period. So there is no room to have an upward--",64
-fomc-corpus,1981,"There's not a lot of room; that's right. And that's why we're talking about relatively small numbers here. We haven't got a lot of room unless we really wanted to push extremely hard. Precisely, we don't have much room.",46
-fomc-corpus,1981,"I'm not sure what you said. Did you say construct a path on ""A"" or--",19
-fomc-corpus,1981,"Well, that is one alternative one could take. But we would not be very quick about making discretionary adjustments. It depends upon where we start off or what people think about this. If we start off at $400 million and it fell to ""B"" or ""C"" or a little less, we're going to end up with $200 million. If it fell more sharply than that to well below ""C,"" we're going to end up at a lower level and we may run into the federal funds rate constraint. That's what the operational decision is. Now, if we set it up the other way, it depends upon where we set the initial level of borrowing. In either case, I think we're saying that if it runs above, we don't do a thing--we accommodate it--which we've done often in the past.",165
-fomc-corpus,1981,"The way you stated it, isn't really the operative question how fast we want to get to that frictional level of borrowing? If we started with $400 million and a 6 percent path as distinct from $400 million and an 8 percent path, doesn't the operative question then reduce to how fast we want that borrowing level to get down to whatever that frictional level is?",76
-fomc-corpus,1981,I think that's the operative question. And we're talking about a very narrow range.,16
-fomc-corpus,1981,"So, the real policy issue is the one we discussed: Do we want a more rapid rate of decline in the early part, that is, in the next few weeks, or do we want to stretch it out and have a more moderated rate of decline? If we go for ""A,"" we're taking a bigger risk that we will have the pressure earlier.",72
-fomc-corpus,1981,It depends upon where we set the initial borrowing.,10
-fomc-corpus,1981,"Well, I'm assuming the same range of $350 to $400 million. If you construct the nonborrowed reserve path on ""A"" rather than ""C,"" then there's a greater risk that we'll get the downward pressure earlier and to a larger degree.",51
-fomc-corpus,1981,It moves in that direction. We're talking about very small numbers in the next three or four weeks or so.,22
-fomc-corpus,1981,Yes. I accept that.,6
-fomc-corpus,1981,The most important thing is where we set the initial borrowing.,12
-fomc-corpus,1981,And where the discount rate is.,7
-fomc-corpus,1981,"The discount rate will be an important consideration in where the market [goes]; in fact, that's going to be more important than this other thing. I'm afraid that the only two things that are going to make any real difference here, in the range that anybody is talking about, are if somebody says we want to go all out and make sure we're going to hit 7 percent M-1B growth and we ought to start with zero borrowings. Then we'd be talking about a very different kind of approach. But with the initial borrowing level someplace in the range that we're talking about, these other differences are going to be minuscule in a mechanical application of this [directive]. What is going to make the difference is if and how quickly the discount rate is changed and whether we make a discretionary adjustment as we go along.",166
-fomc-corpus,1981,You wouldn't see the borrowings going above $400 million?,12
-fomc-corpus,1981,I wouldn't see the borrowings going above $400 million under any conceivable conditions that I can imagine over the next five weeks.,25
-fomc-corpus,1981,Unless you lower the discount rate by about 3 or 4 percentage points.,16
-fomc-corpus,1981,"Well, if we adopted a whole different kind of strategy, but barring a deliberate counter movement on the discount rate--",24
-fomc-corpus,1981,You're assuming the discount rate will go down to around 12 percent during this period of time?,19
-fomc-corpus,1981,I'm assuming that is quite possible. I will not make any premature assumptions.,15
-fomc-corpus,1981,It depends on what [the Reserve Banks] recommend to [the Board].,15
-fomc-corpus,1981,"If we see both continuing weakness in business and continuing weakness in the aggregates, I think that would be a reasonable assumption.",24
-fomc-corpus,1981,"I would still argue that if we're going to get there, I'd rather get there in an orderly way. I would start off constructing the path off 6 percent with the borrowings at $400 million and if we have to adjust, we have to adjust. But I would want to get there in a deliberate, orderly way if we have to get there.",72
-fomc-corpus,1981,"What you're saying, ""in a deliberate, orderly way"" makes a difference of maybe $25 million in borrowings in the second week in December.",30
-fomc-corpus,1981,I don't know. I'm not sure I agree with that.,12
-fomc-corpus,1981,"Is that wrong, Mr. Axilrod?",10
-fomc-corpus,1981,"My concern is getting into the realm of this frictional level of borrowings. I'm not sure I know what it means, but in my own mind's eye I have to leave room for the possibility that getting there could result in a situation where we would get a buildup in excess reserves and the federal funds market would really fall apart. That may be an outlier concern, but I have it.",80
-fomc-corpus,1981,I share Jerry's views all the way. I could buy the idea of keeping a 7 percent path instead of a 6 percent path and putting in a contingency clause to the effect that an overrun would not be resisted in any way. But the idea of too disorderly a drop in interest rates at this point is the most important thing.,70
-fomc-corpus,1981,I think you're focusing on the wrong thing. That's going to be more affected by the way we set the initial borrowing assumption than the mechanical thing that falls out of this.,34
-fomc-corpus,1981,I agree.,3
-fomc-corpus,1981,In a 4-week period.,7
-fomc-corpus,1981,"The appearance matter that Nancy mentioned is the one that keeps coming up in my mind. If this reads that we tightened the bands for the aggregates and we did not lower [the funds rate range]--we're at 12 to 17 percent now and you say we're going to go to 11-1/2 percent or stay at 12 percent, as a number of people have recommended--it's going to come off that the economy is crashing down and the Fed is cheering it on, possibly. Possibly.",103
-fomc-corpus,1981,"Where is [the bottom of the range] now, at 12 percent?",16
-fomc-corpus,1981,The range is 12 to 17 percent.,10
-fomc-corpus,1981,The range is 12 to 17 percent and if you're saying we are not even going to lower the range--,23
-fomc-corpus,1981,But the range really doesn't mean that it's being held there. It's a checkpoint for consultation.,18
-fomc-corpus,1981,Only on the way up.,6
-fomc-corpus,1981,"It has worked extremely well. Well, I think maybe your point is a good one. Maybe we ought to start the initial borrowing a little higher for safety.",32
-fomc-corpus,1981,"Well, we're in a very narrow range here. I have a strong feeling within the narrow range that we've discussed here. All I'm trying to do is make the point that if we have to construct a reserve path, and that's what we're talking about, the difference between ""A"" and ""C"" at the extremes is not an immediate one; once we've set the original borrowing assumption, it can't change just mechanically by more than $25 or $50 million a week unless the money supply really falls out of bed. It would be changed because the money supply fell out of bed not because of the difference in the assumption; there's only going to be a $50 million difference in early December.",138
-fomc-corpus,1981,"That is something I want to guard against. It might not fall out of bed, but then it might fall out of bed.",26
-fomc-corpus,1981,"Oh, if it does, then the borrowing is going to come down. But it doesn't make any difference whether we pick ""A,"" ""B,"" or ""C."" If the money supply is negative, borrowings are going to go way down. That would be because the money supply went down, not because we picked ""A,"" ""B,"" or ""C.""",74
-fomc-corpus,1981,"If we had borrowing at $400 million and then set the reserve path on 7 percent for October through December and had a funds range of, say, to 10 to 15 percent or even 11 percent to something, I think that would take care of the appearance problem in the directive as well as give us an approach on--",68
-fomc-corpus,1981,But I do believe that it's probably when the funds rate breaks that we will really get the system to generate money. Because then the banks can't nicely lend their federal funds; they've got to get out there and do something else.,45
-fomc-corpus,1981,I think that kind of break comes below 10 or 11 percent.,15
-fomc-corpus,1981,"It would come with a break in the money supply, which would force these rates down.",18
-fomc-corpus,1981,"Chuck, if we move in your direction to the 7 percent for October to December--I don't mean September, [but] October to December--would you accept a funds rate range of 11 to 16 percent?",45
-fomc-corpus,1981,I don't want a top of 16 percent. I think that just looks absolutely ridiculous.,18
-fomc-corpus,1981,I must say that looks a little foolish to me.,11
-fomc-corpus,1981,I think then it would be a question of whether we want to narrow it to 11 to 15 percent. I might accept that. There are others who wouldn't. I think the biggest thing is--,41
-fomc-corpus,1981,Why do we have to keep the funds rate range at 5 points?,15
-fomc-corpus,1981,Because we don't want it to seem constraining.,10
-fomc-corpus,1981,"But everybody knows that the up side is academic anyway in the next five weeks. So, why couldn't it be 11 to 15 percent?",29
-fomc-corpus,1981,Because then it will be perceived that in the last three meetings we've closed in on interest rate management. We would have gone from a 6-point spread to a 4-point spread and the charge will raised that we're managing interest rates.,47
-fomc-corpus,1981,That's the way it's going to look.,8
-fomc-corpus,1981,I could buy Ed's formulation of $400 million and 7 percent with a 10 to 15 percent federal funds range.,26
-fomc-corpus,1981,I think maybe that's what we ought to settle on.,11
-fomc-corpus,1981,"Well, I have a feeling maybe we ought to go to lunch and settle it after lunch.",19
-fomc-corpus,1981,"Good idea. When in doubt, punt.",9
-fomc-corpus,1981,"Well, we'll have a quick lunch. [Lunch break]",12
-fomc-corpus,1981,"Let me consider the numbers, with an undue degree of technicality, because we're in a very narrow band. I don't think there's much disagreement here on these details; whether they will work out or not is another question. Let me just get clear in my mind again what I asked you before. The difference, going all the way to the extreme, of something like an 8-1/2 percent growth rate and a 6 percent growth rate just in setting the reserve paths is going to be $2 billion, did you say?",108
-fomc-corpus,1981,"Yes. The difference is roughly $2 billion in December. So, if we set the reserve path on the highest [growth rate] and the lowest one turns out to be what actually happens, then the average level of borrowing--",46
-fomc-corpus,1981,"Well, don't make the lower one what actually happens. That's where we're setting the path theoretically now. We don't know what is going to happen yet. That's the next question I'll ask.",37
-fomc-corpus,1981,All right.,3
-fomc-corpus,1981,Your path would be $2 billion higher in December.,11
-fomc-corpus,1981,"With ""A"" than with ""C""?",9
-fomc-corpus,1981,"The level of the money supply, M1-B, under ""A"" is put in at about $400 million higher in November than under ""C."" That's the question.",35
-fomc-corpus,1981,And how about December?,5
-fomc-corpus,1981,"Well, is that because there's a bigger difference in--",11
-fomc-corpus,1981,"But on the reserve path, it's only different by $40 million.",14
-fomc-corpus,1981,"Well, the reserve path difference would be very small; it's not different by much.",17
-fomc-corpus,1981,"Well, why not? I don't understand that.",10
-fomc-corpus,1981,Because it should be $1 billion.,8
-fomc-corpus,1981,The reserve path is relevant to just the 5 weeks. It's not quite the average for the month of December; it's the 5 weeks ending December 22 or whenever it is.,37
-fomc-corpus,1981,"I'm looking at the December part of the reserve path. The first period is not going to make any difference, because we're going to give you the level of borrowings. I'm not talking about what the money supply actually does now.",46
-fomc-corpus,1981,"Well, if you tell us the level of borrowing--",11
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,We will hold that level of borrowing through--,9
-fomc-corpus,1981,"Well, you'll hold the nonborrowed reserves that are consistent with it at the moment.",18
-fomc-corpus,1981,That's right. And the difference in the amount of those two--,13
-fomc-corpus,1981,It'll make no difference.,6
-fomc-corpus,1981,Yes. But if you're asking about the difference in the amount of the nonborrowed reserve paths--,20
-fomc-corpus,1981,That's what I'm asking--go ahead. That will only be different in December.,16
-fomc-corpus,1981,I would say Jerry is right; it's roughly $40 million. You'd take the $400 million difference and divide it by 10 or something like that.,32
-fomc-corpus,1981,Are you telling me the difference in the theoretical money supply--not the actual--for December between 6 percent and 8-1/2 percent is only $400 million in December?,38
-fomc-corpus,1981,"Well, no.",4
-fomc-corpus,1981,It could be $800 million.,7
-fomc-corpus,1981,"By December the difference is $2 billion, much of which would affect reserves in January. So I'd need to make a very exact calculation here. If you just take the December $2 billion difference, that would be a $200 million difference in reserves, roughly. If you take the November difference, that's a difference of about $40 million in reserves, roughly. And the average for the 5-week interval between Committee meetings will be somewhere between that $40 million and $200 million on a nonborrowed reserve path, given borrowing.",108
-fomc-corpus,1981,"So, we're talking about a difference of only $200 million, which wouldn't really materialize all in December in choosing the path. Now the much bigger difference in the actual borrowing is going to be [because of] what actually happens to the money supply.",51
-fomc-corpus,1981,That's right; that's how I started.,8
-fomc-corpus,1981,Is your proposal that if the money supply comes in short we would lower the borrowing?,17
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Well, that's what I am trying to see--how much room we've got for that.",18
-fomc-corpus,1981,"We stay on the nonborrowed path if growth comes in short, so borrowings go down.",20
-fomc-corpus,1981,So borrowings fall off?,6
-fomc-corpus,1981,That's the problem.,4
-fomc-corpus,1981,"Our staff projection, for what it's worth, is essentially alternative C. That is, we would expect money supply growth to come in at around 5 percent in November and 6 percent in December. It may be a little short of that.",49
-fomc-corpus,1981,"Unfortunately, with all due respect, that isn't worth much.",12
-fomc-corpus,1981,"Right. We think it will be that or a little less. So if you set the path at ""A"" and we were nearly right on ""C,"" then borrowing by sometime in December would probably be a couple hundred million less than whatever borrowing number you choose, assuming nothing is done to raise nonborrowed reserves. That's one way of looking at it. But the error could be a lot bigger than that difference, one way or the other.",90
-fomc-corpus,1981,$200 million is--,5
-fomc-corpus,1981,"Yes, that's the same $200 million I have here.",12
-fomc-corpus,1981,"Right, but it depends on where you start it.",11
-fomc-corpus,1981,It has been two months or 6 weeks; it's come up.,14
-fomc-corpus,1981,"Yes, it's a lot of borrowing.",8
-fomc-corpus,1981,"Yes, but you're saying that's if it came in roughly around 5-1/2 percent. If it came in at 3 percent or something, that's another $200 million.",37
-fomc-corpus,1981,"Yes, then borrowing would be down to close to zero.",12
-fomc-corpus,1981,That's where it begins to bother me.,8
-fomc-corpus,1981,Then you'd be $400 million below path on total reserves.,12
-fomc-corpus,1981,"Well, I don't know how to avoid this. We'd just run into the federal funds rate constraint then. We have to consider what we want to do with any of these alternatives.",36
-fomc-corpus,1981,"Well, it seems to me the more we go for the reserve path under alternative A, the greater the likelihood that we're going to run into the frictional level of borrowings very soon. If you can agree with the staff's forecast that the actual money growth is more likely to be ""C"" than ""A,"" and then you say to yourself that, if anything, we're more likely to come in below that than above it, you've really compounded the problem that I've been worrying about by selecting 8 or 8-1/2 as the money number on which we calculate the nonborrowed reserve path. Although it's true that it's only $40 million on average for the full month of November, it's going to accumulate to a lot more than that on an ongoing basis by the fifth week of this period. I think it gets to be a rather significant difference.",174
-fomc-corpus,1981,"I do, too. The pressure we will get on rates will be significantly different if we have a shortfall. And that's what the real issue is about today.",33
-fomc-corpus,1981,"Yes, I think the question is: Should we have serious downward pressure on rates, if we have shortfalls--not only, as Lyle says, from 8-1/2 percent down to 5 percent, but below 5 percent or whatever it is? Shouldn't we be having serious downward pressure on rates because of the weakness that that implies for the economy?",76
-fomc-corpus,1981,"The question is how far; that's the issue. If it drops another 225 basis points in the next 5 weeks from where it is presently, that's quite a substantial drop. If we go below--",41
-fomc-corpus,1981,"If you look at cyclical declines, it's not a very fast drop.",15
-fomc-corpus,1981,"We're probably going to need more decline in January and February, too, beyond that though.",18
-fomc-corpus,1981,"The faster we get it down, the less distance it's going to have to travel.",17
-fomc-corpus,1981,"Well, very soon we'll have done as much as we did in 1980. We will have cut rates about in half. This would seem to be doing the same to the funds rate and bill rate.",42
-fomc-corpus,1981,"But I think Paul is right that we'd hit the funds rate constraint if we go through this frictional borrowing level, and we'd have a conference call as to what to do.",35
-fomc-corpus,1981,"I guess I can't convince myself that it makes all that much difference. Unless it made a real difference, even if the money supply was growing someplace in this range, we wouldn't want to see the federal funds rate drop any more.",46
-fomc-corpus,1981,"Mr. Chairman, I have an instinct--Mr. Sternlight may have a different one or may share it--that when we're talking about borrowings between $100 and $350 million, neither of us could argue that the funds rate would be--. At the low end there's a little greater odds that it will drop below the discount rate. At the high end there may be a little greater odds that occasionally it will be trading a point above the discount rate. But basically it would be around the discount rate, I think.",106
-fomc-corpus,1981,"Well, the risk is that it might drop very sharply below the discount rate, and in that case--",21
-fomc-corpus,1981,But only if required reserves turn out to be a lot weaker than our nonborrowed path.,19
-fomc-corpus,1981,"But still, I don't think these differences make much difference in themselves. The question is: What happens if a real shortfall in the money supply is added on top of it? In that case we're going to run into [the need for] a consultation.",52
-fomc-corpus,1981,"In that case the lower the growth rate in money you start from, the less chance you have of being presented with that problem early, so to speak.",31
-fomc-corpus,1981,It seems most desirable.,5
-fomc-corpus,1981,That's ignoring our policy responsibility not to have a consultation if we have great developing weakness in the economy. We don't want to avoid the problem; we want to precipitate it so we can talk about it.,41
-fomc-corpus,1981,Or we'll have our consultation earlier if we agree on an 11 percent floor rather than a 10 percent floor.,23
-fomc-corpus,1981,That's true.,3
-fomc-corpus,1981,"I think that's probably the practical difference here. I take it that everybody is agreed that, whichever one of these numbers we put in, if the money supply came in higher in the short run, we wouldn't want to run up the borrowings, although it would be called for if we put in the low number. We'd have to override the thing, but I think that's understood.",76
-fomc-corpus,1981,"If we put the ""somewhat higher"" thing in there, that makes it explicit.",18
-fomc-corpus,1981,Sure.,2
-fomc-corpus,1981,Which higher thing?,4
-fomc-corpus,1981,"Regardless of what number we pick, if we put ""___ percent or somewhat higher,"" it makes it explicit that we're not going to run up the borrowing if the money supply comes in stronger.",38
-fomc-corpus,1981,"What happens if we just take what we had last time, which is the 7 percent--leave it alone--and set the borrowings at $400 million and our consultation rate on fed funds at 11 percent?",44
-fomc-corpus,1981,Do you mean 7 percent for October to December?,11
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,November to December.,4
-fomc-corpus,1981,"He means September to December, doesn't he?",9
-fomc-corpus,1981,September to December you calculate at 8 percent.,10
-fomc-corpus,1981,"No, November to December.",6
-fomc-corpus,1981,"Well, that's not the same as we had the last time. ""A"" is what we had last time.",23
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Well, that's the only thing. Of course, we can do that whatever we say in the directive.",21
-fomc-corpus,1981,"Well, I would go with Fred's proposal. To me it's really important that we not repeat what we did last year. That's the one time I dissented and I'd have to dissent again, I think, if the fed funds floor were put so as to permit such a sharp drop in the funds rate over a short period of time.",68
-fomc-corpus,1981,Don't forget that last year the economy went down at a real rate of 9-1/2 percent in the second quarter. No wonder the rates dropped so fast. We're going to have a decline here of about half that.,46
-fomc-corpus,1981,The reaction to that would be very perverse in the bond market. I'm convinced of it. And I think that is much more meaningful to an economic recovery.,32
-fomc-corpus,1981,"Well, the obvious in-between course is to draw the path just using the 7 percent. That leaves it between the 8-1/2 and 6. Something around 7 or 7-1/2 percent splits the difference; it sounds all right to me. If the money supply really goes off on the down side, we're going to have a consultation anyway. I think that's quite evident.",83
-fomc-corpus,1981,"What are you doing? Are you suggesting ""B"" with a quarter billion dollars of original borrowing?",20
-fomc-corpus,1981,"I don't think in terms of ""Bs"" or whatever here.",13
-fomc-corpus,1981,"Well, communicate.",4
-fomc-corpus,1981,"Set the borrowing requirement high to be safe. Set the path, however, so we get some addition to reserves during the period and some downward pressure on rates.",32
-fomc-corpus,1981,That's what we're talking about.,6
-fomc-corpus,1981,"One might term my proposal ""a son of a B,"" I guess.",15
-fomc-corpus,1981,"We're talking about $400 million, which I wouldn't want to exceed in the short run and, say, 7 percent just for purposes of drawing the path. That's all we have to do at the moment. Then we've got to write a directive which encompasses this. And we still have the choice of whether to put in a low figure and say ""or higher,"" or to put in a high figure. I tried to rewrite the one starting with the high figure. I had some bias, I must confess, toward not changing the directive, which we can't meet anyway every month. But let me try this wording on you: ""After reviewing the quarterly targets for M1-B from September to December at an annual rate of 7 percent (after allowing for NOW accounts) and for M2 at an annual rate of about 10 percent or slightly higher..."" And we probably should put a phrase in there ""adopted at the last meeting"" or something. ""...the Committee decided some shortfall in M1-B, generally consistent with phasing into the tentative money growth targets set for 1982, would be acceptable in a context of declining interest rates and continued strength of M3.""",238
-fomc-corpus,1981,M2.,3
-fomc-corpus,1981,"M2 rather, yes. I don't know; this seems fairly plain to me.",17
-fomc-corpus,1981,"Well, I don't know how that relates to what we've been talking about.",15
-fomc-corpus,1981,"Well, it relates to what we were talking about just now.",13
-fomc-corpus,1981,"Is that the end of it, Paul?",9
-fomc-corpus,1981,It couldn't be.,4
-fomc-corpus,1981,"Well, it goes on and gives the federal funds range, but that's--",15
-fomc-corpus,1981,What's that going to say?,6
-fomc-corpus,1981,7 percent in November and December?,7
-fomc-corpus,1981,"It's the same language; we've got to fill in the blanks. I take it we have a split between 11 to 15 percent and 10 to 15 percent, right?",37
-fomc-corpus,1981,I would much prefer the 10 to 15.,11
-fomc-corpus,1981,"All right. My feeling in substance is that we ought to consult at 11 percent, but I--",21
-fomc-corpus,1981,"I don't think we should do this now. With a range of 6, then 5, and then 4 points, we're going to be charged with coming every time closer and closer to managing interest rates. Whether or not they perceive it correctly, that's what is going to be said.",59
-fomc-corpus,1981,I don't consider that entirely a bad idea.,9
-fomc-corpus,1981,If that's what you want.,6
-fomc-corpus,1981,"Fred, did you hear that?",7
-fomc-corpus,1981,"Why do we need to specify? One sort of inference [about] interest rates here is the borrowing assumption. The Chairman may consult the Committee, so the funds rate constraint isn't even a binding action.",40
-fomc-corpus,1981,What is the substance of your comment?,8
-fomc-corpus,1981,I'm wondering why we need to expose ourselves to the charge that we're managing interest rates when we're not doing that?,22
-fomc-corpus,1981,Do you mean just take out the funds rate reference?,11
-fomc-corpus,1981,Take out the whole sentence?,6
-fomc-corpus,1981,Take out the whole sentence.,6
-fomc-corpus,1981,That's certainly widening it!,5
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Nobody is really going to believe that we're indifferent.,10
-fomc-corpus,1981,I don't know what people would conclude from our taking out the sentence entirely at this point.,18
-fomc-corpus,1981,They'd never get it from Henry.,8
-fomc-corpus,1981,That we've gone completely monetarist?,8
-fomc-corpus,1981,"I think for sure, at this point.",9
-fomc-corpus,1981,"What is it, 75 percent of--",9
-fomc-corpus,1981,Milton Friedman has finally won!,7
-fomc-corpus,1981,Let's try it and see what happens!,8
-fomc-corpus,1981,I still don't like the phrase about phasing into next year.,13
-fomc-corpus,1981,"Well, I don't think that is essential, but I don't know how other people feel about it. It gives some feeling of the dimension of what we're talking about.",33
-fomc-corpus,1981,To restrain ourselves this late in the year without putting that comment in about leading us into next year would be bad. I'd be very much in favor of including those words.,35
-fomc-corpus,1981,My problem is that [money growth rates] are coming in so low this year that if we start talking about lower targets next year--there's already talk around the market of our being lower-limit monetarists--it gives the impression that we're heading for the lower limit next year as well.,59
-fomc-corpus,1981,"Well, as I said earlier, it seems to me that the direction we're going will tend to put us toward that range. We can phrase it in a way that we are aiming toward that range, not necessarily that we'll fall under it.",48
-fomc-corpus,1981,"Well, we're already under for this year.",9
-fomc-corpus,1981,"Yes, but the language doesn't--",7
-fomc-corpus,1981,The language doesn't say that.,6
-fomc-corpus,1981,"Well, we're going to be.",7
-fomc-corpus,1981,[Unintelligible] then we would have a shortfall. [Unintelligible] the language--,23
-fomc-corpus,1981,"It sounds as if we're trying to pull [money] down so we can make next year's target, and we're already below where we want to be next year--or where you guys want to be next year.",42
-fomc-corpus,1981,"Well, we have the very real question of what to do about this year's shortfall--whether to add it to next year's range or not. We haven't discussed that.",34
-fomc-corpus,1981,"If we move to plain M1, then we're back to the unadjusted and that's right in the middle of the range. So, we'd start right from there.",34
-fomc-corpus,1981,We can do a definition shift.,7
-fomc-corpus,1981,We got rid of the base drift.,8
-fomc-corpus,1981,We got rid of the base drift.,8
-fomc-corpus,1981,Somebody said there is a definition shift. [Secretary's note: Mr. Guffey was leaving the room.],24
-fomc-corpus,1981,[To Mr. Guffey] Are you going to vote?,14
-fomc-corpus,1981,No. I don't have a vote or I would stay.,12
-fomc-corpus,1981,Are we having a vote?,6
-fomc-corpus,1981,"Instead of base drift, we're going to use definition shift.",12
-fomc-corpus,1981,"Well, I don't think we can argue out next year's targets here. We have a wide enough range [of views] to start with. All this is meant to convey is that we're recognizing that 7 percent is high and we wouldn't mind being a little lower. That's what we're saying.",58
-fomc-corpus,1981,"Well, I don't understand why we want to deviate so drastically from the kind of operational directive we typically set up. In effect, we're using language that doesn't have any meaning to me. And I don't know how it will have any meaning for somebody on the outside. Why [don't] we go along the lines of what Fred was suggesting of specifying for the directive that we're seeking M1-B growth of 7 percent between October and December?",89
-fomc-corpus,1981,Or somewhat higher.,4
-fomc-corpus,1981,Or somewhat higher.,4
-fomc-corpus,1981,That makes it seem quite consistent.,7
-fomc-corpus,1981,Then we know what we're talking about,7
-fomc-corpus,1981,"Well, I don't think you're going to get agreement on that. I'm allergic to [unintelligible] down every meeting, if I may say so, some target for the next 5 weeks that has nothing to do with [unintelligible]. It's just the law of distribution; we don't come very close to it, whether we're above or below it. I'd like to relate the actions in one meeting to the actions of the previous meeting. It's just presentational. We did that, I guess, last time. I forget what we did last time in substance, but it was some kind of reiteration of the target at the beginning of the quarter.",134
-fomc-corpus,1981,"Well, there may not be agreement around the table, but I like what Lyle and Fred are suggesting for the directive.",25
-fomc-corpus,1981,"I don't know what ""7 percent or higher"" means. If we get a shortfall, what do we do then? Does that imply real aggressiveness? It sounds like it to me. You're saying now that we're starting out there; I don't think the staff projection is worth much, but I think the probabilities are we could well be below 7 percent. Then we'd better be very aggressive.",80
-fomc-corpus,1981,"I thought it was going to be ""7 percent or lower.""",13
-fomc-corpus,1981,Say 7 percent--,5
-fomc-corpus,1981,"Well, if we said ""7 percent or somewhat lower,"" what does that do for you?",19
-fomc-corpus,1981,Then do we accept it if gets higher?,9
-fomc-corpus,1981,That's the problem: Do we accept it if gets higher?,12
-fomc-corpus,1981,"I can see myself accepting if it gets higher, but I wouldn't want to set the few steering mechanisms we have to accomplish that.",26
-fomc-corpus,1981,It's highly unlikely it would be higher.,8
-fomc-corpus,1981,"Well, it could happen.",6
-fomc-corpus,1981,"Who knows in this world? But I think we have to have agreement that if it's higher, we don't want to do anything.",26
-fomc-corpus,1981,That's the one thing I can agree with.,9
-fomc-corpus,1981,"And I thought we had some agreement that if it's lower, we don't want to be all that aggressive either.",22
-fomc-corpus,1981,I certainly can go along with that.,8
-fomc-corpus,1981,I don't know; it depends on how much lower.,11
-fomc-corpus,1981,Isn't there agreement to let the borrowings slide if it begins to come in low?,18
-fomc-corpus,1981,"Yes. I said ""not all that aggressive."" We'd let them slide as they would naturally slide.",20
-fomc-corpus,1981,"But the question is on what path to construct M1-B, isn't it--whether it's 7 or 8 percent in the quarter?",28
-fomc-corpus,1981,"Tentatively, I thought we'd arrived at constructing the path on 7 percent.",16
-fomc-corpus,1981,"Well, if we start with a sufficiently high borrowing assumption, I could go with that.",18
-fomc-corpus,1981,"No, we're talking about $400 million, as I take it.",14
-fomc-corpus,1981,"That's surely high; that's the borrowing associated with ""C"" in the Bluebook.",17
-fomc-corpus,1981,"The problem is that if we don't use the 7 percent number, we then get into the formulation--if we don't want to change it in the middle of the quarter--in which the wording is so fuzzy that nobody really knows what it means. If we want to follow a policy of not changing target numbers during each quarter, that would have to become, I think, a consistent policy.",79
-fomc-corpus,1981,"Well, if we had a strong reason for wanting to change it, we would change it, obviously. But I think what people are saying here is that if we met that original target, everybody would be happy.",43
-fomc-corpus,1981,"What if we took your language there--I'm not sure I have it right--and got rid of the business about the generally declining interest rates and next year's targets, and just had the initial reference to 7 percent growth for the quarter. We could put in a phrase that said the Committee sought growth in the monetary aggregates consistent with the 7 percent, taking account of the shortfall in October, and said nothing else.",85
-fomc-corpus,1981,I don't know what that means.,7
-fomc-corpus,1981,I think that means we'd make up for it.,10
-fomc-corpus,1981,"Well, it means we could go ahead and construct a path--",13
-fomc-corpus,1981,[The staff will] construct the path on whatever the Committee tells us.,15
-fomc-corpus,1981,I was trying to get around the problem some people have with declining interest rates and next year's targets.,20
-fomc-corpus,1981,"Well, we could do it by saying ""forgetting the shortfall in October.""",17
-fomc-corpus,1981,"We could say ""while noting the shortfall in October.""",12
-fomc-corpus,1981,"We can say ""The Committee decided in the light of the shortfall in October to accept a lower rate for the quarter."" That we can say.",30
-fomc-corpus,1981,But affirm the target for the last two months.,10
-fomc-corpus,1981,"Yes, I think that's what we're doing. We're accepting the shortfall and saying: Let's get it back on 7 percent from now on, if we reasonably can.",34
-fomc-corpus,1981,"We have several precedents for saying we accept this kind of thing in a context of declining interest rates, or the reverse, don't we?",28
-fomc-corpus,1981,"Yes, there were a couple of instances of that that I have found.",15
-fomc-corpus,1981,"Yes, one each way.",6
-fomc-corpus,1981,"It was back in December '80, but that followed a period of rapid growth.",17
-fomc-corpus,1981,"Didn't we have something like that in the directive in April or May of last year, Steve?",19
-fomc-corpus,1981,"Yes, in May there was a shortfall from the 2-month rate specified, and it was accepted in the light of the rapid growth in April. They all followed rapid growth; that's the problem. They didn't follow slow growth. In August, Mr. Chairman, following the slow growth in July, the Committee just reaffirmed the third-quarter target of 7 percent.",75
-fomc-corpus,1981,"We were expecting at that point a pretty hefty growth in August, like 11 percent.",18
-fomc-corpus,1981,"Yes, that's right.",5
-fomc-corpus,1981,And we weren't faced with zero borrowings.,9
-fomc-corpus,1981,"Well, I have arrived at wording that says: ""The Committee decided in the light of the low rate of growth in October of M1-B, that some shortfall in the growth of M1-B from the target for the quarter would be acceptable, in a context of declining interest rates and continued strength in M2."" That should be worded, I think, in a conditional way. If M2 is--",84
-fomc-corpus,1981,"You're going to drive the monetarists up the wall with that. In the context of a weakening economy and declining interest rates, we'll accept shortfalls from our targets.",34
-fomc-corpus,1981,That's in substance what you want to do.,9
-fomc-corpus,1981,I know. I'm not a monetarist. I was just thinking about those sensitive ears out there.,21
-fomc-corpus,1981,"Why can't we just say ""After taking note of the movements of the aggregates,"" with no specification as to what they were, ""the Committee decided...""",30
-fomc-corpus,1981,What?,2
-fomc-corpus,1981,You have to decide.,5
-fomc-corpus,1981,"Oh, I think that's what we're going to decide.",11
-fomc-corpus,1981,"But you're saying here ""after noting the shortfall"" or ""after accepting a shortfall."" I don't think we need to say that.",28
-fomc-corpus,1981,I think the lesser evil is to put the 7 percent number down and not worry about the fact that we're changing.,24
-fomc-corpus,1981,The only alternative is to put a short-term range in and I don't want to suggest that.,19
-fomc-corpus,1981,It's easier to say 7 percent for the last two months.,13
-fomc-corpus,1981,"Mr. Chairman, if I may say so, in response to President Solomon's comment: I'm not an expert on public relations but the Committee had put down a third-quarter number of 7 percent; it was missed and I think it was understood. For the fourth quarter a number of 7 percent also was put down, which will probably be missed and probably will be understood. But if the Committee then decides to put down a November-December number that is also 7 percent, people are going to wonder after you've missed that one. This would be your third try.",115
-fomc-corpus,1981,That is partly what bothers me.,7
-fomc-corpus,1981,We're becoming predictable.,4
-fomc-corpus,1981,We keep promising these short-term results that we don't get. That is precisely what bothers me.,19
-fomc-corpus,1981,"The market can adjust it to that point, so long as we stay consistent.",16
-fomc-corpus,1981,"It seems to me there's a real risk in putting out a [number in the] directive that we know we can't achieve. Apparently we're far enough through the period that the opportunity of having the 7 percent come in is very remote. If that's the case, are we better off using a number which is more achievable and gives us more credibility?",69
-fomc-corpus,1981,We're not that far off in the sense that we'll probably hit the M2 target. And what we're saying in this formulation is that we agree we will probably miss on M1. That is the purpose of this [wording].,46
-fomc-corpus,1981,"What is your projection for now, Steve, 5 percent?",13
-fomc-corpus,1981,"Alternative C is essentially our projection, or we think it will come in a little lower. That's why we bent the wording that way.",27
-fomc-corpus,1981,"Well, what we're trying to do is structure a compromise, Si. We're most likely to hit alternative C or below, but that's not acceptable to a substantial number of people, Chuck and others. So we've been trying to grope for a compromise in that area. If we go back to your kind of language, even though it's confusing to the public, we'd still have to have a private understanding on how much shortfall--",85
-fomc-corpus,1981,"Well, there isn't any what you call private understanding. Yes, we have to set a reserve path, which we've just tentatively set; there's no obscurity about it. The way to avoid these things in the future--but it would get us into other problems--is to say we're setting the reserve path at X, which we consider consistent with 7 percent. We are not promising we're going to make 7 percent; that's just where we're setting the reserve path.",95
-fomc-corpus,1981,What is the great difficulty with using 7 percent--and that sets the reserve path--and then using the borrowing assumption and the fed funds constraint to take care of the fact that we are going to miss that one way or the other?,48
-fomc-corpus,1981,"That's what we're trying to do, as I understand it. I think we have agreement on the substance; it's just how to describe it.",28
-fomc-corpus,1981,My problem is my simple mind; I don't have any difficulty with what I just said. But maybe others do.,23
-fomc-corpus,1981,"Do you think you can give language for a directive, if I understood you correctly?",17
-fomc-corpus,1981,"I just would use the number 7 percent in a straightforward directive--the normal kind that we have used before. I'd use the numbers for M1-B and M2 that are under alternative B, which are 7 percent and 11 percent or something like that. And then I'd put in a fed funds constraint, which I would prefer at 11 percent because it's very difficult to know what is going to transpire in this very short period of time and I think it's worthwhile to confer at 11 percent. I'd start with a borrowing assumption of $400 million, recognizing that there is every likelihood that it will come down and none that it would go up because we would be generally tolerant of some additional strength in the aggregates, which none of us feels is going to happen.",156
-fomc-corpus,1981,What about the language you had a minute ago that we would provide reserves in the two-month period that would be consistent with a 7 percent rate of growth in the money supply? Shift it from a pinpoint to a reserve supply in there.,48
-fomc-corpus,1981,That's just the traditional form.,6
-fomc-corpus,1981,"And say we're going to hit the money supply at 7 percent, but--",16
-fomc-corpus,1981,"This is the wording we have--that we provide reserves consistent with the 7 percent. This says ""behavior of reserve aggregates."" We can do it just by putting in those numbers. That's right. And every month we're putting in numbers that we aren't going to make. We can do that; that's simple enough. But I don't think it conveys any more information.",73
-fomc-corpus,1981,"A number has two purposes. One is a target; then there is a number which is used to construct a nonborrowed reserves path. So, it has two functions. And it seems to me that even if we really don't think conditions are such that we will make it as a target, it is useful in setting the path.",67
-fomc-corpus,1981,"There's no question. The more I look at this, the more I think we're arguing over nothing. We act as if the only thing people read is this paragraph. Whatever we say we're going to have to describe in the rest of the policy record, and we're presumably going to describe it in more or less similar terms.",64
-fomc-corpus,1981,"How about something like ""While taking note of the moderate shortfall in growth of the aggregates during October""--and it was only a moderate shortfall--""the Committee continues to seek expansion at the rate of about 7 percent in M1-B and 10-1/2 percent in M2 in the period ahead."" And that says we gave up October.",73
-fomc-corpus,1981,While noting it and ignoring it.,7
-fomc-corpus,1981,"Yes, taking note, we continue to seek--",10
-fomc-corpus,1981,Don't you have M2 growth too low?,9
-fomc-corpus,1981,I didn't have the Bluebook open right there. I think 10-1/2 percent is about--,22
-fomc-corpus,1981,11-1/4 percent is--,8
-fomc-corpus,1981,"I didn't say it very well, Governor Partee, but that's the gist of what I was trying to say before.",24
-fomc-corpus,1981,"We'd have to drop out the language ""seeks behavior of reserve aggregates."" Or maybe we wouldn't.",21
-fomc-corpus,1981,It's the traditional way of doing it. I don't think it makes any difference in substance; we'll describe it all anyway [in the policy record]. But it gives you less information and we're still back to this business about jumping up and down every time we have a 2-month target or a 5- or 6-week target over which we don't have much control. But if you can rationalize it and say that's where the reserve path--,89
-fomc-corpus,1981,"How about ""set the reserve path designed to achieve X percent growth""?",14
-fomc-corpus,1981,"Well, that's what we say ordinarily. That's the traditional form.",13
-fomc-corpus,1981,"I really don't think this is a good month to try to reform the way we state the directive. It's in the middle of a quarter, as you said before; it's at the end of a year; and it's in a period where we're going to fall short of our growth for the year as a whole. And we just shouldn't be doing fancy things with the directive right now. If we want to do it, we can do it in January and start out a new year with a--",98
-fomc-corpus,1981,"But we don't have this kind of problem in January--at the December meeting--because we're starting a new period for which we have no targets. So, we don't have the problem.",37
-fomc-corpus,1981,Does anybody recall how we handled this a year ago when we went through some gyrations in order to get the monetary growth rates cranked down so that--,31
-fomc-corpus,1981,I don't think we presented a quarterly target a year ago.,12
-fomc-corpus,1981,I don't think so either.,6
-fomc-corpus,1981,"The difference now is that we have put these things on a quarterly basis, and we did that with a purpose in mind--maybe it was only in my mind--which was to be a little consistent over the quarter. The concept was for the meeting in the middle of the quarter to review the target we already set for the quarter. Now, this is a kind of reversion to taking a look at it--",83
-fomc-corpus,1981,"I like Chuck's language. Governor Partee's language finesses all of our problems and we've had enough discussion here, I think, that the Manager will know what it is we're trying to achieve.",41
-fomc-corpus,1981,"We could be more specific as to the time period by saying ""for the remainder of the year"" instead of ""in the period ahead.""",28
-fomc-corpus,1981,That is five weeks?,5
-fomc-corpus,1981,"No, it's almost seven.",6
-fomc-corpus,1981,It's essentially November and December.,6
-fomc-corpus,1981,"Well, I don't think we're arguing about any substance. As a matter of form, I don't like it. But if everybody else likes it--",29
-fomc-corpus,1981,"What's the funds rate formulation, Chuck?",8
-fomc-corpus,1981,"Oh, I didn't specify that. We were just talking about directive language. The specs the Chairman will recommend to us, I'm sure.",27
-fomc-corpus,1981,"Well, on that, I would prefer the 11 to 15 percent just to get a consultation at around 11 percent. If we were absolutely symmetrical around where we now are, we'd make it 10-1/2 to 15-1/2 percent, I guess.",58
-fomc-corpus,1981,It gives us a little breathing room.,8
-fomc-corpus,1981,"Why don't we make it 10 to 16, Schultz? Better yet.",16
-fomc-corpus,1981,It's the bottom end--,5
-fomc-corpus,1981,"16 percent, ha, ha, ha.",9
-fomc-corpus,1981,It's only been a month since it was there.,10
-fomc-corpus,1981,A lot has happened in a month.,8
-fomc-corpus,1981,"I don't see how anybody can take any offense at 10-1/2 to 15-1/2 percent. That is absolutely the traditional--I'm talking about the outside reader. A Committee member can, maybe.",45
-fomc-corpus,1981,That centers it on 13 percent.,8
-fomc-corpus,1981,"It's centered on where we are, which is what we've been doing.",14
-fomc-corpus,1981,"Well, then it is, what--2-1/2 points below the discount rate? That must mean that there's practically only frictional borrowing.",30
-fomc-corpus,1981,It's not lower than where the discount rate is.,10
-fomc-corpus,1981,Then it's very unstable already.,6
-fomc-corpus,1981,"Yes, Henry, but we'll send you a recommendation on the discount rate.",15
-fomc-corpus,1981,I've already sent one.,5
-fomc-corpus,1981,That's something one would like to be able to decide while not under the pressure of a collapsing funds rate.,21
-fomc-corpus,1981,"Yes, but that goes to the reserve path, I think, not to--. Well, one can argue that we might want to consult at a higher rate. I'd just as soon consult at a higher rate myself. But I don't think where we put this number is going to affect where the funds rate goes; it affects where we consult.",69
-fomc-corpus,1981,"Well, that's what I had in mind.",9
-fomc-corpus,1981,"Well, we never consult unless that bottom level is broken. We never consult just because it drops and touches the number and pops back up. I tell you: The funds rate is a little over 13 percent now, and if we're breaking 11 percent in a 5-week period, that's really moving down.",63
-fomc-corpus,1981,We've had informal agreements before to consult before we hit the bottom or the top of the range. We could do that this time also.,27
-fomc-corpus,1981,We certainly shouldn't wait a week and establish the average that begins breaking the lower level.,17
-fomc-corpus,1981,"I am sensitive to your point, but we still have to put some number in here. In fact, we may consult before we get to that number. That's always an option. We can consult any time we want to consult.",46
-fomc-corpus,1981,And you can control that.,6
-fomc-corpus,1981,I have a certain amount of control over that.,10
-fomc-corpus,1981,"Well, do you feel constrained from consulting before we reach that point?",14
-fomc-corpus,1981,"No. Not for that reason alone. I only feel constrained in the sense of wanting to consult if there were genuine confusion over what we should do, whatever these numbers are.",35
-fomc-corpus,1981,"If we had an M1-B target of 7 percent for November-December, an M2 target of 11-1/2 or 11-3/4 percent, the funds range of 10-1/2 to 15-1/2 percent, and initial borrowings at $400 million, does that cover what we've been [unintelligible]?",77
-fomc-corpus,1981,"Well, I am not in favor of that formulation. But if everybody else loves that formulation--",19
-fomc-corpus,1981,What was that first alternate directive language you had earlier in the meeting about five hours ago? The one that we didn't have [in front of us].,30
-fomc-corpus,1981,It said the Committee had set aside--,8
-fomc-corpus,1981,"It was essentially this, just a straightforward--",9
-fomc-corpus,1981,No. There was some nuance in there that allowed you to keep the 7 percent quarterly number.,20
-fomc-corpus,1981,"I think it was ""a somewhat higher growth rate would be acceptable and would be consistent with the quarterly targets previously [adopted].""",28
-fomc-corpus,1981,"It puts in the ""higher."" It says the lower one won't be acceptable at 7 percent.",20
-fomc-corpus,1981,Yes. It had a second sentence that it could be higher if it was consistent with the quarterly targets or something like that--,25
-fomc-corpus,1981,"But isn't the presumption clear enough there that if it's lower, we would respond the same way?",20
-fomc-corpus,1981,"I don't think so, but that's why I'm not crazy about it. This one only had 10-1/2 percent for M2 as Mr. Axilrod wrote it.",37
-fomc-corpus,1981,"But is 10-1/2 percent on M2 consistent with 7 percent on M1, Steve?",23
-fomc-corpus,1981,"Well, for the quarter, we thought it would be a little higher than 10-1/2 percent; it could be 11 percent. But the Committee's decision was 10 percent or a little higher last time.",46
-fomc-corpus,1981,For the quarter.,4
-fomc-corpus,1981,"For the quarter. So, it's not inconsistent with that at all.",14
-fomc-corpus,1981,We might go with a straight crap shoot and call it 7 and 11.,17
-fomc-corpus,1981,That's what I have: 7 percent for M1-B and 11 percent for M2 for the remainder of the year.,26
-fomc-corpus,1981,"Well, let's settle this federal funds range. All these cosmetics don't amount to a hill of beans in some way, since we explain it all in the [policy record]. Who wants to put the bottom at 11 percent?",45
-fomc-corpus,1981,The fed funds rate?,5
-fomc-corpus,1981,"The bottom of the fed funds range. Well, we have a majority there, clearly.",18
-fomc-corpus,1981,How am I going to [contend] with having a consultation at 11 percent? Usually I'm against that kind of thing.,26
-fomc-corpus,1981,Why don't you ask who will accept 10-1/2?,14
-fomc-corpus,1981,"Well, the alternative is 10-1/2 percent. Big deal! How many would prefer 10-1/2?",27
-fomc-corpus,1981,I would prefer it.,5
-fomc-corpus,1981,Why not 10-1/2 percent with a consultation at 11 percent?,17
-fomc-corpus,1981,I like Chuck's: Consult at 11 percent; 7 percent [for M-1B]; and 10 percent [for M2].,30
-fomc-corpus,1981,"The only problem I see with 11 percent, which I prefer in fact on the lower end, is where to put the top. A 16 percent figure looks a little ridiculous to me.",39
-fomc-corpus,1981,You've got it!,4
-fomc-corpus,1981,We can consult at 11; it's the same thing.,12
-fomc-corpus,1981,To maintain our credibility in fighting against inflation at 16 percent. \,14
-fomc-corpus,1981,How about 11 to 15 percent?,9
-fomc-corpus,1981,How about 11 to 16 and consult at 15?,13
-fomc-corpus,1981,"But, Henry, that's symmetrical. You don't want to be that--",14
-fomc-corpus,1981,Sometimes we can afford to be symmetrical.,8
-fomc-corpus,1981,An 11 to 15 percent range happens to be completely symmetrical around the present level of 13.,21
-fomc-corpus,1981,Do you want a show of hands?,8
-fomc-corpus,1981,Yes. Is that acceptable?,6
-fomc-corpus,1981,Acceptable is what you want?,7
-fomc-corpus,1981,"Acceptable at this point. All right. Now, I take it there's agreement that we're going to set a path on the 7 percent and we probably won't be moving that discretionarily downwards very readily because we haven't much room to do so. If it comes in weak, it will go down by itself starting at a borrowing level of around $400 million. I think that's where we've been. So, the only thing that remains is that we can just use this traditional format and say 7 percent for M1 and whatever we say for M2.",112
-fomc-corpus,1981,11 percent.,3
-fomc-corpus,1981,11 percent.,3
-fomc-corpus,1981,"Well, when we say 7 percent, is it going to be the wording that's here of September to December?",23
-fomc-corpus,1981,October to December.,4
-fomc-corpus,1981,Or November and December.,5
-fomc-corpus,1981,"We can put the phrase that Chuck had in front of it: ""The Committee noted the shortfall.""",21
-fomc-corpus,1981,The moderate shortfall. It's the only month when we had just a moderate shortfall.,18
-fomc-corpus,1981,"Yes, but I think we talked about November and December.",12
-fomc-corpus,1981,"Say ""for the remainder of the year"" so that we don't have to say November to December.",20
-fomc-corpus,1981,Did we overshoot on M3?,8
-fomc-corpus,1981,We don't specify M3.,6
-fomc-corpus,1981,Don't forget bank credit.,5
-fomc-corpus,1981,A higher aggregate.,4
-fomc-corpus,1981,"""The Committee, after noting a moderate shortfall in M1""? Yes, but turn it around.",20
-fomc-corpus,1981,"I'd say ""a symmetrically moderate shortfall in M1 and an overrun in M2.""",21
-fomc-corpus,1981,"No, we didn't have an overrun in M2.",12
-fomc-corpus,1981,"No, we didn't. We expected 12.9 percent.",13
-fomc-corpus,1981,"Well, the directive said 10 percent for the quarter.",12
-fomc-corpus,1981,"In the earlier part, in the general paragraphs of the directive, there needs to be some reference to the elimination of the surcharge. You have a sentence here which is ""On October 30 the Board of Governors announced a reduction in the Federal Reserve basic discount rate from 14 to 13 percent."" I would think we'd also want to add that ""on November 16 the Board announced the elimination of the surcharge.""",83
-fomc-corpus,1981,I'm glad somebody reads that!,6
-fomc-corpus,1981,"Mr. Chairman, without raising any further problems for the Committee, with Governor Partee's addition of ""after noting the shortfall"" does the Committee want to say after the 7 percent ""or somewhat more""?",43
-fomc-corpus,1981,No. I don't think so.,7
-fomc-corpus,1981,"I just said ""about.""",6
-fomc-corpus,1981,"When we say ""somewhat more,"" does that mean we freeze the funds rate at that level?",20
-fomc-corpus,1981,"I don't think we want to say ""somewhat more"" especially because of what happens if it's somewhat less.",22
-fomc-corpus,1981,"Why can't we say ""about""?",7
-fomc-corpus,1981,"Yes, I said ""about"" 7 and 11 percent. ""Around"" is all right.",21
-fomc-corpus,1981,This directive will get known as the 7 to 11.,13
-fomc-corpus,1981,"What the directive will say is: The Committee, after noting a moderate shortfall in growth in M1-B in October from the target path set at the last meeting,...""",35
-fomc-corpus,1981,And the continued high level of M2.,9
-fomc-corpus,1981,"""... seeks behavior of reserve aggregates consistent with growth of M1-B from October to December at an annual rate of 7 percent (after allowance for...Now accounts) and with growth in M2 at an annual rate of around 11 percent."" And we're at 11 to 15 percent on the federal funds range.",64
-fomc-corpus,1981,I think we're making it needlessly difficult by pointing to M2 as the balancing item that keeps us where we are. Why don't we just play down M2 in this?,35
-fomc-corpus,1981,This is just the way it was the last time. They get equal weight.,16
-fomc-corpus,1981,"Yes, but now we've mentioned the shortfall in one and said nothing about the other except--",19
-fomc-corpus,1981,The other was within the target.,7
-fomc-corpus,1981,We were expecting apparently a higher October number than we got by a couple of points.,17
-fomc-corpus,1981,We were expecting a higher number than what we got and we were 0.7 below the figure we mentioned in the directive.,26
-fomc-corpus,1981,"It was surprising, considering all savers certificates.",10
-fomc-corpus,1981,Let's vote.,3
-fomc-corpus,1981,I'm in favor of that.,6
-fomc-corpus,1981,"Mr. Altmann called to my attention that we have had more than one change in the surcharge since the last meeting. We'd have to do more than put in this suggested elimination, so I withdraw my suggestion.",42
-fomc-corpus,1981,"So, there's no mention of a surcharge?",9
-fomc-corpus,1981,Why don't we put both of them in there?,10
-fomc-corpus,1981,I think we can delegate to the Secretary to put in a mention of the surcharge in the appropriate place.,21
-fomc-corpus,1981,"How about ""eliminated it in two stages.""",11
-fomc-corpus,1981,Are you dropping from the directive the comments about next year?,12
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Except to the extent that they're in that paragraph that indicates the preliminary specifications.,15
-fomc-corpus,1981,"Yes, it does--",5
-fomc-corpus,1981,Now that we have labored over this thing that nobody is going to see for six weeks and until it's no longer relevant any more--,27
-fomc-corpus,1981,And will be known as the Federal Reserve crap shoot when it comes out.,15
-fomc-corpus,1981,Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley Yes President Keehn Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters Yes Governor Wallich Yes,48
-fomc-corpus,1981,Is this the first meeting with no dissent this year?,11
-fomc-corpus,1981,We can come to order and approve the minutes.,10
-fomc-corpus,1981,So moved.,3
-fomc-corpus,1981,Second.,2
-fomc-corpus,1981,"With a motion and a second we will approve the minutes, if there are no objections. Then we will have a report on foreign currency operations or the lack thereof.",33
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,Any comments or questions?,5
-fomc-corpus,1981,I'd just like to ask this: You mentioned that we had authority to intervene. Authority from whom?,20
-fomc-corpus,1981,What was the question?,5
-fomc-corpus,1981,The question was: From where did the authority come to intervene? The New York Federal Reserve Bank was instructed by the Chairman on the basis of discussions between the Treasury and the Federal Reserve.,37
-fomc-corpus,1981,What were the terms that the Treasury agreed to for us to begin [intervening]?,18
-fomc-corpus,1981,"Well, we would have intervened if the [mark] had continued to weaken. I am sorry I missed whatever you said Sam, but we would [unintelligible]. After the Polish declaration of martial law, the mark was very weak and then it strengthened relative to [its level] in the Far East. We would have intervened if it had retreated rapidly again after having strengthened at around the 2.30 level or a little lower, [unintelligible].",98
-fomc-corpus,1981,"The mark hit a peak in the Far Eastern trading of about 2.36-1/2 and the rates in terms of the other [currencies] were similar. But in terms of DM it went down to about 2.33 when Europe began its operations. Also, the Japanese intervened in their market. Then as the European markets opened there was intervention by the German authorities and also some profit-taking and the rate continued to come down to 2.30. And then in the middle of the morning here it was down to about 2.28. So, during the entire period when our markets were open, the rates were coming back into balance and the pressures were subsiding. But we had the authority to step in had the movement gone the other way and had it looked as though the rates were beginning to spurt back up with the dollar getting stronger and the mark and yen and other currencies weakening. But we did not use the authority.",194
-fomc-corpus,1981,Did the Treasury say in any specific way what it considered a disorderly market? Did they say a certain percentage change or something like that would be--,30
-fomc-corpus,1981,"Well, as Paul said, there was a feeling on that midmorning that if the mark reversed itself and the dollar weakened--the mark was up to about 2.29 or 2.30--then it might be appropriate [to intervene], depending on the conditions at that moment. But that was in the context of the reaction to the Polish move. I don't think that the Treasury or even you have a view as to what rate change [constitutes a disorderly market], devoid of the context in which the rate change comes about, unless maybe it comes about very abruptly.",118
-fomc-corpus,1981,Where's the rate now?,6
-fomc-corpus,1981,2.28.,4
-fomc-corpus,1981,I still think that was fairly abrupt.,8
-fomc-corpus,1981,But we have had bigger moves than that.,9
-fomc-corpus,1981,"The market has been quite unsettled all week. On Friday the rate in terms of DM again--I hate to keep talking about that one, but it is convenient--hit 2.30 in the European markets. It started at 2.27-1/2 on the previous trading day, went up to 2.30, and came back down to 2.27-1/2 during our trading day. Then after the money supply figures were announced, it went up to 2.28-1/4 roughly. So there was an awful lot of movement during many of these days.",124
-fomc-corpus,1981,My sense is that this market has been a very poor market--let me put it that way--right through this period. Is that still correct?,30
-fomc-corpus,1981,"That's correct. It has been a very thin market, particularly coming as it does near the end of the year when we are told that not only the banks but the corporations are interested in getting their books cleaned up and don't want to take new positions and so forth. There are not many operators out there making markets, so if anybody has something that he has to do in terms of business, it seems to move the rate by quite a substantial amount with a relatively small amount of activity. I would agree with you that the markets have been quite unsettled.",111
-fomc-corpus,1981,"The markets attribute that to our policy of nonintervention. In fact, I gather at the Federal Advisory Council meeting you had in November that all the banks represented on that Council criticized the nonintervention policy. At least that is what Don Platten told me.",53
-fomc-corpus,1981,I guess I said something. I forget exactly what they said.,13
-fomc-corpus,1981,It wasn't that much.,5
-fomc-corpus,1981,"Yes, it wasn't severe criticism.",7
-fomc-corpus,1981,My memory is that he said there was disagreement among the banks. He presented a view which said that [the FAC members] suspect this [nonintervention policy] has something to do with [the market unsettlement] but there are banks that have other views. That is also my memory of the written report that they made to the Board at the time.,72
-fomc-corpus,1981,"But when we asked them, the Federal Advisory Committee members did say that banks not under the FAC might have other views. I guess that is the way it was. As I recall, that comment was in their written report but they weren't violent about it.",51
-fomc-corpus,1981,"As a matter of fact, they also said that there was some general agreement that intervention policy should be used sparingly or something like that. I didn't get the feeling that they had a strong position on that. That's my recollection. I didn't think it was a very vitriolic comment.",59
-fomc-corpus,1981,It is always interesting to hear two people report a conversation.,12
-fomc-corpus,1981,That is what I was thinking. He thought he delivered a strong message and we didn't even hear it!,21
-fomc-corpus,1981,That is what he told us [in New York].,11
-fomc-corpus,1981,Is my recollection wrong?,6
-fomc-corpus,1981,I can hardly remember [what was said].,9
-fomc-corpus,1981,"Well, I'd forgotten it. But it did come up and I guess they did put in their written report a positive recommendation that we ought to intervene. They were not frothing at the mouth about it, but it was a positive recommendation. I asked whether that view was generally held and they said they thought it was by a lot people, but not everybody. And that was the extent of it.",80
-fomc-corpus,1981,What I'm trying to find out is: Do we have some general guidelines from the Treasury as to when we intervene or don't intervene that you can speak to?,31
-fomc-corpus,1981,"I don't know what you mean by general guidelines. We always have this problem. There is nothing I can recite that is good in all seasons. We developed this interim guideline following the Polish [action], that if [the dollar] took a sudden jump up beyond where it was [against the mark], in essence we'd intervene. That was after the dollar had already gone up; it was already up about 4 percent from where it had been trading.",91
-fomc-corpus,1981,At least it wasn't that an assassination attempt was needed to intervene.,13
-fomc-corpus,1981,We're developing case studies. We intervene on assassinations and military takeovers!,15
-fomc-corpus,1981,Or we stand ready to intervene.,7
-fomc-corpus,1981,"Well, actually what happened is that we were quite ready to intervene and at the time I thought it would probably be necessary. But in every one of these occasions recently the rate has reached its nadir in European trading rather than in the United States. So every time we've gotten geared up to do something, the rates have come off the peak or off the floor.",73
-fomc-corpus,1981,"Well, people know what Beryl Sprinkel and Don Regan mean by a crisis and, therefore, they probably expect some intervention. That is obviously clear and, therefore, maybe that is one reason the rates are--",44
-fomc-corpus,1981,"Or the Germans do it ahead of us, or for us.",13
-fomc-corpus,1981,"Well, that is what has been happening.",9
-fomc-corpus,1981,Both the Germans and the Japanese intervened during this latest spate of activities.,16
-fomc-corpus,1981,The Japanese intervened very heavily.,7
-fomc-corpus,1981,"We reserve the right to intervene when we find it necessary. Sometimes our patience is more strained than at other times. We also want to cooperate if possible. And we have been cooperating, I guess. We have nothing to approve here. No recommendations?",50
-fomc-corpus,1981,The other Polish problem is their debt. Do we have any feeling at all on when that will start to come to a head?,26
-fomc-corpus,1981,"Well, I don't know when it is going to come to a head. The banks were supposed to enter into an agreement, a prior condition of which was that they should receive the arrears. But they didn't receive the interest in arrears. They received a telegram asking if they could make $350 million of loans available. The last we heard is that the banks were talking to each other about what to do. But there does not seem to be, at least among the people we talk to, any great disposition to provide more money to the Poles.",112
-fomc-corpus,1981,"The Poles [were given] a rather clear message just a couple days before martial law was imposed. They calculated that they owed about $350 million of interest. They did not have $350 million. So, [they were told] they could pay the interest for 3 or 6 months, and then the rest of the agreement could go into effect.",73
-fomc-corpus,1981,They requested what they called a bridge loan. Some of [the banks] thought it looked more like a pier than a bridge.,26
-fomc-corpus,1981,I think that situation is very much up in the air. I find it a little difficult to see that anything is going to be done unless the Russians give them money to pay the debt and pay the interest between now and the end of the year. I don't think they will last.,57
-fomc-corpus,1981,"The end of the year is the due date, is it?",13
-fomc-corpus,1981,"Well, there was a date earlier in December, but now the end of the year is critical in that if [the lenders] don't get paid by the end of the year, then they will have to admit that the loan is in default--or at least that it is questionable--on the day that they have to make up their books for the end of the year and decide what to do about it.",82
-fomc-corpus,1981,Most of the interest started to be in arrears on March 26.,15
-fomc-corpus,1981,"This covers three-fourths of the year. The banks and the Poles were supposed to meet on December 28, I think, to sign the agreement; and they wanted the payment cleaned up two weeks early, which was December 14, so they wouldn't sit down at a table and not be able to sign. But that day passed and the payments weren't made.",74
-fomc-corpus,1981,"The banks had told their committees before the takeover that if the Poles did pay the interest, sympathetic consideration--that was the term they used--would be given to some new short-term trade credits of 60 to 90 days. Not all the banks would do that, but that was the language they agreed on if the Poles didn't default. And then everything got overtaken. Nothing probably would have happened anyway, but any chance of a solution being reached certainly got wiped out temporarily by that takeover. So, everybody is in disarray. I don't know how many banks are going to move to increase their loan loss write-offs. I checked around but nobody that I am aware of has done more than 50 percent as write-offs.",148
-fomc-corpus,1981,I wasn't aware anybody had done that much.,9
-fomc-corpus,1981,A couple of banks said that they had increased their loan loss reserves by 50 percent of the Polish loans.,22
-fomc-corpus,1981,"They might have to proceed differently with respect to the 1981 maturities that should have been rescheduled but now have fallen through. They might have to write off 50 or even 100 percent. But most of it, of course, is into the future.",54
-fomc-corpus,1981,Mr. Sternlight.,5
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,"Mr. Chairman, if I may, I also have a recommendation to make: namely, that the leeway for changes in holdings in the System Account, which the Committee voted to enlarge to the $4 billion level, be left at that $4 billion level up to the time of the next meeting. Our projections make it look as though we might need to absorb something like $3 billion of reserves during January, essentially reversing much of that seasonal need that we met in the last several weeks. That concludes my remarks, Mr. Chairman.",108
-fomc-corpus,1981,Any comments?,3
-fomc-corpus,1981,"You used up $3.8 billion of the $4 billion? Is that right, Peter?",20
-fomc-corpus,1981,"Yes, and we may have done another $150 million today because we took some notes from one foreign account.",22
-fomc-corpus,1981,"Don't you feel you need a little more leeway on that? You are pretty short at this point, aren't you?",24
-fomc-corpus,1981,"Well, the leeway needed to last only through today or tomorrow, so we were willing to run it right up to the line. After this meeting a new leeway is established. We may have a little more to add on an outright basis but as soon as we get into January we'll have to swing around the other way. It is to provide the leeway for a possibly large move in the other direction, a large absorption of reserves, that I think it might be useful to leave that limit at the $4 billion level.",107
-fomc-corpus,1981,The $4 billion runs from when to when?,10
-fomc-corpus,1981,"It would run, I believe, from the day after this meeting--that would be Wednesday--through February 2.",24
-fomc-corpus,1981,So you get a new $4 billion starting tomorrow.,11
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,It's $3 billion unless the Committee approves this.,10
-fomc-corpus,1981,"It's $3 billion. Oh, I see what you mean.",13
-fomc-corpus,1981,Is there any thought in the market that the strengthening in the money supply we've seen recently is due more to the economy perhaps being not as weak as we thought versus the Fed making an overt attempt to pump up the money supply? Is there any sense of that?,52
-fomc-corpus,1981,I think there's some puzzlement about the strength that market analysts have seen. I don't have any sense that they are associating it with the economy being stronger. Some of them see other special reasons; some have the same sort of temporary parking place idea that we've kicked around here.,56
-fomc-corpus,1981,A precautionary type--,5
-fomc-corpus,1981,"A precautionary [move to] higher savings rates. There are varying estimates about the strength of the economy, but I haven't really gotten much sense of people relating the aggregates to that.",37
-fomc-corpus,1981,"Well, it is a strange bulge for this part of a recession. It's out of character for this stage of a recession.",26
-fomc-corpus,1981,The Bluebook made reference to an anticipated reduction in the rate of money growth for the last part of December. Does that appear to be probable?,29
-fomc-corpus,1981,A lot of people in the market expect that also. Steve might want to comment on the particular Bluebook reference.,23
-fomc-corpus,1981,We look forward to it with our usual conviction.,10
-fomc-corpus,1981,"Thank you, Mr. Chairman.",7
-fomc-corpus,1981,"I didn't get an answer, Mr. Chairman.",10
-fomc-corpus,1981,The answer is: Nobody knows.,7
-fomc-corpus,1981,"Two independent staffs within the Federal Reserve System are projecting a decline of varying magnitude. So, that might add a little to [one's conviction].",29
-fomc-corpus,1981,The New York staff has a little more of a drop.,12
-fomc-corpus,1981,Have you both been wrong before? MR. AXILROD and,14
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Maybe you can get a better answer if you ask why they are projecting that, Larry. At least when I've asked that specifically, the answer is: Because it has gone up so fast, it ought to slow down.",44
-fomc-corpus,1981,Are there any other questions that can have equally enlightening answers? No other comments? We have a proposal on raising the [intermeeting] limit to $4 billion. Is that acceptable? Hearing no objections--,41
-fomc-corpus,1981,"Is it symmetrical, plus or minus?",8
-fomc-corpus,1981,"Yes. That is accepted. We need to ratify the operations. Without objection we will ratify the operations. On my agenda I have next the longer-run ranges for monetary aggregates and then the economic situation. It seems to me that it may be a little better to take up the economic situation first. If that seems more logical to other people, we will call upon you first, Mr. Kichline. Did I decide on the other order when we made up the agenda?",97
-fomc-corpus,1981,"I was prepared, though. [Statement--see Appendix.] I might note that the CPI should be available tomorrow morning. And, unfortunately, new orders figures will be available tomorrow afternoon.",37
-fomc-corpus,1981,I'm just looking at the Greenbook. It has national defense spending declining every quarter. Is that correct?,21
-fomc-corpus,1981,"That's been corrected in the errata. I think we reversed the lines for that and the state and local sector. State and local spending was shown to be rising each and every quarter and that should be negative. Those lines, unfortunately, were reversed.",50
-fomc-corpus,1981,"But the state and local sector is approximately double the size or more of the defense sector, so those declines in state and local are quite substantial, of course, in real terms.",36
-fomc-corpus,1981,"Yes, they are.",5
-fomc-corpus,1981,"You said you assumed that retail sales would be going up somewhat nominally both this month and in January. The executive of a leading national retail chain said to me that they think the reasonably satisfactory pre-Christmas sales are the last gasp and that there is going to be a major fall in retail sales in January. They had a poor October-November. Since then they've done reasonably well with all these sales; they ran a 12 percent increase in nominal terms. But they expect January to be extremely poor, for what it is worth. Generally speaking, the business CEOs I've been speaking with, as distinguished from the financial CEOs, are much gloomier and expect a greater-than-average recession and, some of them [are especially gloomy]. I'm not talking about the interest rate sensitive industries but, for example, car loadings on the railroads. The head of one of those railway outfits said that it was the worst he'd seen in--I forget the period of time--many, many years; it was worse than in the 1974-75 drop. There is a lot of gloom and doom in the business community, whereas I think in the financial community there is an assumption that the recession will be more or less an average one.",247
-fomc-corpus,1981,"I'd be interested to know what people are hearing about the labor situation. Jim puts together some tables on wage concessions, every week or so I guess, and they are lengthening. I was on the plane Friday with a fellow who recently retired as head of one of the major trucking companies, and he said that a lot of the Teamster locals are likely to go with just a cost of living increase because the competition is just tremendous and, indeed, a lot of unionized trucking companies look as if they are not going to make it. What kind of noises do you hear as you talk to CEOs?",121
-fomc-corpus,1981,"I hear throughout my District a sense that labor negotiations are not going to be as tough--that there will be concessions and that there may even be some inroads into cost of living indices. But as far as the outlook goes, what I hear is that they think the unemployment rate is going to go higher than in the Greenbook forecast. I hear more and more stories of lay-offs; and it is that fear of lay-offs that I think is affecting the climate in which these wage negotiations are taking place. I share Tony's view that there seems to be more pessimism in the manufacturing area than in the retail and financial areas, but what I get is uncertainty. We are in the phase of the business cycle where there is a downward slide and nobody has a good feeling about whether that slide is going to accelerate or taper off. There is a feeling that the economy will recover in the middle of the year, but I would guess the sentiment is that the recession will be average to worse. And that, too, is contributing to a more favorable [climate for] wage negotiations.",218
-fomc-corpus,1981,Are you going to report a lot of plant closings?,12
-fomc-corpus,1981,"I wouldn't say a lot more than we are used to in my part of the country, but I am hearing of more cutbacks in the work force in the plants that are operating--not outright shutdowns but [reductions of] 450 here and 800 there. It is very common [to hear such reports] in talking to people and they are very common in the newspapers and radio reports. And it seems to be widespread; it is even happening in parts of our District where they usually don't feel recession as much. There is a part of Pennsylvania that is generally fairly insulated from that, and reports from there are about as pessimistic as elsewhere. So, it seems to be very widespread.",141
-fomc-corpus,1981,Eastern Pennsylvania you mean?,5
-fomc-corpus,1981,"There is an area around Lancaster and Harrisburg, the South Central area, where generally the unemployment rate is well under the national average. We have a director from Armstrong Cork in that area and he says that even Lancaster is feeling it this time around and they usually don't feel it.",56
-fomc-corpus,1981,Mr. Keehn.,5
-fomc-corpus,1981,"On the specific question--I'll comment [on my general views] later--I think there has been within the last 30 to 45 days a decided shift on the part of labor out our way. Their focus is now shifting from concentration on the financial aspects of the package to the job per se. For example, the UAW has indicated a willingness to reopen the auto workers contract; the Teamsters have reopened [their contract] and the trucking people that I talk to expect some significant concessions there. The UAW has specifically said they will reopen the Harvester contract; there they are going to try to get rid of the last increase that was given in October and there is going to be a discussion about the COLA increase coming up in the next couple of months as well as the pension increase that is scheduled for April. Harvester expects to get a hundred million dollars a year out of the renegotiation the union has authorized. I would echo Tony's comments; the industrial CEOs I have talked to are extremely gloomy and are expecting a very difficult 1982--a far deeper recession than most of the financial people I've talked to anticipate. Therefore, I think they are going to go into negotiations with a tougher attitude than they might have had six or eight months ago. I think there has been a big change on that front.",268
-fomc-corpus,1981,"On the other hand, notwithstanding what I said earlier, I was talking with Citibank's board of directors last week and I went around the table and asked them what wage settlements each plant expected to make. I was surprised that every single man at that table who headed a large company said between 9 and 9-1/2 percent.",70
-fomc-corpus,1981,Were they unionized?,5
-fomc-corpus,1981,"Most of them were unionized. But when I asked them if they had any plants that were nonunion, because some of them were very [diversified], they said it didn't make that much difference in their company as a matter of policy. Quite a few said, however, that they expected some productivity increases and that the net increase in labor cost might come in around 7 percent.",79
-fomc-corpus,1981,"I have a comment on work rules. When John Sagan was here for the Conference of Chairmen, he indicated that at one Ford plant where they had 44 work rules they had gotten the number down to 6 or something like that. There were some major changes in the work rules which he thought was really significant. Are you hearing that kind of noise too?",74
-fomc-corpus,1981,"Yes. The scope of the cutbacks that General Motors announced on Friday for their white collar workers was rather astonishing. They are freezing pay, cutting back vacations from six weeks to two weeks, and putting in a major cost-sharing provision in their medical insurance programs--all three at once.",57
-fomc-corpus,1981,"But where the threat is clearly coming from imports in addition to the depressed economy, they tell me management has a much stronger case in getting labor to--",30
-fomc-corpus,1981,"Well, obviously, in this case they chose to do the [cutbacks of] white collar workers with a view toward trying to influence the [labor union] negotiations. But doing that kind of thing for 150,000 white collar workers is a big, big bite.",55
-fomc-corpus,1981,But I think there is going to be a significant divergence in the wage settlement between manufacturing and service industries.,21
-fomc-corpus,1981,I wonder whether this kind of thing is ever reflected in the statistics.,14
-fomc-corpus,1981,"Well, some of this is showing up now. There is much more improvement in manufacturing wage increases this year than anywhere else. That is where the big improvement has come; it's in the average hourly earnings index.",42
-fomc-corpus,1981,"That is right. I don't see much in the nonmanufacturing area. I was talking to some bankers out in Chicago and they were all reporting that they have in their plans 11 percent or more for wage increases. I think they are a little behind the times, but so it is. Any other comment while we are on the subject? Let's remain on this subject for a moment. Does anybody else have anything?",84
-fomc-corpus,1981,"It's a form of rational expectations--that is, the expectation that your employer may go bankrupt.",19
-fomc-corpus,1981,They wait for that expectation until he is practically on the edge. That is true.,17
-fomc-corpus,1981,"Actually, Frank, the capacity utilization in this [forecast] doesn't get down to where it was in 1974. It bottoms out at 73 percent and in 1974 it was 69 percent.",42
-fomc-corpus,1981,I thought the chart in the Greenbook showed that we are already down to--,16
-fomc-corpus,1981,"No, I think Nancy's right.",8
-fomc-corpus,1981,There is a revision that was passed out. Did you see this here?,15
-fomc-corpus,1981,"This is a revised one. It says capacity utilization, total manufacturing--",14
-fomc-corpus,1981,"That is for 1980, you see. Look back to the--",15
-fomc-corpus,1981,All right. Okay.,5
-fomc-corpus,1981,Any other comment on the wage cost/price situation?,11
-fomc-corpus,1981,"I think there have been some developments on the price side as well. There is the price cutting in retail; with Christmas sales it is hard to tell how it is going to work out but there are clearly some price cuts there. In the automotive industry it has been demonstrated that when the manufacturers go to rebates, etc., that kind of price [cutting] tends to bring higher levels of sales, and I think [price cutbacks] are beginning to [reach] back into the raw materials. There is a very big overhang internationally in aluminum ingots, for example; the book price, I think, is 74 cents a pound and the trades are taking place at about 49 cents a pound. So there's a very appreciable difference in some of the raw materials areas, which ultimately ought to show up. So I think there has been progress on that front as well.",178
-fomc-corpus,1981,Are commodity prices still declining? I haven't looked at that for a couple of weeks.,17
-fomc-corpus,1981,"Yes they are, but much less than they had been earlier.",13
-fomc-corpus,1981,"For raw industrial commodities, we are now back to something like [the level of] the middle of 1978.",24
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,"Jim, will the CPI pick up the pre-Christmas sales? MR. [KICHLINE]?. This next one?",24
-fomc-corpus,1981,"Yes, the December CPI. Do they have a way of [measuring] the widespread sales that are taking place?",24
-fomc-corpus,1981,"Well, they are supposed to take into account actual transactions prices, but there is a question as to how well they can do that. The report tomorrow is going to be for November, so in any event we wouldn't be picking up what is happening now until later in January.",55
-fomc-corpus,1981,"If that exhausts our wisdom on wages and prices, is there any other comment on the business outlook generally?",22
-fomc-corpus,1981,"In the midst of this gloom, there is one substantial difference and that is that a major tax cut is already on the books. I think this lends a certain support to the [expectation] not in the first quarter, but looking to the second and third quarters, that the economy is going to come--",62
-fomc-corpus,1981,Isn't there a law that when everybody expects an upturn--if it looks unanimous--it isn't going to happen?,24
-fomc-corpus,1981,I have a few butterflies about it myself.,9
-fomc-corpus,1981,"In terms of the business picture, this is a bit of an outlier observation, but some of the business types that I have been talking to, in the Minneapolis area at least, clearly are already at the point where they are looking across the valley. Even from the nonfinancial types I don't get that sense of gloom that Mr. Solomon and Mr. Boehne are picking up. I think there is a recognition that we have had a very, very steep decline; but they are already clearly looking out to what they think is going to be a very strong second half of next year.",119
-fomc-corpus,1981,There is a widespread feeling among businessmen--they all volunteer it--that we have a dualistic economy: that people are lucky to be in the service sector because they aren't going to have it very tough. The head of IBM was telling me that business is absolutely booming. They make a distinction between wage increases in the service sector as against the manufacturing sector. It is the manufacturing people and the people who ship the bulky stuff who are talking about how serious they think the current situation is.,97
-fomc-corpus,1981,"What does Texas say, Mr. Boykin?",10
-fomc-corpus,1981,"I reported at our last meeting that there seemed to be a slight slowdown in the energy area, particularly in drilling activity. I'm told now that that has reversed. There were two rigs in the pen last time but those are out. They tell me that has turned around a little, although they are expecting a bit of a slowdown in the rate of increase for 1982. In the manufacturing end, we really don't have all that much [change]; but in the semiconductor business, which is a large employer, they are taking an extended Christmas holiday. They are shutting down until January 11. The agricultural area, though, is an area of concern. As we know, the prices to the farmers are not good; the crops have been very good. We are told that our agricultural banks probably are going to have to carry over more farmers than they ever have. And they can probably carry them this year, but without some improvement there are going to be some very serious liquidation problems.",197
-fomc-corpus,1981,"Let me ask you a [question]. The loan/deposit ratios in agricultural banks, remember, had been pretty high in the spring of 1980, at about 68 percent nationally. When we looked at them here not too long ago, a couple months ago, they were down to 60 percent. Are your banks pretty much in that same situation--that their loan/deposit ratios are pretty good? Do they have plenty of room to make loans if they want to make them and carry them over?",102
-fomc-corpus,1981,"Yes, they have the room. But the question is how comfortable they feel, even though they have the money, about how long can they stay with [agricultural borrowers] in the expectation of a repayment because of the price problem.",48
-fomc-corpus,1981,"What about the land prices? Again, looking at the places where most of the problem loans tend to be, people had gotten pretty extended on land. Are you beginning to see a break in your land prices?",42
-fomc-corpus,1981,"I think so, a break in the sense that the sales of farm lands are going down. I have heard of a few instances of a little price concession, but there is not a lot moving right now.",42
-fomc-corpus,1981,"That is the story I hear when people from farm areas talk to me: that there isn't much movement in the price but there sure aren't any sales, and don't try that price too hard.",38
-fomc-corpus,1981,"In our District, when land that was valued at $3500 to $4000 an acre comes up for sale, the price goes down; and they pull it off the market at $2700 or $2800 an acre. The price just doesn't clear the market.",55
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"Obviously, things are relatively slow in our District, but I think it is important to remember that part of it can be attributed to the rather abrupt drop in the rate of money growth during most of this year. As we look ahead into what next year will bring, especially the second half of next year, it is awfully important to keep in mind--unless I am the only one in this group who sees it this way--that the decisions we make this afternoon and tomorrow will have a direct bearing. They will have even a greater bearing than what recent conversations with people in business might indicate for the future. If we choose to set targets that imply a faster rate of money growth than we are presently experiencing, we are inevitably going to have a step-up in economic activity after a few months. So, what we do will have a direct bearing, at least as we look at it, rather than just psychological [effects on] decisions that businessmen might be making.",193
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"There are more than the Polish loans out there that are in trouble. The insurance industry reports a considerable increase in the amount of problem loans. Our Canadian friends have come down and done a big real estate investment without taking out financing, so some of the office building complexes are in a peculiar status at the moment, and they may be coming on the market. My guess is that the building boom has about run its course--well, it may go another year--but that office space is starting to show up as a little on the heavy side across the country.",112
-fomc-corpus,1981,Mr. Ford.,4
-fomc-corpus,1981,"On some of the points you have mentioned, in our end of the so-called Sun Belt things are not really all that sunny. Specifically, for example, on Nancy's point about the pre-sales in the retail area, we are definitely seeing a whole lot of that. We have 45 board members in our District and a number of them are retailers; they have been telling us that their sales are flat to down in real terms. They may have a nominal increase in dollar sales, but a lot of that is coming on white sales that were taking place in December and November instead of in January and later. So, they are a little depressed about that. The tenants in the large Atlanta malls are concerned about their inventories being high and are having to do heavy promotions to keep their sales up. On the employment side, we are seeing some rather heavy layoffs in the more industrialized areas of our District, particularly in the housing-related carpet industry. We produce half the carpets in the United States in northern Georgia and they have experienced a 50 percent drop in production in the last few months. So, we are seeing big problems there. Some of our major employers, like Fruehof in Florida and even Excel in Orlando and the Ford glass plant in Nashville, are all laying off big chunks of their labor force. In the service industries, which someone else asked about, we are finding some problems. Air Florida, one of the more robust regional airlines, has had a very heavy cutback on its employment, as some of you may have noticed in the newspapers. So, we are seeing pretty much across the board in both the service and the manufacturing industries that the recession is deepening throughout our area. In some of the [most depressed] parts, in Alabama in the industrialized areas, we have unemployment rates approaching 12 to 13 percent. They are a little [higher] than the northern version in Detroit and that area. So, we are seeing the recession come down in the Southeast pretty heavily.",403
-fomc-corpus,1981,"Refresh my memory, Mr. Kichline, if you can. In the 1974-75 recession did wage rate increases actually come down appreciably?",32
-fomc-corpus,1981,"Immediately after, as I remember--in 1975 and 1976--there was a sharp break in wages, and prices also came down substantially.",31
-fomc-corpus,1981,"Well, I know prices did; I couldn't remember how much wages did.",15
-fomc-corpus,1981,They never had risen that much. Inflation had not become imbedded in ways that--,17
-fomc-corpus,1981,"I understand that, too. I really don't know whether--",12
-fomc-corpus,1981,"When we removed the wage and price controls in the spring of 1974, what happened immediately thereafter was a catchup burst of wages. If you look at a chart on wage rates, they were rocketing upward and then the rate of increase came way, way down. But a very large part of that reduction in the rate of increase in wages was nothing more than a termination of the round of wage increases that ensued after the wage and price controls were removed. So, you can't look back at the 1974-75 experience.",109
-fomc-corpus,1981,Wage and price controls were removed in the spring of--?,13
-fomc-corpus,1981,April 1974.,5
-fomc-corpus,1981,"There were a number of phases, I think. The final phase came off in 1974.",20
-fomc-corpus,1981,There was a holdback on big companies that extended to the spring of 1974.,18
-fomc-corpus,1981,"As I remember, by about the third quarter of 1975 the annual rate of wage increase got up to around the 12 to 14 percent range. There was actually an acceleration of wage increases during the recession. It wasn't until afterwards, once the recession was over, that it began coming down; then we began to get the big downward adjustment in the rate of increases in wages.",78
-fomc-corpus,1981,"Do you have numbers down there, Mr. Kichline?",13
-fomc-corpus,1981,"We have some numbers. Unfortunately, they are annual numbers. On an annual basis 1975 still showed an increase and 1976 is the big year where there is a break. I would agree with Governor Gramley that the whole period is confused; I think part of the controls were off in 1973, and in 1974 we began to see the acceleration of wages when we were in that recession.",84
-fomc-corpus,1981,A bunch of the controls came off in early 1973; I remember that very well. I remember very well when I thought the great bulk of them were sneaking off in January of 1973.,42
-fomc-corpus,1981,"Employers with 5,000 or more--",10
-fomc-corpus,1981,It was continued on large firms as I remember.,10
-fomc-corpus,1981,I don't even remember that. What were those annual numbers just for the heck of it?,18
-fomc-corpus,1981,"In 1973 the average hourly earnings index had a 6.1 percent increase; in 1974, 8.0 percent; in 1975, 8.3 percent; and in 1976, 7.2 percent.",52
-fomc-corpus,1981,So it was just a 1 percent decline even then?,12
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,Then it went up again or held steady or--,10
-fomc-corpus,1981,It began edging up.,5
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"It used to be that second perhaps only to Texas, the West was fairly recession proof, but that doesn't seem to be the case today. Looking around for some elements of strength, I have been hard pressed to put my finger on them. Alaska is the only one of our nine states that still seems to be adding to payrolls. Nonresidential construction, which has been very strong, is still above a year ago but the growth is definitely slowing. And across a wide range of areas there is developing weakness or a going downhill, even in the aerospace industry, on balance, strangely enough. Lockheed just announced getting out of the production of the 1011. They are hoping to pick up something in defense orders. The semiconductor high-tech business that had such a strong growth trend has turned sour. Some of the semi-conductor firms from Silicon Valley and elsewhere in the West are having extended shutdowns because of excessive inventories. Even Boeing, which has a huge share of the commercial airline market, is getting increasing numbers of cancellations. There is more competition from the Airbus, etc., and even though they are rolling out a couple of new models in the very near future--the 767 is about to come out and the 757 is expected a year later--their sales are definitely down and so is their employment. So, it is hard to see the bottom being reached in the near future. The trend is still downward across a pretty broad front.",291
-fomc-corpus,1981,Governor Gramley.,4
-fomc-corpus,1981,"[I'd say] that, if anything, we are likely to go through a recession this time which is worse, or somewhat worse at least, than the average postwar decline. We are talking about something that is quite pervasive and quite deep. If memory serves me, the average postwar decline in real GNP is about 2-1/2 percent. What we are looking at is a forecast of about a 2 percent decline, which is a milder recession than the average in the postwar period. Now, recessions come in all different sizes, so this is still a classic recession; there's no question about that. But I have a hunch that if things work out differently--and they always work out somewhat differently than anybody expects--the area I worry about that happening in is business fixed investment. And I think Mr. Kichline is right that if we are in for a surprise there, it will be a surprise in which the drop in business fixed investment is significantly worse than the decline of about 4 percent we are now forecasting. I think businessmen are very, very pessimistic for a variety of reasons. One is that they look for a future of real interest rates that potentially will stay up at extremely high levels because of huge deficits in the federal budget. And they are pessimistic because they have been through a 2- to 3-year period in which each time the economy has gotten off the ground it has gotten slugged in the head again and gone right back down. They are pessimistic because they are looking at very, very low levels of capacity utilization. And they are pessimistic because in some areas of the country we have had such [economic] devastation. So, I think we are going to see a bigger drop in business-fixed investment than this [forecast]. We are likely to see a first quarter that looks very, very bad--considerably worse than what we are now forecasting--and it may stretch out into the second quarter before we begin seeing things turn up again.",407
-fomc-corpus,1981,Governor Partee.,4
-fomc-corpus,1981,"Well, I guess the tone of the conversation is getting a little too gloomy for me. I would remind you that we are having the largest tax cut in the postwar history of the country. That will be taking effect in stages over a period of time. Henry referred to the 10 percent cut next June 30. In addition, there is a sizable relaxation that occurs as of January 1, just a few days away, for a wide range of activities that well could have a little more oomph in them as a result of the change in tax treatment. I would point out that housing is very low. I suppose [starts] could drop from 800,000 to zero--well, to 500,000 or something like that--but the downside risk can't be very large at this level. Nor can domestic car sales go very much below the [recent pace of] 5 million for very long, given the fact that people still need cars in order to drive. And inventories of cars on the road are depreciating and the stock, as somebody said, is declining. Fred, I think you mentioned that a decline in the stock of cars is occurring. So, some of the areas that are customarily sources of weakness can't be that much of a source of weakness from this point on, in my view. I'd rather agree with Lyle that there is some exposure in plant and equipment. We were talking about that this morning, and I would be inclined to think that there might be a little larger decline and perhaps a good deal larger decline than the staff has in its forecast. But again, for every inch that you give there, the less pressure there is on financial markets and money markets. And it seems to me that we can almost, with a little lag, get a substitution of housing for plant and equipment if in fact we get that much weakness in the system. Also, this Christmas of 1981 is not good but, on the other hand, it is not just abysmal. Let us not be too gloomy; we ought to get a recovery, I think, sometime in 1982.",429
-fomc-corpus,1981,"I don't want to [catch] you unawares, Mr. Truman, but it might be appropriate for you to say just a word about what is going on abroad.",35
-fomc-corpus,1981,Okay.,2
-fomc-corpus,1981,"To give you a little more time, would you like to have a filibuster?",18
-fomc-corpus,1981,Do you need your pipe?,6
-fomc-corpus,1981,"You just let the cat out of the bag, Henry!",12
-fomc-corpus,1981,"The picture is broadly similar to what we have seen here in the sense that the economies abroad have been growing, although it has been small positive growth. It has been quite modest on average over the last several quarters. There have been some signs of a bottoming out: There were increases in the United Kingdom after a very sharp decline; and the German GNP number that came in for the third quarter, just released today finally on a seasonally adjusted basis that one could understand, shows essentially zero growth rather than negative [as it was] in the second quarter. So, there are some signs of a bottoming out, though I think we have marked down the extent to which we see real positive growth in this quarter. We expect at best only a modest rate of acceleration in the course of 1982, reaching something on the order of 2-1/2 percent on average as I recall for the last half of 1982. That is hardly a very robust performance, when you factor in Japan, which in the past, even in the first oil-shock environment, has had a fairly good growth rate relative to the rest of us. Generally speaking, unemployment is expected to continue to rise abroad; and there may be some improvement--maybe a percentage point or a little more--on the price side but not any rapid expansion. One place where we have seen some shift in policies, or at least in that direction relative to everybody else, is France, where a somewhat rapid pickup is expected in both prices and real growth. I might comment that Japan in particular seems to be a serious problem. They had about 4 percent growth this year, which looks good from our perspective, but even the official authorities are not looking for too much next year, which clearly is one of the things that is causing the problem on the external side, the current account side. They just have very weak domestic demands, and that combined with the decline in international commodity prices--imports are weighted in that direction --is part of the reason why the number on their current account position looks so astronomical. Although that might moderate somewhat, it is likely to stay up in that range unless Japan experiences a dramatic rebound, which no one at the moment is particularly projecting.",451
-fomc-corpus,1981,"Ted, has the British price situation improved very much?",11
-fomc-corpus,1981,"It has not improved, particularly over the recent period. The CPI in the second half of the year has been running in the 11 to 12 percent range; it had come down to a plateau and backed up. It actually got down almost to 10 percent on a year-over-year basis and backed up a bit as the pound weakened in the summer. So they are about back to where they started when Mrs. Thatcher came into power.",89
-fomc-corpus,1981,And they have had how many quarters of decline in real growth?,13
-fomc-corpus,1981,"Oh, I don't know. It is something astronomical, off my chart here. I think it has been occurring since the end of 1979.",30
-fomc-corpus,1981,"Yes, something like that.",6
-fomc-corpus,1981,"Ted, why doesn't Japan stimulate [its economy]? They have their inflation rate down to around 4 percent, as I remember the figure, and the domestic economy is weak. The yen has been pretty strong. The current account surplus is just--. What is the reason they don't stimulate?",58
-fomc-corpus,1981,"I think there are two major reasons. One is that they found themselves burned badly in the past by excessive stimulation, or they feel they have been burned badly. And they had two rounds of rapid inflation--less the second time but it still was worse than they expected--in the yen as you may recall in early 1980 when it went to 260 yen per dollar, which was as ridiculous a level in some sense as the level of the mark in August. And that was partly an inflation phenomenon. The second reason is just that they have this maybe well deserved fear of fiscal deficits, and the stimulus to domestic demand one might expect would come from the fiscal side. They have taken some cautious steps on the monetary side though in terms of the mix of policy, everything else being equal, that tends to be a little negative from external perspectives. But their fear is of their large budget deficit, which they see problems in financing; they continue to have troubles with banks in Japan in placing their longer-term debt. The banks have been gradually backing-off from this sort of short placement system that they have run for years and that has led to caution in fiscal policy. Now they have a new budget in the process of being formulated; and from the indications I've seen, it may be a little less contractionary than the rhetoric suggests. They are talking about expenditure increases in nominal terms on the order of 6 to 6-1/2 percent, which does show some slight positive increase in real terms. But the rhetoric is going to be in the direction of continued fiscal restraint.",316
-fomc-corpus,1981,"And they are very worried about their exchange rate. They figure they are in a ""no-win"" situation if they take a stimulative action, particularly in monetary policy. Their exchange rate will weaken and they already think it is too weak. That would get them in more trouble on exports, and they are already in a lot of trouble on exports. So how do they stimulate is the question, particularly when the budget deficit might--well, I don't know what it will do to the exchange rate. But they feel they can't do it on the budgetary side and they can't do it on the monetary side because of the exchange rate.",127
-fomc-corpus,1981,That is why when they implemented that 1 percent reduction of the discount rate last month they combined it with heavy intervention.,24
-fomc-corpus,1981,"May I ask a question on the domestic end, of either Chuck or Jim Kichline? This next round of tax reductions, the ones that take effect in 1982, are those to a great extent offset by payroll tax increases?",48
-fomc-corpus,1981,"There is hardly any increase, is there Jim?",10
-fomc-corpus,1981,"No, it is not very--",7
-fomc-corpus,1981,Is that possible on these?,6
-fomc-corpus,1981,"No, it is very small. On January 1st of 1982 the tax rate increase is only one-tenth of 1 percent compared with the 1 percent that went into effect in January of 1981. And the wage base continues to rise; it goes up something like $3,000, I believe.",67
-fomc-corpus,1981,So it is not a cut?,7
-fomc-corpus,1981,"No. In total the expected increase from payroll taxes next year is something like $5-1/2 billion. The second stage of the tax cut for individuals, when it goes into effect, is in the range of $33 to $35 billion.",51
-fomc-corpus,1981,Thank you.,3
-fomc-corpus,1981,What does bracket creep do next year?,8
-fomc-corpus,1981,That eats up another part of the $33 billion you are talking about. You have $5 billion going for payroll taxes?,25
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,The question is how much does bracket creep do?,10
-fomc-corpus,1981,"Well, I haven't thought about that question, so I don't have the answer. I think it is a factor but not--",25
-fomc-corpus,1981,I think Otto Eckstein is using a figure of around $15 billion or something like that.,19
-fomc-corpus,1981,"$15 billion? So it uses up a little more than half? In other words, is there a real reduction in the effective tax rates counting everything?",31
-fomc-corpus,1981,"The effect is reduced by bracket creep, but there is a net stimulative effect, a substantial one. We also have low income growth next year and that will hold down the effect of bracket creep.",40
-fomc-corpus,1981,"The staff's full employment budget calculations show a switch of around $48 billion from the first half of '81 to the last half of '82, with most of it coming in the latter half of '82. And that is something like 1-1/2 percent of GNP. That is a pretty good kick from the fiscal side. And I think Chuck was right that it is something we need to keep in mind as a source of stimulus as the year goes on. I don't think we really are too far apart, Chuck; I do feel that the recession is going to end and we are going to have recovery.",127
-fomc-corpus,1981,"Well, I don't think we are either. We had such a series of extremely gloomy comments that I thought I ought to say something on the other side.",31
-fomc-corpus,1981,Your point is very well taken.,7
-fomc-corpus,1981,"I think Mr. Boehne made the right comment. We are at that stage of the cycle when one thinks it could just go ""whoosh"" down. It doesn't do that, but it always looks terrible.",44
-fomc-corpus,1981,"That is right. If you are at all pessimistic, this is the time when it comes out.",21
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Well, we have lots of uncertainties and concerns in the business outlook. And, I must say the mood in Europe is extremely gloomy--more gloomy than the actual trends justify, it seems to me, at the moment. But their unemployment is very high and they are very aware of that; it is phenomenally high given past records during the postwar period.",72
-fomc-corpus,1981,"That is right. They have already exceeded the 1974-75 peaks, partly with the help of the United Kingdom. But all the countries have generally higher [unemployment now].",37
-fomc-corpus,1981,"Yes, in many countries it is comparable to ours or even higher, which is very unusual just taking their raw figures. On the other hand, I have a feeling that there is more movement here on prices than there has been for years, literally, in terms of a change in trend. And that among other things could have favorable impacts on financial markets if anybody believed it. I don't think the financial markets believe it yet. I am not sure I believe it yet, but I must admit there is more gestation and more ferment and more talk about lower [wage] settlements than even that reduction in 1976 or whenever it was indicates. [The staff has] some fairly optimistic price figures in its forecast. We will see, but I am not sure they are out of sight. Let's go to your commentary, Mr. Axilrod.",171
-fomc-corpus,1981,"Thank you, Mr. Chairman.",7
-fomc-corpus,1981,"Let me say I don't anticipate getting down to anything very [specific] in the way of numbers on this particular longer-range exercise this afternoon or tomorrow. There may even be conceptual questions that people may want to raise about how to present these, and I say that without having thought through any change myself. So proceed, Mr. Axilrod.",69
-fomc-corpus,1981,[Statement--see Appendix.],6
-fomc-corpus,1981,"Let me just make a couple of comments. On the technical side, the possibility exists of some redefinition of M2. What sounds logical is putting in retail RPs, which would raise M2 some historically. If we take out institutional money market funds, it's practically a wash. That leaves us with some unknown amount of institutional money market funds in money market funds that are not labeled institutional and that we don't know how to break down. What to do with IRA/Keogh accounts, which might change appreciably next year, is a confused subject. I'll put it that way. It depends upon what one thinks M2 is measuring and what a transition of money into those accounts may mean. It might have been worth distributing, but I forgot about it, a little set of charts that Mr. Truman's people circulated this morning [at the Board meeting]. The charts were notable for showing that currently none of the main countries was near its monetary targets this year and that enormous discrepancies--larger than for the United States by a considerable margin--had developed between the different Ms. There were actual minus numbers for M1 in some cases with 12, 14, 15 percent increases in M2 or M3 as the case may be. The only country that showed a nice orderly pattern was the country which doesn't have monetary targets. That was Japan. I don't know what the lesson is to that. But it was an extremely erratic picture. It was poor--",295
-fomc-corpus,1981,But they don't have the innovation and the technology--,10
-fomc-corpus,1981,They had gradually declining interest rates; that is the thing that has helped.,15
-fomc-corpus,1981,"Oh, you wouldn't think some of these other countries did either. They have not had the swings in interest rates and they haven't had the swings in the economy, which may say something too. These other countries have had some technological innovation but the impression is that they haven't had as much as ours. But the discrepancies in the numbers were even larger than we had. It is a startling picture of the differences between the various [Ms] in those countries.",90
-fomc-corpus,1981,We could have copies of those charts circulated to the Committee tomorrow.,13
-fomc-corpus,1981,"Well, let's have a little discussion in the remaining time.",12
-fomc-corpus,1981,"I have a question. Given the tentative targets that we established in July, are the various growth rates for the Ms now consistent?",26
-fomc-corpus,1981,"Well, if our projections are right, we think M2 and M3 growth just at, or a shade below, the upper end of the ranges is consistent with growth of M1 at the midpoint. That means the margin of error on the up side [for M2 and M3] is above their ranges.",64
-fomc-corpus,1981,"Taking just the difference in the midpoints for this year, a midpoint on M1 of, say, 4 percent, given a 2-1/2 to 5-1/2 percent range, would imply 11 percent for M2 and 12-1/2 percent for M3?",63
-fomc-corpus,1981,"Yes, but our projection is for somewhat slower growth in nominal GNP over the year, which tends to hold that down.",25
-fomc-corpus,1981,And then you have interest rates beginning to rise again in the latter half of the year. Won't that mean the same forces that were operating this year will tend to expand the rate of growth in the broader aggregates?,43
-fomc-corpus,1981,"Yes, to the degree that this year might have had an unusual amount of shift into money market funds [from] market instruments or back into depository institutions that would not otherwise have been there, we would have less of that in store next year. In any event, maybe somewhat optimistically, we worked our way down to a growth of just under 9 percent for M2 and M3, but it could very well be a little higher.",90
-fomc-corpus,1981,But why is that?,5
-fomc-corpus,1981,Essentially what you are saying is that we may get a rerun of this year with M1 growth toward the bottom end and M2 and M3 constantly on the--,35
-fomc-corpus,1981,"Well, I don't have a strong feeling that way, Governor Teeters. It is not too bad to think of the change in velocity of M2 as normally about zero, or not much change. That would give our present projection of M2 some credibility, and that is on average what happens. My instincts are not that we have severely underestimated it. But, obviously, there is not any room for error in that, particularly.",87
-fomc-corpus,1981,Governor Schultz.,3
-fomc-corpus,1981,"Steve used the word credibility several times. I have been talking to market participants the last few weeks and that term keeps coming up in their discussions as well. In particular, just to give you three examples and names that might you remember: In talking with Paul Boltz, who used to be with us and now is at Continental, and George Henry who is now up on Wall Street, and John Phalen from the NYSE, I asked the question about credibility. They all said that the credibility of the Federal Reserve is much higher than it has ever been before. There is a cost to that, however. The cost is [related to] the second question I asked them: What do you think would happen to financial markets if we were to change course perceptibly? And they said they thought it would have enormous impact on the financial markets. So, I think we have a situation in which we have built up a lot of credibility, but the flip side of that is that we have painted ourselves into a corner in that if we don't stay pretty well on the course that we have generally outlined, it is going to have a rather substantial market impact.",231
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"To pick up on what Fred said about credibility and going back to Steve's comments on it, we recently had our full academic conference with about 35 professors from all around the West who specialize in money, banking, and monetary policy research, etc. While there are all different points of view and schools represented, from various degrees of monetarists to Keynesians to a few supply siders, the one overwhelming conclusion that they arrived at when we solicited their advice on appropriate ranges for money growth in 1982 goes right to the credibility problem. It translated specifically into a recommendation from that group, for what it's worth, that it would be a serious blow to our long-term credibility if we didn't follow through with something like the provisional ranges we announced last July--that is, at least a fractional reduction as a part of a multi-year program to get the rate of money growth down and, hence, the rate of inflation. So, that came across loud and clear. The other point I wanted to make, having supported Steve's view on the vital nature of the credibility problem, with your permission Steve, is to take a contrary view with respect to the 3-point range that we provisionally decided on for M1 in July for which you have again argued cogently here today. Looking back at the July minutes, just to refresh my own recollection, we considered three alternatives for M1. Two of them involved a 2-1/2-point spread between the upper and lower [ends]; the third one, which we adopted, had a 3-point spread. And for reasons that were set forth by Steve, it has been the usual Fed policy to widen the range of long-term targets when we perceive increased uncertainty in the economy. Now, that made sense as I thought about it under our former operating procedures, which had in effect tended to accommodate changes in money demand more or less automatically. In fact, I think the big problem in those days was that we accommodated too much, which is probably the main reason we changed the procedures. But with the new approach that has been in effect since the fall of 1979, and particularly with our record this year--and I might add that we got plaudits from this academic group for what we had done in 1981 [whereas] last year we had a lot of scar tissue as you might imagine and you have heard that yourself--we are doing a better job of keeping within our target ranges and that has [helped] the credibility problem. We don't automatically accommodate changes in money demand. I suspect most of us are uncertain about money demand in 1982. For example, our staff thinks, and I tend to share this view, that if anything there is likely to be a further downward shift in money demand in 1982. But that could be wrong. In the Bluebook Steve brought out the possibility that it could go the other way. And to allow for that possibility, since we really don't know which way it is going to go, I would argue that, if anything, we ought to go back to the 2-1/2-point spread for the following reasons: If money demand should shift downward, obviously the effective money supply is going to be greater than the actual observed money growth; on the other hand, even though I don't expect that this will happen, if the demand for money should shift upward, then the effective money demand of course will be less than observed money growth. Net, bottom line, if we are uncertain, as I am, about what might happen to money demand next year, I think we should narrow the range of possible effective money by narrowing the range of observed money growth, which is the only thing that we can control. So, at this moment, without hearing other views, I am leaning toward going back to that spread of 2-1/2 points that we had before.",788
-fomc-corpus,1981,"Where would you cut the half point, from the top or the bottom?",15
-fomc-corpus,1981,"Well, if I had to commit myself today, I'd go for 3 to 5-1/2 percent instead of 2-1/2 to 5-1/2 percent, but that is just provisional until we have had a lot more discussion.",54
-fomc-corpus,1981,3 to 5-1/2 is only 2 percentage points.,15
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,3 to 5-1/2 is 2-1/2 points.,17
-fomc-corpus,1981,With that I think we can agree. Governor Partee.,12
-fomc-corpus,1981,"One of my problems with talking about money demand is, as you say, that we don't know what it will be beforehand. I never know what it was afterwards! It seems to me that what we say was a change of money demand is just the residual that one can't explain. So I am a little reluctant to do a lot of changing on the basis of that, although I suppose one could say that this year there seems to have been a better economy until recently than one would have expected, given the very low money growth that we had in M1-B. I assume you are talking about M1-B.",123
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"When you are talking about money demand, you are not talking about the [broader measures]?",19
-fomc-corpus,1981,"No, all my remarks were on M1-B at this point.",14
-fomc-corpus,1981,"On the technical side, I don't really understand M2 either, but one thing that has disturbed me about it is that it seems to me to be subject to the possibility of coming in higher as a result of the structural changes. Steve mentioned it. We have IRA and Keogh accounts, and nobody really knows how they are going to go over the next year. They involve a very long-term commitment of funds, but there is a very desirable tax effect from [getting into them]. I just don't know how it will go. In addition, we have the fact that people who are uncertain about the future at least now have the option of going to money market funds from the market itself. We have seen continued rapid growth in recent months in the money market funds, partly because of the uncertainty, and that could continue in the period ahead. But even more broadly, all of the efforts on the part of the government and the administration to stimulate savings could be successful. That is, we have IRA/Keoghs, the tax [cut], the all savers certificate, and the reduction in the maximum rate on earned income from 70 to 50 percent. And if [such saving] were to materialize, it seems to me it would tend to show up in the M2 number. Now, you have projected an increase in the personal saving rate for next year. You mentioned the decline in the increase in nominal GNP--there is an increase of 1/2 percentage point, I think--but there is also a 1/2 point increase in the saving rate projected from 1981 to 1982. So I wonder whether, in fact, we don't need in that broader aggregate to allow for the possibility at least that there is going to be a larger gross flow that makes up the picture of the new economy. Now, I don't think what I say applies to M1-B. There may be some downward drift in the demand function. But it is associated mainly with transactions except for very, very temporary periods such as right now when maybe NOW accounts have some extra money in them as a parking place. I am not saying anything about numbers because I think it is too early to do that, but as we look ahead I think we should take into account not only what Nancy said about a tendency to miss on the M1 versus M2 and M3, but also what the effect of a changing structure of the economy would be on the comparison between M1 and M2 and M3.",506
-fomc-corpus,1981,Mr. Morris.,4
-fomc-corpus,1981,"Well, Mr. Chairman, I am concerned about the assumptions the staff is making with respect to the NOW accounts in 1982 in that they assume that the adjustment is largely behind us. That goes against the experience of the NOW accounts in New England, where it took several years to make the adjustment fully. And it seems to me--",68
-fomc-corpus,1981,"That is an assumption the Committee made rather than the staff, if I may just put in a footnote.",22
-fomc-corpus,1981,"Well, if the Committee made it, I also question that. I would call the Committee's attention to the recent rate of growth in other checkable deposits. In November it was 46.2 percent. In the second week of December, when total M1-B was up $800 million, other checkable deposits were up $2.9 billion. To me, this does not lend a lot of credence to the idea that the adjustment is behind us. Apparently it still does to you, Steve?",103
-fomc-corpus,1981,"Well, yes. I think that particular [development] has another explanation. We are adjusting essentially for shifts out of existing demand deposits into NOW accounts because of the opening of NOW accounts. But the big increase in November and presumably in early December was also associated with the fact that savings deposits, which had been dropping at a 20 percent or more annual rate month-after-month, stopped dropping. And it is not implausible that this is an aspect of the same phenomenon. That is, for precautionary reasons or what have you, people have increased their saving rate as they did in the fourth quarter and some of that money has spilled over into what they think of as the safest form one can find that has a little interest paid on it. The turnaround in savings accounts and the increase in NOW accounts are--in my mind in any event--aspects of the same phenomenon. So I don't take that as evidence that the shift is not over. The only evidence we have that the shift is over, of course, is that the data we got on the number of NOW accounts--my memory may be off in terms of the exact numbers--was that they increased at something like a 67 percent annual rate through May. And the data we now have for May through November at banks, and I think also at other depository institutions but I am not sure about the latter, show an increase in the number of accounts at only about a 12 percent annual rate. So, there has been a marked, clear, and definite [deceleration]. While the increase for the year is about as we had projected in July, though much more than we projected in February, the bulk of it came early in the year. And then there was this marked slowing in the increase in the accounts. We can never say that some inflow isn't [going into] some account that it has taken a person a year to learn about. But given the publicity this past year and given these data, I feel that it is reasonable enough to say that the shift is over. The risk we are open to is the risk that interest rates may get a little lower than the staff is projecting and people may say: ""Well, I'll just put my money in the NOW account, particularly if that interest rate is permitted to rise some, rather than the money market fund. It is insured as a NOW account; it is safe; and what do I care about 2 percentage points?"" Then we would get a sharp rise. But I don't think there will be a shift.",512
-fomc-corpus,1981,"If that happens, then what? I am getting--",11
-fomc-corpus,1981,"I don't think that is a structural shift in the same sense that we were talking about this year. It's a shift, and you probably should accommodate it, but it is a different kind of shift.",40
-fomc-corpus,1981,"Well, there are two aspects that could get us in trouble. One is that it is entirely possible that we could get continued shifts out of savings accounts into NOW accounts. Certainly it would be at a slower rate, but it could be at a big enough rate to have a substantial impact on the rate of growth of the new M1 and perhaps lead us to set too low a target for M1. That is what I am concerned about for 1982.",93
-fomc-corpus,1981,"I wouldn't say that is not [possible]; it is, certainly. MR. MORRIS(?). It is complicated also by people using their NOW account as a savings vehicle--that is, by adding savings to their transactions balances. This would again lead us to way overshooting our M1 targets.",60
-fomc-corpus,1981,"I think the latter, too, is also a real risk.",13
-fomc-corpus,1981,"That is right. There is a risk on that side. But what do you do about the risk that Visa, Master Charge, and a bunch of other money market fund people will introduce sweeping of demand accounts and NOW accounts into money market funds next year?",51
-fomc-corpus,1981,That will only widen the spread between M1 and M2.,13
-fomc-corpus,1981,"It will widen the spread between M1 and M2, but--",14
-fomc-corpus,1981,I think sooner or later we have to recognize that we can't measure transactions accounts anymore. We ought to start looking at other things. I think that is a clear message.,34
-fomc-corpus,1981,"Governor Gramley, I don't want to go on too long on this scene here.",17
-fomc-corpus,1981,"I just want to say a word about credibility and what it means in terms of selecting targets for next year. I think credibility is terribly important. I do think we have improved our credibility enormously but we ought to understand why and what that has to do with the selection of targets next year. We have gone through a two-year period in which the first year M1-B ran way over the target and the second year it ran way under the target. M2 ran over in both years. The fluctuations in the money stock have been greater since October of 1979 than they ever were before; so have the fluctuations in interest rates. And somehow we have come out ahead. I think the reason we have come out ahead is because in the pre-October 1979 period, whenever the System was faced with a choice of erring on the side of opting for a lower unemployment rate and more inflation or the reverse, it opted for the former; and in the post-October 1979 period, we have said we are going to opt to hold the line on prices and take a higher unemployment rate. That is basically what the markets are telling us. That is basically why we have had the improvement in confidence. We have run a much, much tighter policy. So, what we ought to do is try to figure out what sorts of targets we need for 1982 to run the kind of monetary policy we think is sensible and worry less about the announcement effects or the reactions of the financial markets or the public. On M1-B, although Frank has a point that we need to worry about the possibility that demand for M1-B will run over a 5-1/2 percent upper end, I think the bigger likelihood is that we will have trouble holding M1 growth up to 2-1/2 percent because so many of these innovations, which have just gotten started, will continue. So, I would be prepared to live with the 2-1/2 to 5-1/2 percent range [adopted tentatively in July]. And if it runs below, I don't think that is going to hurt our credibility. On M2, though, so many things are happening that to hold to a 6 to 9 percent range runs the danger of having an M2 figure that is again way, way above the target. And I think we could raise that range to 7 to 10 percent or 6 to 10 percent or something like that without doing our credibility any damage at all.",511
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"I share to a great extent what Lyle has just said. It seems to me that we would sharpen this discussion if we were able to agree upon and accept for ourselves certain basic targets related to those objectives that we really are charged with achieving. The two principal objectives we should have are to achieve certain targets of output growth as well as targets for the reduction of [inflation] and concurrently to consider what effect achieving those targets might have on the unemployment rate. Now, for what it is worth, [let me tell you what] our people projected [would happen] if we were to come down on a broad conceptual objective of maybe a 5 percent rate of growth for M1-B in 1982 and 1983--assuming just theoretically that that was achievable by us and assuming a moderate slowing in the growth of federal spending and the tax policy as presently enacted. They projected that fourth quarter of 1981 to fourth quarter 1982 nominal GNP would be something in the vicinity of 7-1/2 percent to 9 percent; real GNP would be 1 to 2 percent; prices as measured by the deflator would be 6-1/2 to 7 percent; and this would result in an unemployment rate of maybe 8-1/2 to 9 percent. And in 1983 if these assumptions were held to, we again would see growth of nominal GNP of 7-1/2 to 9-1/2 percent, with a bit higher real GNP of 2 to 3 percent, price [increases of] 5-1/2 to 6-1/2 percent--that is, a reduction of about another point--and unemployment still 8-1/2 to 9 percent. I don't know whether these objectives are what the Committee would opt for, but it seems to me that it is important, and should be important when we discuss this tomorrow, for us to try to agree on what we think are the tolerable ranges of output growth, what price objectives we would like to achieve, and what unemployment rate we would be willing to tolerate and then try to establish money growth rates that we think would achieve those objectives. Probably some of you would part from the rationale that I am trying to present by saying that money growth does not have a precise effect or even a meaningful effect on output or on prices. I think what seems to be happening on prices is more than a reflection of the whims of the people who are negotiating wage settlements and that it really is a reflection of the reduction in money growth that we have achieved either purposely or otherwise. So, in thinking about these things, I believe we should try to define our objectives and then regardless of how we come toward those--whether it is through money growth control or interest rates--try to agree on what we think are the decisions that would lead to the output growth and price targets that we agree on and the unemployment consequences.",601
-fomc-corpus,1981,"I have three more names on my list. I will not accept any more. And if any of the three on the list--Messrs. Wallich, Solomon, and Black--wish to wait until tomorrow, that would be acceptable. If you have an urge to say something, Governor Wallich is first.",63
-fomc-corpus,1981,I am perfectly willing to wait 'til tomorrow.,10
-fomc-corpus,1981,"Mr. Solomon, do you have an urge?",10
-fomc-corpus,1981,"I just was going to ask you a question if you have the urge to answer. I can understand the case for not including retail RPs and I can understand the case for not including IRA and Keogh accounts [in M2]. I don't understand what the rationale would be, though, if I understood you right, for [not including] institutional money market funds.",74
-fomc-corpus,1981,Because they are more like [components of] M3 than M2.,15
-fomc-corpus,1981,"The average size of those accounts is about $125,000. The average size of accounts of the others is between $12,000 and $16,000. So, there is a sharp distinction in the holder and it is our thought that the holders of the institutional funds would otherwise be putting their money in CDs or market instruments and not otherwise be putting their money in M2-type instruments.",79
-fomc-corpus,1981,"Mr. Black, do you want to--",9
-fomc-corpus,1981,"No, I'll withdraw, Mr. Chairman, until tomorrow.",12
-fomc-corpus,1981,"Okay, we will meet again tomorrow at whatever time--",11
-fomc-corpus,1981,9:30 a.m. tomorrow morning.,9
-fomc-corpus,1981,Weather permitting.,3
-fomc-corpus,1981,"Well, I think we can proceed with the discussion of the longer-term ranges in a very tentative way. Governor Wallich, you were cut off before.",31
-fomc-corpus,1981,"Yes, I was. All I can think about as I look at what we are proposing to do [is whether we are] setting very tight targets. We are proposing to finance a 7 percent growth in nominal GNP, which is all inflation and has a little minus in real growth, with a 4 percent rise in M1-B, [using] the midpoint of the target. In other words, we are relying on a shift in the demand function for M1-B. We are also accepting some base drift that we are carrying over from 1981, which adds to the tightness. But the fact is that we have had base drift from time to time and sometimes in very durable form. And the reason that our policy in the mid-1970s, for instance, now looks so poor is not that the targets were not very tight; they looked extremely tight. But we got an amount of shift in the demand function that made them very loose. The growth of effective money was much higher than we realized. It was again much higher than we realized in 1981. We got a very large shift in the demand function, on the order of 6 percent, which meant that the very modest nominal GNP growth that we got was financeable. So I would say that our main risk is really on the side of getting new additional shifts in the demand function. We have analyzed these and how they work. We have a theory that they come after peaks in interest rates. We can now foresee them institutionally, with the sweeps out of demand and NOW accounts into money market mutual funds. All that suggests that we are going to see, if anything, greater economies in M1 than we have seen in the past and that, therefore, the seemingly very tight targets ex post will not look nearly so tight. One can see the same thing if one looks simply at what is in M1. It does not contain that part of money market mutual funds that clearly serves as transactions balances today, which I think must be quite considerable. And it doesn't take account fully either of the liquidity enhancing effect of the existence of money market mutual funds that people can write one check a month on; that saves them half their normal bank balance in that they can replenish their bank balance in the middle of the month out of their money market mutual fund. So, again, I think one can see that in practice that makes the tight M1 target of 2-1/2 to 5-1/2 percent much less tight than it seems. Now, I think the wide range that we are proposing is all right because there is so much uncertainty here that one cannot operate with a very tight target. We do have to realize that these tight targets probably condemn us to quick, short swings in business. If we follow a tight money supply track and stay on it, interest rates will move up and down sharply. We have not accepted the full decline in interest rates that would have come had we stayed exactly on M1-B, and we didn't because we knew that in 1980 when we came close to doing that we got a very sharp drop but then a very quick snapback. It didn't do us any good against inflation this time by not allowing quite [as] extreme a [shortfall from our] money supply target. Hopefully we will get a more lasting effect. We do need a period of slack in the economy if we want to wind out the inflation. Our problem is whether we are going to bounce back and forth going up and down to the very top peak of the ceiling and then to the floor as a result of these techniques; to the extent that we can avoid that, we clearly should. Now, just a word about M2. M2 [growth] has usually been in line very roughly with [that of] nominal GNP. So I would view with alarm any increase in [the] M2 [range]. It is true that there are some practices [in train] that may make M2 rise abnormally, for instance the IRA and Keogh expansion that may be ahead. But broadly speaking, M2 tends to expand faster in contractions and expands more slowly than nominal GNP in expansions because of the way the fixed rate deposit interest rates compete with market instruments. So, we are going to go through eventually a period of expansion. I would think that would hold M2 down, and I don't see much harm in a relatively tight M2 ceiling. I think the removal of institutional money market mutual funds and addition of retail RPs would be a reasonable adjustment. We shouldn't be in the posture of never mending the structure of our aggregates. Thank you.",946
-fomc-corpus,1981,Mr. Black.,4
-fomc-corpus,1981,"Well, I think the recession that we are in might well be more severe than a number of other people seem to believe. Nevertheless, there is a real limit as to what we can do in monetary policy to cushion the decline. We have tried a lot of times in the past to do this and we have gotten ourselves into a progressively more vexing web of problems in the process. Really, the difficulties that we will have for the next few months are foreordained, so to speak, and inflation is still the underlying problem that we have to deal with. So it seems to me that if we make any significant moves toward trying to accelerate the aggregates, we run a very high risk of reintensification of inflationary pressures and another debacle in the long-term bond markets. That would be very, very bad for some companies that need to tap that market fairly soon and [would lead], I believe, eventually to a deeper recession and more unemployment down the road than we otherwise would have. But there are two issues that I do think deserve some special priorities that haven't been [addressed] in exactly this way by anyone. One is the issue of multiple targets; [the other is] the width of the target ranges. My feeling is that the combination of these multiple targets and wide target ranges quite legitimately raises doubts in the minds of quite a few of our critics about the seriousness of our efforts to control the rate of growth in the money supply. I continue to believe that M1 is the best of the aggregates to target on and I really would prefer to target on that one alone, although I realize I won't get you all to agree with that. Further, I would favor setting a relatively narrow range for M1 and then if we should find that there is a significant change in the demand for money and we can agree that that has in fact taken place--although I share Chuck's apprehensions about that--I think the best way to handle that is with an overt and publicly announced change in our targets. Now, I recognize that there are some technical problems in moving from an adjusted M1 range to an unadjusted range. It seems to me that this target problem is reasonably manageable. Actually M1-B looks as if it will grow about 4.7 percent from the fourth quarter of 1980 to the fourth quarter of 1981, and it seems to me that that should be about the upper limit for 1982. So, I am thinking in terms of something like 3 to 5 percent. But I would want to aim at the midpoint of that and make a determined effort to hit it. That midpoint, incidentally, is the same as the midpoint of the 2-1/2 to 5-1/2 percent range that we tentatively adopted in July.",568
-fomc-corpus,1981,Mr. Rice.,4
-fomc-corpus,1981,"Mr. Chairman, I hope I'm in better voice this morning than I was yesterday. I would like to say a few words about credibility. I agree with most of the varying earlier comments on the importance of credibility. However, it seems to me that credibility has several dimensions--certainly more than one. Many people I have talked to feel that it was the high interest rate policy of the Federal Reserve that caused the current recession and they wonder what kind of institution this is that really wants to cause a recession. On unemployment there are some credibilities involved, too, except that it is negative credibility. In the long run, not necessarily in the short run, we have to take account of this negative credibility. I agree with a good part of Governor Gramley's observation that some part of the current credibility that we seem to be enjoying, especially from the investor community, is based on the perception that we are willing to accept very high rates of unemployment as a means of fighting inflation. However, over time we ought not leave the impression with the public that we are indifferent to high rates of unemployment. It seems to me possible over time to accommodate both the need to fight inflation, which is the primary objective, and to consider as well the effects of our policy on the economy. As to the target ranges for the aggregates for 1982, Bob Black said much of what I wanted to say about that. In the period immediately ahead, i.e. 1982, we should in the process of maintaining our credibility try to ensure that we do not starve the economy for money and that there will be enough money around to provide for a recovery, which we need. Therefore, I would favor narrowing the target range for M1 somewhat. I would favor raising the lower limit of the range from 2-1/2 to 3 percent and keeping the upper limit at 5-1/2 percent. I think that was the proposal made by John Balles. That would tend to keep our performance closer to the target and reduce the possibility that there will be a repeat of this year's performance, where growth of M1 fell very, very short of the target range. If we set the lower limit higher, it would be more likely that the shortfall in money growth would not be substantial. So, I would propose a range of 3 to 5-1/2 percent; and 5-1/2 percent for the upper limit, of course, demonstrates that we are sticking with our policy of gradually reducing the rate of money growth. But increasing the lower band also will reduce the likelihood that we would starve the economy for money during the period immediately ahead. I would also say that we don't want to be too much influenced, in my judgment, by notions of growth in effective money. Particularly we should not be in a position of trying to place too much confidence in our ability to predict shifts in money demand. I think we should concentrate on the money growth that we can measure. With regard to M2, I would stick with the range of 6 to 9 percent that we had set earlier and hope that that range will turn out to be more consistent with the target we set for M1.",648
-fomc-corpus,1981,Mr. Morris.,4
-fomc-corpus,1981,"Well, Mr. Chairman, I think it is ironic that the Federal Reserve has switched to monetarism at the very time when our ability to measure the money supply has eroded dramatically and our ability to differentiate money from liquid assets is rapidly disappearing. And, therefore, the relationship between what we call money and nominal GNP, which is really what we are after, is becoming increasingly unstable. I think we've lucked out [this past] year. We have one target below [our objective] and a couple above and bank credit barely within. I hope we luck out this year, but I wouldn't know what set of numbers--",127
-fomc-corpus,1981,By this year do you mean 1982?,10
-fomc-corpus,1981,"Yes, in 1982. I wouldn't know what set of numbers presented to the Committee would assure us that we will luck out in 1982. We are seeing very strange phenomena in both the numbers that we call money. We had something happen in November that I think has never happened before in a recession. We got a sharp deceleration in the economy accompanied by a sharp acceleration in our money measures. That has never happened before, at least to my knowledge.",94
-fomc-corpus,1981,Let me linger on that point for a second. [Let me ask] our staff experts: Has it ever happened before? The same question has occurred to me. We only have a month and a half of experience--,44
-fomc-corpus,1981,I have not made a thorough research of the past records. I would have to do that.,19
-fomc-corpus,1981,Take all months where industrial production dropped by more than 2 percent.,14
-fomc-corpus,1981,"I don't think any monetarist ever maintained that a 1- or 2-month trend, upward or downward, will have an effect on GNP.",32
-fomc-corpus,1981,"It is more than that, Larry. If you look at M1-B last year, its relationship to nominal GNP is not what one would have forecast at the beginning of the year by any model that I know of. And it seems to me that the situation is going to get more difficult in the future as banks begin sweeping consumer deposits into money market funds. So, it seems to me, Mr. Chairman, that the time is ripe to appoint a new committee on the directive. That committee should be charged with finding some target for monetary policy which is more stably related to GNP than the targets we are currently struggling with.",128
-fomc-corpus,1981,"And if they can't? MR. MORRIS(?). Well, I don't think we ought to conclude at the outset that they can't.",27
-fomc-corpus,1981,Maybe it's currency.,4
-fomc-corpus,1981,It seems to me it could be currency or what is left of it.,15
-fomc-corpus,1981,That is half of it.,6
-fomc-corpus,1981,Currency has become very unstable.,6
-fomc-corpus,1981,Do you think we have given monetarism a fair test?,13
-fomc-corpus,1981,"Well, I think we could have given it a much better test 50 years ago, or 30 years ago, than we can now. Monetarism does require that we are able to measure accurately the money supply. That is absolutely essential to the monetarist approach. And once you take the position that you can no longer differentiate money from liquid assets, you are in real trouble trying to pursue a monetarist course. Now, if we don't find an alternative, then we are suddenly going to shift back to targeting on interest rates. Looking at the short-term options the Committee has been presented with, I suspect very strongly that such a trend is already under way because of the fact that we had a shortfall in M1 in 1981, which we prized because it offset the overruns in the other aggregates. We have an extremely weak economy and for December through March we are presented in alternative B with a target of 2 percent for M1 and in alternative C with a target of zero. Now, it doesn't seem to me that either of those suggests any great determination to give a lot of priority to controlling M1. But there is something in the description of alternative B that makes sense to me. We used to call it around this table ""maintaining prevailing money market conditions."" It seems to me that it says the case for a 2 percent growth rate as in alternative B is that it would be associated with maintaining roughly the present level of interest rates for another month. Maybe I am reading more between the lines than Steve meant to write in there, but that--",320
-fomc-corpus,1981,"Well, he certainly wrote an analysis I am sure.",11
-fomc-corpus,1981,"But the less confidence we have in these numbers, the more we are going to drift back to controlling interest rates. And I would prefer that we find some other option.",34
-fomc-corpus,1981,"May I ask Frank a question very quickly, Mr. Chairman? If we had a shortfall in M1-B this year and we have a weak economy, how does that add up to the conclusion that there is little relationship between the growth of M1-B and output? I think that strengthens the case for the fact that M1-B is a predictor of economic activity.",75
-fomc-corpus,1981,"Well, I would like to see the model that a year ago would have forecast the kind of nominal GNP growth we had in 1981 as being associated with the kind of M1-B growth we had.",43
-fomc-corpus,1981,Which M1-B?,5
-fomc-corpus,1981,"You are invited to St. Louis, my good friend!",12
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"Mr. Chairman, given all that has been said here about the problems with M1-B, I would point out a little arithmetic exercise we did. I had my people go all the way back to October of 1979 and construct from the fourth quarter of 1979 the level of M1-B that we should have in the fourth quarter of this year assuming that we had achieved the midpoints of all the targets that the Committee has had for that whole period of almost 2-1/2 years.",103
-fomc-corpus,1981,Are you are talking about the short-run targets or the long-run targets?,15
-fomc-corpus,1981,"No, the long-run targets.",7
-fomc-corpus,1981,From the fourth quarter of 1979 to the fourth quarter of 1981?,17
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,Two years?,3
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,Shift-adjusted?,4
-fomc-corpus,1981,"Yes. Now, doing these numbers gets a little tricky, but let me just point out for the record that the target level of M1-B that comes out of that exercise is $429.2 billion. The actual level, leaving aside the last two weeks in December, is $428.6 billion, a whopping difference of $600 million. Perhaps things aren't quite as bad as we make them out to be.",84
-fomc-corpus,1981,But do you believe in compensating errors as a basic--,12
-fomc-corpus,1981,"My own view, Frank, would be that the errors over the period haven't been all that big. There has been some luck and there have been some ups and downs, but when you look at the performance of policy over the whole period, I don't think it is all that bad. It could be better, but certainly it isn't something that one has to be ashamed of by any stretch of the imagination. That is where I start from. I am under no illusions, of course, that we can measure M1-B right now. I don't think we can. And I think these discussions about what model would say what really miss the point because in order to have a model you still have to plug in the money supply number to get the GNP out the other end. And quite apart from one's views about monetarism, models, or anything else, there is a legitimate question as to what to put in on the money assumptions. My instinct, however, in thinking about the 1982 targets, is to leave them where they are. In the case of M1, I think the likelihood is great that we will continue to see strong forces working in the direction of a continuation of the so-called downward shift in the demand for M1-B. I don't see those forces lessening; as a matter of fact, if anything, I think they will remain as strong or maybe strengthen further. But even if that is the case, I still have some concern that later in the year the targets that we have for M1-B, even allowing for some further shift adjustment, could prove very difficult to hit if the economy were to pick up the way the staff is projecting, recognizing that there are an awful lot of private forecasts around that would place the economy stronger in the second half of the year than the staff has. So, my point here is that even under the best of circumstances those targets for narrow money, particularly as we get out in the year, will prove to be ambitious. And in fact it may be that the only way they will prove workable in that timeframe is in association with a price performance that is a little better perhaps than is currently being forecast. Incidentally, Jim, what was the CPI this morning?",448
-fomc-corpus,1981,"It is up 0.5 [for November] compared to the 0.4 in October. Food prices rose 0.2, the same as in October. And housing performed very well; it was only up 0.4, and that reflects the sizable increase in the mortgage rate and a 3/4 percent decline in home prices. On average, it is a good report.",81
-fomc-corpus,1981,"Anyway, as I said, unless we get a little luckier on prices, I think those targets could be ambitious even allowing for demand shifts. On M2 I find myself attracted to Governor Partee's comments yesterday. I think there is a possibility that we could see some rebound in savings in the fundamental underlying sense next year. At least as far out as one can reasonably see, cash-type investments are probably going to continue to look pretty good. And I, at least, am inclined to the view that the IRA account could be a bigger factor than most of the discussion around the table has suggested so far. It is very attractive to begin with, but the fact that so many companies are going ahead with payroll deduction plans will make it such a simple thing and so attractive from an ease of transactions point of view that that could really generate some momentum in these accounts as the year unfolds. I must say I am perplexed as to what that means. I might even be prepared to make an argument that IRA accounts don't belong in M2 because they are a much more permanent type of savings than are the other [components of] M2. I get that feeling a little more so when I recognize that it is only the pure coincidence of who is managing an IRA account that is going to determine whether it ends up in the banking system or someplace else. The distinction is pretty arbitrary as to whether a particular IRA ends up as a component of M2 or in a money market instrument of some kind or another. And I would at least raise the question of whether they belong in M2 at all. But if we have them in M2, they alone could create some real problems in terms of the upper limit of the target for M2. That would lead me a bit in the direction that Governor Gramley suggested yesterday even though I am hesitant, to put it mildly, to change any of these targets, although they were only tentatively agreed upon by the Committee in July. That is it.",400
-fomc-corpus,1981,Mr. Keehn.,5
-fomc-corpus,1981,"With regard to M1-B, based on the results for this year as a whole and the expectations for next year, I fail to see any compelling reason to expand the width of the target range. And lacking any compelling reason to do it, in my view we would make a mistake to do that. Therefore, I would be in favor of keeping the spread at 2-1/2 percentage points as it is currently. Lending credence to the credibility theme that any change might be regarded as tinkering at this point, I would keep the spread at the same magnitude. But I would continue the program of restraint, which I think has been effectively established and, therefore, I would be in favor of moving the range down to, say, 3 to 5-1/2 percent. With regard to M2, again given the results of this year--with growth running at or near the top of the range all year long--it seems to me that the relationship between M1-B and M2 this year has [not] been terribly tight. And because of the questions about what is likely to occur next year in the components of M2, which we have talked about a good deal, and the fact that we have established enough press regarding the ""noise,"" if you will, in M2, I think this would be an appropriate time to make a change. Therefore, I would be in favor of maintaining the 3-point spread but moving the range up a bit to, say, 7 to 10 percent as a way of trying to get it back to a more comfortable level for an uncertain year.",328
-fomc-corpus,1981,Mr. Solomon.,4
-fomc-corpus,1981,"We have heard good reasons why a wider range in M1-B makes sense. There is uncertainty due to the innovation in technology impact, which is likely to continue. On balance, weighing the pros and cons, I would leave M1-B where it is. And I would leave M2 where it is rather than raise it if the Committee were to agree that we have to show a greater willingness to make a midyear adjustment if innovation in technology continues to bring about these shifts. It seems to me that there might be some advantage in terms of this famous or infamous credibility problem, in foreshadowing that adjustment in the policy record of this meeting or a subsequent meeting as well as in the Chairman's presentation in February. We can put everybody on notice and give it some concreteness and say it is not just a cop-out. We can point to the divergence between M1-B and M2 and say that if this divergence widened because of innovation in technology, then we would be prepared to make an adjustment in the targets at midyear. I think it would be a mistake for us to shrink from that. If I thought we were going to shrink from that, then I'd say we really should go with Lyle Gramley's suggestion and raise the M2 target. I should add, since I didn't make myself 100 percent clear yesterday, that I strongly support taking IRA and Keogh accounts out of M2. I guess they would go into M3; I am not quite sure whether they would go into M3 or into something else, maybe L.",313
-fomc-corpus,1981,They may even vary L.,6
-fomc-corpus,1981,That is right.,4
-fomc-corpus,1981,"I still have some difficulty in understanding the rationale for excluding institutionally held, corporation held, money market balances in money market funds. The fact that they average $125,000 whereas the average household balance averages $12,000 is logical; one is a business and the other is a household. The motivation or the potential use of it as money--it is liquidity--is still the same. So I am not quite sure I understand fully why one can make that distinction or what the rationale is.",100
-fomc-corpus,1981,"Well, you are treading on delicate questions of what M2 and M3 mean anyway. But I think [unintelligible] the rationale [is that] M2 is more a household kind of liquid asset. And there is no difference between any institutional money market fund and [an institutional] CD, let's say, which is in M3 and not in M2. You'd certainly put it in M3.",86
-fomc-corpus,1981,"But an institutional CD, even if negotiable, does have a fixed maturity. It's locked in for a period of time.",25
-fomc-corpus,1981,"Three months, four--",5
-fomc-corpus,1981,Whereas this money in the money market fund can move in 24 hours.,16
-fomc-corpus,1981,But where does it move to? It moves to a CD or 20-day commercial paper.,19
-fomc-corpus,1981,Or it moves to a checking account to finance transactions.,11
-fomc-corpus,1981,"Conceivably, yes. Mr. Ford.",11
-fomc-corpus,1981,"Before I make my comments, I'd say on that last point that I have heard, but I haven't seen evidence, that a lot of smaller businesses tend to use these money market funds as a demand account. That reinforces Tony's point, I would think. I don't know how prevalent that is but certainly in the partnership areas a number of professionals tell me that they just use their Merrill Lynch account for all the bills of over $500 that they have to pay.",92
-fomc-corpus,1981,"Nobody knows. There is some of that, but I don't think they would tend to be the ones that label themselves institutional funds. These are the Merrill Lynch accounts or Fidelity accounts or whatever.",38
-fomc-corpus,1981,"Yes, maybe they are putting in the--",9
-fomc-corpus,1981,"We are going to undertake a special survey of the money market mutual funds at the beginning of next year, isn't that the timing, Steve?",28
-fomc-corpus,1981,"It might be a little later than that, but it will be early next year.",17
-fomc-corpus,1981,And we'll try to find out what the transaction use is and what the turnover is on them.,19
-fomc-corpus,1981,"Oh, good.",4
-fomc-corpus,1981,We are not going to find out. We can try.,12
-fomc-corpus,1981,We can try.,4
-fomc-corpus,1981,"Well, that then leads into another suggestion I have but first, with regard to M1-B, we feel we can be comfortable with the 2-1/2 to 5-1/2 percent tentative target we announced or with 2-1/2 to 5 percent, either one. I don't think the 1/2 point makes a big difference. I have some sympathy with what Si said, certainly, of not making the range too much wider. Dropping the NOW account adjustment seems to make lots of sense. So, we would say: Let's go from the end of year [and use] the last quarterly average as the base, as we normally do and as I think is recommended in the Bluebook, and go with perhaps the 2-1/2 to 5-1/2 percent range. But we are very concerned about the nature of the innovations that will be coming along, some of which we hope will be at least partly visible by the time of the next meeting. Nancy just mentioned that she thought we ought to do some more research on some of these things such as the MMFs. I would suggest that we gear up either at the Washington level and/or at some of the Reserve Banks to get on top of the IRA developments, because the potential there is tremendous. If you take the number of American households and even if you assume that only 10 percent of them go into a $2,000 IRA, it comes to something on the order of just under $15 billion that could be moved around. And if you assume it is 20 percent or--",325
-fomc-corpus,1981,"I just figured 10 million accounts at $2,000 is $20 billion.",17
-fomc-corpus,1981,"Yes. Okay, there you go.",8
-fomc-corpus,1981,"For sure, President Ford, we are going to be developing and suggesting a data system to capture the flows as much as possible.",26
-fomc-corpus,1981,"Right, [that needs to be done] early on. I would say even before that if there is any way to find out intentions--that might be too romantic for research--it would be interesting to find out not just how many households but obviously the source [of the funds]. If people shift out of NOWs, obviously that is one thing; if they shift among M-2 type assets, then it is less scary. I'd be curious to know whether people are just going to take a large percentage of the funds out of their NOW accounts or whether they will shift out of other M2 assets or whether the funds will come from things outside of M2, all of which have very different implications. I'd just encourage everybody, especially our Washington leadership, to look at the early returns on IRAs.",162
-fomc-corpus,1981,Or [it could] raise the saving rate.,10
-fomc-corpus,1981,That is right.,4
-fomc-corpus,1981,It could.,3
-fomc-corpus,1981,That is what the payroll deduction could do.,9
-fomc-corpus,1981,"While we are at it, if we could find out anything about these sweep accounts, they, too, as a financial innovation have tremendous potential for bombing us on M1-B. So we should take a look at whether among some of the major institutions there really will be an outbreak of virulent competition in that area, which could further put us in the box of having undershoots on the M1-B target and possibly overshoots on M2. What concerns me most is the fact that all year long--while Jerry's calculation was a very elegant one and speaks well for how we actually came out on M1-B--I've had the feeling that we were undershooting one target and overshooting the other. And for the next year we ought to try to figure out a way, if we can, to get out of that box so that we are not always damned on the one side for being too tight and damned on the other side for being too loose.",195
-fomc-corpus,1981,How do you suggest we do that?,8
-fomc-corpus,1981,"Well, if the research supports it and if the early returns on IRAs give any evidence that we should expect M2 to get looser and wider, I'm leaning to the view that we ought to consider just biting the bullet and raising the upper end of that target while doing other things to indicate that it is consistent with a lower or tighter target on M1-B. For example, we might choose a base that involves a little less drift--take the year-end M1-B figure if it happens to be lower than the quarterly average. Or if there is some other way we could start from a lower point, keep it down at 5-1/2 percent and do something which in combination says we are anticipating that M1-B already is going to be overshooting, so we are tightening up in that area and we think financial innovations really are going to make M2 behave in a way that suggests we can anticipate a higher upper end if the research supports it. That is why I hope we [won't] wait until--",208
-fomc-corpus,1981,"Well, I interjected my question because I am not sure the research supports anything. And I am not sure we will have the research that is going to support anything. The nature of the problem is that we don't know.",45
-fomc-corpus,1981,"We can't know, but don't you think we can learn a little about IRAs because by the middle of February we will--",25
-fomc-corpus,1981,"We can learn a little something, [but] experience not only here but internationally suggests that we are not very good at predicting this [kind of development].",31
-fomc-corpus,1981,"Then maybe we have to go to Mr. Morris' idea that we look at some other things, although my thrust in the research would probably be different than his. I'd say, if we are going to reexamine what we shoot for, that we ought to pull out the monetary base and total reserves as possibilities, along with whatever [measures] he has in mind, although those two present difficulties that everybody here has commented on at one time or another. Where we are presently structured, as I see it, is that we are making ourselves subject to the same problems we had this year. And I would be inclined not to give up so easily, Paul, on being able to find out something about the trend in financial innovation. You may well end up being right, but I would want to come down on the research to see if we can find out something about IRAs and sweep accounts at least.",183
-fomc-corpus,1981,"Some information on the payroll plans probably would be the best indicator that we could get, if there is a way to find that out relatively soon. I think that would give us some real indication.",39
-fomc-corpus,1981,"I don't know about the public sector, but our own benefits people are putting it into our plan to make it easy, in line with the comment that Jerry made.",33
-fomc-corpus,1981,"Yes, we are proposing to do that.",9
-fomc-corpus,1981,"It may be that if all other government agencies are going to do that, we might have a big chunk [of employers doing that]. I don't know.",31
-fomc-corpus,1981,I don't think so.,5
-fomc-corpus,1981,Maybe we ought to do a little survey of major employers or something like that.,16
-fomc-corpus,1981,But we don't know what the [employee] reception would be.,13
-fomc-corpus,1981,"We don't know when it would [go into effect] either, do we?",16
-fomc-corpus,1981,Yes and no.,4
-fomc-corpus,1981,It won't be until April or May sometime.,9
-fomc-corpus,1981,We won't know where the money comes from.,9
-fomc-corpus,1981,This really gets murky because people can [wait to put in the] money all the way out until April of 1983.,27
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,They can put it in [then] and get the tax deduction for 1982.,18
-fomc-corpus,1981,I bet a lot of people will borrow money in April of 1983.,16
-fomc-corpus,1981,"Well, I don't think it is useful to speculate on this at great length at this point. Are you finished, Mr. Ford?",27
-fomc-corpus,1981,"Yes, I'm sorry. I just hope you are not right about it, Paul; you might well be right. But I would hate to give up so easily on saying we can't foresee innovation in the financial markets.",43
-fomc-corpus,1981,I don't think we ought to give up on the principle of how to treat these various [monetary measures]. We ought to decide where they ought to be.,33
-fomc-corpus,1981,I agree with that and I agree we ought to do all we can to understand what is going on. Mrs. Teeters.,26
-fomc-corpus,1981,I wonder where the thrift plan is in these Ms?,11
-fomc-corpus,1981,It is harder to understand what is going on.,10
-fomc-corpus,1981,Mrs. Teeters.,5
-fomc-corpus,1981,"I simply want to support maintaining the M1-B target. I have a lot of sympathy with what Frank has said. I think we do need to see whether we can find something else. It may be in between the two ways that we operate but I am not satisfied with what we have. I am really very concerned about the M2 target because we had a 7 percentage point gap between the growth of M1-B shift-adjusted and M2. We got ourselves into this situation where we are below one [target] and at or above the other. I would guess that the midpoint of M2 that is consistent with the midpoint of M1-B at 4 percent is 9 percent so that we are going to find that we will do again what we did last year. If we hit the 4 percent midpoint of the M1-B target, we will hit M2 at 9 percent or above. So it seems to me this is a perfect time to adjust it. We have a history of a 7-point gap. If we aim for a midpoint of 9 percent or thereabouts for M2, that is only a 5-point differential instead of 7, so we are not repeating completely what we did last year. And we'd have a better chance, I think, of staying within the targets and not agonizing all year long about which one is the most important and which one is going over. So, I would associate myself with those who would accept the existing M1-B target, increase the M2 target, and remove the IRAs and Keoghs [from M2]. We don't have a record of changing in midstream, Tony. We have never changed a target.",346
-fomc-corpus,1981,Never?,2
-fomc-corpus,1981,"We never have, from the time we [established the tentative ranges] on down.",18
-fomc-corpus,1981,"That's because we are always afraid our credibility will be injured if we change. But if we foreshadow it--put people on notice that we have a very clear, honest case on innovation in technology--and everybody is aware of it, we can begin to educate people more and make it easier for us.",62
-fomc-corpus,1981,"Yes, but then when we get down to doing it, we always say we won't do it.",20
-fomc-corpus,1981,Or we make another shift adjustment.,7
-fomc-corpus,1981,"We'd rather overshoot than change the target. That is why establishing them in July a year ahead of time is such a mistake. We have no idea what the next year is going to be like. And this is not a very good forecast. As of the fourth quarter of this year, we will be exactly where we were in the fourth quarter of 1979. And if the forecast is accurate for next year, in the fourth quarter of 1982 we will be exactly where we were in the first quarter of 1981. That is really a galloping economy over two years!",120
-fomc-corpus,1981,Mr. Winn.,4
-fomc-corpus,1981,"I would like to join the chorus of those who are calling for a re-examination of these measurements because I think we are just playing mumbo-jumbo with the numbers game now. I think we can do a better job of providing measurements of what money is all about. And until we do that, Fed targets don't make much sense to me because we just explain them away by all these deviations. In Columbus, for example, our money market fund clearings have gone from 25,000 a day to 115,000; that gives you some idea of the kind of activity that is going on in that area. This is the Merrill Lynch clearing setup. And here is a backward way of getting into that measurement.",145
-fomc-corpus,1981,That is the number of checks or--?,9
-fomc-corpus,1981,On the money market funds.,6
-fomc-corpus,1981,It certainly is the most active.,7
-fomc-corpus,1981,"I think we have to get on with the measurements. [As for] Frank's point on seeking other measurements, unless we have some measure of the reserve base or something else, we don't really have reserveable assets involved in the money concept. I just think we must get on with an attempt to remeasure some of these magnitudes. They may not be very accurate, but they are a lot better than reaching in the dark for some numbers that really don't mean anything. And then if we don't hit them, we explain it away because of all these deviations. In view of that uncertainty, I would prefer to stay right where we are with these targets but to get on with the recalculation of some of these numbers. Unless we do that, we won't have any way of establishing a reserve basis for these items. We are playing more and more an inequitable game in terms of those who participate in the conventional forms. It just behooves us to get on with the problem of measurements. I don't think we have any real basis for our shift adjustment; it [involves] numbers that we had some time ago but I don't think those are accurate. I urge that we get on with the problem of a re-examination of these targets.",251
-fomc-corpus,1981,"Well, instead of urging, I would suggest that if you have some practical way of going about this, reduce that to a piece of paper and tell us.",32
-fomc-corpus,1981,"Yes, I will make an effort.",8
-fomc-corpus,1981,Mr. Boykin.,5
-fomc-corpus,1981,"Back to the credibility problem: In terms of the long-term ranges, it seems to me that the tentative ranges that we have published and that have been discussed and seem to be understood on the outside probably should not be changed at this point simply because I don't think we know enough to improve that in any way. I am not saying they are the best; I doubt that we know what is the best right now. But M1-B and M2 at least as of midyear seemed to be giving more consistency in terms of a relationship. Whether that will hold up remains to be seen. I think we should hold to [seeking] a gradual reduction [of these ranges] over time; it's a perception that I still think is very important, particularly to those who are less sophisticated, and we should hold to that. What is actually going to happen with regard to the innovation that is coming is mere speculation on our part, as we can tell from going around the table here. And I agree very much with Tony Solomon that the time to make an adjustment is when we have some pretty firm facts or a basis for doing it and doing it in a supportable way rather than by conjecture. The idea of giving the first signal that this will be rethought has a lot of appeal to me. I don't think the fact that we have never made a midyear shift should [mean] that we never would, if the facts are there and a change is supportable. So, I would be inclined to stay where we said tentatively we were going to be and let events unfold; and I'd be ready to make adjustments or changes in definitions, or whatever will be necessary, but based on more knowledge than we have now.",347
-fomc-corpus,1981,It is not just a midyear shift; it is a mid-18 month shift or any shift in announced ranges. We just don't do it.,30
-fomc-corpus,1981,"Well, whether we do it at midyear or do it before then or after, it seems to me that it would be incumbent upon the Committee to reach a judgment and make a determination when the facts support it, whatever point in time that is.",50
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"I have just a couple of comments, Paul. I share Frank's frustration on knowing what money is these days. He proposed a new Committee on the directive. A couple of months ago I think I spoiled Steve's whole day by suggesting that maybe first and foremost we needed a major restudy of the monetary aggregates. And that is why I was so glad to hear Governor Teeters say that we are going to do something about money market funds early in the year. Could I ask a little more about that? For example, Steve, we know that some of the investment houses are arbitrarily adding to observed M1-B either 10 percent or 20 percent of money market funds on the assumption that some of these must be transactions balances. I would like to ask the question whether our look-see is really going to zero in on what percentage of these [funds] are turning over at the rate of normal transactions balances. I think we really need that kind of study before we need a Committee on the directive, Frank.",205
-fomc-corpus,1981,"That is our hope. In response to a Board discussion, we are in the initial stages of outlining a one-time survey; whether it will be a sample or complete [coverage] we are not certain yet. For the money market funds, we have attempted to determine in more detail than we now have the various characteristics of the account: the ownership, size, turnover, and other [characteristics] we may think of. We would expect to have a draft of the survey in a few weeks to bring before the Board. That is the stage where we are now and we hope to have it in the field relatively promptly. Whether it could be done and accomplished before the February meeting, I don't know; that seems like a very tight schedule, but we are trying to [meet it].",158
-fomc-corpus,1981,"Steve, I am fascinated by Willis' observation. Can we get at some of this from the clearings [data]?",24
-fomc-corpus,1981,"Well, we have data on some of this and we have done some analysis, good or bad, that takes as its point of departure how many checks, the value of checks written, or the value of turnover and says: If that is representative of a transactions account and has a normal turnover of an individual's checking account, x amount of the money market funds are like M1. And it came out to about a little less than 2 percent the last time we--",94
-fomc-corpus,1981,"It was 4 percent, Mr. Chairman.",10
-fomc-corpus,1981,"Well, 4 percent of the money market funds, but adding 2 percent or a little less than 2 percent or a little less than 1 percent is a very [unintelligible]. There are all kinds of questions that can be raised about the methodology. There is some turnover to savings accounts that we don't put in at all; there is some turnover to CDs that we don't count at all. On the other hand, it makes no allowance for the fact that if somebody owns a money market fund, even if he doesn't write any checks on it or doesn't take the money out except rarely, the fact that he has it and knows he can write a check on it induces him to hold a lower cash balance than he would otherwise keep. Now, how do we measure that? I think it is basically immeasurable, and it is undoubtedly there. We have a spectrum of assets and we are trying to draw an arbitrary line through it and say this much is M1 and that much is M2 or M3; in fact the arbitrary line doesn't mean anything because it's a spectrum. I understand the frustration. We ought to know all that we can know about it; but in fact we are dealing with a spectrum and there isn't any answer. Nothing is going to fall neatly into what is M1 and M2 and M3. We'd have a little trouble if we sat around this table trying to rationalize the distinction between M2 and M3 and M3 and L. Any sense that after that discussion we're going to get a clean, conceptual difference between these Ms I'm afraid is an illusion.",324
-fomc-corpus,1981,But the troublesome thing about the money market mutual funds is that the data we're getting on low turnover and all the rest goes against what all of us hear that people are using these funds as checking accounts. My own sample indicated that 99 percent were using them as checking accounts.,55
-fomc-corpus,1981,"Well, that's the problem with turnover. One of the ways that people use the money market mutual funds is that they write a check at the end of the month against them and put it in their checking account and then write 20 checks against the one check. And if you just measure turnover, you get one check.",64
-fomc-corpus,1981,But it's a big check in that case. The only explanation I have for the phenomenon that I think you correctly observed is that it is a mixture. A large portion of that is basically savings or investment in the broader sense. Some fraction of it is transactions accounts. That is the nature of it. M1 is only $400 billion and M3 is $2 trillion or whatever it is. And money market funds are an indistinguishable blend of the two.,93
-fomc-corpus,1981,Then what do we do when everything becomes money market funds?,12
-fomc-corpus,1981,"Precisely, we don't know. I am saying that I think it's a little difficult, however much study we give this, to say we're going to come up with a number that says this portion of it is M1 and this portion of it is M2 because it doesn't come that way. It doesn't come in that kind of package.",68
-fomc-corpus,1981,It doesn't have to come into the money market fund. Merrill Lynch lets you draw checks against your securities and puts the money into a bank account that has a money market fund associated with it; that fund is up to $12 billion now. You can draw a check for fifteen cents.,57
-fomc-corpus,1981,"Well, I am not arguing at all over this; obviously, we should get as much information about this phenomenon as we can. I just think people are suggesting more than is practically feasible to say that we are going to have some great study and somehow the numbers are going to come fluttering down and on this half of the table they are going to be M1 and on the other half they are going to be M2.",86
-fomc-corpus,1981,"I couldn't agree more, Paul. It is very analogous to our difficulty in dealing with savings accounts over time. Savings accounts have more turnover than money market funds and yet we never put any portion of savings accounts in M1. Indeed, we didn't even blink an eye when [depository institutions] went from interest figured on the minimum balance to interest from day of deposit to day of withdrawal, which was a big change in savings accounts. We never did a thing about it. I don't think we have ever handled the notion of savings accounts at all well in research that I can recall, extending back into the 1950s, in terms of what to do with savings accounts and how to treat their ""moneyness"" in looking at monetary expansion. So, I think it is not really the turnover but [their use as a] backup that's terribly important. The difference between a money market fund which you can have immediate access to and an IRA account which you can't draw on until you're 59-1/2 years old is really phenomenal, and yet they are both in M2.",219
-fomc-corpus,1981,"Well, let me just inject a thought on IRAs. Conceptually, the argument is very strong, as I see it, to take those out of M2 on liquidity grounds. But suppose we went ahead and did that. What we don't know is how much money is going into IRA accounts that otherwise would have been in M2 or is already in M2, so we'd get an artificial deflation of M2 in an attempt to improve the figure. In some long run sense it probably would be an improved figure, but it is not going to help us in 1982 in understanding M2, I suspect.",125
-fomc-corpus,1981,You'd turn it into another M1-A.,10
-fomc-corpus,1981,You'd have a shift-adjusted M2.,10
-fomc-corpus,1981,"That's inherent in almost anything we look at. Where's the money coming from, right?",18
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,It can't stop us from--,6
-fomc-corpus,1981,But this is a reflection of a change in law. It's like the M1 adjustment problem.,19
-fomc-corpus,1981,It's so clearly understandable by everybody that there's a rationale for taking it out.,15
-fomc-corpus,1981,I'm not arguing against taking it out. I'm just arguing against the notion that it will give us a clean analytically nice figure when we take it out.,31
-fomc-corpus,1981,"Mr. Chairman, one more observation: I'd just like to remind you that back in the mid-1970s we had one of the several Committees on the directive--some of us at this table served on it--chaired first by Bob Holland and later by Chuck Partee. We took a long, hard look at optimal control, working on the ultimate variables and not using money as the intermediate target. And the net of that was a dry hole. It just didn't prove to be doable in practice. So, despite all of our frustrations about what money is, how it behaves, and what should be in M1 and M2, it is still the only game in town as far as I am concerned. Some of the academics--and it is a real minority--are urging us to target on real interest rates or to target on nominal GNP. They get little, if any, support from their peers. That came out loud and clear in this recent academic conference that I mentioned yesterday. Despite the frustrations about the money supply--will the real money supply please stand up!--I think it's the only hope we have.",228
-fomc-corpus,1981,"With that comforting thought, Mr. Boehne.",11
-fomc-corpus,1981,"Taking into account all this frustration, uncertainty, and credibility, which I don't think I can add to after this dinstinguished discussion, we still have to set some targets for next year. I think John is right that we still have to deal with these. I come down for lowering the M1 range to 2-1/2 to 5-1/2 percent, which is what we tentatively agreed on in July. And I am sympathetic to the notion of raising M2. It does seem to me that we ought to make these as consistent as we can. I don't think it adds to or subtracts from our credibility if we make an adjustment in M2 to make it consistent with M1. So, I would favor such an adjustment.",154
-fomc-corpus,1981,Governor Partee.,4
-fomc-corpus,1981,"Well, just so we have everything in front of us, I also would like to point out that there is the problem of choosing the base in doing next year's targeting. We've rather easily slipped over the fact that there was a considerable shortfall in M1-B this year. In fact, Jerry had an interesting explanation for it--and I think it's something we ought to work on--that involves a 2-year look at the expansion of M1-B. But there are a good many people who have been greatly afflicted by high interest rates and poor business and bankruptcy who won't quite understand why it is that we just disregard the shortfall entirely and go on and assign the same old lower growth rate to M1 in the year to come. I think it is a very serious problem that we have to deal with in explaining, if that is what we want to do, why it is what we want to do. Most people would say we ought to add our shortfall in 1981 into the 1982 expectations.",205
-fomc-corpus,1981,But last year didn't you accept the base drift in Ml?,12
-fomc-corpus,1981,"Yes, but it didn't involve bankruptcy the way it does now. I am talking about builders and realtors and people like that who just aren't going to understand it and quite a few Congressmen who already have begun to focus on this issue in looking at 1982.",54
-fomc-corpus,1981,"Chuck, what do you do with M2, then?",12
-fomc-corpus,1981,"Well, I think most people would regard M2 as a very much lesser target of policy. That hasn't been the emphasis at all, for a very good reason in my view. Of course, we differ on that, but it is a problem we have to take into account now. It happens to be most pointed in this particular Bluebook because in this Bluebook we have the sense--and it was referred to earlier, I think, by Frank in a somewhat negative way--that we have a year in which we've fallen progressively short in M1-B and we finally got 2 or 3 months that are up. October was a normative or maybe a slightly more than normative month; November was a little strong; and December is another sort of normative month. But choosing the fourth quarter as the base means that December is above the fourth-quarter average so that when we ask ""How are we going to be on track for the first quarter?"" we get very low money rate objectives, and everyone notices that. [Growth] is only 1/2 or 2 percent, depending on which alternative one takes; the fact is that it is very hard to explain. We are still below target and now we are talking about getting down to the new target in this very meeting, in the second part of this meeting that we are going to have. It seems to me that's a very [unintelligible] representation of the problem we have.",290
-fomc-corpus,1981,"Chuck, doesn't the law say that we have to use the fourth quarter as a [base]?",19
-fomc-corpus,1981,"No, the law doesn't say that. It says the year.",13
-fomc-corpus,1981,"I would observe in this connection that I like to look at a somewhat longer perspective than these fourth-quarter [measures]. This doesn't deal with the short-run problem of what to do when we have a sudden increase such as we have now. We end up with a high December and all the rest. But on an annual basis the table on page 6 [of the Bluebook] in a sense is another way of looking at what Jerry Corrigan was looking at; it overlaps, anyway. If you look at these annual [growth rates] year over year, which are the number 2 figures here, [for M1-B] it's 8.2 percent in '78, down slightly in '79, down more in '80, and down more in '81. It's a fairly smooth pattern, though you can argue that it's too much, too little, or whatever. But it doesn't give that extreme movement we get with the fourth quarter figures because that reflects the obvious; in fact we started high this year and ended up low [given] the declining trend during the year. Last year we did the opposite. When you average through the 12 months you get a reasonably smooth pattern.",241
-fomc-corpus,1981,"Well, if we wanted to take that 4-1/2 percent [year-over-year growth] for '81 and have, say, 4 percent for '82 for the annual average, I think we'd find that the quarterly growth rate would have to be quite a bit more than that.",60
-fomc-corpus,1981,"Steve has done that calculation. If I understand it correctly, if we stayed exactly on the target quarter by quarter at the 4 percent midpoint of this tentative range, the annual average also comes out to 4 percent.",44
-fomc-corpus,1981,"Yes, it's tricky because that's the actual M1 not shift-adjusted over last year's regular M1, so it works out fortuitously that way.",31
-fomc-corpus,1981,But what's the meaning of that? It comes out considerably higher if you measure the actual M1 in '82 over the shift-adjusted in '81.,31
-fomc-corpus,1981,"No, in '81 the year over year not shift-adjusted so-called M1 grew [6.9] percent, so we would get that going down to 4.0 percent. And the shift-adjusted M1 grew 4-1/2 percent, and we get that going down to 4.0 percent. So we really are getting a year-over-year drop.",79
-fomc-corpus,1981,I see.,3
-fomc-corpus,1981,"I'm not sure I fully understand how we come out on the number 2 basis but any way we do it I take it that if we stayed on path, we'd come out with another drop year over year on this tentative target.",46
-fomc-corpus,1981,"If it was exactly a 4 percent increase month by month after the first quarter, with a little slower growth in the first quarter, it would come out at 4 percent on this measure.",39
-fomc-corpus,1981,"I wonder if anybody has noticed how beautifully we have come out by way of the performance of nominal GNP in terms of deceleration. Page I-V in the Greenbook shows the fourth-quarter changes. Starting from 1979 it shows 9.9 to 9.4 to 9.1 to 8.6 percent. Now, that is about as good a target for nominal GNP as one can possibly imagine--fortuitous, but very well balanced.",96
-fomc-corpus,1981,"Where am I here? Has everybody said all they want to say on this particular subject? I am not sure I heard an enormous range of opinion on the targets themselves. There is some disagreement about what to do with M2. I have a great deal of sympathy with the subject that Frank particularly emphasized and others have too. I must say I have a great deal of sympathy with the frustrations in defining the numbers and knowing what they mean. I don't extend my sympathy to a great antipathy about or not worrying about interest rates. I think that is the obvious modification that one might introduce into our procedures in the absence of some magical other statistic. I think we have had a problem with interest rates. If anything, we probably should have paid more attention to them rather than less, I'd say. That's a personal reaction anyway. It certainly is not driving me back to being more precise about numbers that I don't understand. Let me give you the nature of the problem that I see in M1. I think some day, conceptually, if we didn't have any statistical problems, this demand shift that we keep talking about might go in reverse. If people had more confidence in the currency and lower interest rates and we got interest rates paid on transactions accounts that would be by regulation or in practice much closer to market rates, we might find some day that we had to have a decidedly faster growth of M1 relative to nominal increases in GNP or other magnitudes. I don't think we are there yet. But some day that is going to happen. Apart from that, what do we say about M1 next year? I could see it repeating [this year's experience] as some people have said, but it could go either way so far as I know, for purely institutional reasons. If interest rates continue to decline, if the economy were somewhat on the soft, depressed side, if the ceiling rates go up on transaction-type accounts, we might get a big expansion in M1 relative to what we otherwise would contemplate or relative to past patterns because of money flows, particularly into NOW accounts, that otherwise might have been lodged elsewhere. [That assumes] we don't get the aggressive competition from money market funds, we have a [markedly upward sloping] yield curve, and short-term rates are getting down toward what institutions can pay. On the other hand, if interest rates remain relatively high, which might occur with a fairly strong economy relative to projections, we could get a great spread of sweeps into money market fund accounts, with practically every bank in the country offering that service. M1 could get very depressed relative to other economic magnitudes. I don't know which way it will go. We all want to be very precise about the money supply target and that's fine. The effectiveness of that target may be more altered by a decision that we have to make as to whether we are going to permit sweeping of accounts or not than by the decision we make as to where to put the precise target. We have to face that decision, which will be a very difficult one. But I think we probably will have quite a different situation if there is no sweeping than if this [practice] catches on like wildfire. There was something in the paper this morning about the Fidelity fund being all set up to do this with a large group of Midwestern banks. I don't know what the implications of that will be but I suspect things will be different whether it's permitted to take place or not to take place. I have a rather strong bias under these circumstances not to be more precise than we really can be in setting the targets and not to put all the weight on one monetary aggregate either because I find it very useful to look at more than one, whatever we say about the targets, in trying to understand what is going on in these very complex and difficult circumstances in which we live. On the substantive side, where I think greater problems lie, we may have an insoluble problem. It is not impossible and may even be likely, apart from the short-run question, that we will have the immediate problem of a recession and not want to aggravate that and want to facilitate recovery and all the rest. In that process, I don't think we can forget about what happens when the economy turns around and begins to rise again. If it does, we will just run into another blank wall on sharply rising interest rates--with precipitous increases in money market rates and long-term rates, not just reflecting what is going on but in anticipation of budgetary deficits and economic recovery and restrictive monetary policy--and I'm not sure we will have served the country well. We have to think a bit about strategies to minimize that possibility; we can't eliminate it. The reason the problem may be insoluble is that the only way we are really going to deal with this, I suspect, apart from the budgetary consideration, is to convince people that we have a hold on inflation and have created a climate in which interest rates, particularly long-term rates, will tend to go down. But how do we create that climate and that expectation without in some sense risking being overly tight in the short run? And because people are so skeptical about whether that is going to happen, the long-term rates won't come down fast enough to facilitate the recovery we want. To what degree can we overcome that by being ""easier"" in terms of the money supply? Maybe that will scare people even more and work against the objective of creating a climate in which interest rates aren't going to bounce up again as soon as the economy turns around. I am not entirely discouraged about this because I think, particularly starting where we are with interest rates so high, there is a possibility that confidence will return more rapidly than we could imagine now. So we could get a situation where the economy could turn around consistent with declines in interest rates, if we can get the economy turned around at all. But I think that is the chance we have to play for. Well, I don't know that we are going to be all that far apart in the mechanics. On this question that Governor Partee raised, we could broaden that a little as to whether there is any better way of presenting our targets. How we deal with base drift is one aspect of that. I don't have any brilliant suggestions but it may be worth a little further thought. We have to deal with this immediate problem in setting the short-run target. I don't know that we can go any further on the discussion of the long run. This has been useful in some ways. We will obviously return to it and will have to resolve it in early February. Why don't you present the short-term issues, Steve, and then we'll have a coffee break.",1346
-fomc-corpus,1981,"If I might take a minute before I do that, I did look up the answer to the question that President Morris raised of whether we have ever had rapid growth in M1, such as the 4-1/2 percent rate of growth we are having in the fourth quarter, with a marked deceleration of the economy, where it is going down as it is this quarter at a 5-1/2 percent rate. There are a surprising number of quarters of negative growth in the economy and positive growth in money--I am talking about on a quarterly average basis. There were even quarters where we had a deceleration and then an acceleration of money, surprisingly enough. For example, in the second quarter of 1979 real GNP was [minus] 1-3/4 percent after being plus [3.9] percent in the first quarter, and money growth went from 5-1/2 in the first quarter to 10 percent in the second quarter. Similarly, in the the first quarter of '74 real GNP had dropped at around a 4 percent annual rate after rising at a 3-1/4 percent rate in the fourth quarter of '73, and money growth accelerated from 4.8 to 6.7 percent. So it is not an extremely infrequent occurrence that something like that happens and, of course, we are aiming at it this time.",285
-fomc-corpus,1981,Money is supposed to lead the economy with a long and variable lag.,14
-fomc-corpus,1981,This is only quarter to quarter. I didn't trace out the averages. I was just responding to the question.,22
-fomc-corpus,1981,The examples you gave were all relatively recent.,9
-fomc-corpus,1981,But it's even the case going back.,8
-fomc-corpus,1981,"I wonder, Steve, if you compared the quarterly rate of money growth to the trend rate, if there is any instance where we had two quarters of M1-B growth falling below the trend rate where we haven't had a significant downturn in economic activity.",50
-fomc-corpus,1981,"Well, that is a different question. I was just responding to the question that President Morris raised of whether within a quarter we had had this kind of movement. Our observation is that it's not as rare as one might have thought it would be. Mr. Chairman, we designed the short-run alternatives on the basis of the tentative range of 2-1/2 to 5-1/2 percent that the Committee had set for M1-B and on the basis of the Committee's previous practice of, in effect, shifting the base to the actual level of money. Alternative A was designed to hit the upper end of that 2-1/2 to 5-1/2 percent range, alternative C to hit the lower end, and alternative B to be in between by March. It is a fairly mechanical setting of the ranges. Thus, from the fourth-quarter average that we suggested as a base, the growth rate for alternative A is 5-1/2 percent, the upper end of the range. That [took account of] how the Committee has set short-run ranges before. Our thought was that December as a base is somewhat unstable because we don't know the number yet. If it did come out as we are projecting, the implied growth rates are so low that they raise the possibility of being subject to some misinterpretation when put out in the directive. An alternative way of doing it would be to make the base November, which the Committee has done before, and the growth rates for alternatives A, B, and C would be about 0.3 lower. That is, the 5-1/2 percent with November as a base would be 5.2 percent to hit the upper end of the range; and that 0.3 would extend across all of the other alternatives. That, as I say, the Committee has done one time before.",382
-fomc-corpus,1981,"That would be November-to-March then, Steve?",11
-fomc-corpus,1981,"Yes. With regard to the implications of these alternatives for credit markets (and assuming less of a demand shift, so to speak, than took place in 1981) our analysis suggested that the odds were--unless the economy was considerably weaker than is being projected--that there would be not much room for further interest rate declines under either alternatives B or C, which call for really quite modest growth in money consistent with the Committee's long-run range. Under alternative A it looked to us as if there was more of a possibility for declines in interest rates given the GNP projection. So, in a sense, one way of putting it is that the Committee's choice would be to set a target depending on how it tends to lean in its attitude toward credit markets at this time, before the recovery has started. To the degree that the Committee wishes to give a little impetus to easing in credit markets in order to encourage the recovery, that tends to argue, of course, for the more liberal [fourth quarter to March] alternative within the Committee's range. To the degree that the Committee would want to leave more room for expansion later and believes the recovery has enough momentum and can turn around on its own, that tends to argue for an alternative of lower growth, leaving a little more room later to finance the expansion as it develops. I should mention one other point, Mr. Chairman, with regard to the borrowing assumption. We have assumed borrowing in alternative B of around $450 million, which is a little higher than we have actually attained in recent weeks. Again, to the degree that the Committee wants to lean toward a little easing in credit markets in setting its monetary target, consideration could be given to lowering that more toward the levels of borrowing that are suggested for alternative A, which would be around $250 million. That leaves a range, obviously, in between.",374
-fomc-corpus,1981,"Let me make a couple of quick comments just in terms of presentation. I am not crazy about that first alternative in the Bluebook, [shifting the base] from a quarterly average to a monthly number. That looks a little awkward to me and I recoil a bit. I don't like the December-to-March approach particularly because we don't yet know December. It seems to me we have done that before and then gotten mixed up by the fact that December, or whatever the last month in the quarter was, didn't come in the way we expected. This leaves me thinking that maybe the November-to-March method of looking at it is the most fruitful. This is just arithmetic in presentation. On the substance, I find myself thinking these numbers mean something quite different if in fact we continue to get sizable growth because NOW accounts are bulging--and we don't quite know why but it may be [related to] this interpretation of a temporary parking place--than if NOW accounts are not bulging the way they have been in the last few weeks. I guess that's all I have in the way of preliminary comments. Why don't we have coffee.",228
-fomc-corpus,1981,"Let me make one other comment just to set the stage for what we're talking about and to give us a due sense of humility. If I recall the discussion correctly at the last meeting, I don't think anybody around the table--I certainly speak for myself--had any conviction that, almost regardless of what we did, we were going to have high money supply figures in the period from the last meeting to this meeting. Everybody was worried that whatever number we put down we might fall way short even if interest rates declined. Instead, we had interest rates tending to be under a little more pressure in the money market and the money supply figures moving significantly in excess of the target we put down. I don't think that is a tragedy. I am just saying that is an indication of the [limited] degree of precision that we have in setting the target for a one-month period; whatever effects there will be on the money supply in the next month are probably already [determined] in the market, rather than by what we do today. But we are setting a money supply target here for a quarter. Let's proceed with the discussion. Is there a general agreement that we ought to use November as a presentational base? SEVERAL. Yes.",248
-fomc-corpus,1981,It may just make it a bit less confusing if we--,12
-fomc-corpus,1981,"Paul, how would that influence the money growth numbers?",11
-fomc-corpus,1981,"Well, it's just what Steve said. If you're looking at the fourth quarter-to-March numbers, take off 0.3 to get the equivalent number on M1. I don't know what it does--",42
-fomc-corpus,1981,"On M2 the numbers are 9.8, 8.9, and 8.1 percent.",23
-fomc-corpus,1981,Those are the equivalent numbers?,6
-fomc-corpus,1981,Those are the equivalent numbers according to our calculations.,10
-fomc-corpus,1981,Let me just write those down.,7
-fomc-corpus,1981,Say them again.,4
-fomc-corpus,1981,"Taking the November base to March, for alternative A M2 is 9.8 percent, alternative B is 8.9 percent, and alternative C is 8.1 percent.",38
-fomc-corpus,1981,How about M1?,5
-fomc-corpus,1981,"M1, as Steve said, is 5.2, 3.7, and 2.2 percent.",25
-fomc-corpus,1981,Right.,2
-fomc-corpus,1981,Mr. Solomon.,4
-fomc-corpus,1981,"What I would recommend, Mr. Chairman, is taking the November base and liberalizing alternative B somewhat by rounding up the 3.7 to 4 percent. I'd start with around $350 million of initial borrowing and lower the fed funds rate range by 1 point, which would bring it down to 10 to 14 percent or we could use 10 to 15 percent if we want to go back to the 5-point spread.",90
-fomc-corpus,1981,"Tony, the 4 percent is the quarterly average? Is that what you're explaining?",17
-fomc-corpus,1981,"No, it's November to March.",7
-fomc-corpus,1981,"Which is a liberalization of ""B.""",9
-fomc-corpus,1981,"You're saying make the fed funds range 10 to 15 percent, Tony?",16
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,Or 10 to 14 percent.,8
-fomc-corpus,1981,"Either 10 to 14 or 10 to 15 percent, I don't care. There's some advantage in changing that range from time to time whether it's 4 points or 5 points. I don't feel strongly about that. But I do think the lower end of it ought to be lowered by 1 point and that the initial borrowing ought to be around $350 million.",76
-fomc-corpus,1981,Sounds like a Solomonic judgment!,8
-fomc-corpus,1981,I'll vote for that.,5
-fomc-corpus,1981,What was your M2 number?,7
-fomc-corpus,1981,"Well, the M2 number then becomes around 9 percent. It's 8.9 percent technically, but if we round up the 3.7 on M1-B to 4 percent then it would be shading M2 to a little more than 9 percent.",55
-fomc-corpus,1981,Mr. Gramley.,5
-fomc-corpus,1981,"I'd like to say first that I don't think anything we do here today is going to help this recession come to an end soon. It's going to run its course for a while. I do believe that if we are not careful in the selection of where we go, we could draw out the recession and make it longer. Therefore, I want to avoid any alternative that would result in rising interest rates at this stage. I think that would be a grave mistake. What we ought to be aiming for is to set the stage for a recovery later this spring but one of moderate dimensions. We ought to be very careful to avoid the kind of problems we got into in 1980. I'm cognizant of the enormous uncertainties we face in interpreting the monetary aggregates, not only in the long run because of these tremendous innovational changes but also the point you made earlier, Mr. Chairman, that we have something going on here in the OCD area that we ought to be awfully careful with. I would opt for alternative B. I could live with a somewhat lower borrowing level, but $450 million or $400 to $450 million is acceptable. I would say, however, that in addition to adopting the specs of ""B"" for growth rates of M1 and M2 we ought to be willing to live with a larger increase in M1-B if it results from the kind of increase in OCDs we've been seeing recently, which we have a reasonable basis for interpreting. This parking of funds while there is uncertainty is clear.",306
-fomc-corpus,1981,"Just as a matter of clarification, when you say ""B,"" are you willing to accept something like Mr. Solomon's [numbers]?",27
-fomc-corpus,1981,"Yes, that's all right; I would go with that.",12
-fomc-corpus,1981,"You know that when we set something and accept a higher amount that it has the effect, really, of pegging the funds rate. Is that what you want?",33
-fomc-corpus,1981,I tried not to use--,6
-fomc-corpus,1981,He doesn't want interest rates to go up.,9
-fomc-corpus,1981,"Well, I think there's a difference of view among the technical people as to whether initial borrowing of $350 million means a lower rate or the same rate as we've been seeing lately. Borrowings have been running on average less than the $450 million. We might ask both Steve and Peter to comment on what they think the implications are.",67
-fomc-corpus,1981,"We've assumed in the Bluebook that if the path were $450 million and it was successfully hit, probably there would be some little upward tick in the funds rate, but maybe not a lot. I would assume that $350 million at a minimum would probably avoid that; whether that would cause the funds rate to drop initially, I feel more agnostic about.",72
-fomc-corpus,1981,"I wouldn't disagree with that. I would tend to think of something like $250 million of borrowing as perhaps likely to keep the funds rate just around the discount rate, $350 million maybe 1/4 percentage point over it, and $450 million a little more--maybe 1/2 point--over it.",64
-fomc-corpus,1981,To what extent does the discount rate act as a floor?,12
-fomc-corpus,1981,"The discount rate becomes a kind of anchor around which the funds rate clusters once there's enough borrowing to make that discount rate meaningful. If there's so little borrowing that a great majority of banks hardly ever [come to] the discount window, then the discount rate isn't too meaningful and we fall into this zone of indeterminacy. I don't know whether it's $200 or $250 million or what, but once there's something like that level of borrowing then there will be enough borrowing so that the discount window is a meaningful alternative that a number of banks want to avoid; they will be willing to pay the rate in the funds market rather than come to the window. And the more of that borrowing gap there is, the more demand for funds there will be by banks that want to stay away from the window; so, they'd be willing to pay up a little higher in order to stay away [from the window].",180
-fomc-corpus,1981,Mr. Black.,4
-fomc-corpus,1981,"Mr. Chairman, I find very little to disagree with in either Lyle's or Tony's statement, and since it sounds a little poetic I'll say that I'll just go with the wisdom of Solomon.",40
-fomc-corpus,1981,Mr. Ford.,4
-fomc-corpus,1981,"I want everybody to know that I am the one who first said that I don't think anybody here is wise enough to determine interest rates except Solomon! I, too, tend to agree with him. This is getting to be easy except that I'd like to reinforce one point he made and that relates to the fed funds rate range. If I read the Greenbook forecast correctly, the staff is saying that in the first quarter of next year we're going to have a negative GNP of 2.2 percent, a GNP deflator of under 7 percent, and unemployment approaching 9 percent. And with a GNP deflator that low, other price indexes are probably going to be down. We're talking about real interest rates on average in those three alternatives of 5 percent on ""A,"" 6 percent on ""B,"" and 7 percent on ""C."" I think we should at least allow the possibility of seeing [real] interest rates get into the single digit range at the nadir of this deep recession. So, I'd argue for ""B"" with a wider fed funds range, maybe going from [a lower limit of] 9 percent and centering on the present rate, which I understand is just over 12 percent.",250
-fomc-corpus,1981,Mr. Corrigan.,5
-fomc-corpus,1981,"I am comfortable with Mr. Solomon's variation of ""B,"" although I'd like to think of the initial borrowing as more like $400 million or maybe a bit higher rather than the $350 million that Tony suggested just because I'd still like to leave a little room down the road. But, basically, I'd go along with something like Mr. Solomon's suggestion.",72
-fomc-corpus,1981,Governor Partee.,4
-fomc-corpus,1981,"Well, I have no difficulty with the funds range that you specified Tony, of 10 to 14 percent. We're right about at the midpoint of it now and that assumes that it might drift a little lower but not very much, at least initially. I don't know but I think either $350 or $400 million on borrowing would be all right. I'd certainly accept the $350 million. I do think that your objectives for M1 and M2 are pretty stingy. Page 2 of the Bluebook shows a September-to-Deceber increase in M1-B shift-adjusted of 6.3 percent. Now, that has benefitted some from the shift adjustment; that is, I don't have an M1 figure here. But if it weren't shift-adjusted, it would be somewhat higher than that--7-1/2 percent or something like that.",176
-fomc-corpus,1981,What are you looking at?,6
-fomc-corpus,1981,I am looking at page 2; I can't work with these alternatives which don't have the correct figures on that. So I am trying to look at what experience has been recently as against what we're plotting for the period ahead. It shows an increase from September to December--but if anything December is raising it just a little--and that goes into our numbers that we're calculating looking ahead as maybe something like 7-1/2 percent in M1 as newly defined and 12-1/2 percent in M2. You are cutting those to 4 and 9 percent. That's a pretty sharp cut in the growth rate compared with what we have been experiencing recently. And I think that's too abrupt. I would prefer an M1 of 5 percent and an M2 of 10 percent as a center point for November to March. I don't think anybody would be surprised at that or regard it as being unduly expansive; in fact they might regard it as being pretty restrictive compared with recent experience and [given] the shortfall we've had.,211
-fomc-corpus,1981,"What was your M1, Chuck?",8
-fomc-corpus,1981,"Five. I am just picking it almost out of the air but a 5 percent M1 seems to me like a normative M1; and if we took 5 percent and 10 percent for the two numbers, that's really quite a bit less [growth] than we've had recently in both M1 and M2.",65
-fomc-corpus,1981,"Well, if we have a big December; this is a November-to-March number.",18
-fomc-corpus,1981,"That will mean even less in the course [of the 4-month period]; and we'll review it again in early February. The other thing I'd just comment on is that I don't know what to make of those NOW accounts. I'm inclined to think it is an error in the seasonal adjustment but I am not sure. It could be that there is a big build-up in precautionary balances in NOW accounts, as the staff says, and that might well continue right on through the winter if that is the case.",102
-fomc-corpus,1981,"Well, it might be temporary parking for Christmas.",10
-fomc-corpus,1981,"Well, that's right. And that is why I think [the explanation] may be the seasonal. The seasonal doesn't have the advantage of knowing what those household accounts have done in past years.",38
-fomc-corpus,1981,Or a temporary parking for IRA-Keoghs.,11
-fomc-corpus,1981,Or just temporary parking because people are scared they may lose their jobs.,14
-fomc-corpus,1981,That is right.,4
-fomc-corpus,1981,"You know, it makes a difference. I think Lyle is right that we want to watch that carefully to see whether [NOW accounts] continue to be the source of strength in M1 and regard that a little differently than if it is in corporate balances or in traditional demand accounts where one might think that a build-up would be a predecessor, as Larry likes to say, to an expansion in activity, which also could be the case. We might be right on the edge of a recovery in the economy and not know it. But it is just not clear to me which is the case. Nevertheless, my basic point is that 4 and 9 percent are so far below what we recently have had that they are too low to shoot for, and I would rather have 5 and 10 percent but with your parameters on the funds rate and initial borrowings, Tony.",176
-fomc-corpus,1981,Mr. Boehne.,6
-fomc-corpus,1981,"I'd prefer something between ""A"" and ""B,"" and I can't get excited whether it's Tony's or Chuck's [formulation]. I do have stronger feelings about the funds range; I think it ought to be 10 to 14 percent. I would look with considerable disfavor if the funds rate rose; I could accept some decline. And somewhere between the $350 and $400 million range on borrowings makes sense.",86
-fomc-corpus,1981,Mr. Balles.,5
-fomc-corpus,1981,"Generally I come out in favor of ""B+,"" about halfway between those two revised numbers, starting with November [as the base]. I share the concern that Lyle and some others have expressed that this recession might be worse than the staff is now forecasting. If there is an error, it is likely to be on the side of the recession being deeper through the first quarter than both our staff and the Board's staff have suggested. And for that reason I would agree with Bill Ford on the federal funds rate range. I'd prefer to see the bottom of it as low as 9 percent, and I would not like to see us strongly resist the decline in interest rates that would accompany a really soft economy. So I'd accept either 9 to 14 or 9 to 15 percent on the funds rate range. And as far as the borrowing assumption is concerned, $350 to $400 million would be okay with me.",186
-fomc-corpus,1981,Mr. Wallich.,5
-fomc-corpus,1981,"Well, I find myself leaning toward the easy side this time because what we have done is to avoid following the aggregates as far as we might; had we done so, interest rates would be a lot lower. Not having done that, I think we ought to give the economy a chance to recover at this interest rate level and try to string that [level] out as long as it will last, giving [firms] a chance to issue more bonds and so on. I would not welcome a further drop unless the economy weakens substantially because that would simply be what I think has been the error that we have avoided in the first place. But we have to compensate somewhat for not having let rates drop that far by now smoothing them out for the future. So, I would go with the higher aggregate [growth rates] proposed--that is M1 at 5 percent and M2 at 10 percent, a low borrowing assumption of $250 or $300 million, and a funds rate range of 10 to 14 percent. I wouldn't see any advantage in letting fed funds get into the single-digit range; I'd try to hold it here for a while if circumstances permit. There is a cost to this; later in the year we may have to accept higher interest rates to stick by our overall targets. That cost I think we have to be prepared to pay.",275
-fomc-corpus,1981,Mr. Keehn.,5
-fomc-corpus,1981,"I'd be comfortable with Mr. Solomon's proposal for both M1 and M2, given the current state of the economy, with the thought that a little reduction in the fed funds rate might provide some encouragement. I'd be in favor of a $350 to $400 million borrowing range and a federal funds target range of 10 to 14 percent.",70
-fomc-corpus,1981,Mr. Guffey.,6
-fomc-corpus,1981,"I'd be comfortable with Mr. Solomon's proposal with one exception. It is maybe a fence-riding caveat. I am concerned about interest rates rising and, to ensure against that, I would like to suggest that we adopt the modified ""B"" as Tony has suggested, with $400 million borrowing but by the same token have an understanding that if money in January begins to come in a bit stronger than projected, there wouldn't be any overt action taken that would result in higher interest rates until we got to [M1 growth] at about the ""A"" level. In other words, we'd have a range, if you will, of 4 to 5 percent M1 growth under that kind of proposal before the Desk would alter the path that was set based upon a November base. Also I'd favor a federal funds range of 10 to 14 percent, which provides a bit of insurance that we would have a consultation if the funds rate begins to rise early in the period.",197
-fomc-corpus,1981,Governor Teeters.,4
-fomc-corpus,1981,"Well, I can endorse Tony's suggestion, which was modified by Roger, Chuck, and others. If you look at it visually, we need something more than 4 percent [M1 growth] to come in on target. So, if we take Roger's suggestion of 4 percent for M1 and use 9 percent for M2, a funds range of 10 to 14 percent, and borrowing of $350 million with the understanding that if M1 growth begins to go up we won't try to restrain it if it means a rise in interest rates, that would be a perfectly acceptable decision for me.",125
-fomc-corpus,1981,"I am not quite sure about one comment you made. What you are suggesting is low relative to the targets, as I understand this, because if you are talking about next year's target, it is right on it.",43
-fomc-corpus,1981,"No, I am talking about Chuck's point that by going from November to March we have a December which is probably going to be above November and we have a high first month in there so we may need a little leeway to accommodate for the fact that December is coming in above the November level.",60
-fomc-corpus,1981,"If you look specifically at the staff's numbers on page 12 for M1 under alternative B, which is about what Tony had in mind, that calls for a December of 8 percent and then a January and February of 2.2 percent in each month.",54
-fomc-corpus,1981,"Yes. Well, that's reflected in the second part of page 11.",15
-fomc-corpus,1981,"I should say that New York, for what it's worth, has a lower projection for December.",19
-fomc-corpus,1981,"Well, it is very hard to know what December will be. There is some exposure here to having to seek quite low numbers.",26
-fomc-corpus,1981,"If we need a little leeway, we could have a conference.",14
-fomc-corpus,1981,Mr. Roos.,5
-fomc-corpus,1981,"As a means of achieving growth in M1 next year of 5 percent, for the reasons I attempted to enunciate yesterday, I would favor the alternative A choice. I wouldn't jump off the bridge if you adopted Tony Solomon's ""B+;"" I would be happier on Christmas Eve if we did widen that funds range a little, maybe to 9 to 14 percent or something like that. A $350 to $400 million borrowing assumption would be consistent with this, I think.",99
-fomc-corpus,1981,Governor Rice.,3
-fomc-corpus,1981,"Mr. Chairman, I would want to rush to support Governor Wallich's proposal while I can, for the reasons given by Governor Partee.",29
-fomc-corpus,1981,It seldom happens!,4
-fomc-corpus,1981,It depends.,3
-fomc-corpus,1981,"I want to be associated with those remarks and I'd like to join Governor Wallich, too.",19
-fomc-corpus,1981,"I would say 5 percent for M1 and 10 percent for M2, borrowing of, say, $350 million, and on the funds range 10 to 14 percent.",38
-fomc-corpus,1981,I didn't hear that. Could somebody repeat it?,10
-fomc-corpus,1981,I said borrowing at $350 million and a funds range of 10 to 14. Did you hear what I said about M1 and M2?,31
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,We have no more volunteers. Mr. Winn.,10
-fomc-corpus,1981,"I would take to heart your caution that we better look down the road in terms of the short-term target as well as just the immediate problem. And I would go along with the 4 and 9 percent on the aggregates because they're in line with our longer-range targets. [For the funds range] 10 to 14 percent is fine. On the other hand, if the aggregates should come in stronger, a little increase in the rates, not a major one, would not bother me as a warning in terms of what lies ahead. So, I would not be upset, if the aggregates were strong, to see a little firming in rates as a warning to what the fall may hold for us.",143
-fomc-corpus,1981,We have a few precincts that haven't been heard from.,12
-fomc-corpus,1981,"Well, I'll do it quickly. The $350 million and the 10 to 14 percent I think are fine. I prefer 4 and 9 percent [for the aggregates] because I don't believe we're going to have a great deal of problem with that. My feeling is that there's a risk in the economy that tends to be on the down side and I just don't understand the OCDs. I don't know, but my gut feeling is that [the recession] is not going to continue forever, so I don't feel that we are going to have much of a problem. On the other hand, if we do have some problem, I wouldn't mind seeing us have a little leeway on the up side there. I am perfectly willing to tolerate a little stronger growth depending upon what happens in the economy and what happens to interest rates.",168
-fomc-corpus,1981,Mr. Boykin.,5
-fomc-corpus,1981,I'm trying to remember the numbers Tony gave originally. I don't think I got them down right.,19
-fomc-corpus,1981,You want all the decimals?,6
-fomc-corpus,1981,No.,2
-fomc-corpus,1981,[For M1 and M2] 4 and 9 percent and 10 to 14 [for the funds range].,26
-fomc-corpus,1981,"Okay. That's what I wanted to be sure of. Yes, I would find that acceptable.",19
-fomc-corpus,1981,"This is for November to March, right?",9
-fomc-corpus,1981,"Yes, I would find that acceptable.",8
-fomc-corpus,1981,"Mr. Morris and Mr. Black haven't been heard from. No, I have Mr. Morris and Mr. Black down.",25
-fomc-corpus,1981,I've said something but apparently it didn't--,8
-fomc-corpus,1981,I'm ahead of the Secretary. I guess everybody has been heard from. We obviously don't have any very big differences here. Where has borrowing been in the last three weeks?,34
-fomc-corpus,1981,"I'll give you the precise numbers in just a second. It has been running about $340 million this week so far and that would be about the average. For the week of the 16th it was $268 million; for the 9th, $493 million; for the 2nd, $192 million; and before that, $214 million. [For that period] we were expecting borrowing of $400 million or higher.",89
-fomc-corpus,1981,Wasn't this partly a consequence of very little demand for excess reserves?,14
-fomc-corpus,1981,"Well, initially. But excess reserves were revised upward successively as the weeks passed. They ran a little low in two out of the first three weeks and were very high in one of them, so they averaged [close to expectations] in the first three weeks and then were very low last week. Last week [excess] was negative; I don't how it's coming out this week. It didn't turn out to be nearly as low as it looked at the beginning because we got ""as-of"" adjustments subsequently.",103
-fomc-corpus,1981,"I only have some very limited substantive comments to add to what has been said. A premise of a lot of the comments was that nobody's dying to see interest rates rise at this point. And there's a certain sense that people would feel a little more comfortable with a decline, I suppose, if I can summarize the atmosphere. In that connection a number of people commented that they are not going to be upset by a slightly higher growth rate in the aggregates. Nobody mentioned the opposite, which I would now mention. If interest rates really softened, I wouldn't be all that disturbed about some shortfall from any of these numbers we are talking about if, and I emphasize this, interest rates were declining in any very pronounced way during this particular period.",148
-fomc-corpus,1981,What if the decline in the real economy in the first quarter continues at the rate in the fourth quarter? [Interest rates] undoubtedly would be softer.,30
-fomc-corpus,1981,"Well, it didn't happen in the last part of November and December. I just don't know. It depends upon that funny demand for money that we can't fully explain in the very short run. I would agree with you that it is not likely [to continue] over a longer period of time, but I don't know what is going to happen in the very short run. I wonder whether [my summary] is consistent in substance with what everybody in varying degrees seems to be saying. Well, let me approach the funds rate first, where there isn't much disagreement. I would think 10 to 14 percent makes a lot of sense just in terms of the form. We're about in the middle of that now range and it allows [a decline of] 2 percentage point or slightly more in the federal funds rate. I don't say that with any feeling that 10 percent ought to be an absolute floor in any sense; it hasn't been in the past and this seems a logical range to put down. Almost everybody has said that with some exceptions. I guess everybody on the Committee has said that. I have no problem with that. I wonder a little whether the borrowing level that people were talking about isn't a little high in terms of the balance of risks and possibilities here. I'd be a little more comfortable with, let's say, a $300 million number than the $350 or $350 to $400 million that people mentioned, considering where we are now and considering this average pattern in the past, in order to provide a little more assurance that rates are not going to rise even if these numbers come in more or less as projected. So, I would raise that question. We have a clear majority for around 4 and 9 percent [for M1 and M2] on a November-to-March basis. In any event, I think that would be interpreted, if that's where we alight, as our not being unduly concerned by a somewhat higher number than that. If we put down a higher number, I'd feel more strongly that if it came in lower and interest rates were declining appreciably, we shouldn't push any harder than necessary just to hit the 5 and 10 percent numbers. But the 4 and 9 percent numbers suit me all right with the understanding that we're not going to be very upset by some overrun and starting with a slightly lower borrowing number than the weight of opinion has suggested here. I'm just a little worried about that borrowing number being a bit too high. And I think we do [need to] interpret these numbers--I don't know how to put that in the directive--somehow in the light of what is going on in NOW accounts, if we can make any sense of it, as opposed to a general increase.",555
-fomc-corpus,1981,We have been carrying 7 percent for months as our objective on Ml-B.,16
-fomc-corpus,1981,You feel so sure on this.,7
-fomc-corpus,1981,"Yes, there's some room to bring it down.",10
-fomc-corpus,1981,That [depends on] the initial borrowing number. What happens initially with that borrowing?,17
-fomc-corpus,1981,"Well, I don't think much.",7
-fomc-corpus,1981,I don't think anything much would happen.,8
-fomc-corpus,1981,"I think the funds rate would stay somewhat above the discount rate at that level of borrowing. When borrowing in the first two weeks of this intermeeting period was around $200 million, the funds rate was a little below the then discount rate. And in the next week borrowing was $493 million, followed by $268 million and thus far this week $330 million or so, and the funds rate has been about 1/2 point above the discount rate. So, it's probably a little above--",100
-fomc-corpus,1981,"This is obviously a fine judgment, but I'd worry a little about forcing the funds rate on the high side of where it has been or maybe even a little higher than where it has been, as opposed to making sure it doesn't rise in the very short run. I'm not even sure $300 million makes that [certain], but it's just a question of where we want to take the risks. My feel for the situation is that it is more consistent with the comments I hear around the table about not wanting an increase in the funds rate right out of the box or not even wanting it if money growth gets a little higher.",124
-fomc-corpus,1981,So 4 and 9 percent would be the numbers in the directive?,15
-fomc-corpus,1981,"Well, in that interpretation, I think we'd say something in the directive--I haven't got any wording--",21
-fomc-corpus,1981,Or somewhat higher?,4
-fomc-corpus,1981,"I don't think I want to bias it to that extent but [I'd include] some language that this takes careful interpretation of the NOW account situation. Maybe that's hard to do; I haven't worked out any language. But whatever the directive says, that is what we mean.",54
-fomc-corpus,1981,"We could do it by saying ""around"" 4 and 9 percent and let that--",19
-fomc-corpus,1981,"Yes, having ""around"" is fine with me and taking account of or analyzing the figures in light of the fact that these are not shift-adjusted and have a big NOW account component. That's not good language, but that's--",46
-fomc-corpus,1981,And praying a lot!,5
-fomc-corpus,1981,"On the other hand, if we went with a slightly higher number, I'd also put in the directive that this is taking account of the fact--and we can do it this way too--that we are not using a shift-adjusted number and that the discrepancy has been quite large recently and we assume it's going to continue to be sizable. So, theoretically, we can do it either way. It will be hard to get that language in there but [we need] some allusion to the problem that we're moving from a shift-adjusted number. We have had a long [explanation in] parentheses in the directive that we were talking about a shift-adjusted number; now I think we need a long [one in] parentheses that we're not.",151
-fomc-corpus,1981,Is that an illusion or elusion?,8
-fomc-corpus,1981,It made a three point difference in November.,9
-fomc-corpus,1981,"From a perception point of view, I think we're a little better off with 4 and 9 percent and tolerating somewhat higher growth than with 5 and 10 percent, tolerating somewhat lower.",41
-fomc-corpus,1981,From the perception of whom? From the financial markets or the people who are unemployed?,17
-fomc-corpus,1981,"Well, I don't want to get into that one! I have some rather strong feelings about the fact that the critical thing we have to do is to find a way to get long-term interest rates down. So when we target on that sort of thing, the perception of what we do has considerable importance since expectations are so much [a factor] in those long-term rates. But I don't want to get off on a diatribe on that issue.",91
-fomc-corpus,1981,"I'm a little bothered by the 5 and 10--more by the 10 than the 5--which is above our long-range target and, unlike M1, coming off a high number not a low number.",45
-fomc-corpus,1981,True.,2
-fomc-corpus,1981,What do we have for the long-term range?,10
-fomc-corpus,1981,But what is going to bring down M2 growth in the period?,14
-fomc-corpus,1981,"Well, I was just going to ask. What, if anything, is your estimate of M2 based upon here, Mr. Axilrod? What is the estimate for December?",37
-fomc-corpus,1981,"Well, for December, the M2 growth estimate is rather high, given [the data] we now have. In the last week growth of money market funds was a little slower. That's not much to base [your decision] upon. But [flows into money funds] have usually slowed down, with a lag, following a period of declining market rates.",72
-fomc-corpus,1981,"And there is a chance that money market funds will really slow down now, because the money market certificate rate is at--and in the next couple of weeks may even be above--the money market fund rate for the first in a long time.",49
-fomc-corpus,1981,"That's not going to help M2, though.",10
-fomc-corpus,1981,Won't that shift into another component of M2?,11
-fomc-corpus,1981,"Well, maybe.",4
-fomc-corpus,1981,"We really have not allowed for the savings accounts to show the same kind of strength, so to speak, that they've shown. If they showed that kind of strength, it would spill over also into NOW accounts, I think. We haven't allowed for that continuing. Those are the two principal factors.",59
-fomc-corpus,1981,You have a December estimate of 12.6 percent in the Bluebook?,16
-fomc-corpus,1981,"That's right, and a very marked slowing in January.",11
-fomc-corpus,1981,"You have it dropping to 7.3 percent in January. I don't quite see what is going to bring about that slowing from 12 to 7 percent, if we don't really care what the figures are.",43
-fomc-corpus,1981,"Well, those are the two factors, Governor Partee. The only thing I could offer is to look at October, which was 8 percent.",30
-fomc-corpus,1981,I didn't realize the December estimate was quite that high.,11
-fomc-corpus,1981,"That's the trouble, you see; that really pinches it.",13
-fomc-corpus,1981,"Assuming you go ahead with one or more of these three conceptual changes in the definition of M2, that would be effective at the beginning of January or what?",33
-fomc-corpus,1981,"Well, we can make the two we're talking about effective right away, I guess, because we have the numbers. I don't think we have the numbers for--",32
-fomc-corpus,1981,"Well, we were assuming that at the beginning of January we would switch over to M1 as is and do away with M1-A and M1-B. But we had hoped to make the other changes effective in February when we've [typically] done the seasonals and the benchmarking and do it all at once. Because there are other--",68
-fomc-corpus,1981,And making it retroactive?,6
-fomc-corpus,1981,Can you even do the IRA/Keoghs in February?,13
-fomc-corpus,1981,That I don't know. That depends.,8
-fomc-corpus,1981,"You raised another question, now that I think of it.",12
-fomc-corpus,1981,"No, I was thinking of the other ones.",10
-fomc-corpus,1981,"We have a period here, [November to March], which encompasses a period of time when we used M1 shift-adjusted, and there is quite a difference. What are we talking about here? A shift-adjusted figure for one month and a--",51
-fomc-corpus,1981,"Well, I was assuming you'd start in January with regular M1.",14
-fomc-corpus,1981,"Yes, but what is this number we put down--the 4 or 5 percent or whatever?",21
-fomc-corpus,1981,M1.,3
-fomc-corpus,1981,It's M1.,4
-fomc-corpus,1981,For December too?,4
-fomc-corpus,1981,"Well, you're comparing it with old M1-B, which is in effect M1. That's right. M1-B not shift-adjusted is M1.",32
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,"Well, the only difference is what might happen in December. How much difference is that?",18
-fomc-corpus,1981,"Well, there's roughly a 12--",8
-fomc-corpus,1981,"We have to be consistent. If the base is going to be M1-B unadjusted, then December has to be treated that way.",29
-fomc-corpus,1981,You take off from the regular M1-B series.,11
-fomc-corpus,1981,Isn't it wonderful to be able to deal in such precision?,13
-fomc-corpus,1981,That's why we all--,5
-fomc-corpus,1981,"Well, that number we know. It's the shift-adjusted number that's a little doubtful.",18
-fomc-corpus,1981,"Yes, it's really M1 that's 8 percent.",11
-fomc-corpus,1981,That's right.,3
-fomc-corpus,1981,And then it has to drop to 2 percent.,11
-fomc-corpus,1981,"Well, it rose from 3 percent to 11 percent in one month.",16
-fomc-corpus,1981,I know.,3
-fomc-corpus,1981,"As long as we have this around 4 percent, I'd--",13
-fomc-corpus,1981,"Yes, that may be the more critical point. ""Around"" means anything from 0 to 10.",22
-fomc-corpus,1981,"Well, let me take this in an orderly way. The funds rate range is 10 to 14 percent; it was at least among the members of the Committee. I'm not sure there was any disagreement with that. That is where we are on the funds rate, I think. The borrowing really is the only operating decision we're making today. I gave you a little case for $300 million. The great majority was for $350 to $400 million.",92
-fomc-corpus,1981,I can buy $300 million.,7
-fomc-corpus,1981,Me too.,3
-fomc-corpus,1981,"If $300 million is going to produce what Steve thinks it will produce--namely, [a fed funds rate] a shade over the 12 percent discount rate--then I'd go with that. That's basically what I was targeting for when I said $350 million. So it doesn't bother me if--",61
-fomc-corpus,1981,That's the way I feel about it too.,9
-fomc-corpus,1981,"If it doesn't work out that way, we'll kill the messenger! I was going to say put it in--",22
-fomc-corpus,1981,"If it doesn't work out that way, raise the borrowings.",13
-fomc-corpus,1981,"Well, I think that's the way it will work out. I wouldn't die if the federal funds rate was 11-7/8 percent or even 11-3/4 percent. We're at $300 million on the borrowing?",47
-fomc-corpus,1981,Suits me.,4
-fomc-corpus,1981,"All right, Now we'll talk about the cosmetics.",10
-fomc-corpus,1981,You're being a little too frank!,7
-fomc-corpus,1981,The range here is not huge. We can cut through it all if you want and say 4-1/2 and 9-1/2 percent.,33
-fomc-corpus,1981,"Oh, I think that gives a feeling of greater precision [than is warranted]; really that's nitpicking it.",23
-fomc-corpus,1981,"Well, there were some who wanted to accept an overshoot.",13
-fomc-corpus,1981,"We've often used ""1/2"" and we're--",11
-fomc-corpus,1981,"I know, but--",5
-fomc-corpus,1981,"Not that often, it seems to me, in the time I've been on [the Committee]. It certainly makes us look a little sillier when we miss by a big amount if we put our targets in terms of halves.",45
-fomc-corpus,1981,"I think we have a long record of putting them in terms of halves, in my memory, but I--",22
-fomc-corpus,1981,And missing them by a large amount,7
-fomc-corpus,1981,I'd rather go with either 4 or 5 with some appropriate language than with 4-1/2. I continue to prefer 4 and 9.,33
-fomc-corpus,1981,"How about both: ""about 4 to 5 percent"" and ""about 9 to 10 percent""?",23
-fomc-corpus,1981,"I think the Committee once did have [something like] that in the directive, too, for some reason.",22
-fomc-corpus,1981,I don't see how we can target over 9 percent unless we more or less agree that we are going to raise [the long-run target for] M2.,33
-fomc-corpus,1981,That is exactly what was going through my mind.,10
-fomc-corpus,1981,"Well, I am going to vote to raise [the target for] M2 at the next meeting. We are starting in 1982.",29
-fomc-corpus,1981,Your mind is supposed to be open for a while. It is supposed to be open for [unintelligible] too.,26
-fomc-corpus,1981,There are some who would feel strongly--,8
-fomc-corpus,1981,"I like ""about 4 and 9.""",10
-fomc-corpus,1981,Get it down.,4
-fomc-corpus,1981,Me too.,3
-fomc-corpus,1981,"It's all right with me. But in any case we have an understanding that if it goes a little higher than that, we will not be too bothered.",31
-fomc-corpus,1981,"I would prefer 5 and 10 percent with no such understanding, even though it may produce what I don't want--a rise in interest rates. I think it is just bad in principle that we have fallen into implicitly targeting the funds rate only.",50
-fomc-corpus,1981,That's a very bad principle but I thought we had gotten away from that.,15
-fomc-corpus,1981,We've done that repeatedly.,5
-fomc-corpus,1981,We're going to have to get Henry a red suit and a beard here! I sense a conversion in process here.,23
-fomc-corpus,1981,1982 brings a new Henry Wallich.,9
-fomc-corpus,1981,I'm just being consistent. I didn't want to let [rates] drop too far; I don't want them to rise too fast.,26
-fomc-corpus,1981,I agree.,3
-fomc-corpus,1981,"I don't know how to interpret that comment but.... The only reason I hesitate a little on the 5 and 10 percent is that the 10 looks a little high to me, just visually. I think that is what we are talking about here.",51
-fomc-corpus,1981,"Well, Mr. Chairman, you said it was cosmetic, so 4 and 9 percent with the appropriate language would--",25
-fomc-corpus,1981,An alternative is 5 and 9 percent with an understanding that we may get even more than that.,21
-fomc-corpus,1981,I would be happier with 5 and 9.,11
-fomc-corpus,1981,They're not consistent.,4
-fomc-corpus,1981,We aren't compromising.,4
-fomc-corpus,1981,I think Chuck's point is very well taken. We're looking at a growth rate of M1-B shift-adjusted in our thinking whereas we are now targeting on non shift-adjusted. The difference was 3 percentage points. That is quite--,49
-fomc-corpus,1981,Right at the moment.,5
-fomc-corpus,1981,"It was 11.1 versus 8.8 percent in the month of November, and that is a huge difference.",25
-fomc-corpus,1981,"Yes, and [consider] the problem we've got if that reverses itself. We don't know what is going on here. Suppose that suddenly reverses itself in January. We'll just try to arrive at the greatest consensus here. If I get preferences, I'll know the answer. Who prefers 4 and 9?",63
-fomc-corpus,1981,Wait a minute. What are our chances of hitting 9 percent on M2 if we have 5 percent on M1?,26
-fomc-corpus,1981,"Well, I think these are very small differences, Governor Teeters, given our track record in predicting these relationships. I don't think it is a matter of strong significance for the Committee, actually.",39
-fomc-corpus,1981,"These differences are small. What we're assuming is that we're going to continue to have a pretty big discrepancy if we shift adjust it, which we're not going to do anymore. I think what we're saying with the 5 percent is that it [involves] an assumption in substance that there is a lot of NOW account [growth] in this.",70
-fomc-corpus,1981,"One possible way to break this is to say: ""seeks behavior of reserve aggregates consistent with growth of M1 and M2 in a range of about 4 to 5 percent and 9 to 10 percent."" It gives both numbers and has a range and has ""about.""",58
-fomc-corpus,1981,"We still have to draw the path, which makes a difference.",13
-fomc-corpus,1981,Draw the path somewhere in between [that range for M1].,13
-fomc-corpus,1981,"Yes, put it at 4-1/2. That is a way of doing 4-1/2 percent.",26
-fomc-corpus,1981,Without being too precise.,5
-fomc-corpus,1981,We can do that. The only drawback I see is that in some ways one could argue that it sounds more precise--that somehow we're willing to tolerate 4 to 5 percent but we'd get very upset if it's outside. But I don't know that that's such a big deal.,56
-fomc-corpus,1981,"In New York the market participants seeing ""around 4 to 5 percent"" will tend to assume that the ""around"" refers to the area between 4 and 5 percent. And it gets us a little less precision if we just say ""around 4"" or ""around 5.""",60
-fomc-corpus,1981,"Well, I don't know; that really doesn't sound too bad to me. But I think a disadvantage of saying ""around 4 to 5 percent"" is--",33
-fomc-corpus,1981,"Well, M1 for last year is estimated to come out at 4.7 percent, and some little downward movement looks a little better cosmetically. I think the 4 percent is a little better than 5 percent and I am forced to settle on it for that reason. But I wouldn't be disturbed if it hit 5 percent.",69
-fomc-corpus,1981,"Well, whatever we decide upon, we have to say here someplace in the directive or elsewhere that we have this problem with the fact that we think December is coming in high. So whatever number we have here is in a sense not as high for January, February, and March as it appears on the face of it because we think we're operating off a high December number. I think that ought to be clarified somehow in the record. Mr. Axilrod is trying to fiddle around with this language and it is so obscure that I don't understand what it means.",112
-fomc-corpus,1981,That is the best kind!,6
-fomc-corpus,1981,Would you like to read it?,7
-fomc-corpus,1981,"""Taking account of the significance of shifts as they may develop between NOW and similar accounts and other assets...""",21
-fomc-corpus,1981,NOW and similar accounts?,5
-fomc-corpus,1981,And other unknown phenomena!,5
-fomc-corpus,1981,UFOs!,4
-fomc-corpus,1981,"No, UMOs: unidentified monetary objects!",9
-fomc-corpus,1981,"That's not obscure, that's just--",7
-fomc-corpus,1981,"My quick reaction is that we're not going to be able to do it in a parenthetic sentence. We've got to write another sentence in there after the one that talks about ""seeks behavior"" etc. Then we could say: ""In reaching this decision the Committee recognized that the target had to be evaluated in the light of the fact that shift adjustment was no longer being made and that the performance of the aggregates would have to evaluated in the light of NOW accounts, which have been exceptionally large recently,"" or some such thing.",105
-fomc-corpus,1981,"I was trying, Mr. Chairman, to make that apply also to M2 to allow for savings deposits which have been very strong as well. And we're not predicting any strength here.",37
-fomc-corpus,1981,"Let's decide upon what we want to say first before we decide upon what, in effect, the footnote says. How does the around 4 to 5 percent and around 9 to 10 percent strike you?",44
-fomc-corpus,1981,I'm less happy with it than I am with a precise number.,13
-fomc-corpus,1981,You want 4.7 percent?,8
-fomc-corpus,1981,"No, I want a [single] digit.",10
-fomc-corpus,1981,"Well, there is virtue in the Chairman's proposal. We've missed every short-term path this year by a considerable margin and I don't know why we should insist on misplaced precision when we will be lucky to come even close to the intermeeting path, if the past record is any indication.",57
-fomc-corpus,1981,"The problem with it is that I think Tony is right. The Fed watchers will misinterpret if given any opportunity to do so. And I think it gives them a greater opportunity to misinterpret if we say ""around 4 to 5 percent"" in that they will in fact look at that as a range in which we're trying to operate, with a degree of precision that we don't have.",79
-fomc-corpus,1981,"Well, that's what I thought in a way, too. But when I think about it more, I am not sure what your objection is to ""around 4 to 5."" Is it in substance that it is too high?",47
-fomc-corpus,1981,"No, my objection to it is that I prefer 4 and 9 percent and a willingness to tolerate somewhat higher growth. It is easier to draw the path and I just think it works better than your--",42
-fomc-corpus,1981,"Well, clearly, we'd draw the path at 4-1/2 percent if we had ""around 4 to 5 percent"" initially.",30
-fomc-corpus,1981,I still prefer 4 and 9.,9
-fomc-corpus,1981,"This would be published when, Murray, February 5th?",13
-fomc-corpus,1981,February 5th.,5
-fomc-corpus,1981,"And when do you [testify], do you know?",12
-fomc-corpus,1981,Probably February 20th with Proxmire.,10
-fomc-corpus,1981,"I have a preference for 4 and 9 percent, but not on the cosmetics. It is a small distinction but I still think the economy will turn around, and I would like to have the leeway down the road rather than now. But the initial borrowing of $300 million is fine with me.",62
-fomc-corpus,1981,"Well, how do we reconcile this small difference? After listening to all of this, how many still prefer 4 and 9? How many prefer around 4 to 5 and around 9 to 10? We haven't seen all the hands up.",52
-fomc-corpus,1981,You haven't asked about who would prefer 5 and 10.,13
-fomc-corpus,1981,You wanted just voting members?,6
-fomc-corpus,1981,"Yes, just voting members at this point. That leaves two with a preference for 5 to 10, I assume.",25
-fomc-corpus,1981,I have a preference. I didn't know how you were going--,13
-fomc-corpus,1981,"And I thought you were going to say ""prefer"" and ""live with.""",16
-fomc-corpus,1981,"Well, all right. [Our preferences] are almost symmetrical. It sounds to me as if everybody ought to be able to live with the ""around 4 to 5.""",36
-fomc-corpus,1981,And the 9 to 10?,8
-fomc-corpus,1981,And 9 to 10.,7
-fomc-corpus,1981,It is the principle of it that bothers me.,10
-fomc-corpus,1981,What is the principle?,5
-fomc-corpus,1981,"That we're now beginning to fudge the difference between 4 and 5 by saying ""around."" The next time it will be around 4 to 6 and then around 4 to 7.",40
-fomc-corpus,1981,"Suddenly, it becomes our long-term forecast.",10
-fomc-corpus,1981,It becomes increasingly realistic.,5
-fomc-corpus,1981,I think Henry has detected a trend.,8
-fomc-corpus,1981,"Anything that is a departure from customary terminology leads market people to read things into it, I think.",20
-fomc-corpus,1981,Have we ever given a range before?,8
-fomc-corpus,1981,I know we did once before.,7
-fomc-corpus,1981,"Yes, I am pretty sure we did.",9
-fomc-corpus,1981,I am not sure if it was for both M1 and M2. It certainly was on M1.,22
-fomc-corpus,1981,In this particular case we can probably get away with it a little more easily simply because of this problem of going from shift-adjusted to non shift-adjusted. I hadn't thought of that. That really does make a difference in terms of our transition.,50
-fomc-corpus,1981,"Well, I just expressed my preference, but I'm not going to fall on my sword about this.",20
-fomc-corpus,1981,How many can live with the 4 to 5 and 9 to 10 [formulation]?,21
-fomc-corpus,1981,Do you want a show of hands?,8
-fomc-corpus,1981,"Again, I just want to say that if we do 9 to 10 percent, then that does imply very strongly a case--and I think the markets will definitely read it that way--that we're going to come out in February with a revised figure that is somewhat higher than 9 percent on M2.",63
-fomc-corpus,1981,I don't think that interpretation is necessary any more than it meant we were going to revise the targets on M1-B when we put a number like 7 percent for M1-B shift-adjusted during the summer or early fall.,46
-fomc-corpus,1981,"When I say this, somehow we are going to get in here that we think the December number is going to be higher than either of these numbers.",30
-fomc-corpus,1981,We don't want to say that specifically. Suppose we're wrong?,12
-fomc-corpus,1981,"I don't think we can be wrong. Well, we could be wrong, but it would take a very sharp drop in both of them to come in below 4 to 5 percent on M1. It's now estimated at 8.8 percent, I think.",54
-fomc-corpus,1981,"Yes. The policy record in that light, Mr. Chairman, with regard to M2--",19
-fomc-corpus,1981,Anything is possible. I wouldn't promise you that it couldn't come in within that range but it would take a very sharp drop in the last two weeks of December.,32
-fomc-corpus,1981,"With regard to M2--and also M1, more tentatively--the policy record [for the November meeting] clearly indicates that the Committee expected a slower growth rate in the course of the quarter. That is, the 9 to 10 is really consistent--it wouldn't be that specific with something like 7 to 8 percent [for M1-B].",74
-fomc-corpus,1981,This figure is between alternatives A and B; what does that imply for quarterly growth rates?,18
-fomc-corpus,1981,"For M1 it would be somewhere between 4-1/2 and 5-3/4 percent on a quarterly average basis, and for M2 somewhere between 9-3/4 and 10-1/2 percent. They are fairly high.",54
-fomc-corpus,1981,"Just taking the midpoint, the growth rates are a little over 5 percent and around 10 percent on a quarterly average basis, which is the nearest thing to a long-term target. Whatever we put down will be high in relation to the long-term targets interpreted on a quarter-to-quarter basis.",59
-fomc-corpus,1981,"Yes, the monthly growth rates are slow.",9
-fomc-corpus,1981,"[If we say] 4 to 5 percent and 9 to 10 percent, I have a little problem with the understanding that we are not going to be that concerned if it comes out higher. That is a bit of a difficult bridge for me to get across because I would find acceptable the 4 and 9 percent with the understanding that you talked about earlier but I am a little uncomfortable with it. So, to go to 4 to 5 and 9 to 10 makes me even more uncomfortable.",106
-fomc-corpus,1981,"Just to follow on that, Bob, I would prefer that the Desk, without regard to how it comes out in the directive, start targeting with 4 percent rather than 4 to 5 percent.",41
-fomc-corpus,1981,"You know, we are now talking about very small differences here. I am inclined to think that we are best off with the 4 to 5 and 9 to 10 [formulation]. Whether we set that path at 4 or 4-1/2 percent is going to make what--a $50 million difference by 3 or 4 weeks from now?",77
-fomc-corpus,1981,"Something like that. [No], by March it is that big, so it is less [for the next few weeks].",25
-fomc-corpus,1981,"My concern is not with the substance. We all know the difference is very small. My concern is that I think we are loosing a certain sense of respect because of how outside people see these things. They see an overrun in M2. They see us targeting 9 to 10 percent, which is over our preliminary M2 target. It seems to me that there will be an immediate feeling in the market--I don't see how we could avoid that--that we probably will move the M2 target up in February and there will be talk about some easing. If we are willing to do that, all right; but I don't see how we can avoid that impression. If we had had a shortfall in M2, sure, we could get away with 9 to 10 percent. I don't see how we can escape that market reaction; if that market reaction doesn't bother you, all right, but--",186
-fomc-corpus,1981,"But there will be an explanation in there that we were high in December, which encompasses this period.",20
-fomc-corpus,1981,"Well, we could say that the growth rates implied for January and February, given the present estimates, would be below 9 percent. I really think we can handle that.",35
-fomc-corpus,1981,"I think we can find a handle on that, too, Lyle.",15
-fomc-corpus,1981,"Tony, the present directive calls for M2 at an annual rate of around 11 percent. So what is different about this?",26
-fomc-corpus,1981,You are talking about the short term.,8
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Well, we are talking about the short term here. The M2 growth rate was 16 percent for the month of November. And how are we going to bring it down?",36
-fomc-corpus,1981,"Well, let's go ahead with the 4 to 5 and 9 to 10 and see what comes up. Before we vote, there is this question [of the precise language to use]. I am afraid we are not going to be able to draft this very well sitting here. I may exceed the limits of your confidence and trust, but if you would delegate to me in consultation with the staff the task of putting another sentence in the directive, I would be pleased to undertake that responsibility. It would say we are moving from a shift-adjusted number to a non shift-adjusted number and M1 growth running a little high in December because of this NOW account bulge. We would get a little flavor of that in another sentence in the directive.",152
-fomc-corpus,1981,I have great confidence that between you and Mr. Axilrod you can make it properly obscure!,20
-fomc-corpus,1981,I second that vote of confidence.,7
-fomc-corpus,1981,You are full of Christmas spirit!,7
-fomc-corpus,1981,"I think the alternative is putting it in the policy record, which the staff will do anyway in other language. This would be in the directive. Is that agreeable? With that understanding, let us vote.",41
-fomc-corpus,1981,Chairman Volcker Yes Vice Chairman Solomon No President Boehne Yes President Boykin No President Corrigan Yes Governor Gramley Yes President Keehn Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters Yes Governor Wallich Yes,48
-fomc-corpus,1981,Okay.,2
-fomc-corpus,1981,"Now that this has been decided, I wonder if I can return for just a second to your comments a while ago that I found very interesting, to put it mildly, that once we had decided that the only real operational decision this time was the borrowing assumption, we could now deal with the cosmetics. That brings to my mind the question: Why don't we in the Bluebook, Steve, have some more analysis on this borrowing assumption that goes with the various alternatives and its implications? This is a very key part of what we decide at a meeting. And I, for one, would like to see some text, analysis, and recommendations. Is there some reason that it is not desirable or what?",140
-fomc-corpus,1981,"Well, we could certainly expand on it.",9
-fomc-corpus,1981,Let me just interpret my comment. I do not interpret my comment as meaning at all that these aggregate figures are not important. The problem I talked about is that within a 1-month perspective what we do operationally to affect our reaching those targets is to set the path. It doesn't mean that these other numbers are not very important in a longer-term perspective. But the connection in any 1-month or 6-week period between meetings is very loose. It does in an operational sense come down to setting that reserve path--to state it more accurately--rather than the borrowing assumption. The borrowing assumption is part of it. It does not mean that we are operating on the basis of ignoring these numbers. But the numbers are cosmetic. They are not cosmetic at all in a longer perspective. I just want that clarification in the record.,167
-fomc-corpus,1981,"Even if you had not made that comment, I was still going to bring this point up. There is a hidden variable running around loose here on these borrowing assumptions.",33
-fomc-corpus,1981,"No, the point is still--",7
-fomc-corpus,1981,"And I would very strongly urge that we get something on it in the text in the Bluebook, unless I am missing some reason why they don't do it.",32
-fomc-corpus,1981,"Well, it is in the Bluebook, isn't it? I thought you were raising a question of whether it should be in the directive.",28
-fomc-corpus,1981,"Maybe I could explain, President Balles. We could develop it further, of course. But one of the things that came out of that study we did last year was that in terms of analysis and achievement of targets, the best kind of borrowing assumption to assume at the beginning of our path is the borrowing assumption that seemed to be consistent with the interest rates that come out of the money supply target. So, generally what we try to put down is what the Committee in reaching its decision may wish to use as an initial borrowing figure. Heaven alone knows what the final borrowing will be because that depends on how the money supply actually behaves. Presumably what the Committee makes its decision on, in some sense, is first whether it believes those relationships, and second, how it might wish to tilt, if it wishes to tilt, the initial starting point. But after the initial starting point, this borrowing is pretty well dominated by what happens to the money supply.",191
-fomc-corpus,1981,"But the borrowing assumption is generally viewed by people who look at these things at all as a proxy for the funds rate. So, if we put this into the directive, it will be interpreted as having taken a step in the direction of at least initially targeting on the funds rate. Now, it is true that borrowing shifts thereafter; but quite often we take steps to prevent that, like forgiving low volumes of borrowing or redistributing borrowing over a period of weeks. These are all ways of focusing more fully on the funds rate than a pure money supply target.",111
-fomc-corpus,1981,"Henry, I was never suggesting that we ought to put the borrowing assumption in the published directive as part of the specifications. I was urging that there be more analysis and sets of assumptions about different borrowing levels as part of [the Bluebook] for the benefit of the decisionmakers.",56
-fomc-corpus,1981,"Well, that would reassure me. The second thing that would reassure me is if we left the borrowing more fully to find its own level during the period.",31
-fomc-corpus,1981,"We have to start someplace, though, Henry.",10
-fomc-corpus,1981,"Oh yes, we need a starting point.",9
-fomc-corpus,1981,That is all we are talking about.,8
-fomc-corpus,1981,"If I understand what you are saying--I don't know what you have in mind in substance--in principle I think what you are saying is fine. Whatever analysis we need we should have in there. Maybe you should talk to Steve a bit more concretely about what you might have in mind. I thought he did put in what he thought was consistent with these numbers. The Committee has modified it a little today and on other days, on the basis of where we wanted to take the risk, so to speak. But why don't you talk to Steve about putting something in. The Secretary raises the question of whether we are going to have a Monday afternoon session at the next meeting. Normally we would in the light of the fact that we have to settle on the long-range targets. So, I think you ought to assume that.",166
-fomc-corpus,1981,"There will be a longer projection [horizon], too, won't there? You will have to give us some look at 1983?",28
-fomc-corpus,1981,"We also plan to have alternative strategies, if the Committee wishes, as we have put it at other times, on implications for phasing down or staying the same.",33
-fomc-corpus,1981,"The other item that we have is the release of the memoranda of discussion for early '76. Maybe you ought to describe this situation, Mr. Altmann.",33
-fomc-corpus,1981,"Well, as we said in the memo to you, these memoranda for the first three meetings of 1976 are described as unofficial because they have never been presented to the Committee for review or acceptance as we did in the old days. We were under a court order to accede to requests for the segregable factual portions of the memoranda and the Committee made the decision in May of 1976 to discontinue the memoranda of discussion after the memorandum for March. Those three memoranda were not presented because the drafting of them was given a low priority and they were not completed until some years later and by then the composition of the Committee had changed. That is essentially the issue. They could be withheld as being unofficial documents. They could be withheld, I suppose, even if they were regarded as official memoranda. There is one other issue that I brought to the attention of the Chairman because I thought he should be aware of it before we put these out. At both the February and March meetings there was an executive session which concerned the Merrill case--that is, the suit under the Freedom of Information Act. And at the February meeting there was a report by the General Counsel on the oral decision that had been handed down by the District Court at that time, which was against the Committee, on release of the directive immediately and on release of the segregable facts in the memoranda of discussion. At the February meeting the Committee agreed to the appointment of a subcommittee to consider what to do with the memoranda of discussion in light of this court decision, which was obviously troublesome in many ways. At the March meeting, which was after the written decision of the court, the General Counsel again reviewed the options and the Committee agreed to appeal the decision on the directive, but not on the memoranda of discussion. As you all probably know, that case went to the Supreme Court and back to the District Court, and the District Court ruled in June of this year that the Committee or the Board did not have to release the directive immediately. That was not appealed, so that is a dead issue at this point. But this would probably be the first time that the System has acknowledged the link between the Merrill case and the discontinuance of the memoranda of discussion. I think everyone connected with the case assumed that was the fact. And in testimony before Congressional committees starting in 1977 with Chairman Burns on new legislation to require some detailed minutes, it was said that the Board would go along with that legislation provided there was an explicit relief from the requirements of the Freedom of Information Act. Later testimony of Governor Coldwell and then Vice Chairman Schultz made the same points. I think it was generally assumed that there was a link between the Merrill case and the discontinuation.",553
-fomc-corpus,1981,"You said something that confused me a bit, if I understood you. I thought we were releasing these minutes in the past as entirely a voluntary act.",30
-fomc-corpus,1981,"Well, it began as a voluntary act and continued to be so in the sense that the court order only required that we provide the segregable portions of the memoranda that were factual. We would have had to provide that on request. But we continued to publish the entire memoranda with only those deletions made in accordance with our guidelines.",68
-fomc-corpus,1981,"Yes, but on this segregable facts issue, there was a case about that. The only reason we haven't released the segregable facts is that nobody has asked?",33
-fomc-corpus,1981,I think that is the case. Mr. Mannion may have another--,15
-fomc-corpus,1981,Did you ever see that draft with the segregable facts?,12
-fomc-corpus,1981,"Yes, I remember that discussion, but I thought the whole thing was dropped.",16
-fomc-corpus,1981,"But we have only released these with a 5-year delay, is that correct?",17
-fomc-corpus,1981,"That is correct. I should have stated at the outset that in releasing these memoranda for early 1976 we would be following the schedule that we had followed for a number of years. The only thing about them that is different is that they are ""unofficial.""",54
-fomc-corpus,1981,"I thought the only issue here was basically that we are releasing them now, though it is questionable whether we have to. But if we release them now, we have continued the practice we had in the past. Nobody can raise any question of our holding back something that we have. On the other hand, if we release them, it calls attention to the fact that we no longer [prepare] these documents. And it may engender some discussion instead of letting the sleeping dogs lie. What do you have to say?",104
-fomc-corpus,1981,"Everyone realizes that we don't prepare the memoranda of discussion any longer. If you are ever challenged, you always would have to release segregable facts; those are not subject to any privilege under the Freedom of Information Act. What the Committee has been doing on this 5-year delay basis is releasing the entire memorandum of discussion for each meeting except for certain items that may relate to a foreign country or central bank or some concern of the Treasury Department.",89
-fomc-corpus,1981,And that has been entirely voluntary?,7
-fomc-corpus,1981,"That is correct, Mr. Chairman.",8
-fomc-corpus,1981,"The question before us is: Do we persist in our entirely voluntary policy, recognizing these three haven't been checked the way the others have been checked by individual members of the Committee? And we will just say that these three months are all we have. Or do we forget about it on the basis that nobody has asked and who cares? I don't have a strong feeling one way or the other, but I don't think this will attract much attention. Is Mr. Coyne here? We put these out without an announcement as I recall.",106
-fomc-corpus,1981,We have not put out an--,7
-fomc-corpus,1981,I think they will go completely unnoticed. I would bet that you would not get one request.,19
-fomc-corpus,1981,"Hoping that Mr. Coyne is correct, I have no trouble myself in putting these out with a notice that they haven't been checked the way the others have but this completes [the release of] what we have and is in accordance with [past practice].",52
-fomc-corpus,1981,Even when we have announced--,6
-fomc-corpus,1981,"There is this discussion of the Merrill case in them, but that doesn't bother me much.",18
-fomc-corpus,1981,Can you possibly remember what you said back in 1976? I couldn't.,16
-fomc-corpus,1981,I am the only one here who was at those meetings and I couldn't.,15
-fomc-corpus,1981,Nobody can spot something he wishes he never said?,10
-fomc-corpus,1981,That is a long time to remember what we said.,11
-fomc-corpus,1981,"Well, I was there, too, and--",10
-fomc-corpus,1981,"It is better not to start down that route because if we do, then we do have to stamp them as official.",24
-fomc-corpus,1981,Yes.,2
-fomc-corpus,1981,"Put them out now and if [no member of the Committee] has looked at them, they are purely staff documents. I think we are safer that way than to start trying to hunt down those people who might remember.",44
-fomc-corpus,1981,"We have a prefatory note which states the situation in terms of their being called ""unofficial"" because they were prepared after a time lag and had not gone through the [usual review] procedure.",40
-fomc-corpus,1981,"Well, if there is no objection or no contrary concern, we will just put them out as quietly as possible, which has been the case.",29
-fomc-corpus,1981,We don't issue a press release on this.,9
-fomc-corpus,1981,"While we are making them available, we are not announcing that they are available, if I understand this correctly. That means if somebody asks, he gets it. If nobody asks, I guess nothing will ever happen. With that understanding we shall proceed. I believe that is all the business we have. Do we have lunch out there?",67
-fomc-corpus,1981,"Yes, lunch is available in the anteroom for Governors and Presidents and those who have been invited to stay.",23
-fomc-corpus,1982,Do we have any comments or questions on how these people see things?,14
-fomc-corpus,1982,"I have a question. I understand that in most or all of these new wage agreements that are coming in at much lower levels, such as the Teamsters and others, there is for the first time a clause indicating that labor can reopen the contracts if conditions improve in the industry. Do you know more about this? And to what extent is that likely, when recovery starts, to bring about a very sharp reversal in the downward trend in labor costs?",90
-fomc-corpus,1982,"Yes, it is apparently a fairly common part of a limited number of such agreements so far, and one can understand why. In a sense it's one of the things the union is trading away; that is, the union is willing to accept a generally reduced fixed rate of increase in wages leaning heavily, let's say, on cost of living adjustments. But they want the opportunity to come back in to take advantage of any improved profit position of corporations. And I think your point is well taken that it creates greater flexibility and a more rapid response of wages to any change in demand. Usually there is a lag situation with 3-year contracts; it takes a while for any tightening of the labor market to be evident in a wage adjustment. I think this will occur more rapidly but, of course, it depends in a sense on how tight labor markets get. Our forecast certainly does not suggest an environment that would be conducive to very effective bargaining on the part of labor.",192
-fomc-corpus,1982,You have the line for compensation per hour going down pretty steeply; it's all in the future. What gives you that great confidence?,27
-fomc-corpus,1982,"Well, it's not entirely in the future, but you're perfectly right that in large degree it is. We did have a reduction in compensation over this past year. As I noted in my presentation, I think one has to look through that compensation figure a little to the wage figures behind it. The wage rate figures improved somewhat more than compensation last year. We had an $18 billion social security tax increase that raised compensation costs by about 3/4 of a point; and if we adjust for that, we have a better performance of compensation. Beyond that, we expect further improvements in the rate of increase in wages. We have an extremely poor labor market projected: 9 percent unemployment persisting through another couple of years. This will have been, by the end of the projection period, about 4 years in which the unemployment rate was higher than anybody's [estimate of the] natural rate that I'm aware of in any event. And the logic leads us to feel that this is going to result in further easing in wages. [Looking ahead,] we have as well less of the self-inflicted damage that occurs when social security taxes are raised. We have a relatively small tax increase of about $5 billion this year as opposed to last year's $18 billion and a relatively small increase next year as well. So, we think things are working in our favor.",274
-fomc-corpus,1982,The Federal Reserve had a bigger increase in compensation [and is] looking forward to a bigger increase in compensation on some catch-up theory. How many other people are engaged in that?,36
-fomc-corpus,1982,"Well, it's hard to know, but one can--",11
-fomc-corpus,1982,The Federal Reserve's recession hasn't hit yet!,9
-fomc-corpus,1982,The kinds of adjustments that President Solomon mentioned a few minutes ago suggest that we finally are getting the wage adjustments that we were really hoping for.,28
-fomc-corpus,1982,"Yes, we see some signs of this, and some wage agreements that are reported in the newspapers suggest that some industries are under very heavy pressure. But I do hear a lot about other industries that in the total I'm sure are much more important. I'm just wondering what other people hear. Banks in particular tell me they are raising salaries by 11, 12, 13, 14 percent this year.",82
-fomc-corpus,1982,I'm delighted.,3
-fomc-corpus,1982,You'll have to explain that comment.,7
-fomc-corpus,1982,"Well, we do studies to see what the comparable salaries are out there. And when comparable salaries go up, why it's consistent.",26
-fomc-corpus,1982,They will be looking at ours and then we will be in the hole next year!,17
-fomc-corpus,1982,"You're perfectly right. In analyzing those industries where institutional wage adjustments remain [to be made], they did tend to be characterized--in industries that were under very substantial pressure--by market pressure of one sort of another. There are other sectors, for example petroleum, where a wage adjustment apparently occurred which was in line with the kinds of inflationary wage increases that have been occurring in recent years. But we expect spillover effects from this [pressure]. It creates an atmosphere in which bargaining is done against standards that are less inflationary than in the past. And we feel this will have an effect. In addition, of course, we have had a cost-of-living pattern recently that has been somewhat less inflationary; it has been rising somewhat less rapidly. That has a feedback effect as well.",159
-fomc-corpus,1982,"I'd like to offer a thesis. As I see the data, the services sector part of the economy is likely to continue to be characterized by relatively high wage settlements and prices. The divergence in the price trend between the services sector and the rest of the economy in the last year is remarkable. In fact, in the second half of 1981, prices of services went up again at a 10 percent rate whereas [other] prices continued to come down.",92
-fomc-corpus,1982,"That's generally true of wages as well. They have held up really quite well in the services sector. We feel that market considerations will be operating there; that is, the generally slack product and services markets and relatively slow growth in real income will be operating to damp prices somewhat.",55
-fomc-corpus,1982,They don't seem to operate very well in that sector. Governor Wallich.,15
-fomc-corpus,1982,"Aren't we somewhat in a minority in regard to a hopeful outlook for inflation in '83 and beyond? I see that outside models we review seem to feel that in '83 inflation will pick up again with recovery. I look at our own alternative long-run strategies and the easy strategy, number 2, has inflation virtually leveling off in '84. It still goes down in '83. Now, is all this due simply to differences in assumptions on monetary policy or are there more real sector things built into these estimates?",105
-fomc-corpus,1982,"Well, I'm not sure. We have not examined outside forecasts in detail. We have a running tally of four commercial forecasters and, in looking at those, I would judge that monetary policy differences have a great deal to do with that. A mean of four commercial services has M1 growth of something like 6-1/2 percent in 1982 and 5-3/4 to 6 percent in 1983. That's two years of really quite a bit more money growth as compared to the Board's numbers. In addition, they have alternative fiscal policies. The net result is that they have a much stronger recovery in activity; they have something like a 4 percent rate of increase in real GNP in 1983 compared to our forecast of 2-1/4 percent. So, all of those things do have an impact on the price side. And you're quite correct: Relative to outside forecasts, we have a fairly optimistic price projection.",195
-fomc-corpus,1982,Thank you.,3
-fomc-corpus,1982,Governor Partee.,4
-fomc-corpus,1982,"To pick up on your comment, Mr. Chairman, I did get the impression as we went through the chart show and discussed the outlook [at the Board briefing] this morning that this is not a forecast that emphasizes the negative. Everything's possible, but you have a really remarkable decline, as the Chairman said, in compensation per hour. It could occur. But, as you know, it's toward the extreme of what one might think could happen. I must say that your output per hour forecast strikes me as being pretty strong, given the fact that there won't be much recovery in the economy under your projection. As a matter of fact, for the period from the latter half of 1982 to 1983 you have the longest sustained increase in output per hour that we've had since 1977. When you look at prices relative to unit labor costs on the next page, the price index goes down nicely, mirroring the decline in unit labor costs. There apparently isn't anything that occurs in food or anything else that tends to [push] prices up. On the real side of the economy, it seems to me that you have an extraordinarily optimistic projection for plant and equipment [spending] given the capacity utilization chart shown and also the financial factors that are on the page previous to that. And finally, you have consumption really doing pretty well. Apparently, none of the alleged effects of cuts in tax rates is working in terms of stimulating savings. So, therefore, consumption remains high relative to after-tax income. The general impression I get is that this is a pretty upbeat forecast that you're giving us, under the circumstances. Would you like to comment on that?",333
-fomc-corpus,1982,Yes. It depends in part on whether you're employed or not!,13
-fomc-corpus,1982,Is that a personal reference?,6
-fomc-corpus,1982,"Not yet! In any event, you're quite correct that, looking at the assumptions we have, we do foresee some real growth. It's small relative to past cycles, but it's an extraordinary period, given our monetary assumptions. We have what I believe to be a realistic price forecast, given the assumptions, and I view that as quite optimistic. I think something very important is happening on the price side, and 1982 is a key year. I'm fairly optimistic on the price outlook. There very clearly are downside risks in the forecast. Mike pointed to some on the financial side; things can go wrong. Jerry pointed to business fixed investment, which is a sector where there are clear downside risks. I would only say that we are sure to be surprised by some bobbles in the numbers over the two-year time horizon that we're forecasting. But on average, this is our best view, given the assumptions, and I think it's realistic.",187
-fomc-corpus,1982,"Well, as a matter of personal preference, would you say that there are more downside risks or upside risks in your projections?",25
-fomc-corpus,1982,"Given the assumptions, I think there are more downside risks, particularly in the shorter term.",18
-fomc-corpus,1982,That's my impression too.,5
-fomc-corpus,1982,"Can we pursue that for just a minute? I believe it is of some importance to think about the possibility of a real shock, a break of some kind. It is difficult for me at this point in time to see a single domestic shock to the system--the kind of thing that really sends a big tremor through the system--of the size of Penn Central in '70 or Bank Herstatt in '74. If International Harvester or if Chrysler goes [belly up], I don't think those would create that kind of shock in the system. The paper market seems to be in so much better shape. Now, if Ford goes, that would give us considerably more to be concerned about. One worries in the international area about all the East European loans and about the condition of the German banks. And yet whenever one asks the question the answer always is that [the German authorities] would keep any major German banks from going under. They may have a problem. So, it certainly is worthwhile to think about where the shocks could be. We had, what--about 43,000 corporate bankruptcies in 1981? It seems clear that the number is going to be larger [this] year. The order of magnitude is very difficult to forecast, but one would think that the erosion of those balance sheets would cause more difficulties. However, it doesn't seem logical that that would provide a shock to the system of the kind that a single traumatic event would. Or would you disagree with that? Do you think that the number of bankruptcies could reach such proportions that it could provide major problems to the financial system?",325
-fomc-corpus,1982,"Oh, I think it clearly could. I don't think that's the most likely forecast one would want to run with at this time. I very much agree with your assessment early on that the failure of Chrysler or of International Harvester probably wouldn't provide the kind of shockwaves that a large corporate bankruptcy might if it were totally unanticipated. I wouldn't rule that out. Things that are unanticipated are precisely that; we can't predict them. What we do know from looking at some of the individual cases as well as the aggregate numbers is that a large number of corporations appear to be [financially] strained. And part of the outcome, in fact, hinges on what happens to the economy. If cash flows were to erode or stay depressed for a longer period of time than we have in our forecast, then those pressures would tend to build. In the numbers you cited on corporate bankruptcies are a lot of smaller enterprises that have gone out of business. Some of that is related to the federal bankruptcy laws and it can be a misleading guide as to the pressures on the system. But our perception is that there are many corporations, and probably individuals, that over the next year or two could find themselves under severe financial strain given the nature of this forecast.",250
-fomc-corpus,1982,"Just to add to what you were talking about, Fred, I agree that it's hard to see the sequence of events or the big shock that would cause a real bust. But I must say that in recent weeks I've heard the term ""depression"" used by businessmen and ordinary people more than I can ever recall. It just keeps coming up. It's not that it's on everybody's lips, but the term or the concept seems to be bubbling up more than I would have expected.",96
-fomc-corpus,1982,It has a lot to do with the FDR television show. It has been on every channel and everybody is reading about it or looking at it every night.,32
-fomc-corpus,1982,"Yes, but that was just a few days ago.",11
-fomc-corpus,1982,That was just a few days ago. I'm talking about--,12
-fomc-corpus,1982,We always hear more of these things when the economy is near the bottom.,15
-fomc-corpus,1982,"Are you hearing as much of that as you did in late 1974 and early 1975? I'm not, but maybe it's because I still only get a parochial point of view.",40
-fomc-corpus,1982,"No, I wouldn't say it's more. But I just get asked the question: Are we in a depression or are we going into a depression? I have found the frequency of that question picking up in the last few weeks.",45
-fomc-corpus,1982,"I think there's more comment along that line, Fred, than there has been before. When you stop to think about it, Penn Central was an isolated incident. It was a tremendous shock, but it did occur all by itself. Herstatt, while a tremendous shock, occurred all by itself. But a whole series of companies now are moving toward this line, along with the S&Ls. One does worry that the clock is running on all these companies and that if there isn't some relief soon, it could begin to get ahead of itself and a lot could occur all of a sudden.",118
-fomc-corpus,1982,"May I ask what the staff does know on that subject? I have the same feeling impressionistically--that there are two or three of the major airlines, a substantial number of thrifts, Chrysler,--",40
-fomc-corpus,1982,International Harvester.,4
-fomc-corpus,1982,"Yes, at least two of the major farm machinery manufacturers. So right there, just based on impressions, I can come up with over a half dozen big corporations. But has anyone looked at the so-called raw z-scores, the predictors of bankruptcy, as to whether the actual number of firms that in all probability are close to bankruptcy is rising sharply or--",72
-fomc-corpus,1982,I'm not aware of that. Mike or--,9
-fomc-corpus,1982,"Would that be interesting do you think, Mike?",10
-fomc-corpus,1982,"Well, I don't know how large and how reliable the current data base is that we have access to. I know much of the individual firm data that are available are dated and not very reliable. But it might well be worth looking at. Of course, as you mentioned, there are large companies in the agricultural machinery business and strings of suppliers to the automobile industry as well as strings of suppliers in the aerospace industry who are affected, given that commercial aviation is off. So, there may be hard times for many industries. What is different about this period versus 1974 is that we have very high real rates of interest as best we can measure them. And that does have an eroding effect on corporate cash flows. I think that's one of the fundamental differences in the picture now.",157
-fomc-corpus,1982,Mr. Winn.,4
-fomc-corpus,1982,"Well, the thing that troubles me most in your forecast is the level of unemployment. There is very little progress made during the period of the next couple years. With the supplemental unemployment benefits starting to disappear and with the situation in the states being worse than projected--I think you get your totals because of Alaska and Texas, which are in very strong positions--we have a widespread absence of support for the [affected] population group, in light of the reduction in some of the federal programs in this area. And I think the FDR [television series] is not helping us much in terms of a background on that. I sense in the labor movement and in the political movement a stirring that I don't think is going to let this thing grind out in the kind of sequence that we see. Then supplement that with further bankruptcies in some of these sectors, and it seems to me that we haven't factored into this [forecast] a scenario that could be quite explosive. This level of unemployment is quite different than in previous [recessions] in terms of the hard core element. And we're removing support [by scaling down] some of the programs that perform the cushioning effects there. So, I think there is more explosiveness in these numbers than is apparent in the actual figures.",258
-fomc-corpus,1982,Mr. Ford.,4
-fomc-corpus,1982,"May I ask if, as I take it, this chart show is correlated with the projections in the Bluebook? It is. There's something very interesting in the chart of long-range projections that I think is wonderful, but I don't understand how it can happen. That is, on strategy 2 you have the fastest money growth associated with the lowest interest rates and the highest inflation. How did that work out? Do you see what I mean? On the strategy 2 you have the highest inflation with the highest money growth, which I would expect. But then you also somehow get the lowest interest rates out of it; that's the part that puzzles me. How would you explain that?",137
-fomc-corpus,1982,"Well, there are lags in these relationships, of course. And within the time period, in essence we're getting a movement down the demand for money curve. There is more money and people hold it only at lower interest rates. So, within this time span, that does hold interest rates down. And that also produces the stronger performance of the economy, the tighter labor markets, and the greater cost pressures on prices. I think there is a clear consistency. Now, perhaps someone who believes in rational expectations and is of a monetarist persuasion would say: Well, if we know that the money stock is going to be growing 1-1/2 percentage points faster forever, then under the base forecast here, interest rates would adjust instantaneously. That's conceivably an outcome. But as we model short-term interest rates primarily through a transactions demand for money [approach], this is the outcome we get.",184
-fomc-corpus,1982,Could I pick up on that? We often find ourselves saying that we cannot control interest rates except maybe very temporarily at the short end. And here we see that apparently we're supposed to be able to bring down Treasury bill rates for three years and make that stick. I find it hard to see the consistency of what one finds oneself saying about the difficulty of providing interest rate relief and these numbers here.,79
-fomc-corpus,1982,"You get out of the model what the model says. And what the model says is the more money, the lower the interest rates.",27
-fomc-corpus,1982,"In the short run. I would say you can argue about the lag because if we had 1985 on the chart, you'd find interest rates under that strategy rising sharply. And maybe it wouldn't take until 1985. But that very strategy would provide higher interest rates in the long run than any of the other strategies.",65
-fomc-corpus,1982,Is that really true? It wouldn't equilibrate?,10
-fomc-corpus,1982,Unless you provide more money.,6
-fomc-corpus,1982,I'm struck by the fact that your chart show has real GNP relative to potential dropping to the lowest level since 1960. That is a fairly long time period. If you were to raise that level relative to potential by a point or two--from 91 to 92 or 93--I wouldn't think it would do an awful lot for inflation or interest rates because that would only produce a somewhat [higher] lowest level since 1960 in the GNP relative to potential.,98
-fomc-corpus,1982,"All I can say is that the way this model works, as I think many others do, is that if you raise the money stock, it just takes a matter of time--and one can quibble about the time--but over the longer run, it's reflected in prices and not output.",59
-fomc-corpus,1982,You can see that just in that table for '83 and '84 on the high money alternative. The 5-1/2 percent does have a bottoming out of the bill rate in the second year. It's a perceptibly different pattern from the others.,53
-fomc-corpus,1982,Mr. Balles.,5
-fomc-corpus,1982,"I'd just like to ask Jim a question on these fiscal policy assumptions. In the Bluebook, of course, a discrete range of alternatives was set forth--strategies one, two, and three, depending on whether we follow the high end, the midpoint, or the low end of the specified monetary growth ranges. On the fiscal policy side, Jim, I wouldn't know of more plausible assumptions to make than those you have made here. But having said that, how the federal budget will really turn out is in my view one of the big uncertainties now. I'm just wondering whether you experimented with any alternative scenarios on the budget and how sensitive real growth, the unemployment rate, and inflation are to different scenarios.",141
-fomc-corpus,1982,"Well, we did, and we had so many alternatives that it was a question of which one to present or what to talk about. It was a real problem. We did try something that was a much tighter fiscal policy by getting rid of the 1983 personal tax cut, for example, and the 1985 indexing. We stripped that out and assumed more expenditure cuts, and in that process we found that in 1983 when the stimulus of the budget was taken away, output dropped and the unemployment rate rose. That was the short-run effect; but the long-run effect gives you a much better posture with much lower interest rates and a better inflation performance. There is this output cost in the short run but that fiscal alternative of a tighter posture does in fact provide a good deal of relief on the interest rate front, according to the model, and does provide opportunities over the longer run for improved inflation performance.",184
-fomc-corpus,1982,How much relief for interest rates do you get in your model with a tighter fiscal policy?,18
-fomc-corpus,1982,"With this fiscal alternative and the judgmental money assumptions, the model reduced the bill rate in 1983 by some 2-1/2 percentage points; the bill rate was a little under 10 percent versus 12-1/2 percent. So, it's 250-300 basis points. But I must say that was a package of about $50 billion on the tax and expenditure sides. It's a big fiscal change from what we have here.",92
-fomc-corpus,1982,This was with no change in monetary policy?,9
-fomc-corpus,1982,That's correct.,3
-fomc-corpus,1982,You didn't postulate that if we had a [tighter] fiscal policy we might have a more--,21
-fomc-corpus,1982,"Yes, we did. Fiscal alternative [unintelligible] higher money. In 1983, we'd get a 6-1/2 percent bill rate instead of 12-1/2 percent. One can get all sorts of things, but that was an outcome that at least in the first 3 years produces a much better performance on most of the variables you might be interested in. Then it begins to get worse as you go out further in time.",95
-fomc-corpus,1982,Does that give you an increase in business fixed investment and housing and so forth? It must.,19
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"What are you assuming here on the budget? You're assuming a higher level of expenditures than the Administration is going to project by a considerable margin, right?",30
-fomc-corpus,1982,"I presume so. Those numbers were still being changed, I am told, even as of this last weekend. I really lost track several weeks ago. I think we are higher because of the economy as well as--",43
-fomc-corpus,1982,That's what I was going to ask. How much is the economy and how much is a difference in [the fiscal assumptions]?,25
-fomc-corpus,1982,"Well, in fiscal '83, they have an unemployment rate of around 8 percent or so and we have a little over 9 percent; that alone probably is worth roughly $30 billion on the deficit. Also, I'm told that for fiscal '83 they have something like $15 to $20 billion of tax raising measures and $30 billion of expenditure reductions, and we've taken about half on those sorts of things.",84
-fomc-corpus,1982,You've taken half of what you expect them to propose?,11
-fomc-corpus,1982,Correct.,2
-fomc-corpus,1982,That's probably as good a guess as any because they certainly don't expect to get all of that out of the Congress.,23
-fomc-corpus,1982,"Jim, isn't your model in a sense vitiated by the fact that you have data going way back into the '50s when inflation wasn't very important but fairly sizable actions were taken both to curb inflation and to get the economy going. So, you have a history of large actions, large swings in the economy, and modest reactions on inflation. The model then gives you these same answers for the present period when it would seem to me that large swings in the economy would also have large effects on inflation.",102
-fomc-corpus,1982,"Well, I think that's possible. When talking about long-run forecasts I'd be very cautious simply because for most of the very important variables we're out of the range of historical experience. So, I wouldn't disagree with that.",43
-fomc-corpus,1982,I find it interesting that the interest rate projections in the bond market that are consistent with your GNP scenario show virtually no change. [The bond rate] is projected to be between 15 and 16 percent over a 2-year period. What does that say about inflationary expectations and investors affecting the bond market at a time when you're showing such a sharp drop in actual inflation? How do you tie this whole thing together? Are you in effect saying that bond market investors are going to continue to have a fairly high level of inflationary expectations notwithstanding the major progress that you're assuming in '83 and '84?,123
-fomc-corpus,1982,But think of the deficit that they're assuming [in their forecast].,13
-fomc-corpus,1982,I'm not disagreeing. I just want to be sure that I understand what the man said.,19
-fomc-corpus,1982,"I think that's right. Our forecast would be one of continued high or, in fact, rising real rates given that we have inflation coming down. So you'd have to be thinking in terms of disbelievers in the market; that's certainly a possible way of reconciling these differences.",57
-fomc-corpus,1982,"You're talking about real rates building to 10 percent or thereabouts, aren't you?",17
-fomc-corpus,1982,"Well, as Governor Wallich would say, before taxes--",12
-fomc-corpus,1982,Just a little on the economy--,7
-fomc-corpus,1982,That is. if there is any tax left!,10
-fomc-corpus,1982,"Another question on your tighter fiscal policy assumption: How did that translate, if you did this, with Mike Prell's chart on the Treasury borrowings and the percent of total funds raised? The chart shows that percentage shooting up to 40 percent by 1983. Would we get any significant relief under that tighter scenario from the crowding-out phenomenon that I'm quite afraid of?",76
-fomc-corpus,1982,"The borrowing that we have with that tighter alternative would drop about $45 billion, which is about 10 percent of total funds raised. So it would make a substantial difference in terms of the federal borrowing as a share of total funds available.",48
-fomc-corpus,1982,"Let me pick up, John, if I may, on the point that Tony started to get at. I think there's a natural coincidence of conversation about the downside phenomenon here, but this real/nominal interest rate issue strikes me as something that really may cut the other way, even if it's only in the realm of possibility. As I look at all of the numbers here, basically, you have nominal interest rates unchanged between 1981 out to 1983. And that's true whether it's mortgage rates or bill rates. But at the same time, you do have in that time frame a very sharp change in the measured rate of inflation, ending up with 5.7 percent or something like that in 1983. My question is: Isn't it at least conceivable, everything else equal, that you could end up with quite different nominal interest rates, particularly when you're also talking about higher savings? In Mike's flow-of-funds tables, I must say I am struck by the fact that even with the deficits the way you have them, total funds raised as a percentage of GNP is down fairly sharply from where it was as recently as 1980. Now, I wouldn't project it, but isn't there clearly some [possibility that], if things worked a little differently, we could be looking at something much more favorable in terms of nominal and real interest rates?",276
-fomc-corpus,1982,"I'd make a couple of observations. One is that, of course, that outcome on flows is the outcome of supply and demand. And one of the things holding that flow down is our basic interpretation of the monetary target and the constraint it places on the supply of funds. The other thing is that, indeed, if one adheres to this policy and sees the progress on the inflation front and a slowing of all the underlying indicators of inflationary trends, then one might anticipate some improvement in nominal interest rates reflecting a decreased inflation premium. We've been cautious in that. Given the short-term interest rates we see as in essence clearing the money market, we've been hesitant to put in a big drop in long rates at the same time that short rates are pretty much stable and at some points higher than they are now. It's just totally against all history to have a pronounced drop in long rates when short rates are under this kind of pressure. But it's not inconceivable in this kind of environment.",197
-fomc-corpus,1982,"Well, if I may, again on the same question that the rest are asking: If you do calculations on trends in real rates and compare them under the three strategies--strategy 1 being the one that I assume starts with 4 percent growth--the way it seems to work out is that by 1984 under strategy 3, which is really tight money, the real rate of interest is 8.6 percent versus 3.1 percent under the most expansionary monetary policy. And if you give any credence at all to the expectations notion, it would seem to me that after 3 years in a row of tight money and dramatic reductions in inflation down to 3 percent, the real rate of interest would be smaller under that strategy than the others--certainly not 3 times as high as it is under strategy 2 by 1984.",175
-fomc-corpus,1982,"Well, this is a short-term rate of interest. And I don't think there's any clear evidence that as one models the demand for money one can find clearly a separate influence of the expected inflation rate. In essence, the nominal interest rate captures the opportunity cost of holding cash balances and, therefore, there's not an obvious place for inflation expectations per se to enter into that. But the farther out you get on the maturity spectrum, the more plausible it becomes that this kind of inflation expectations effect will have a significant impact.",103
-fomc-corpus,1982,"In other words, if instead of just the T-bill rates shown here you also had shown, say, rates on 5- or 10-year notes or bonds, the apparent inconsistency there would be less apparent. That is, you could have the [lowest] long-term rates under the tightest monetary policy.",65
-fomc-corpus,1982,"Not necessarily, using a traditional model. That probably would tend to show rising long-term rates because short-term rates are rising.",25
-fomc-corpus,1982,Does your model put out a long-term rate or a 5-or 10-year rate?,19
-fomc-corpus,1982,"It [does use a long-term rate], but it has not been especially reliable. That's one of the reasons we have not used it very much. In fact, it has been underpredicting long rates over the past year.",46
-fomc-corpus,1982,You have mortgage rates on there.,7
-fomc-corpus,1982,"Getting at this real rate effect: Don't you have to trade off the effects of the inflationary expectations, which have become commonplace, versus the demand effect that comes from this very large deficit? It seems to me that it's the demand side that is driving up the real rate and more than offsetting the positive effects you're getting from inflationary expectations.",69
-fomc-corpus,1982,"That's right. And I wanted to mention that I think it's both the federal side as well as the private sector. On these tight money alternatives, essentially the economy very much wants to grow more rapidly in nominal terms than monetary policy is permitting it. And it's that kind of squeeze in the short end that is driving these rates up. So, I'd say it's both the federal government sector as well as the private sector; even though we have a fairly sluggish private sector, in our view there are still demands that would be satisfied at these rate levels. And you need those sorts of rates to restrain the economy over this time horizon.",126
-fomc-corpus,1982,"You still have a fairly substantial shift in the demand for money in 1982, don't you?",20
-fomc-corpus,1982,We have assumed about 2-1/4 percent.,12
-fomc-corpus,1982,How does that compare to what happened in 1981?,12
-fomc-corpus,1982,"Well, 1981 is bordering on 6 percent, I guess.",15
-fomc-corpus,1982,About 5-3/4 percent.,9
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,And we have greater drift in later quarters.,9
-fomc-corpus,1982,"It seems to me, notwithstanding the rapid decline in the actual rate of inflation that you are projecting, that inflationary expectations will stay high for two reasons: (1) the short-term volatility of rates; and (2) as two years go by, if we stay at 9 percent unemployment and very depressed housing conditions, etc., notwithstanding the progress on inflation, there will be less and less patience with that situation in the political arena. If you add to that some changes in the election in '82 or changes in the polls of public opinion, then I think there is going to be pressure for reversing some of the spending cuts. On the other hand, there may be some willingness to do something on the revenue side, so I'm not sure what the net effect on the deficit would be. But I don't see any realistic scenario that assumes that the country will simply stay with this situation for two years, notwithstanding the very attractive drops in the rate of inflation. I don't know what follows from that because there are so many different possibilities as to what form the reaction would take.",215
-fomc-corpus,1982,Mr. Black.,4
-fomc-corpus,1982,"Mr. Chairman, we had very little in the way of differences in the forecast for '82, although a slight difference in quarter-to-quarter performance. The main difference we had was the one that Jerry elaborated on more than anyone else. With the projected decline in inflation, I think rates have to come down more than what we see projected here. And on the point that Mike Prell developed a while ago: If long-term rates did come down, I would expect short-term rates also to follow as people use the proceeds of that long-term borrowing to liquidate some of their short-term debt. So, our guess would be that we are underestimating the amount of real growth and overestimating the amount of unemployment that we would have in '83.",153
-fomc-corpus,1982,"On that happy note, Governor Gramley.",9
-fomc-corpus,1982,"Well, I think one of the answers to why real rates are so high is contained in one of the charts that the staff had in its briefing [to the Board] this morning. I don't happen to have it with me, but it showed the components of GNP and the trends in those components over time. It had consumption going up like [a rocket] to 65 percent [of GNP], the highest ratio since 1948; it had defense expenditures going up from something like 4 percent to 6 percent, as I remember the numbers, and investment dropping out of bed. In effect, what is happening is that when we have a fiscal policy that stimulates consumption and is designed to increase defense expenditures, real interest rates have to go high enough to hold down the rate of business fixed investment to the point where it will fit within the monetary growth assumptions provided. If you look at the numbers for monetary growth and nominal GNP, you find that strategy one provides for an increase in velocity of roughly 4 percent in 1982, 3 percent in 1983, and 3.8 percent in 1984; it's 3.3 percent on average. And what has to happen, if we're going to get a better economic performance than what the staff has provided here, is that we have to get awfully lucky and have another one of those big downward shifts in money demand. That may happen, but I think the staff is quite right in saying one can't be sure.",303
-fomc-corpus,1982,Are you saying anything different--in an elegant way--than that the deficit is pushing interest rates higher?,21
-fomc-corpus,1982,It looks at it in a different way. It says when we have a combination of--,18
-fomc-corpus,1982,"But you're going to get those same velocity shifts regardless of what the deficit is, on one theory anyway. Well, you get it at lower interest rates.",31
-fomc-corpus,1982,I wouldn't subscribe to that theory at all.,9
-fomc-corpus,1982,"Well, you get the same velocity but at lower interest rates.",13
-fomc-corpus,1982,I don't subscribe to the theory that you get the same nominal GNP no matter what fiscal policy does.,21
-fomc-corpus,1982,"You get a lower nominal GNP; you get more unemployment, too.",15
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,"A lower nominal GNP with a smaller deficit, right.",12
-fomc-corpus,1982,And you get lower [employment] and less growth.,11
-fomc-corpus,1982,You get more unemployment and somewhat less growth. Yes.,11
-fomc-corpus,1982,In the short run.,5
-fomc-corpus,1982,In the short run. But you'll get an economy--,11
-fomc-corpus,1982,Why is it only in the short run?,9
-fomc-corpus,1982,"Well, over the long run--and by long run I mean over the next 20 years--if you believe that prices are sufficiently flexible, then the real GNP will be related to productivity and real resource use.",44
-fomc-corpus,1982,"Eventually prices will go up, too.",8
-fomc-corpus,1982,"I guess what you're saying is that that big hunk of 42 percent of the demand for funds is not interest sensitive at all. Therefore, you have to force the real rate up on the residual in order to keep the total down to the point that it fits within your monetary assumption.",58
-fomc-corpus,1982,"To the extent that inflation comes down, that nominal rate does not have to go up as high.",20
-fomc-corpus,1982,"But Chuck, under that argument, if you didn't have the 42 percent, you could end up with the best of both worlds in the sense that all credit demands were interest sensitive and the real economy could be stronger even though you had lower deficits.",50
-fomc-corpus,1982,"Well, the first effect would be lower GNP because you have the reduced federal spending; but the second effect would be the impact lower interest rates would have on expanding total demands.",36
-fomc-corpus,1982,"Does anybody else have any comments? How full is the strategic oil reserve these days, Mr. Truman?",21
-fomc-corpus,1982,I don't know. My memory is that it's about--,11
-fomc-corpus,1982,How much are we putting in it now?,9
-fomc-corpus,1982,"We're putting in about--. Let's see, I do have that figure.",15
-fomc-corpus,1982,"We were putting in 100,000 [barrels] a day. And then didn't they raise it?",22
-fomc-corpus,1982,"Well, it was moved up, I think, to 1/4 million barrels a day. If you hold on a minute, I'll tell you what they did last year, at least. Last year it was 340,000 barrels per day on average. And that was high relative to the previous periods. We have in the forecast something only on the order of a little over 100,000 barrels per day. They put a lot in over the last three quarters.",96
-fomc-corpus,1982,You have it going down.,6
-fomc-corpus,1982,The rate of fill has gone down. I think that is one of those things that is locked up in the budget financing situation with Mr. Stockman. It's no more certain than some of these other factors.,42
-fomc-corpus,1982,Is 120 billion what they're trying for?,9
-fomc-corpus,1982,120 billion?,3
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,I mean million.,4
-fomc-corpus,1982,"As of the middle of 1980, it was 91 million barrels and they've been putting more in at the rate of about 100,000 [per day]--I'd have to multiply that out--for the past two years.",48
-fomc-corpus,1982,This last compensation figure--I keep staring at Mr. Zeisel--you have plotted: Is that the third quarter or the fourth quarter?,28
-fomc-corpus,1982,The last real figure would be the fourth quarter.,10
-fomc-corpus,1982,The fourth quarter.,4
-fomc-corpus,1982,Was it 5.7 percent in the fourth quarter?,12
-fomc-corpus,1982,This is year-over-year as the chart reads?,10
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,What was that figure for compensation in the fourth quarter--5.7 percent or something like that? It was pretty low.,25
-fomc-corpus,1982,"For total private business it was 5.7 percent; for total private business for the full year 1981 it was 9.3 percent, and that was down a percentage point from the year earlier.",43
-fomc-corpus,1982,"I never did get to ask the question. Why was it so low? I recognize that there's a lot of volatility in those quarterly figures, but that 5.7 percent did seem to be quite low. Do you think that's an aberration or was that indeed indicative of some real progress?",59
-fomc-corpus,1982,I would think it's an aberration. There's a certain amount of--,14
-fomc-corpus,1982,"For the first three quarters, the average earnings per hour figure was coming way down while the compensation index was not. And then finally in the fourth quarter, there was this delayed parallel trend movement in the compensation index. For the first 9 months of the year, as I remember, we had a significant drop in average earnings that we did not have in compensation.",73
-fomc-corpus,1982,"Let's take a couple of minutes [on recent developments in the aggregates], since it bears upon what people think about the long run--or at least what I do. Although I don't know the answer on what has been going on in the money supply in the last 2 or 3 months, maybe you can say something, Mr. Axilrod, in terms of the composition and the surveying that your people have been doing and so forth. Then let's get comments from around the table on how everyone is looking at this.",105
-fomc-corpus,1982,"Well, so far as we could tell, in the last 2 or 3 months we have had this very sharp run-up in the money supply, which partly was expected, given interest rates, and partly unexpected. I can't divide it very easily between the expected and unexpected parts, but I would point out, as many of you have heard, of course, that we have had a fairly sharp turnaround in all of the components of money; but in particular the turnaround in other checkable deposits seems to be correlated with a turnaround in savings deposits. For example, the savings deposit component of M2 declined over the 6-month period from April to October '81 at about a 21 percent annual rate at a time when other checkable deposits were growing at around a 15 percent annual rate. I picked that period because that is after the bulk of the shifting into other checkable deposits was finished in the first 4 months of the year. Since October--in the last 3 months--savings deposits on the new seasonals have increased at a 12 percent annual rate, compared with this 21 percent decline, and other checkable deposits have moved from a 15 percent annual rate of increase to a 53 percent annual rate of increase. At the same time, of course, demand deposits have turned around. They had been declining at a 6 percent annual rate and are now expanding at a 6-1/2 percent rate through January. But the bulk of that expansion in January occurred in the first week and is now ending, whereas the expansion in other checkable deposits has remained strong through the balance of January. So, I think the demand deposit expansion is working its way out whereas as yet we have not seen the NOW account and savings deposit expansion working its way out. We've tried to investigate the various reasons for the increase in savings and in demand deposits. We have surveyed the banks and we have not gotten very satisfactory replies. In my view some of it is related to nonconsumption, just savings resulting from a failure to consume [and funds] flowing into the easiest alternatives for a while--demand deposits, NOW accounts, and savings deposits. Some of it is related to actual financial uncertainties. We see that in time certificates; small time certificate growth slowed very noticeably in December and January, and that money is being placed elsewhere, at least temporarily, in more protected forms. And we have heard bits and pieces of evidence that corporate demand deposits were rising toward year-end and early in the year, partly for corporate window-dressing and partly for compensation balances. However, those were bits and pieces of evidence and they were not very clear-cut. This rapid expansion has tended to exhaust much of the growth for the year [allowed for] in the tentative targets, as the Committee can see by observing chart 1, following page 11 in the Bluebook. That range of 2-1/2 to 5-1/2 percent is plotted from the actual level for M1 in the fourth quarter of 1981. As you can see, the January expansion has brought growth well above the range; growth is well above the parallel dashed lines [unintelligible]. In effect, much of the expansion for the year has been used up. It is quite possible that we could get negative numbers in February and March. As the Bluebook points out, we had that in 1981 following the April bulge at a time when short rates rose very sharply. And that has occurred on rare occasions at other times. But absent such a sharp drop, the amount of monetary expansion [that could occur] over the balance of the year is relatively limited [if money growth is to be] within the tentative range adopted by the Committee. That, of course, Mr. Chairman, brings up questions about the range and its basing and whether it should be raised.",783
-fomc-corpus,1982,"I don't quite want to get to those [issues] now. But, obviously, what you think is going to happen in the next few months makes quite a difference in how you look at a lot of things. Everybody has been looking at this to some extent. We have this phenomenon of big NOW accounts in particular, although other things are mixed in with it. We don't even know whether the seasonals are any good, and they may well not be. Does anybody feel that they have any stronger insights into what is going on here? Mr. Morris.",112
-fomc-corpus,1982,I may have a feeble one.,8
-fomc-corpus,1982,We want a strong one.,6
-fomc-corpus,1982,"I think one of our problems is the assumption that we made at the last meeting--that the adjustment to NOW accounts nationally was over. The New England data lead me to suspect that that may not be the case--New England being the only section [of the country] with mature NOW accounts. I looked it up to see if we have had any bulge in NOW accounts and we have not. They have been quite flat. So, that at least is a little evidence that perhaps the problem is that the national NOW account adjustment is going to take longer than we had assumed.",116
-fomc-corpus,1982,Do your back data show anything on--,8
-fomc-corpus,1982,The data we got show that--,7
-fomc-corpus,1982,"Let me just pursue that for a second as a possible explanation. My understanding was that very few of you, if any, found much of the explanation in the opening of new accounts instead of [an increase in] existing accounts. Is that true?",50
-fomc-corpus,1982,That's right. This was all [accounted for by] existing accounts going up.,17
-fomc-corpus,1982,"There seems to be a little inconsistency with that explanation, but that's an interesting phenomenon.",18
-fomc-corpus,1982,"Well, maybe it's not the right explanation. I thought it might be because it's not clear to me why New Englanders should feel more secure and not need to put more money into NOW accounts than people in the rest of the country.",47
-fomc-corpus,1982,"In the past have you had increases in NOW accounts in the first part of January? You've had NOW accounts for what, five years now?",28
-fomc-corpus,1982,They go back to the middle of 1972.,11
-fomc-corpus,1982,But do you show in those early years a sudden jump in January?,14
-fomc-corpus,1982,"No, I don't think so.",7
-fomc-corpus,1982,Did your demand deposits increase along with the rest of the country?,13
-fomc-corpus,1982,"Yes, our demand deposits were up.",8
-fomc-corpus,1982,Have they fallen off recently?,6
-fomc-corpus,1982,I haven't seen [data for] the latest week when they apparently have fallen off nationally.,18
-fomc-corpus,1982,"The demand deposit [increases] have been more on the corporate side, not the personal side.",20
-fomc-corpus,1982,What kind of seasonal do you have on the NOW accounts? Are you using your own seasonal because you have this--?,24
-fomc-corpus,1982,We've just been comparing our nonseasonally adjusted data to the national--,14
-fomc-corpus,1982,"Unadjusted data, I see.",8
-fomc-corpus,1982,The unadjusted data.,6
-fomc-corpus,1982,Mr. Balles.,5
-fomc-corpus,1982,"Well, I don't really have any answer, Mr. Chairman. I do have a couple of questions that I thought I might try on Steve. We couldn't find any good reasons for this explosion we've had in NOW accounts in the Twelfth District. Our banks weren't very helpful in throwing any light on why it has occurred; it just seems to be happening. Maybe it goes back to the thought that you expressed; it could be a belated reaction to interest rates having fallen late last fall. It could be increased liquidity preference in a period of uncertainty. The more I mull over why it's going on, the more I just have a hunch that we may be asking the wrong question in a sense. I recall a debate around this table some years ago in the mid-1970s--I can't remember exactly when it was, perhaps 1976 or 1977--when we were agonizing over an excessively rapid and unexpected rate of monetary growth and why it was occurring. I think it was Chairman Burns who said at that time: Well, it's very simple; we've been putting too many reserves into the market. And I wonder if that isn't really the basic answer when everything is said and done.",241
-fomc-corpus,1982,"Well, there's a correlation, obviously. It wouldn't be there if we hadn't put the reserves in. The question one has to ask oneself is: Why this much money at current interest rates or rising interest rates? That is the question, mostly, that we are trying to answer. Why has the demand for money at current interest rates expanded? If we had somehow managed to get all those reserves out and not permitted this much money in these NOW accounts and demand deposits and currency, then it's our thought that, of course, interest rates would have been a lot higher. So we'd have to ask if you'd still be wanting to know the answer to the question at that point. If we had succeeded in doing that and had these high interest rates, you would want to know why interest rates were so high in the middle of a recession and we'd be trying to explain why the demand for money was strong. That's what we're looking for, those kinds of explanations.",190
-fomc-corpus,1982,"Well, taking the whole period of November through January, Steve, when we had this very rapid growth, net, do you have an impression of how much of it was due to changes in multiplier relationships? Does that explain very much of it?",49
-fomc-corpus,1982,"Well, I'd have to go back and review. We tried to [determine] the extent to which we might have been off on the multiplier relationships that we put in the reserves to money path. Of course, we change these each week as we get data, and with lagged reserve accounting in some sense we are always perfect on it. But the current relationship doesn't mean anything and the lagged one does. I don't recall to what extent we've had to change them. We've made considerable changes, but I don't recall that as being a big source of error with the lagged reserve accounting.",119
-fomc-corpus,1982,"The trouble with that explanation is that we've been putting in reserves since July or so and it has only been in November, December, and January that money growth suddenly took off.",35
-fomc-corpus,1982,It suddenly grabbed and the question is why.,9
-fomc-corpus,1982,Mr. Ford.,4
-fomc-corpus,1982,"As you requested, we did a survey. And if it's bad to contribute, then we're guilty, because our growth in the last month has been distinctly above the [national] average both in demand deposits and other checkable deposits. We've had a particularly strong kick in terms of percentage growth in NOW accounts, the area that you expressed an interest in. There was virtually no change in ATS-type accounts. I asked my staff to take a sample of the banks around the District that were contributing particularly to this growth above the trend growth for the whole nation and, like the others who commented, we could not find any clear, simple, new explanation. The facts we came up with were that virtually all of it was in existing accounts--to address the possibility that you raised, Frank. We did not see any surge in the number of new NOW account openings; growth was in existing accounts.",177
-fomc-corpus,1982,Is there any evidence of higher minimum balances being imposed now that might have led to a change?,19
-fomc-corpus,1982,"We didn't pick that up. There's a drift higher. Right now in our District there's very heavy competition among [financial institutions] on pricing of all types of deposits, particularly the IRAs. And the terms and conditions for IRAs seem to be getting more and more competitive from the consumer standpoint. I didn't check any trend on NOWs, but I haven't noticed it. I just don't know. So, we didn't get any strong indication of any surge in new NOW account openings. It's just the existing accounts that are building up. As far as the speculation as to why, a couple of bankers said that they think people are holding off, waiting to see what develops in IRAs, and are just parking money in these NOW accounts until they figure out the best IRA deal, at which point they will switch to an IRA. The IRA deals are still being unveiled in our District. Another explanation is the simple old one that people are just saving more and spending less. It seems consistent with other information we have. There's nothing really exciting, though, on the demand deposit side; we don't see anything particularly interesting there. We looked at it and considered it normal corporate window-dressing during this year-end period; nobody believes it's an unusual amount of corporate window-dressing.",253
-fomc-corpus,1982,"Mr. Roos, as I remember, money growth wasn't very big in your District. It probably means you have better monetary policy out there!",29
-fomc-corpus,1982,"I asked our staff to see if they could churn up some figures that perhaps would explain not the IRA thing but why M1 acted as it did. And they did come up with some interesting figures that I'll be brief in touching on. The bottom line of the figures they gave me indicated that we were somewhat slow in our willingness to change our nonborrowed reserve path under certain circumstances. They looked at four periods. One, for example, was the 3 weeks ending August 19 and, Steve, let me see if I can explain what I'm trying to say. In those 3 weeks, the projected deficiency of total reserves relative to path averaged about $152 million, according to our records, and in that period we did not change our nonborrowed reserve path nor did we change the discount rate. The average in the 4 weeks ending September 15--and this was when the aggregates were undershooting--was about $244 million. The deficiency in the 3 weeks ending October 7 was about $405 million. And in each of those periods, if my staff's figures are correct, we apparently did not change our nonborrowed reserve path nor did we change the discount rate. Now, back in May of [last] year, when total reserves were projected to be about $500 million above path, we increased the discount rate and we reduced the supply of nonborrowed reserves by about $375 million. And as a result of those actions, Ml began declining immediately and we did avoid a continuation of that. We, in effect, interrupted the bulge that occurred then. Is there any logic in their conclusion, based on that type of evidence, that one of the problems has been a problem of our not moving our nonborrowed reserves as quickly as we should?",360
-fomc-corpus,1982,"Well, President Roos, maybe to put a little perspective on this--I don't know about those figures but I'm sure they're accurate--from September to December of [last] year the Committee originally wanted M1-B growth, shift adjusted, of around 7 percent. They changed it a bit in mid-course. By the time September to December was over, we had [M1-B] growth on the order of 8-1/4 percent. I haven't checked the most recent seasonal figures, but these are the figures before they were adjusted. That's not far off from what the Committee found perfectly acceptable and is probably on the order of what the Committee would find generally acceptable given what happened. What then occurred was that January growth was unusually high, going into a period when the Committee wanted growth to phase down into the longer-run range. It was made unusually high by a bulge in demand deposits early in the month, which I believe is in process of working its way out, though not entirely. And it has been maintained at a high rate by NOW accounts not quite working their way out so far but, in fact, growing faster in January on average than in the preceding two months. In light of all that and with total reserves running strong, of course, a downward adjustment of around $190 million was made in the nonborrowed path midway through this period. We put additional pressure on the funds rate. There's no way in a period as short as a month, given lagged reserve accounting or possibly even given contemporaneous reserve accounting, to have gotten that growth of 20 percent down to, say, 5 or 6 percent or whatever the Committee would have felt comfortable with, short of a funds rate moving up I would guess into the 27, 28 percent area, with contemporaneous accounting. I made a theoretical calculation at one point, which would not have changed the basic question that the Chairman raised as to why money demand was so strong in this very short-run period. One would have had to answer that question either way. But I think the actions taken with regard to the reserve path were such as to work in a constraining direction.",436
-fomc-corpus,1982,"In other words, that's the answer: That you withdrew reserves by about $190 million.",18
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"The excess of the total reserves was up in the $300 or $400 to $500 million area. You say that if you had pulled all of those out, it would have had a dramatic upward influence on interest rates. And that's the reason you didn't.",52
-fomc-corpus,1982,"If we had pulled out $400 million, we would have had more borrowing, of course. But all the research I've seen suggests that to pull out $400 million of total reserves in a month--under contemporaneous reserve accounting, let's say, not under lagged --we would have to reduce nonborrowed reserves by something like $3 billion because the banks are going to offset that with borrowing. And if we reduced nonborrowed reserves by about $3 billion, the banks would borrow $2.6 billion to get the total down $400 million, and interest rates would go up extraordinarily high. That's how the mechanism would work in the short run. You might conceivably get January down, assuming contemporaneous reserve accounting, but then interest rates would be so high that February would be plunging negative. Then interest rates would have to drop very sharply to induce banks to expand again and get the February growth up. That's how the process seems to work.",193
-fomc-corpus,1982,"Steve, our experience in May, though, when we had a similar bulge and when you did take strong action to reduce nonborrowed reserves--I think by about $370 million, if my numbers are correct--was that it did cause the fed funds rate temporarily to go to about 19 percent, but then it receded, didn't it? In other words, I wonder if we are exaggerating the possible volatility of those fed funds rates and whether we're not in the long pull affecting interest rates more meaningfully than if we really bit the bullet.",112
-fomc-corpus,1982,"Well, in my judgment, President Roos, last April that bulge probably would have come out to some degree without our doing anything--that is, with interest rates unchanged. And the rise in rates that occurred--because it was just [due to] temporary factors--of course encouraged it to come out more. It may even have contributed to money running low for the rest of the month. So, I'm not sure how the variability would have worked out in that respect. You can make the case that you could get less variability in money growth with less variability in interest rates if you examine these things carefully through a different procedure.",127
-fomc-corpus,1982,Mr. Corrigan.,5
-fomc-corpus,1982,"Well, Mr. Chairman, we tried to look at this question of the money supply both analytically and by relying on anecdotal information as well. Let me just touch on each of these briefly. On the analytical side, we really looked at two things. One was the seasonal adjustment, and there I guess what we found is a bit of good news and bad news. There was good news in the sense that using a different procedure than X-11 one could point to a pattern of weekly movements in January that is quite different from the one that the official numbers suggest. Now, I don't mean to imply that one method is better than the other. But it really tends to underscore how extremely volatile these seasonal factors are and how badly they can lead us astray in a given period of time. The second thing we did is probably more important. We tried to take a quick and dirty look at this question of how the measured money supply responds to changes in interest rates, recognizing that there are at least some people on the staff--it's not many--who argue that if you go back and look at declines in interest rates in the late summer and fall of 1981, maybe what we have been seeing over the last 3 months isn't all that unusual. We tried to look at that and found at least in a very tentative way that perhaps more of what we've seen can in fact be explained by declines in interest rates earlier on. Indeed, while this work is very tentative since it has been done in only about 8 days, it does suggest that the response in money to changes in interest rates or shocks in the federal funds rate is a lot greater than I thought possible. And it may well argue that the problem isn't so much too quick a response on the part of policy but the other way around: That the harder we hit the short-run blip in the money supply by jiggling reserve paths or whatever the more we may be creating a worse problem for ourselves a little further down the road in the sense that by hitting it hard it builds in this perpetuating cycle that we've seen a little of over the past 2-1/2 years or so. Of course, the argument could be made the other way as well. I don't know the answer yet, but certainly this work does suggest that more of the increase in money than I thought possible can be explained, at least by this exercise, by what happened to interest rates earlier. And to my way of thinking that's not inconsistent with the argument that we ought to respond more slowly rather than faster to some of these temporary blips in the money supply. But even under the best of circumstances, I don't think either of those factors can fully explain the more recent developments in January. And there we did try to develop some anecdotal information. Certainly in our case we were able to find on the business side patterns of window-dressing by large corporations that involved larger amounts of money than both they and their bankers said had been typical in earlier years. And that phenomenon was very short-lived, which of course is compatible with the idea of that big bulge in business-type checking accounts in the first week with washouts in the next two weeks. On the household-type checking accounts, NOWs and so on, we really don't have much to add. In our area, in terms of Frank's point, we too didn't see many new accounts. It was all existing accounts. The bankers and others we talked to basically made the argument that we have some kind of precautionary phenomenon here, some of it related to the economy and unemployment, some of it related to uncertainties about the interest rate outlook, some of it maybe related to savings flows themselves, and some of it--at least in the case of our own employees in the Bank, based on a little informal survey we did--related just to a desire to build up larger balances to pay off bills incurred in December faster than they might ordinarily do. That's about it.",798
-fomc-corpus,1982,"Mr. Chairman, President Corrigan mentioned the effect of interest rates and I probably should point out to the Committee that our monthly money market model, which is very often wrong and is sometimes right, would have projected very sharp growth in the money supply. That is one of the reasons we thought [M1] would grow in November and December, way back when. And [the model] would project that growth continuing on, given interest rate moves that had already occurred, into January--but not at this rate--and February and March and petering out after that. On the other hand, if you look at our quarterly model, it would suggest that the money growth we've gotten in January is more than enough to finance the quarter's income, given interest rates. And to get what it says we would have for the quarter, then we would have to expect [M1 in] February and March to drop at around a 13 or 14 percent annual rate. That's just about what the money model says it is going to increase. So, the models tend to give varying results.",218
-fomc-corpus,1982,We get explanations and counter-explanations for every phenomenon. Mr. Keehn.,17
-fomc-corpus,1982,The only trouble is that we don't know if it's temporary or permanent.,14
-fomc-corpus,1982,That's right. That's all I want to know. Mr. Keehn.,15
-fomc-corpus,1982,"In the surveys that we did with the banks in our area, we were impressed by the consistency of the compensating balance comment. Apparently corporations allowed their compensating balances to fall during the latter part of the year. We were surprised by how many banks commented on that and by how many companies apparently drew on their lines of credit to build up their [cash] balances, even their compensating balances, over the year-end period. Secondly, IRAs have been receiving a lot of publicity in the Midwest, and one institution that we talked with in January has accumulated $60 million in IRA accounts. They conjectured that if they were any sample at all, this is going to be a very big program. And there has been a lot of money parked in various NOW accounts waiting for the IRA programs.",160
-fomc-corpus,1982,They had $60 million already in the IRAs?,11
-fomc-corpus,1982,One bank had $60 million in IRA accounts.,10
-fomc-corpus,1982,Which ones have the--,5
-fomc-corpus,1982,"That was First Chicago, though, and that was because they put that 2-point bonus on, wasn't it?",23
-fomc-corpus,1982,"Yes, and they are a very major savings bank, so they have a big base. The program was very big and they conjecture that if they are symptomatic--and perhaps [their flows] are heavier than most--there are a lot of people who had money saved up waiting for January and the opportunity to begin to open these IRAs.",69
-fomc-corpus,1982,Did you find any other bank that had that kind of percentage increase?,14
-fomc-corpus,1982,"No, this was heavier than typical.",8
-fomc-corpus,1982,"In fact, most of our bankers were rather disappointed about the IRAs.",15
-fomc-corpus,1982,"Anything else, Si? Mr. Boehne.",11
-fomc-corpus,1982,"The only thing I can add that hasn't been said about the bulge in January is that we've found one of our large banks engaged in what I would call a reverse sweep--a sweeping out of interest-bearing assets as of [December] 31st and into demand deposits and then out of demand deposits back [into interest-bearing assets] in January. This was to take advantage of the Pennsylvania personal tax law on personal assets, and it was done this year more than any other year for some reason. And because of a long holiday weekend, this did cause an unusual bulge in demand deposits during that week of January 6th. That's just local in Pennsylvania, but perhaps other states have personal property tax laws that may have contributed to the bulge.",151
-fomc-corpus,1982,Doesn't Illinois have something like that but the date is in March?,14
-fomc-corpus,1982,It's April 1.,5
-fomc-corpus,1982,They used to but they've done away with it.,10
-fomc-corpus,1982,They've done away with that?,7
-fomc-corpus,1982,Just one other comment. There may be some flight from other checkable deposits. As I left the Bank this morning the lines were unusually long for the Treasury auction. The lobby was just full of people.,41
-fomc-corpus,1982,One of their last chances to get a free one!,11
-fomc-corpus,1982,Mr. Guffey.,6
-fomc-corpus,1982,"Thank you, Mr. Chairman. Our survey didn't turn up anything that hasn't already been noted to this point. But there is a bit of work that was done by our staff that may be of some interest to you. It relates to a float factor that might be being [double] counted. It's principally perhaps a reporting problem. Since we started charging for servicing checks, more and more of the checks have been collected through the correspondent system rather than through the Federal Reserve. And we have some indication that there's a bit of double counting in the correspondent system. That is, the collecting bank will record the checks in ""due from"" balances as opposed to checks in the process of collection. As a result it's a double counting in the demand deposit that they pass along to the customer and thus could affect M1, for example. And that would be magnified in terms of the checks drawn on NOW accounts simply because they start from a very small base.",190
-fomc-corpus,1982,This is known as the Auerbach theory.,10
-fomc-corpus,1982,"Well, he started at our Bank. I'd prefer to name it something else.",16
-fomc-corpus,1982,Irv Auerbach?,6
-fomc-corpus,1982,This is a different Auerbach.,8
-fomc-corpus,1982,"Oh, okay.",4
-fomc-corpus,1982,"We looked into that, President Guffey. The Bach Committee a long time ago recommended an alternative measure of the money supply which grosses up the demand deposits side by adding ""due to"" [balances] and grosses up the subtraction by adding ""due from"" [balances]. Presumably, then, we would not have this bias you are talking about. We keep track of that series seasonally adjusted and compare it with our current series seasonally adjusted. And they have shown similar patterns; that is, they both showed this sharp bulge in early January and they showed subsequent weeks about the same. Actually, the alternative series showed larger growth unadjusted in November and December than did the present series. So, we have used that as the basis for checking. We are well aware that this bias could arise and could get worse. It's there, but it could get worse. But it doesn't seem to be getting worse and making our present measure more biased in terms of growth rates at the moment.",200
-fomc-corpus,1982,"Another theory dashed, presumably. Mr. Balles.",11
-fomc-corpus,1982,"Well, in searching for possible answers here, I have another question I'd like to raise with Steve. In each of the two years, Steve--in 1980 and 1981--when we have had a convergence of the federal funds rate and the discount rate, and the funds rate even has gotten down to a bit below the discount rate, that was followed by some very rapid monetary expansion, as we all know. With the benefit of hindsight, looking back on that period between the November and December FOMC meetings last year, total reserves were almost on target. They were a little above. But the nonborrowed reserve level was raised quite sharply, by almost $200 million. And that undoubtedly had the effect of keeping the interest rates down because if we hadn't raised that, borrowings would have gone up. And I suspect, as I look back on our feelings in December, that most of us would have viewed that as not a very opportune time to be letting the federal funds rate rise, which would have been the result if we had not increased the nonborrowed reserve path. I'm just wondering if maybe we aren't falling back into the trap of intuitively trying to keep interest rates down at a time when it seems logical to do that and then paying the price for it later on when we get this delayed reaction of sudden very sharp expansions in monetary growth, as we got in both '80 and '81. A companion question would be: With respect to that major study of our operating procedures that you headed up, as I recall there was a recommendation for more frequent changes in the discount rate. As I look back on it, we haven't really done that either. Well, those are just a couple of thoughts as to some deeper factors that might be at work here in these sudden surges of monetary growth. I'd like your reaction to that.",375
-fomc-corpus,1982,"Well, there is nothing in any evidence we've ever looked at or in any experience certainly in the past two or three years and earlier that says that money demand is naturally smooth. In this large an economy, it seems to me that money demand is naturally volatile. And we're annualizing, and the numbers look terrible. A 1.5 percent change in a level looks like 20 percent because we're annualizing it. We probably shouldn't be annualizing those monthly figures. It gives a wrong impression.",100
-fomc-corpus,1982,"Hear, hear!",4
-fomc-corpus,1982,"Yes, that's a point.",6
-fomc-corpus,1982,"So, I don't think that policy is ever going to get away from the question of: Do you want to try for a smooth growth path with what every bit of evidence anyone has dug up says will be sharp variations in interest rates--and you can only do that with contemporaneous reserve accounting, if then--or are you going to try for a path over a more sustained period of time and live with the short-run variations in money demand that seem to be built into the kind of economy we have? We have this huge economy with several hundreds of billions of dollars of money flowing daily, some of which happens to sit in demand deposits on top of which--and I don't mean this to sound preachy--we now have a narrow money supply that has savings in it. They are not being paid a very high rate, but they are what many people consider savings. When these NOW accounts were installed, people in many cases just transferred what were savings accounts into NOW accounts. So, for whatever reason, people decided to increase their savings, and it flowed into these accounts. You and I know they have very low rates of interest, but many people feel they are safe. And people are willing to take that [low rate] for a very short period. So, we have a mix that is changing over time, making it even more complicated to evaluate money movements, which to me means that one has to have a longer-term horizon to come to some judgment. Sure, we could begin to constrain it faster by letting interest rates rise faster, lowering nonborrowed reserves faster, raising the discount rate. But that again gets into areas of policy judgment for the Committee as to whether it wishes to put those kinds of interest rate variations in the economy or live with the potential for a little more money volatility or whatever trade-offs it can think of there.",370
-fomc-corpus,1982,"I'd be more impressed by these theories about reserves and all the rest if the increase in the money supply were not so divergent between the different components of the money supply. That doesn't prove that it's wrong, but it's just a little suspicious when the NOW accounts are going up at the same time the savings accounts are going up. And that's a sharp change in trend.",72
-fomc-corpus,1982,"Could we get an explanation from Steve on the seasonal adjustment? As I understand it, starting in '82 we're doing a common seasonal adjustment for demand deposits and NOW accounts. Is that correct?",38
-fomc-corpus,1982,"We're trying. That's right. Last year we did some very complicated [calculations] by assuming that part of the NOW accounts were demand deposits and part of them were savings deposits. In concept, that's right, but it strikes me as a distinction that is going to be impossible to [judge] in terms of whether [the actual proportion] is 2/3 or 3/4 or 1/2. So, we felt that as time went on we should simply begin constructing a seasonal for total demand and NOW accounts based on the movement of the total and that whatever difference there is in the movement, with the increasing composition of NOW accounts, it gradually will be worked out in the seasonals. And that's how we have begun to proceed.",151
-fomc-corpus,1982,May I ask you a hypothetical question?,8
-fomc-corpus,1982,Ten years from now we'll have a good seasonal!,10
-fomc-corpus,1982,"My hypothetical question is: If you would apply to the NOW accounts the same seasonal correction that you applied to the savings, would you have had less of a bulge in January?",36
-fomc-corpus,1982,"I'd have to look up the answer to that. We'll check that out. I don't know, but I doubt it.",24
-fomc-corpus,1982,Mr. Winn.,4
-fomc-corpus,1982,"This is purely a technical change, but a couple of banks with the largest increases in NOWs closed out their ATS accounts, so it was just a transfer. And that would still--",37
-fomc-corpus,1982,"Yes, but that would have been in the same total.",12
-fomc-corpus,1982,"[The total would] still be the same, but just for the NOW account category--",18
-fomc-corpus,1982,"Yes, it's an OCD.",6
-fomc-corpus,1982,"Well, the [reserve] requirements were not yet phased in.",13
-fomc-corpus,1982,"Are there any other comments on this or any other insights, which seem to add up to not very much? Did you want to comment?",28
-fomc-corpus,1982,"I was just going to say, but I really can't add anything, that we tested the corporate balance sheet question and the representations were that there was nothing unusual, just the traditional [window-dressing]. The only thing I did find, which I don't think has any bearing at all, was a relatively small bank that had a very large upswing. Inquiring about it, we were told it was simply the liquidation of a very sizable estate; temporarily several million dollars were put in, but the funds were being distributed.",104
-fomc-corpus,1982,"Well, the only thing I'd like to add, since it has been mentioned and I think it's significant, is that the bulk of Christmas sales came much later this year than in previous years. And the bad weather in January also caused extremely weak sales. Credit card companies with whom we checked emphasized that the sales were very weak. That tends to give some logical common sense support to the view of various bankers that these are temporary increases. Add to that the precautionary reasons that call for somewhat larger balances. I don't have any hard proof, but my feeling is that a substantial part of this increase will be washed out over a period of time. I do not believe that we could begin to attribute such a sharp increase to economic reasons--advance indicators of a very strong economic recovery. There may be many factors involved; there probably are to get such a sharp increase. But I think it's hard to conclude that a substantial part is not temporary.",187
-fomc-corpus,1982,Mr. Black.,4
-fomc-corpus,1982,"Mr. Chairman, before we leave this, I wonder if I could ask Steve if he could give us any further explanation on the projection for the week of February 3rd, which shows a further rise. New York shows a decline from the previous week on M1 and you show a pretty significant increase there.",63
-fomc-corpus,1982,Neither of them knows anything!,6
-fomc-corpus,1982,That's right; that's pure projection.,7
-fomc-corpus,1982,"Well, if that's his answer, then that leads me to my final point. No matter how much we rationalize, I don't think we can explain all this away. And if we can't explain it away, we had better assume that there's some reality to it and act accordingly.",56
-fomc-corpus,1982,"Well, there's a certain reality in that some of it seems to have gone up quite rapidly, whatever seasonal adjustment factor one uses. But what is causing this is interesting, not just because of the short-run significance. If we knew the answer, it would tell us something about whether money is too tight or not. We have a system where the money supply balloons every time interest rates go [down] to 11 or 12 percent in the short run and the economy goes into the tank; when interest rates are 11 and 12 percent, we have problems at some point and it says the money supply is too low. I don't know how or when we will arrive at that conclusion, and I'm not arriving at it now, but I think that's what we are discussing here under the cover of what causes a blip--or more than a blip--in the short run. Does the economy want more money than we are allowing in order to grow in line, let's say, with the projections that Mr. Kichline presented? You are saying, okay, the economy will make that projection anyway even with the interest rates that we have. Now, that remains to be seen, but it all bears on where the targets should be. And I don't think we have much evidence to reach any sweeping conclusions on that point at this time. The worst kind of result would be if people had a bigger liquidity preference in some sense, particularly in NOW accounts, than we assume and interest rates were to go [down] to 10 percent [and those accounts] began ballooning. What would they do if rates went to 8 percent even if the economy were shooting way down? And, of course, we would have this problem with NOW account interest rates at 5-1/2 percent. If you dream of that day when interest rates get down to 5-1/2 percent, the money supply is going to balloon. There is no question about it the way we now define [the money supply] with that [NOW account] component in there. Now, when we reach that point--and I would have thought we were nowhere near it with market interest rates at 10, 11, 12 percent, but surely that would happen some day if interest rates got low enough--are we going to say there's an enormous increase in NOW accounts because we are now under the NOW account ceiling and that's an excuse for tightening up money with an unemployment rate of 32 percent, just to exaggerate a bit? We'd have a problem, right? I don't think we're there and I don't mean to suggest that. But what is behind these forces is an interesting area about which we do not know enough. I'm struck by the lack of the explanation that I would have thought would be the most common one: That a lot of money is being parked temporarily not because interest rates are necessarily so low, but just because of uncertainty about interest rates and the fear--or not necessarily the fear on the part of the depositors but the hope--that rates will go up again and people could make a better deal on a money market certificate or something a month or two from now than they could in December or January. I hear a little anecdotal evidence myself on that point, but I won't--",662
-fomc-corpus,1982,That's all part of the temporary thing.,8
-fomc-corpus,1982,"Well, with that much background and elucidation or lack thereof, [we will proceed]. We had a discussion of long-range targets at the last meeting. I guess it's appropriate now to ask whether anybody has changed his or her mind or wants to make further observations on that point.",56
-fomc-corpus,1982,"Well, Mr. Chairman, I have had a few second thoughts since both our July '81 meeting and also our preliminary discussion of this in December. And at the risk of being a troublemaker, I do feel fairly strongly that we ought to bite the bullet on the inconsistencies among the M1, M2, and M3 ranges, specifically by increasing the M2 range by a full percentage point over what it was last year and the M3 range by a point and a half. I've set forth in a brief memo the rationale and the advantages that would have, along with upping a bit the lower end of the M1 range. With your permission, I would like to have it distributed so that people could see what it's all about and see what the ranges look like. But that is the bottom line.",165
-fomc-corpus,1982,You don't want to do anything about Ml?,9
-fomc-corpus,1982,"Yes, I'm suggesting, for reasons set forth in this very brief memo, that we ought to increase the lower end of the [tentative M1] range to 3 percent instead of 2-1/2 percent, keeping the upper end at 5-1/2 percent. Very briefly, the reason is that, as I looked back to last July, we hadn't known about the weakness now emerging in the economy. We had expected--I think more than we do now--the prospect of a further downward shift in the demand for money, and that downward shift seems to have slowed pretty considerably. Whether it will resume and go on in 1982 remains to be seen. But given the fact that we now are in a fairly serious recession that we hadn't really anticipated in July, and given the fact that the demand for money is no longer shifting downward as much--and maybe not at all--as compared to last summer, and given the fact that a 2-1/2 percent lower band would seem pretty Draconian right in the middle of a recession in terms of public announcement effects, I believe we would be better advised to use a 3 to 5-1/2 percent range. That would have the virtue of being uniform across the board; the upper end, the lower end, and the midpoint [of the M1 range] would all be 1/2 point lower than our 1981 range. And this would continue some credibility in our longer-run anti-inflation approach of gradually cranking down the growth ranges every year. If we were to hit the midpoint of the 3 to 5-1/2 percent range that I'm proposing, which is only a presumption, the growth would be 4-1/4 percent. And 4-1/4 percent is a pretty healthy decline from the actual observed M1-B growth of 5 percent last year. So, although I supported the tentative decision last July for the 2-1/2 to 5-1/2 percent range, I've changed my mind for reasons I've just set forth on M1. On M2, it gets a little more complicated. The composition of the M2 and M3 aggregates, in terms of the portion that is sensitive to interest rates, has really changed dramatically, as we all know. My staff calculates that as recently as the end of 1978 assets yielding money market rates of interest comprised only 8 percent of M2 and that that's up to 45 percent now. The interest-sensitive portion of M3 at the end of 1978 was calculated at 21 percent and it's now up to 54 percent. We knew this last year, but we didn't really do anything about it. We decided for reasons the Committee felt satisfied with--and I didn't object because I thought it was a good idea--to keep those ranges down more or less for public reaction purposes. We didn't want to be in the posture of raising the M2 and M3 ranges. But as we all know, the actual [growth] last year, certainly not to my surprise, was considerably over the ranges that we set forth for the year. A final word--",648
-fomc-corpus,1982,For M2? M2 did not go considerably over the range last year. [It was over by] 0.3 of a percentage point as I recall.,34
-fomc-corpus,1982,"Yes, it was 0.4 percent.",10
-fomc-corpus,1982,Only a half point over.,6
-fomc-corpus,1982,"It just seems to me--if we're willing to bite the bullet in terms of what might be a reaction among the general public or superficial observers of our policy that we are going to be accelerating monetary growth--that a range for M2 of 7 to 10 percent versus the 6 to 9 percent we've been talking about tentatively and a range of 8 to 11 percent for M3 instead of the 6-1/2 to 9-1/2 percent we've been talking about would simply be more realistic. I personally consider the likelihood of strong inflows into these interest-sensitive broader aggregates to be great in a year when there's a good prospect, as we've heard from the staff today, that interest rates are going to continue at pretty high levels throughout the year. I'd just hate to get in the middle of the year and then--",172
-fomc-corpus,1982,I'm not sure I understand the reasoning here. Let me explore it. You say there is a lot more interest-sensitive money; that is certainly true. Why do you expect that to be more pronounced in terms of influence this year than last year?,49
-fomc-corpus,1982,"I don't necessarily think it will be more pronounced, Paul, but I don't think it could be diminished any in terms of rates of increase in these aggregates. Some of us brought this point up at the meeting the last time. If the staff forecast is correct, as I understand it, it implies a continuation of pretty high interest rates throughout 1982. And that's why I would just--",78
-fomc-corpus,1982,"Yes, but what do you expect could happen? If interest rates come down, what would happen to M2 all else equal? Or if they went up, what would happen to M2, all other things equal? Why is there a presumption one way or the other?",56
-fomc-corpus,1982,The presumption is that M2 and M3 in the future will continue to be more sensitive to interest rates than they were under the old definition.,30
-fomc-corpus,1982,That means that M2 will go down if interest rates go down.,14
-fomc-corpus,1982,"Yes, the growth rate would go down.",9
-fomc-corpus,1982,Why? What's the mechanism?,6
-fomc-corpus,1982,"Well, it's simply the huge proportion that is interest sensitive.",12
-fomc-corpus,1982,"Yes, but where else are people going to put their money?",13
-fomc-corpus,1982,"Well, there are some things that aren't in either M2 or M3 such as Treasury securities.",20
-fomc-corpus,1982,But those rates are--,5
-fomc-corpus,1982,"But what if those rates go down just like the certificate rates go down? Now, if people put funds in long-term securities, that will make a difference. But I--",35
-fomc-corpus,1982,They could move them out just for [unintelligible].,13
-fomc-corpus,1982,But that's also in M2.,7
-fomc-corpus,1982,One can make a clear case if you think about rising rates back when we had ceilings on some of those items in M2--,26
-fomc-corpus,1982,"I know what happened when there were ceilings on them, but the point is made that there aren't ceilings. I don't know what will happen now.",29
-fomc-corpus,1982,"Well, it clearly slowed down then and there are no ceilings now, so--",16
-fomc-corpus,1982,"There is no question that when we had ceilings, [M2 growth] slowed when rates rose and increased when rates fell.",25
-fomc-corpus,1982,Right.,2
-fomc-corpus,1982,It's not clear to me why it would do the opposite now.,13
-fomc-corpus,1982,We did not find when we analyzed M2 into those components that pay market rates and those that are below market rates--and we analyzed the movements in these two [components] --that we could arrive at any better correlation.,45
-fomc-corpus,1982,"I don't know what the answer to this question is. We have had 3 years since the market rate issue became important and in all of those 3 years the velocity change in M2 has been very close to zero. That's not a long enough period of time to conclude too much on that, but the evidence that we have since that time is zero [velocity change].",75
-fomc-corpus,1982,"And last year [M2 growth] was 9 percent, virtually the same. Nominal GNP was also up in a range of about 9.4 or 9.3 percent, as compared to M2. And I noticed that everybody's projections were in the 8 to 9 percent range for nominal GNP. If that's one to two percent real growth, plus about 7 percent inflation, then one would think that we would come comfortably within the tentative M2 targets.",100
-fomc-corpus,1982,"Well, can the staff help here? Is there any evidence that they know about that says what the interest sensitivity on M2 is now?",28
-fomc-corpus,1982,"Well, it's getting much less sensitive to market rates. So, we wouldn't think it's [going to be] as volatile as [those] rates change. The conclusion we came to in evaluating this was that with more and more instruments in M2 having market rates, for any given reserve target aimed at we'd get more rate movement in holding money growth and prompter income movements, so to speak. That is, you hold if there's a money demand of so much--",94
-fomc-corpus,1982,You're losing me.,4
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"There is a money demand of so much. Market rates tend to rise. In the old days, people would shift out of M2-type instruments into market instruments. Now, instead of that happening, the institutions mark up the offering rates so people don't shift out. So, if you insist on holding [M2 growth down], then interest rates rise even more on both instruments until income falls back to where you're producing only enough savings to be consistent with your monetary targets.",94
-fomc-corpus,1982,"What are you saying: that M2 is just going to reflect nominal GNP, period?",19
-fomc-corpus,1982,"In the limit, not totally.",7
-fomc-corpus,1982,"But just to state the converse of that, would you or would you not make a presumption other than through the effect of interest rates on GNP that the interest rate level itself is going to affect M2?",43
-fomc-corpus,1982,"Well, I don't think the institutions will move their rates quite as fast as the market rates. So, I think it would have some effect.",29
-fomc-corpus,1982,But it will have an effect of making M1 and M2 diverge?,16
-fomc-corpus,1982,Reducing it.,4
-fomc-corpus,1982,When the rates rise.,5
-fomc-corpus,1982,When the [market] rates rise over and above the statutory ceilings.,14
-fomc-corpus,1982,"When they drop, you would expect them to converge, wouldn't you, because of this other phenomenon?",20
-fomc-corpus,1982,Not at the level the NOWs are at.,10
-fomc-corpus,1982,"Mr. Chairman, I think Steve has addressed the question, ""If you're trying to control M2, what would happen?"" To focus on the simpler question--the interest elasticity of M2--the work we've done indicates that it still has a negative elasticity of a minor dimension. When interest rates fall, it grows a little faster. The redefinition, taking out the institutional money market funds, should probably make it even less interest elastic because the lag in the money fund yields stimulated this kind of shifting of funds by institutions into M2 and out of M2. So, we say there's a very small negative elasticity on it.",126
-fomc-corpus,1982,"All right, now you're saying there is a very small negative elasticity; as near as we can say it's declining. If I understand this correctly, that's the opposite of the presumption that Mr. Balles is making.",44
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,"Well, I'd like to ask you, Mike, you are taking out the institution only money market funds but aren't you putting in the retail RPs? What about their elasticities?",36
-fomc-corpus,1982,"Well, as for the retail RPs, once again they carry a current market yield. So, there are unlikely to be substitutions--a great shifting of funds from outside of M2 into M2--when interest rates change. Our supposition at least has been that most of the money in retail RPs has been diverted from small time deposits. Indeed, that's one of the rationales for putting retail RPs into M2: they are a close substitute for those things that already were in M2.",102
-fomc-corpus,1982,"Coming back just for a minute to the facts, we do know for a fact that M3 grew by 11.4 percent last year.",29
-fomc-corpus,1982,"M3, I think, is a different animal. That shows you how fast bank credit is going up and how much financing is being pushed into banks, as one influence anyway. The more financing that is pushed into the banks, the higher M3 will be. If we didn't expect much bond financing, we'd expect high M3 growth.",68
-fomc-corpus,1982,"Mr. Chairman, it's very difficult to isolate the structural changes as they're occurring now, operating with an instrument that pretty much has market rates in it. For example, I would not argue that M1 was weak last year because in a sense M2 was strong. There was a partial element of that but there was a downward shift in the demand for M1, where people were taking money out of currency and demand deposits and putting it into a lot of other assets, some of which were in M2. But that was a substitution that didn't affect M2 itself. So actually, on the level of M1, the downward adjustment in M1 that occurred was a structural change that was evolving. When we get away from that structural change, it's quite possible that M1 and M2 will move closer together as we are projecting that they will this year. We really have a slower growth in the nontransactions component of M2 this year than last year, largely because income is growing more slowly and we expect M1 to grow a little more normally in relation to income than it did last year. With that combination we still would have M2 slowing in this coming year. We don't have a reason to think the nontransactions component of M2 will grow substantially faster in 1982 than it did in 1981 with a sharp slowing in income in prospect, regardless of the interest rates that they're offering on those [deposits].",288
-fomc-corpus,1982,"Is that another way of saying, Steve, that you view the midpoints of the tentative ranges for M1 and M2 for '82 as consistent with each other in a structural sense?",38
-fomc-corpus,1982,"Yes. We have growth a little above the midpoint for M2 but, rather than put our neck out on the line, I think the safer way to put it is that it's a lot more consistent than it was last year.",46
-fomc-corpus,1982,May I ask one other definitional question? I saw the comment in the Bluebook about retail repos. Has a decision been made to take the IRAs out of M2?,36
-fomc-corpus,1982,No. We are just going to be getting the first complete data at the end of February. We may not make [the decision] then.,29
-fomc-corpus,1982,What about the ones that are already there?,9
-fomc-corpus,1982,"Well, we haven't done anything about the IRAs in M2. We're waiting to see what we're dealing with.",23
-fomc-corpus,1982,"Just one more point on M2. I don't know how strong a case one can make in practice because I don't know how much of this is mostly individual money and how much of that would go long term. But if you have a shift in preference toward longer-term securities, then I would think M2 would be depressed somewhat or vice versa.",69
-fomc-corpus,1982,[From] the money market funds they can go into bonds.,13
-fomc-corpus,1982,And if people really went out and bought bonds--but not many individuals buy bonds anyway. I don't know how much else is in there that's not--,30
-fomc-corpus,1982,The more attractive time deposit instruments that have been created will tend to limit that effect [on M2] in any event.,25
-fomc-corpus,1982,Governor Schultz.,3
-fomc-corpus,1982,"Well, I argued last time for retaining the same targets that we had adopted tentatively. I want to come out the same place, having gone through a [lengthy] thinking process in the meantime because of the big jump [in monetary growth] that we got in January. Obviously, the question was why and one got very nervous about whether these targets were going to allow us to have anything like the leeway we might need. So, I went through the process of taking a long look at what would happen if we shifted the base: Should we go to [the average for] December or even the end of December or use November-December-January instead of October-November-December and all that kind of thing? I might tend to opt for some change in the ranges for the aggregates if I had a little stronger feeling that we knew precisely what all these relationships were. But it does seem that we have been a bit off in these from time to time in the past. All of which seems to me to argue very strongly for a broad family of aggregates and for some fairly wide ranges in each of the aggregates. If I had to make a bet, I would bet that whatever we come out with we're going to miss something along the line. And, therefore, if I felt it was really critical that we set these targets very precisely and say that absolutely we're going to stay within these ranges for the aggregates in every case, I might feel a little differently. But I have some considerable doubts on that score. The other side of it is: What do we give up?",318
-fomc-corpus,1982,We may do that every now and then.,9
-fomc-corpus,1982,"Well, there's no question about that. That's a different subject. You know, there is some very good news. This is the last time I'm going to be with you and it's very clear that when I came on board things got worse and now that I'm leaving things are bound to get better! So you're going to do better this time than you have before. But even under those circumstances, it strikes me that there are some costs in making any changes. How big are those costs? I have talked to a lot of market participants and I can't find a single market participant who doesn't feel that it's going to have some impact if we change these targets. They will argue differently on how big that impact is going to be. But I think that's a vital question here. It's not only what we do that's critical but what people think we're doing and what we say we're doing, and that's going to make a heck of a big difference through the year. So, I would be perfectly willing to see us take our time getting back to the targets. I have a feeling that we probably are going to end up in the upper part of the range for M1, but I really do believe that if we change those targets, there is going to be a cost and I urge you to think carefully about that cost.",261
-fomc-corpus,1982,Governor Gramley.,4
-fomc-corpus,1982,"Well, I have several things on my mind. One is that I think we're in a real box and we have a way to go with the monetary aggregates in 1982, M1 in particular. Given what has happened so far, if we were to reach the midpoint of the range by the fourth quarter, we would end up permitting an increase in M1 of all of 1.55 percent from January to November. And I just don't think we can live with that. With M2 I haven't made the calculation, but taking a rough ruler and laying it out and comparing it with this 6 percent growth triangle, to get to the midpoint must imply a growth of something like 6-1/2 percent from January to November. I don't think we can live with that either.",160
-fomc-corpus,1982,What did we have last time?,7
-fomc-corpus,1982,"If we want to get to the midpoint of a 6 to 9 percent range, starting with where we are in January, a rough guess is that it must be around 6-1/2 percent. Have you made that calculation, Steve?",51
-fomc-corpus,1982,"No, but it doesn't sound wrong. It sounds about right.",13
-fomc-corpus,1982,"Unless we're awfully lucky, I'm afraid those growth rates are not going to permit the economy anything like the kind of progress this year that the staff is projecting. We need to think seriously about doing something that will give the economy some breathing room. Also, I think this year we ought to start out giving more weight to M2 than we have. We ought to express that publicly so that the focus of attention is not all on M1 as it has tended to be recently. And I think there's a way to rationalize John Balles' suggestion that we raise the target range for M2 that's different from the rationale he uses, and that is that the increasing interest-sensitive component of M2 has probably raised the income elasticity of demand for M2. If you look back at history, the studies of demand for M1 and demand for M2 have always come out that M2, the luxury good, has an income elasticity that is bigger than 1 and M1 has an income elasticity of considerably less than 1. The main reason was that M1 didn't have interest payments on it and M2 did. But as more and more assets that are interest sensitive are shifted into M2, the chances are that its income elasticity has grown. And I [considered] the fact that Fred Schultz has said we will have some adverse reaction in terms of loss of credibility if we adjust our targets. But I said at either the last meeting or the previous one, I don't remember which, that I think our credibility basically doesn't depend so much on these targets and whether we stay within the ranges from one month to the next as it does on the basic fact that we've been following a very tough and tight monetary policy since October of 1979. That is what has gained us our credibility. If we stick with that basic posture, we will still have credibility. I think we ought to give serious thought to the suggestion of raising the M2 target range to 7 to 10 percent. And I think we ought to go further than just raising the bottom edge of the M1 target. I would prefer to do something like using a different base--starting out with the lower end of the range for 1981 as the base figure rather than starting from the actual.",455
-fomc-corpus,1982,"Let me make just one observation on your observation about how little room we'd have for M1 in particular to grow between now and the end of the year if we're going to stick to the midpoint. Your arithmetic is undoubtedly correct. It makes a big difference what you assume will happen, let's say, in February or March. If M1 comes down, we will have quite a different picture than if it doesn't. If it doesn't come down, it certainly will look as if we are too tight by every evidence, but it's just hard to make that judgment right now. That's where this explanation of the short run gets pretty critical.",125
-fomc-corpus,1982,"Unfortunately, we have to make the judgment in terms of what we decide for the long-run ranges.",20
-fomc-corpus,1982,We have to do something. Governor Partee.,10
-fomc-corpus,1982,"Well, I would support John Balles and his proposals. I would prefer not to fiddle with the base because that's going to be so hard to explain and so difficult to deal with. I would rather consider the possibility that M1 growth is going to be high in the range because we had a shortfall of size last year that was just being made up toward the very end of the year and into January. I do think, though, that the fact that we have had a shortfall and that we obviously have a very weak economy is a pretty good reason for saying that on reconsideration we think a number as low as 2-1/2 percent for 1982 would be too low, and therefore we're going to nudge the lower end up to 3 percent and make the range 3 to 5-1/2 percent, which is our typical 2-1/2 point range [for M1]. On M2, I do believe that there are things that have tended to add to its growth relative to the economy over time. They keep happening. We had a number of them last year. Some, like the all savers certificates, didn't really work out, though it could come back this year if interest rates at some point rose to a high enough level. Others involve considerable lead times and change gradually, such as the IRAs and the Keoghs, some considerable part of which is going to be showing up. Maybe we can make some kind of adjustment for it but I really don't think we're going to have the figures to adjust M2 by taking out all IRA and Keogh accounts, which tend to be spread through the deposit instruments in the banks; they are not just in one deposit instrument. That's the terrible problem, I believe. Then we have things like the Treasury's proposal to start charging a fee [for noncompetitive tenders] or to shut off altogether the lines of people at the Federal Reserve Banks and at the main Treasury [building]. The effect of that will tend to be--and it is intended--to push money into deposits that are in M2 form rather than to open market instruments. So, there is a whole series of these things. It's not totally without reflection in the numbers. If you look back, you'll find that in 1980 nominal GNP rose 9.4 percent with a 9.1 percent growth in M2. Then in 1981, GNP rose 9.3 percent with 9.4 percent M2 growth. There is 0.1 less GNP with a 0.3 larger increase in M2. Most people are looking at something in the area of 8-1/2 to 9 percent for nominal GNP growth this year. That certainly is where the whole focus of the range of expectations for both voting presidents and nonvoting presidents and Board members is. And that suggests to me very strongly that we're going to have an M2 growth of 9 percent or above, maybe 9-1/2 percent. Therefore, I see no great reason for starting out with a range, which is supposed to give us some flexibility, in which we expect to come in at the very top right from the word go. So, I think it would be best to recognize that there has been a tendency for the kinds of instruments included in M2 to increase in popularity and also a tendency for the number to be high relative to our ranges and, therefore, to say that we're raising the range. And I think 7 to 10 percent is about right. So, I guess for somewhat different reasons, I'd come down with John.",740
-fomc-corpus,1982,Governor Wallich.,4
-fomc-corpus,1982,"I think what is happening to the variability of money suggests that our ranges in a sense are narrower than this variability. And the variability is also greater than the difference between expansion and contraction in the economy, so that interest rates really become the one meaningful check on what the aggregates are doing. Another possible but not very reliable check would be to say ""Let's go to a single number for the target, which would be the midpoint of what we've had so far."" Then we'd get rid of the problem of having a wide target and still missing even that. But the basic problem is to make a decision as to whether this January number is meaningful or not. We do not have worthwhile guidance on that. That leads me to the conclusion that we ought to do something about the base. I listened to Chuck and I listened to Fred; I can see the danger of manipulating these things. I think it is perhaps less dangerous to manipulate the base than to manipulate the ranges, because we've always accepted base drift. We had upward base drift in '80 and we're going to have downward base drift now if we're accepting where we came out. Therefore, I don't feel that the base is very sacred. I think there's something to be said for the Bluebook version of basing it on the lower edge of the band that we had because that was, after all, one end of our target. We're not going to have the base drift that events gave us but we'll take advantage of that much. That seems to me acceptable. Another acceptable rationale, it seems to me, is to say we will go back to July of 1981 when we set these targets and use where we thought we were then. We've shifted in a probably fortuitous manner since then and if we go back to where we set the tentative targets and reaffirm them on that basis, I think we have the rationale. I looked at the possibility of going even further back in order to eliminate past base drift, as it were. If we go back to late 1980 as a base, of course, we have to accept that we don't get the benefit of the upward drift that occurred during 1980. If we go even further back to 1978 and follow all the midpoints of the various ranges we've had, we are now within $100 million of the target. It's really quite a success.",472
-fomc-corpus,1982,There's nothing like compensating errors!,7
-fomc-corpus,1982,"Of all these various devices, the Bluebook version strikes me as the most plausible. We do accept that something has happened. We don't take it fully into account. We have a reasonable rationale. I think on that base we can probably live with the [tentative] targets that we have and that's the [lesser] sensitivity than having to face a change in these targets.",76
-fomc-corpus,1982,What Bluebook alternative are you talking about?,9
-fomc-corpus,1982,The Bluebook alternative for the short-term ranges where the base takes off--. Where is it?,20
-fomc-corpus,1982,For a short-term target?,6
-fomc-corpus,1982,"There's a discussion in the Bluebook of shifting the base, Mr. Chairman.",16
-fomc-corpus,1982,Which page is it?,5
-fomc-corpus,1982,There's a footnote on page 12.,9
-fomc-corpus,1982,There's a text discussion in paragraph 14.,9
-fomc-corpus,1982,"I would be inclined to be sympathetic to that, except that as I understand it we were targeting in terms of M1-B shift adjusted.",28
-fomc-corpus,1982,"Well, you have to adjust M1 the same way. You just take the difference--the amount of shift adjusted in that period.",27
-fomc-corpus,1982,I read that footnote on page 12 and that's what led me not to want to do that.,21
-fomc-corpus,1982,It sounds too messy.,5
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"The arithmetic is messy, but the concept is a reasonable one.",13
-fomc-corpus,1982,"Would you also shift to the lower end of the M2 band. Henry, to at least be consistent between M1 and M2? I'm serious: I'm not kidding.",35
-fomc-corpus,1982,That doesn't sound--,4
-fomc-corpus,1982,How can you rationalize shifting M1 up from the actuals to the bottom of the band unless you also do the same thing by shifting [M2] on some end of the band?,39
-fomc-corpus,1982,You ought to shoot to the top of the M2 band.,13
-fomc-corpus,1982,"Oh, come on!",5
-fomc-corpus,1982,"Well, it's the same thing as widening the relationship.",11
-fomc-corpus,1982,"I don't think there's an absolute logic that we have to do the same thing for the two aggregates, particularly when they clearly have been moving in opposite directions.",31
-fomc-corpus,1982,"If you want consistency, you follow Governor Teeters' suggestion: Use the upper end of the band for M2.",24
-fomc-corpus,1982,That's exactly the same thing that John is suggesting.,10
-fomc-corpus,1982,The base drift.,4
-fomc-corpus,1982,"When my turn comes up, I'll--",8
-fomc-corpus,1982,Mr. Boykin.,5
-fomc-corpus,1982,"I want to align myself with Fred Schultz. I also am very impressed with the perception, based on what I'm hearing from everyone I've talked to, that if we make any changes in the ranges, it could be misinterpreted. I would much prefer to see us hold with the tentative ranges that we have set. One thing that has a little appeal to me--we're not sure what is happening right now and you mentioned that things might look differently in March and April--is the thought that was expressed at the last meeting I think by Tony Solomon, who made some reference to the midyear review. That is an opportunity to reassess and take a look. It seems to me, if we're going to make a change [in the 1982 ranges], that rather than doing it now we ought to defer it for 4 or 5 months at least and we would have more information on all these changes that are occurring. Certainly, we might have a better explanation of what is happening to the money supply. So, given my perception of how [a change] would be interpreted, I would prefer to leave the tentative ranges and then have some kind of caveat that we could make a fairly serious [adjustment at our] midyear review.",252
-fomc-corpus,1982,We said at midyear that we would look at it seriously in January.,15
-fomc-corpus,1982,Mr. Ford.,4
-fomc-corpus,1982,"I have some sympathy with Fred's view, too, given all that has been discussed, that we should stay basically with the longer-run targets that we already set but [I would] pay a lot more attention to trying to get back into the ranges on both if we can. With regard to base drift, I'm very concerned about how this discussion is going. Look at the history of what we've done and think back to last year's big debate about what to do about base drift. It has been suggested, if I understand Henry right, that we not only change the way we handle base drift from last year by going to the lower end of the M1 band instead of the actual [outcome] but that on M2 we do yet another thing. My feeling is that the market people will take this to say that we're just fooling around so much that we're purposely trying to manipulate the game so that it will come out the way we want it. If we go with the established procedure, as I understand it, of not drifting the base a new way but the way it has been drifting--",220
-fomc-corpus,1982,Which is a bigger drift.,6
-fomc-corpus,1982,"Yes, so? If we stayed with it on M2, it probably would solve the problem of having to adjust the M2 band upward because we would be starting way up there and will in effect have incorporated some of the past problems. We'd be able to project the existing band off the higher [base]. The real problem comes on M1. I think we will address that tomorrow morning when we get around to the question of how fast we will try to get back into the band. That's the place to discuss that problem. So, I would say, for the sake of the appearance of consistency certainly and to avoid the appearance of purposely manipulating the base drift issue, let's stick with the ranges that were already announced and then concentrate tomorrow on trying to get down to the question of how hard we should try to adjust to what has happened.",168
-fomc-corpus,1982,Mr. Corrigan.,5
-fomc-corpus,1982,"Mr. Chairman, I too have been around this a lot of different ways, and basically I come out to the view that we ought to maintain the targets that were adopted tentatively last July, in part for the reasons that Governor Schultz articulated and for a few others as well. I wouldn't be allergic to trying to do something with this base issue, but I've looked at that a number of ways and I'm not sure how to do it in a way that doesn't add more confusion rather than less. I am still a little concerned that any change we make here among the ranges that are being discussed is going to be perceived as tinkering that won't materially influence where things come out anyway. And I think we have to give some consideration one way or another to changing the targets at a point in time when some people are telling us to change them as well. To me at least all of those things point to--",181
-fomc-corpus,1982,Would you amplify that last comment?,7
-fomc-corpus,1982,"Basically, the way I read the newspapers and things like that, the message that seems to be coming through both from the Hill and the Administration is that it's time to change this monetary policy in some [way]. The money supply has to be allowed to grow faster and it will grow faster even with the existing targets. But my point is that if we change the targets, the risk we run is a little different than just the risk Governor Schultz was referring to. I think we run the risk that credibility will be affected in a more amplified way because of the perception that the Fed has buckled under again; they always have and they always will. And that just elevates the concern that Governor Schultz spoke of.",142
-fomc-corpus,1982,"You remind me--and I will insert this in our consideration now, if you will permit me--that when I was testifying before Mr. Reuss the other day he wanted me specifically to bring to your attention his recommendation that the M1 band be made the same as last year which was 3-1/2 to 6 percent. He wanted that considered as a proposal from himself and maybe some of his colleagues.",86
-fomc-corpus,1982,"Well, that's the kind of thing I had in mind when I mentioned this point. Now, I know it can cut either way in terms of being responsive on the one hand or being whipsawed on the other hand. As I look at it, particularly in the context of M1, which is the measure most people seem to want to look at, no matter what we do to the targets we're going to be looking at a rate of growth on a comparable basis that is going to be above last year. Indeed, if we ended up at the midpoint of the current range, M1 growth would be roughly 2 percentage points above last year's growth even though it is still within the tentative targets. I do recognize, as I said, that maybe something can be done with the base, although I'm not sure how to do it. Personally, I would have sympathy for the notion that maybe M2 is a little incompatible with M1 or from a presentational point of view maybe talking about an M1 range of 3-1/2 to 5-1/2 percent. Just changing the bottom and not changing anything else doesn't matter, and I wouldn't fight that to death. But anything that comes across as a systematic raising of these targets--raising them all, for example, instead of maybe raising the bottom end of just one--will cause us to run into some problems. On this question of what growth is left for the [remainder of the] year, I am very sensitive to that as well. I would just observe that all these lines in the Bluebook are drawn more or less on the assumption that we will go through the year without having any negative months. I don't know when we're going to have them, whether it will be February or July or whatever, but the one thing I am sure of is that we will have some negative months. So, I don't think the situation is quite as bleak as the pattern one gets just by drawing those straight lines off of that January number. In a nutshell, I'd like to see us retain the targets either at or pretty close to where they are.",426
-fomc-corpus,1982,Mr. Keehn.,5
-fomc-corpus,1982,"Having established the preliminary targets that we did last July, I'd be very reluctant to make a change at this time unless there are good supportable reasons for so doing. And I'm unpersuaded by what I've heard today that, with regard to M1, a change would be in order. It seems to me that we are in an environment where absolutely everything we do is so carefully scrutinized that we'd have to have very supportable reasons for making a change. A change upward would be inappropriate, particularly given the economic forecast we have for 1982. Therefore, I'd be in favor of leaving the M1 target as we had established it. But with M2 it does seem to me that there are some supportable reasons for a change, namely, that we did not come in within that range last year and that from the figures that we have for this year [an unchanged range] would be very tight at best. And I think it would be too bad to go through the year having to explain constantly why we are out of the range on M2. Therefore, I would be in favor of making a change upward with regard to that target to, say, a 7 to 10 percent range, to give us a little room to operate.",253
-fomc-corpus,1982,What base would you go for?,7
-fomc-corpus,1982,Where we are now.,5
-fomc-corpus,1982,Mr. Black.,4
-fomc-corpus,1982,"Mr. Chairman, I have three points, probably none of which will prevail. The first is that I would raise the lower limit of M1 to 3 percent and I would put the top at 5 percent. I think 2-1/2 percent is too low and I have long favored narrowing that spread because I think doing so would give additional credibility to what we say we're going to do. But I sense that we'll go for 2-1/2 to 5-1/2 percent, so I would suggest that we ought to aim definitely at 4 percent regardless of which of those two routes we follow. The second point is that I wouldn't favor what the Bluebook called rebasing. I had some sympathy for it back when we had overshot our targets, but then I started trying to contemplate how difficult it would be to explain to the market how an aggregate was going to grow at a certain percentage rate from where it really wasn't at the moment and I decided that it was best just to adjust the rates. And now, since we've come in on the low side in the case of M1, I think we'd really catch a lot of flak if we tried to do that. Furthermore, with our shifting from M1-B to M1, which is going to be very difficult to explain, if we had to explain rebasing on that, too, I just don't think anybody would really understand what we're trying to do. My final point is that I'd really rather solve this problem of running over on M2 and M3 by not setting ranges for them. I realize we don't know all we would like to know about M1, but I think we know more about it than we do about M2 and M3. So, I'd get rid of these multiple targets and focus primarily on M1.",369
-fomc-corpus,1982,Mr. Roos.,5
-fomc-corpus,1982,"I think it's important that we stick with our present targets. If we were able to achieve precise gradations, I would think that M1 should grow as in the strategy [2] scenario at something like 5, 5-1/2 percent. I'm not sure, with our present procedures, that we can hit our targets anyway much less achieve subtle differences between 4 and 5 percent. I would agree with [Bob Black] in that I'm not disturbed about [the behavior of] M2 or M3. Except for the cosmetic aspect of it, the defensive end, I think we'd clear the air by not setting M2 or M3 targets because they don't affect output or prices as effectively as M1, and I think it would be disastrous to start horsing around with the base again. People know what we're doing; they watch us like hawks. And I think it's important for us to say what we're going to do and then try our level best to improve procedures to accomplish our targets.",204
-fomc-corpus,1982,Mrs. Teeters.,5
-fomc-corpus,1982,"Well, my problem is that I'm not satisfied with the forecast. If we stick to these targets, we end up with virtually no growth for the fourth year in a row and unemployment of 9 percent or above. I think that's politically very dangerous. We're courting a lot of trouble for the Congress, the Administration, and the American people [if we try] to hold unemployment at 9-1/2 percent. We said we were going to review these targets. We set tentative targets and that has turned out in my mind to be a major mistake because we are setting targets for the subsequent year when we're right in the midst of the formulation of fiscal policy for that year on the Hill. And then we don't have the courage to change them. I don't want to play around with the base because I think that is too difficult to explain. We ought to look at this and ask: What gives us an acceptable level of real growth and some decline in the unemployment rate next year? And that leads me to say that we should go at least to last year's M1 target of 3 to 6 percent. The target proved disastrous and we undershot it. Instead of doing all this horsing around with the base, we should [set the ranges] straightforwardly the way John Balles has suggested and widen the difference between the M1 and M2 ranges, and then try to stay with that. Even with 3 to 6 percent, if we come out at the upper limit, we are not going to have a robust economy next year. But at least we might get some decline in the unemployment rate and in interest rates and I think that's what we're here for. Our major responsibility is to provide a healthy economy. We are getting considerable forecasts, at least, of a reduction in inflation; and if it turns out that we're wrong, maybe we can change the ranges again in midyear and do it in an honest way rather than just always have this problem of perception. One of the problems with sticking with the ranges that we have is that if we don't come within them, then we have an enormous credibility problem starting the end of the year. We can push, but there's just so much we can do with this. Sooner or later we have to face up to whether we made it within our ranges or we didn't. We go into an enormous amount of explanation to try to explain why we didn't. We may push off that credibility problem, but we don't avoid it. So, I would suggest raising the ranges on all of the aggregates.",513
-fomc-corpus,1982,Mr. Solomon.,4
-fomc-corpus,1982,"Well, I think there is still a very good chance that we will see in 1982 some of the downward shift in demand for holding M1 that we saw in 1981, and I don't think we should be mesmerized by a January bulge. We also should not be the least bit unhappy about coming in anywhere within the range and we shouldn't even be thinking in terms of midpoints given the shifting nature of these demands. We may very well come in at the upper end of the M1 range if we don't get a significant or even partial repetition of what we saw in 1981. But I have no reason to assume that we won't get that. In addition to money moving into money market funds and the substitution effect, we may also get a significant movement in the development of automatic sweep accounts, which also will tend to reduce the demand for M1 balances. Therefore, my instinct would be to stay with the ranges because it's not clear to me that we have as little room as the January bulge would indicate. Not only is there the possibility that part of it is temporary but there's also this other point that I just made. So, I'd be inclined to stick with [the tentative ranges]. As far as M2 goes, even this last year I was a little unhappy about the tightness of the M2 range. I pretty much come out the way Steve does in that I believe it's very likely that we are going to have less of a problem coming within the 9 percent [upper limit], although I agree with Chuck that we're probably likely to be at the high end of that range. On the other hand, it wouldn't bother me at all if we came out at the low end of one range and the high end of another. I think the midpoint stuff is absolutely nonsense in this imprecise world we're living in. So, on balance, if I were presenting the targets, I would point out to the Congress and the country that we may very well come in at the upper end of the range for M1, given the strong growth in January, if that doesn't prove to be as temporary as it might be. But it's also true that if we get the kind of innovation and structural changes that we got in 1981 in M1, we could very easily come in toward the lower end of the range. And I think the M2 relationship to nominal GNP is close enough; I don't think one can read too much from that 0.3 percentage point movement. It's still very close and, therefore, it seems to me that we could come in on that. So that's why I would stay [with the tentative ranges].",537
-fomc-corpus,1982,"We're running late, but I think we are far enough advanced here that we may as well get this preliminary go-around out of the way. Mr. Morris.",32
-fomc-corpus,1982,"Well, Mr. Chairman, I still feel that we're in a period now where we can no longer measure transactions accounts. And the problem, as Tony indicated, is going to get more difficult rather than less difficult in the future. If you look at what happened in '81, we had a reasonably predictable performance in terms of M2, M3, and bank credit relative to nominal GNP. But the real outlier was M1; the M1 number came in much lower than anyone would have forecast. It's very clear from the earlier discussion at this very meeting that we really don't understand what the devil is going on with M1. So, I still feel that we should abandon the M1 target and go with M2, M3, and bank credit. Beyond that, we ought to take a fresh look at how we're managing monetary policy because I think this whole concept of a transactions account, which is really the way the public focuses on what we're doing, is obsolete. The monetary aggregates are obsolete. We have to get some new models on the floor or the Japanese are going to take us over!",224
-fomc-corpus,1982,We seem to have contrasting views on what to do with M1: Leave it alone or throw it out.,22
-fomc-corpus,1982,We ought to put Messrs. Morris and Roos in the center of the table and let them go at it!,24
-fomc-corpus,1982,Mr. Guffey.,6
-fomc-corpus,1982,"Thank you, Mr. Chairman. I would agree with those who have spoken about the uncertainty that might come about by trying to rebase or to fool around otherwise with the numbers. As a result, I come out on the side of taking the ranges as we set them in July and trying to decide whether or not we want to increase or decrease those ranges, as the case may be. Let me just say that it's striking to me that one month's money growth--which we have talked about and the bulge that took place is totally unexplainable--has prompted this Committee to talk for another hour and a half or so as to how we should change the ranges for the period. That's a dramatic change, it seems to me, from what we talked about just one month ago at our December meeting. I mention that to make the point that because of the uncertainty that I suspect rests within everybody's mind and the unexplanability of the January numbers it doesn't seem to me to be very logical to start talking about rebasing or doing anything else with those numbers. There's only one [month of data]. As a result, I would reestablish what we set in July and agreed upon again in December without taking any formal action on it. There's one potential [change] that has been mentioned before that might be acceptable as far as I'm concerned, and that is the movement of the lower end of M1 from the 2-1/2 percent that we originally set to 3 percent. And that is only because the January bulge probably has rendered that 2-1/2 percent lower limit ineffective unless we get some very big negative numbers in the next couple of months. And if moving the lower band from 2-1/2 to 3 percent would serve the Chairman's purpose when he testifies before the Congressional Committees to give a view that we are going to be a bit more expansive in 1982 than what we achieved in 1981, then I would opt to increase the bottom end of that M1 range from 2-1/2 to 3 percent. That produces a midpoint, if anybody worries about midpoints, of 4-1/4 percent as opposed to 4 percent, and that's some 2 percentage points more than we achieved in 1981. It tells a pretty good story.",475
-fomc-corpus,1982,Mr. Boehne.,6
-fomc-corpus,1982,"Well, it's getting on toward cocktail time wisdom and I wouldn't want to stand in the way of that, so I'll be brief. Rebasing strikes me as gimmicky and I feel that we ought not do that. I don't think we've done it in the past; we ought to drift up or down and go from the real base. I think we ought to stay with the 2-1/2 to 5-1/2 percent range for M1. Roger is probably right that the 2-1/2 percent end is obsolete but I don't see any reason to cut into our flexibility. I think we ought to be happy to be anywhere within that range, given the imprecision. There is a case on technical grounds to raise M2 for reasons we discussed last time. Some of the points that Chuck made are valid, so I would be amenable to that kind of adjustment.",181
-fomc-corpus,1982,Mr. Rice and Mr. Winn haven't said anything. Do either of you want to add a quick word?,22
-fomc-corpus,1982,"Well, just quickly, my instinct is to agree with Fred Schultz, largely on the basis that to change the targets for the aggregates at this point would probably damage our credibility. I recognize the point that Nancy made that we have somewhat of a conflict here in that if we don't make the ranges again, that's a basis for reducing our credibility. But, on balance, I think we do more damage if we change the ranges or fiddle around with the base at this point than we do if we just stick with the current ranges. As you know, I've been one of the people who have been worried about the fact that the money supply, up until this month, has not grown fast enough. To me the ranges are basically cosmetic. This is what we tell the public we want to do. If we come in at the upper end of the range for M1 and if we exceed the range for M2 slightly, I for one will not be too worried about that.",194
-fomc-corpus,1982,Mr. Winn.,4
-fomc-corpus,1982,"Mr. Chairman, against the background of the behavior [of M1] in January, I think any changes we make would be subject to a misinterpretation regarding what our intentions are. Second, I'm really concerned about the thing we call M1 because it's going to become less and less of a measure of transaction balances. I watch [banks] in our District as they tool up for [changes in] cash management, and there are big, big, numbers here that don't show up at all as M1 numbers. The sweep accounts also are being tooled up in a big way and that's going to affect behavior, so I think we have a real case [for not changing the ranges] in terms of the changes that are occurring in the aggregates themselves in this period alone. Our concern should be to get a better feel for what these numbers really are than on this [unintelligible] that we play out here. I'd also focus on the ranges and not the midpoints because the midpoint overemphasizes our precision and our ability to achieve these things. Third, it seems to me, with this uncertain economic background, that we can't just stay with this willy-nilly. And we ought to factor that into the report that is made at this time, saying that as things change, we too will reexamine what we're trying to achieve.",274
-fomc-corpus,1982,"I am tempted to make some observations but I think I'll let them go until the morning, considering the hour.",22
-fomc-corpus,1982,"We had a considerable go-around yesterday on the long-term ranges. There were some differences of view expressed, I think more on M2 than on M1. I don't believe we should try to settle this issue right at the moment until after we look at the short term because the two are interrelated in some respects. We'll go to the short-term [policy discussion] and then come back to the long-term [decision]. Let me just say in general terms, so far as the long term is concerned, that I am aware of and sensitive to all the concerns about confusion and market interpretations of what we say and of credibility and all that. More basic than that is that we ought to be doing what we think is appropriate, and we can live through the credibility problems. In the end, our credibility will be related more to making the right decision than to worrying too much about what the market says about it in the short run. Having said all that, I think we're in a peculiarly uncertain period simply because of this big jump [in M1 growth] in January. If this growth were going to carry through, it would begin to suggest that something is going on here that we haven't fully been aware of in NOW accounts or otherwise. If it were semi-permanent in some sense, given how little growth that leaves [within the tentative range] for the rest of the year, I would question whether we are not being too tight. But I think a very strong case can be made that that judgment is premature; we just don't know. Things will look quite different if we get a decline in M1 in February. My expectations are not the greatest in the world; I don't think anybody else's are. My [intuitive] expectations weren't very good at the last meeting, I'm sure, and they may not be any better at this meeting. But one would think with the kind of velocity decreases we're getting now, and particularly a velocity decrease with the kind of interest rate movement we have had very recently, that it just doesn't seem to hang together all that well unless there is something very peculiar occurring in NOW accounts. So, there's a pretty good chance of some relapse from that January M1 movement. If there is a relapse, then this box that we appear to be in will disappear or dissipate--to a very considerably extent anyway. If we are going to change anything--and I thought about this for a considerable amount of time--I would argue that the advantages of rebasing rather than changing the targets are quite clear. I say that for two reasons. First of all, changing the targets in response to a sudden jump of the kind we have experienced--a short-term deviation or maybe a long-term deviation--may give the wrong impression. It could be interpreted easily as our not being interested in bringing down the money supply growth over a period of time and it could have implications for 1983 and 1984, which we do not want. Somehow, just psychologically, [it would appear that] we were off on a course of increasing the money supply. More important than that, it doesn't really go to what I conceive of as the problem. The problem is that we have a bulge right at the moment, which puts M1 above the target. We can change the target, but [under any reasonable target] we would still be above the target by a [considerable] amount, as we were before. And, if we leave the base the same, all the psychological and market freight of being above the target will be sitting there just as it is now, whether or not we change the range for the year as a whole. If we move the base up, what we will be doing is recognizing that we are starting from the higher point and we will be immediately back much more within the range of where we want to be in terms of the targets without changing those numbers. I am constantly aggravated--maybe other people are less so--by the amount of importance put on the three months that happen to be the final three months of the year. I look at what happens over a longer period of time. I meant to bring the figures in, but Steve may have them. Starting where we're starting, unless we get a very significant decline in February or March, we're going to have a higher year-to-year growth in the money supply than we had last year, certainly if you look at the shift-adjusted numbers. If you don't look at the shift-adjusted figures it won't be true because we had a 7 percent growth I think year-to-year on the non shift-adjusted last year. That growth reflected the bulge of NOW accounts at the beginning of the year. So, if you look at the nonadjusted figures, we started high and that produced a high yearly average growth of the money supply for the year as a whole even though the fourth-quarter-to-fourth-quarter growth was not very high. The contour was a high [rate of growth] in the beginning of the year and then it leveled off for the rest of the year. I think that gave a false reading because of the shifts into NOW accounts that produced the bulge. If you look at the shift-adjusted numbers, what was it on a yearly average basis last year, Steve?",1065
-fomc-corpus,1982,4.7 percent.,5
-fomc-corpus,1982,4.7 percent.,5
-fomc-corpus,1982,"It looks now that we would be no lower than 4.7 percent in 1982 and in all probability higher simply because we're starting high. Consistent with the present targets and growth anywhere in those targets except at the very low end and [in the absence of] a sharp early decline, we are going to have more monetary growth this year, looking at the period as a whole with the present target, than we had last year, if ""reality"" is a shift-adjusted number, without changing the target. And, of course, we would have more growth on a fourth-quarter-to-fourth-quarter basis, too. So, we have [more growth] both ways.",139
-fomc-corpus,1982,Are you assuming a decline at any point?,9
-fomc-corpus,1982,"Well, I'm assuming it doesn't go down very sharply. That comment may not be correct. If we had a very sharp decline--and by very sharp I mean more than a $5 billion decline in February--",42
-fomc-corpus,1982,Or over a couple of months.,7
-fomc-corpus,1982,"Yes, we would have to have a fairly sizable decline for a month or two for the yearly average to have any reasonable chance of not being significantly higher than it was last year. I can't predict every month but, just [extrapolating] on a straight-line basis, which may be unfair, it is equivalent on all these short-term alternatives except alternative A to ending up with 5 to 6 percent growth--I'm just going by memory, Steve--in the yearly average for 1982.",102
-fomc-corpus,1982,"That's right. If you hit the upper limit, it would be around 6 percent; at the midpoint it would be around 5 percent.",29
-fomc-corpus,1982,"That assumes that we don't have a great big decline in the short run. But, one of the peculiarities is this: Suppose October weren't there and suppose this increase had happened one month earlier. The fourth quarter would be very close to the fourth-quarter base and nobody would be arguing that that wasn't the appropriate thing to start with. [The bulge] comes a month later and results in a $5 billion difference in the base. Should that type of thing affect us? That's the kind of consideration that I've been struggling with. I have gone up and down on this, not knowing what is going to happen in the next 6 weeks. My feeling is that we will pretty much know the story then, although we never know for sure because there's always another week out there. But at least in 4 or 5 or 6 weeks, we will have a much better feel as to whether some of this has washed out or not. If it has, the current targets may not be perfect but, given the problems of fiddling around with them, they would look entirely appropriate to me. If that did not happen, I'd have a very serious question as to whether we were not being too tight--that something more basic and continuing may be going on here. That would imply, as a matter of judgment, given what is going on in the economy, what is going on in interest rates, and what is going on in the money supply, that we would have to think seriously about providing a little more relief. My tentative judgment is that that is a very hard decision to make right now and that maybe we should just say we are not prepared to make that judgment but will keep the matter under review and if we have to change it, we will change it. And we will change it as soon as [the situation] becomes more solidly apparent than it is today.",377
-fomc-corpus,1982,"Do we assume that it is impossible to pinch off this bulge through our open market operations? In other words, we did it in the middle of last year. What if we decided, instead of waiting to see what happens in a month or two or six weeks ahead, that we were going to instruct the Desk to sell securities out of our open market account in the amount necessary to pull down this bulge that has occurred. And, if that goes too far, then we'd reverse that performance. Can't we be the--",105
-fomc-corpus,1982,"Well, you are raising the question directly that I want to go to now Larry, and that is: What should we do in the short run? The issue on the table is how aggressively we want to move to, in effect, pinch the bulge off, as you put it. I'd like to turn to that now, but before we do, let's ask Peter to give us the normal background. But I think that is precisely the issue before us. The only thing I would note is that in the last week, inadvertently, we already have moved more strongly to pinch it off than we really intended. We moved some distance in that direction. So, why don't you talk, Peter, and then we'll go right to that point and then come back to the longer-run decision.",157
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,"Peter, may I ask a question? In the Bluebook the staff usually gives us several alternatives for the short-run targets and also indicates an implied fed funds range for each of those alternatives. If my memory serves me, in the past as well as in this current Bluebook the most expansive alternative usually reflects lower fed funds rate projections and the more restrictive money growth projections are accompanied by higher fed funds ranges. Now, at our last meeting, if we actually had set targets for money growth that were what has happened--money growth exploded--would you feel that normally that would have resulted in a lower fed funds rate or a higher one? It seems--",130
-fomc-corpus,1982,"Well, if the Committee had set the kind of money growth rates that actually transpired over the past month, it would have accommodated what has happened without getting the rise in borrowing and the rise in the funds rate that has occurred.",46
-fomc-corpus,1982,"What I'm trying in a clumsy way to get to is this: Is it not possible that our whole concept of how the fed funds rate reacts to the aggregate targets we set is exactly the reverse of what really happens? When money explodes, it seems to me that the fed funds rates and interest rates rise, as they are presently. Is that not true? And if that is true, why do you continue under the alternatives that are suggested to imply lower fed funds ranges with aggregates that show a higher money growth?",104
-fomc-corpus,1982,Do you mean we ought to reduce the funds rate range in order to choke off the money supply?,20
-fomc-corpus,1982,"No sir. I'm suggesting that the relationship between money growth and the fed funds ranges is just the opposite of what our Bluebook shows us. The Bluebook usually shows a lower range of fed funds when we opt for the more expansive alternative and a higher fed funds range under the alternative where money grows more slowly, implying that that will bring rates up. And that's exactly the opposite of what happened, Chuck.",81
-fomc-corpus,1982,"Yes, but I think--",6
-fomc-corpus,1982,It depends on supply and demand.,7
-fomc-corpus,1982,"Will you defend the Bluebook, Mr. Axilrod?",13
-fomc-corpus,1982,"One has to distinguish whether a movement is the result of a shift in the demand function or a shift in the supply function. We assume the demand is constant and, therefore, an increase in the supply of money--just as of potatoes--increases supply and reduces the price. Now, if it's the demand function that changes while the supply function is constant, then price--that is, the interest rate--and quantity move in the same direction. That is what you've observed and what you commented on. But the Bluebook targets are based on the assumption of constant demand and a change in the supply function.",122
-fomc-corpus,1982,"Regardless of the theory that relates one to the other, Henry, if we see over and over again that when money grows the fed funds rate moves up, we're getting our theory--",36
-fomc-corpus,1982,"If the price of potatoes goes up and you know that there has been no change in supply, it must have been because of a change in demand. These markets work just the same as every market in the economy and one has to distinguish what is the source of the movement.",55
-fomc-corpus,1982,Mr. Schultz.,4
-fomc-corpus,1982,"I don't quite understand this, but I gather that the argument is whether interest rates are the price of money or the price of credit. You are arguing that it's the price of money, and I have to agree with that; I think Larry's Reserve Bank would argue that it's the price of credit that's--",61
-fomc-corpus,1982,"Fred, all I'm trying to argue is that if--",11
-fomc-corpus,1982,Is that not accurate?,5
-fomc-corpus,1982,"If you look at what happens today when money grows more rapidly than people anticipated, these rates move up. It's just exactly the opposite of the circumstances formerly, before we had inflationary expectations.",38
-fomc-corpus,1982,"But what Henry is trying to say is that if that is because the demand for money increased, then it takes place that way. If it's because the supply of money increases, it has quite a different result.",42
-fomc-corpus,1982,"President Roos, may I just make a comment? When you observe in the market that there is an increase in money and short-term rates go up, it is not in my opinion because people believe that there's going to be more inflation. In my opinion--and this is what is predicted in the Bluebook--it is because the market believes that the Federal Reserve is going to hit its longer-run targets and, therefore, will take action to restrain the growth in money that has bulged in the short run because of the [increased] demand. And with demand high relative to the supply, the price, as Governor Wallich says, goes up. And the price of money is the interest rate. Therefore, they realize that interest rates are going to go up in the short run and short-term interest rates are what we're dealing with.",170
-fomc-corpus,1982,"But, Steve, regardless of what causes this--I'll buy any theory and I know you're both right--when money grows, rates go up. So it is just the opposite of the way we project these things in our thinking in the Bluebook.",50
-fomc-corpus,1982,"Well, all that says is that supply is pretty stable and demand is the source of most changes. This is what I and others normally say about the money supply and money demand. It's the demand that is the more unstable variable. And that's why we get movement of prices and quantities in the same direction.",61
-fomc-corpus,1982,"If one were putting this is non-jargon, the way to explain it was just the way I think Peter started to do. When we project a more expansive money supply, the reason we project that rates will go lower is that we are assuming we will supply the reserves. But when it happens not because we're supplying the reserves but because the demand is going up, we don't supply those reserves because it's not in our path. Then, of course, we get a different kind of reaction. The rates go up instead of down.",106
-fomc-corpus,1982,"But Tony if that's so--and I'll agree with you that it may be--still if we have an alternative that implies a higher rate of money growth, then we should project, regardless of the reason for it, a higher range for fed funds than if we're setting a lower rate of money growth. That is my point regardless of why.",68
-fomc-corpus,1982,"But, Larry, we're the controllers of supply; we're not the controllers of the demand.",18
-fomc-corpus,1982,"I think perhaps all of this will be made a little more concrete by examining what we want to do in the short run against all these alternatives, which have various demand and supply assumptions implicit in them. But we can have any questions about the market and dispose of those.",54
-fomc-corpus,1982,"I have a tentative question for Peter. I'm not sure I'm totally correct but if I add up roughly [the figures in] the footnotes in appendix 2 [in the Bluebook], you took $540 million out in the multiplier adjustment, which is greater than I've ever seen before. That must mean that you had a very unstable multiplier relationship in your initial projections that you were constantly adjusting. That also suggests to me that reserves were shifting between categories at a greater degree than is normal. When all the reserves went out last summer, they sort of disappeared. During this period did you have a shift of reserves from low reserve deposit categories to high reserve deposit categories?",133
-fomc-corpus,1982,I don't remember. It was a relatively large amount; whether that was a record amount of those technical adjustments. I'm just not sure.,27
-fomc-corpus,1982,"In large part, Governor Teeters, the [OCDs] were a lot weaker than we had allowed for in the path. So, if we hadn't taken out the reserves that had been allowed to support them, of course, they would have supported even more money growth. And for similar reasons, if we had left the reserves in, they would have supported more total deposits. Those were the essential multiplier adjustments, and they were larger than they normally are.",93
-fomc-corpus,1982,"Essentially, we had a reverse of the situation that prevailed over the summer? In a very technical sense, we had a reversal of that?",29
-fomc-corpus,1982,"I think that's probably right, isn't it?",9
-fomc-corpus,1982,"Yes, we had to adjust upward, then, for the [OCD] growth.",18
-fomc-corpus,1982,Mr. Black.,4
-fomc-corpus,1982,"I don't know for sure, Peter, whether you or Steve ought to handle this question. I just wondered if you had given any thought to possibly changing this automatic reaction mechanism. The rule of thumb you have, when you force the banking system to borrow any total reserves above path, is on a one-to-one basis. Have you considered other combinations? Looking at this period, one would think running borrowing up from $300 million to $1.7 billion [in the most recent week], with the target of $1.5 billion, would be a whale of a move. Still, the money supply did spurt. Have you monkeyed with the idea of maybe changing that automatic part?",139
-fomc-corpus,1982,"Well, as I said, some of the move up was a more or less automatic fallout of a strengthening in demand for reserves. We did, well along into the period, make a discretionary downward adjustment in the nonborrowed path of $190 million, I think it was, which added to that borrowing gap. There is continual consideration given to the size of those adjustments. And the factors bearing on it on this occasion had to do partly with trying to reach judgments about how lasting this bulge would be. If there had been a sense that this bulge was likely to be more lasting, and particularly if there had been a sense that it was occurring against a background of a strengthening economy instead of a still weakening economy, my view is that there probably would have been more of a discretionary downward adjustment made to build up that borrowing gap even further.",170
-fomc-corpus,1982,"Well, you actually made two ad hoc adjustments, if I understand it. One was on the 4th of January and then one was on the 15th. What I was talking about, really, was not those ad hoc adjustments but whether you had considered making the automatic [response] a little stronger or weaker. I just wondered what you--",71
-fomc-corpus,1982,"One point, President Black--and this is somewhat subjective because I don't have the data laid out--is that we know for sure that, for one reason or another, the relation between borrowing and the funds rate has become a lot looser over the last year or two than it had been. Often we get a level of borrowing without as much pressure associated with it in the funds market as one might have expected. It could be that in this period when things are confused by year-end [pressures] and all that, and in addition it is early in a period of pressure on bank reserve positions--that is, it has only been three or four weeks or so of which the first week or two are uncertain, because it was the year-end period--it may simply take more time for those pressures to build up. The function may be somewhat asymmetric or something. The banks may have to be in debt for a longer period before we get as marked a reaction as we might have expected ahead of time. So, if they have these kinds of pressures for a more sustained period, we might see a more prompt reaction in market conditions than when they first get in debt by $1 billion or so.",241
-fomc-corpus,1982,"Well, I think that's reasonable; I certainly can't suggest anything--",13
-fomc-corpus,1982,"This situation has also been complicated by the fact that in January we had some reserve misses that went in a rather perverse way. We didn't tighten up de facto as much as we thought we were doing earlier in January simply because we had more reserves in there than we thought we had. And then this past week it reversed. And while the market didn't tighten up particularly until the market [players] saw the figures, when they saw the figures they exaggerated how much we had tightened up. It gives us a bit of a problem; maybe it does or maybe it doesn't, depending upon what the future brings. But, statistically, we had much more but later tightening than we intended simply because of the way the reserve factors went.",145
-fomc-corpus,1982,"And the way we construct the path, the timing of the first indication of the overrun determines the pattern of borrowing for the whole period.",28
-fomc-corpus,1982,We ran over in reserves and short in borrowings and then had the reverse. That's--,18
-fomc-corpus,1982,"Well, I was just expressing some hope that maybe somebody had some ideas on how we could try an automatic mechanism that might work a little better than this had. But I guess that's probably expecting too much.",41
-fomc-corpus,1982,Go to contemporaneous [reserve accounting] and close the window.,13
-fomc-corpus,1982,"Well, that's one way.",6
-fomc-corpus,1982,That's one way of doing it; then we'd get a very strong one. Anybody else?,18
-fomc-corpus,1982,"Yes, I'd just like to ask Peter how he thinks the market would react to either an increase in the surcharge or an increase in the discount rate.",30
-fomc-corpus,1982,"Given the events of the last week or so, it wouldn't come as a total surprise, but I don't think there's a preponderant expectation of a move either. I think there would be some reaction to either of those, probably less so if a move were confined just to the surcharge. It hasn't been fully discounted; some people would say that they don't expect such a move because they still don't see the turnaround in the economy that they think would be part of the background of such a move.",99
-fomc-corpus,1982,We have to ratify the transactions. Are there any other technical questions?,15
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,"Without objection, we will ratify them and turn to the immediate problem before us. In terms of what we were just talking about, Mr. Axilrod, is it fair to ask if all your alternatives, A, B, C, and D assume no great change in the demand for money? You're assuming that the money created is in there and it's not going to relapse on its own accord?",81
-fomc-corpus,1982,"We have assumed a sharp deceleration in money demand in all of the alternatives in that we don't think the high double-digit growth rates of the past three months on average will persist. We have not assumed in any of them a contraction in the outstanding amount of money over a two-month period. We could have a 1 percent [annualized rate of] increase--say, a -7 percent [annual growth rate one month] and a +9 percent [in the next month] or something. That is possible, but we have not assumed a contraction over a two-month period in any of the alternatives unless action is taken to make market instruments more attractive, which in effect means interest rates rising, which is the assumption of alternative A. That is, we believe that a contraction could be attained but with interest rates rising substantially. Alternatives B, C, and D suggest much slower growth rates than we have had and alternatives B and C would hit the upper limit of the present long-run [range] later. Alternative D remains outside [the range] if the Committee were to vote for a continuation of the [previously set] growth rates over the rest of the year. I might add, Mr. Chairman, that because of this problem we did suggest a second alternative in the Bluebook for the directive language on the thought that the Committee may not wish to squeeze the economy further in order to attain the contraction but might find such a contraction highly welcome if it were to develop without squeezing the economy further. The second of the two alternative languages presented, while it need not be different in the substance of the numbers, is somewhat different in the public posture it portrays about the Committee decision. It is meant to provide an alternative which would in effect welcome a sharp drop [in money growth], provided that the drop could be attained without squeezing the economy further.",370
-fomc-corpus,1982,"Well, how would the economy be squeezed? What do you mean by that?",16
-fomc-corpus,1982,"I meant that if the Committee targeted on a drop of 7 percent, our suggestion would be that to attain that we'd need borrowing to start as high as $3 billion. But suppose the Committee said no, we don't believe that; our thought would still be that if you targeted on a drop as low as 7 percent and even if you started with borrowings where they are now, the required reserves would immediately come in higher than is consistent with that drop. And borrowing would tend to rise very sharply, so that you would get a sharp rise in short-term rates because the immediate demands for money would be in excess of the -7 percent that was targeted. If we're wrong about that--and we may very well be--then we would not get this rise in interest rates. So, what I meant by squeezing the economy was that the Committee may choose not to target on such a thing on the grounds that it runs greater risks of raising interest rates in the middle of a recession. But it may wish to target on something involving a slower deceleration into the long-run targets--a more gradual slowing on the grounds that that minimizes the chances of rising rates. On the other hand, the Committee might be quite willing to accept a sharp decline if that could be attained without further upward pressure on short rates at this time.",265
-fomc-corpus,1982,But the most--,4
-fomc-corpus,1982,"Did you want to say anything in a more orderly way, Mr. Axilrod, without my asking you a leading question?",26
-fomc-corpus,1982,"Well, I've just given the substance of the comments I had written out, Mr. Chairman.",19
-fomc-corpus,1982,"Steve, since we don't know the January figures--and we have done this before--why aren't we basing from December to March rather than from January to March?",33
-fomc-corpus,1982,"Well, one could base it from December to March. The first alternative left that blank in case the Committee wished to retain November or December or whatever. The second alternative was designed just to make it clear that the Committee wants a deceleration from the very recent growth rates, which was January essentially. That was what was carrying the Committee beyond its tolerance point, so it just seemed natural to base it on January. We have full data through the 20th of January and partial data through the 27th; so there may be a change in the base but not as substantial a change as it appeared we would have in December because we had quite a bit less data for December when the Committee met last time.",142
-fomc-corpus,1982,Page 10 has November to March.,8
-fomc-corpus,1982,"Yes, I saw that, and I didn't understand why we would do November to March.",18
-fomc-corpus,1982,That's what your base was before.,7
-fomc-corpus,1982,"Yes, but to me [a December base] just seems a little more logical, since we really know only 2/3 of January and we do know December. And the numbers look more moderate if we go from December.",46
-fomc-corpus,1982,"The December-to-March numbers consistent with alternatives B and C, President Solomon, are 8 percent and 9 percent for M1. That's why in alternative I [of the draft directive language] we left it for the Committee to fill in whichever base it felt most comfortable with. Alternative II suggests simply [to base on] January, to make clear that with January behind us the Committee wishes to get money growth moving back toward the range. That's the essential reason for that approach.",97
-fomc-corpus,1982,"Steve, did you say what the borrowing associated with alternative A was?",14
-fomc-corpus,1982,"In our judgment, it could go as high as $3 billion because we believe that we can't get that kind of reduction for two months without a further rise in the funds rate, even though the economy is as weak as it seems. But I have a certain degree of uncertainty about that because our quarterly model does suggest, if you believe it, that given the amount of money that has already been produced and given the weakness of the economy, that that amount of money isn't in effect needed for transactions associated with GNP in the first quarter. But it might be needed for precautionary purposes, so you have to force interest rates up to get it out of there.",133
-fomc-corpus,1982,"The $3 billion on borrowing that you're tentatively estimating for ""A"" could go as high as $5 billion?",24
-fomc-corpus,1982,"Oh, it could go a bit higher; that's correct. We assumed that was consistent with a fairly high funds rate. But it could be anything.",30
-fomc-corpus,1982,It could go as high as what?,8
-fomc-corpus,1982,It depends on how hard you want to fight it.,11
-fomc-corpus,1982,Let me try a common-sense interpretation of this--I hope.,14
-fomc-corpus,1982,Of what?,3
-fomc-corpus,1982,"Of A, B, C, and D.",10
-fomc-corpus,1982,I thought you were going to do alternatives I and II.,12
-fomc-corpus,1982,"I'll suggest a possible approach as a focus for discussion. I think you're saying, Steve, that either because of transactions balances alone or transactions plus precautionary balances--depending upon what model you look at--the demand should not continue to rise at the rate it has been rising, but it is going to rise a little anyway, or hold stable perhaps. Therefore, if we're going to get [M growth] down, we have to take some action to tighten up--well, for borrowings to be about where they are or higher, up to $3 billion. That's the number you just gave in terms of borrowing. Alternative A says, against the presumption which may be wrong--it may just relapse on its own--that if we really want to retrace January, we have to be aggressive in tightening up the market. And that's going to push the funds rate way up because of this demand factor. Alternative B says, if we stay more or less where we think we are--lower than where we were in practice last week and maybe this week, but where we were aiming--that we would get a leveling off, but that's it. Alternative C says, if we're a little easier in terms of pressure on reserve positions, measured by $1 billion worth of borrowing, that we probably would get a small increase in the money supply but we certainly cannot retrace the increase we had. And ""D,"" of course, moves further in that direction. It says that even if we were quite easy on reserve positions, we wouldn't get much of an increase in the money supply compared to what we have had, but we would certainly add to what we have had.",334
-fomc-corpus,1982,Because it has already occurred.,6
-fomc-corpus,1982,"Because it has already occurred, that's right. Now, the question is what we want to do. If we get any significant increase from where we are, I am suggesting that we have to resist it. I would accept that as a starting proposition. I think there is some chance it could happen by itself. But who knows? Tentatively, anyway, I reject something like alternative A, [which implies] that we're just going to whack off a big amount in an effort to get a quick reversal that we feel we otherwise would not get. One can take the view that it would tighten up the market very substantially in the middle of a recession. I am not proposing that. I do think we have to show some resistance, which means a tighter market than we now have, if the figures carry us up significantly from where we are. And I interpret something like ""B"" or ""C""--either one or someplace in between--as saying we can ride along and we would be satisfied. It is not the happiest situation in the world, but we would be satisfied at riding along if we have to be someplace around where we are in terms--",231
-fomc-corpus,1982,"By ""where we are"" do you mean the level of the money supply?",16
-fomc-corpus,1982,"--of the money supply, yes.",8
-fomc-corpus,1982,"Not the rate of increase, but the level?",10
-fomc-corpus,1982,"No, the level. We would be willing to ride along with that level without tightening the market further. We will wait longer and make another decision, obviously, in 6 or 8 weeks or whenever we meet again. But, in balancing off all these considerations, we would be content to see an eventual unwinding without any substantial changes in the level of the money supply with money market conditions more or less where we intended them to be, which is somewhat easier than they in fact are at the moment in terms of federal funds rates and borrowing levels. We are talking about something around $1.5 billion in borrowing, which is lower than it has been for the last 10 days. That seems to me a reasonable approach. But I would feel rather strongly about the caveat expressed in that second version of the directive: That if the assumption of essentially unchanged demand for money proves to be wrong and, with that amount of pressure on the market, the money supply relapses, I would be delighted. I would not say that at that point we would put in money in order to keep the money supply at an unchanged level or a +1 or +2-1/2 percent or whatever. In other words, if we could accomplish that--. This may give too much weight to what we do in the short run, but if the dynamics of the marketplace produced a relapse in the money supply downward consistent with unchanged or even a reduced level of borrowing, we should just accept that and count our blessings and wait for the next meeting. If it doesn't happen, if maintaining these pressures produced a result like ""B,"" let's say, we would be content with the situation. If the tendency of the money supply were to rise further, we'd have to act against it. And that would send the level of borrowings still higher--maybe not higher than it is now, but higher than what our target is at the moment. So, that is the approach that seems to me to make sense. And we would incorporate--I don't know what the precise numbers would be--something like 0 to 2 percent or whatever number we wanted to put in there for M1 for the next couple of months with a borrowing level where it is, or maybe even a little lower than that, depending upon what weight we wanted to put on the possibility of a decline arising spontaneously. And if M1 does decline, we would let it decline as a welcome reversal of what we had [in January].",499
-fomc-corpus,1982,"I'd like to ask Steve to verify whether the following reasoning or these facts are right or wrong: If M1 remains at its current level of about $450 billion throughout the first quarter of 1982, would the estimated growth rate for the first quarter be about 12 percent? Is that correct?",60
-fomc-corpus,1982,That's correct.,3
-fomc-corpus,1982,That 12 percent assumes M1 is unchanged from now on.,13
-fomc-corpus,1982,"Then if money grows at this 12 percent rate over the first quarter, if we do what the Chairman suggested and stay where we are, what does that imply for the growth of M1 over the rest of '82? In other words, if M1 growth in the last quarter of last year was 6 percent and in the first quarter of this year is 12 percent, doesn't that imply, if we're going to stay within the long-term range that we have been talking about, something like a 3 percent growth rate for the next two quarters?",112
-fomc-corpus,1982,"Yes, in general, it's right in that order of magnitude.",13
-fomc-corpus,1982,"Okay. If we had a 9 percent average growth for M1 over the last two quarters and we're forced to seek a 3 percent growth rate of M1 for the next two quarters, wouldn't that have a very traumatic effect on output late in the year?",53
-fomc-corpus,1982,"Well, our thought at the moment is that something like what you described will develop more or less given demands at something like current interest rates. That is, we will get a sharp deceleration in money growth to a 1 to 2 percent monthly growth rate over the next couple of months--it's implicit in that--and a moderate rate of growth over the second quarter. Where we would see more of a sharp effect on output would be if that pattern required higher interest rates because there were bigger demands for money than are implicit there. Then we would see much sharper effects on output. But our projection for GNP is based on a pattern somewhat like what you were describing, on the thought that that will not be accompanied by substantially different interest rates than we now have.",154
-fomc-corpus,1982,"Steve, your most expansive case, alternative D--and I promise I'll shut up soon, Mr. Chairman--has the lowest fed funds range of these four alternatives. Yet, with the explosion of money growth that we have experienced in the last few weeks, the fed funds rate is already above the top of that alternative D range. What makes you think that we aren't going to have increasing fed funds rates even if we go the more expansive route? That's what worries me about this whole thing.",98
-fomc-corpus,1982,"It all depends, President Roos, on one's assessment of the demand for money relative to the amount the Committee is willing to supply.",27
-fomc-corpus,1982,Can anyone accurately forecast the demand for money?,9
-fomc-corpus,1982,It's very difficult.,4
-fomc-corpus,1982,You've got us on that one!,7
-fomc-corpus,1982,The prosecution rests!,4
-fomc-corpus,1982,"The kind of consideration that you raise, Mr. Roos, is what I have in mind. If the demand were so strong that it turned out, let's say, that with the amount of pressure we now have, we were continuing to get increases in the money supply, I'd begin wondering very seriously about our targets for the year, because they wouldn't seem to hang together with what we know about the economy and all the rest. Now, we'd have to evaluate the economic situation, but just sitting here now it doesn't seem to hang together if the demand for money were that strong. But we don't know that yet. Mr. Guffey.",129
-fomc-corpus,1982,"Thank you, Mr. Chairman. If I understood what you said earlier, the only quarrel I might have with you is what side of ""B"" we ought to end up on. You are on the right; I'd go a bit to the left.",52
-fomc-corpus,1982,"Well, I'm not sure. Let me just clarify that for a moment. As I sit here gazing at these numbers again, we're essentially talking about how we are going to act between now and the next meeting, of course. And given the great bulge that we've had, I'm not sure it's the right thing to say--we can have another discussion about what the borrowing assumption would be--but in terms of the right posture, maybe the right number to put in there is zero: The breaking point for us on whether to tighten or ease is whether we get any further growth beyond this great big bulge that we've had. What we would be doing is expressing some unhappiness with and some resistance to any growth above the elevated level that we now have.",152
-fomc-corpus,1982,"And that puts you between ""B"" and ""A,"" not between ""B"" and ""C.""",21
-fomc-corpus,1982,"Yes, it's almost to ""B."" Of course, it is between ""B"" and ""A"" but it's a trivial distance from ""B.""",30
-fomc-corpus,1982,"It's on the left side of ""B."" It's almost the same.",14
-fomc-corpus,1982,"It just looks to me a little funny, now that I look at it, to say we want 1 percent growth. That's just a fine [line] after this bulge. What's so magic about one percent? We're willing to accept, if we have to, what we already have but we wouldn't like to see it going up any further. [Zero] may make a little common sense.",80
-fomc-corpus,1982,That's coupled with the thought you also expressed that we would move against any evidence above zero and would tolerate or accept and be grateful for anything below zero.,30
-fomc-corpus,1982,That's right. Precisely.,6
-fomc-corpus,1982,I think that's precisely what I'd like to see happen.,11
-fomc-corpus,1982,We could fall off the cliff on the other side.,11
-fomc-corpus,1982,"Look, this is about degree. I'm saying we don't move very hastily if M1 begins falling. If we got a couple of weeks of decline--let's say in a few weeks it fell off $6 billion just to pick that number out of the air--the market would be easing because we would be quite satisfied with that and could afford to be somewhat more relaxed about it. I'm not making a fine judgment as to how much to let borrowing go down. I'm saying we wouldn't at the very least begin making discretionary adjustments and we wouldn't begin pumping more money in than the path said with a fairly sizable decline in M1. We'd say we were happy about that. We might let the automatic [response] that Bob Black was referring to work, but we wouldn't begin taking aggressive action to keep [borrowing] up while [M1] declined by $5 or $6 billion. We'd be delighted. If it began declining further, we might well [respond]. Now, just where the number is, I don't know. I have some figures that may not be out of the ballpark. The preliminary figures have been very poor in terms of indicators, but suppose it came out [as a decline of] more than $2 billion--say, $2-1/2 billion, which it could easily do. And suppose we had another decline of that magnitude the following week. One can always hope. We would then have a $5 billion decline and a sizable decline may be in train for February and I think we just ought to be delighted. If that continued, then we would expect to see some easing in the market, but would not be aggressive in trying to offset the decline during this 2- or 3-week period. We'd welcome the decline.",356
-fomc-corpus,1982,"If we saw an increase of, say, 2 percent over the period, would you rush to resist that?",23
-fomc-corpus,1982,"I don't think ""rush"" is the right word but we would resist, yes.",17
-fomc-corpus,1982,We would let borrowings go up.,8
-fomc-corpus,1982,"We would certainly let borrowings go up at least, in accord with the automatic [mechanism]. And we might have to do a little more than that.",32
-fomc-corpus,1982,"We have already signalled our displeasure to the market. We are at 15-1/2 percent [on the funds rate] and $2 billion in borrowing. When we say ""stay where we are,"" are we talking about staying at $2 billion or $2-1/2 billion or $3 billion?",66
-fomc-corpus,1982,"No, a billion and a half dollars. I don't know how soon it would develop--we will want to discuss that explicitly--but I am talking no higher than $1.5 billion of borrowing, which presumably means an easier market than we have now even with zero [M1 growth]. Just to be explicit, on the borrowing one could argue that maybe it should be even lower. It depends on what kind of chances one wants to take.",90
-fomc-corpus,1982,What were we seeking? I lost track.,9
-fomc-corpus,1982,A billion and a half dollars as I recall.,10
-fomc-corpus,1982,Right.,2
-fomc-corpus,1982,It got up from $1.2 billion to $1.5 billion.,16
-fomc-corpus,1982,"Essentially, what I am suggesting is retaining that with a zero number [for the M1 growth rate]. If it began rising above zero, we would go above that. If for a while it declined below that, we wouldn't be very quick about moving; if it declined enough, obviously, we'd move; but we wouldn't be very quick about it on the down side.",75
-fomc-corpus,1982,It's hard to imagine a negative between now and the next meeting that would be so large that we would think it was an excessive washout of the bulge. I guess there is such a number--25 or 30 percent--but it has to be awfully big because it was a 22 percent increase.,63
-fomc-corpus,1982,"Yes, but we would not be in too bad shape by the end of the quarter, or we'd still be high. But that's compared to where we are now. I don't think we should assume that we couldn't get a $5 billion decline in the money supply between now and March. And then if March were stable, we'd look in not too bad shape. We would still be high [relative to the long-term target].",85
-fomc-corpus,1982,We more than washed out last April in the space of what--3 months?,16
-fomc-corpus,1982,By the end of three months some of us were getting concerned.,13
-fomc-corpus,1982,"If we get the washing out starting early in February, I don't think any of us has a problem. If it doesn't work out like that, though, it seems to me that we might want to build in a little extra protection by setting the initial borrowing assumption at, say, $1.3 billion rather than at $1.5 billion because otherwise we're going to get a rise in rates, I think. If we start with $1.5 billion for borrowing and don't get a decline, there's a greater risk that we're going to get a rise in interest rates. We would give ourselves a little margin if we start with $1.3 billion.",132
-fomc-corpus,1982,"Why would we do that if borrowing is already running above $1.5 billion right now? If we start out setting it at $1.3 billion, which is a considerable drop from where we are at this point, and even $1.5 billion is a drop from where we are--",60
-fomc-corpus,1982,"No, it isn't.",5
-fomc-corpus,1982,Yes. Borrowing is running--,7
-fomc-corpus,1982,$1.5 billion is what we have been aiming for; the actual came in at $2.3 billion.,24
-fomc-corpus,1982,One has to distinguish between the aim and the actual.,11
-fomc-corpus,1982,Between the aim and the actual?,7
-fomc-corpus,1982,We're talking about the aim.,6
-fomc-corpus,1982,This week borrowing is [averaging] $1.7 billion so far.,16
-fomc-corpus,1982,The nonborrowed reserve path right now is based on the assumption of aiming for borrowing of $1.5 billion. At the moment I'm assuming that we don't want to see a 15-1/2 percent fed funds rate. I'm assuming that we're talking more about what we had hoped. which was that $1.5 billion in borrowing would produce a fed funds rate of closer to 14 or 15 percent,84
-fomc-corpus,1982,I would have said about 14-1/2 percent.,13
-fomc-corpus,1982,"Right, about 14-1/2 percent. So, it seems to me--",18
-fomc-corpus,1982,"But doesn't that argue that if we stay with the $1.5 billion, we're going to get lower interest rates anyway?",25
-fomc-corpus,1982,"Well, my instinct is based on our discussions in New York, to the effect that the psychology in the markets is such that if we aim at $1.5 billion and don't get any decline [in M1], we're probably going to end up with a higher funds rate than 14-1/2 percent. And, therefore, I think there's some advantage to starting with a modest safety margin in case we don't get the decline.",88
-fomc-corpus,1982,"Well, it depends upon what safety margin we're talking about. I view the difference between $1.3 and $1.5 billion as no big deal. But you're talking about a safety margin in terms of market reactions. Other people may think of the safety margin in terms of what happens to the money supply, so it depends on where you're looking for the safety. And that's what we're--",79
-fomc-corpus,1982,"Right, but if we're living with the January bulge, and I certainly agree that that makes sense, we're not trying to correct it in the very, very short run. If we start off with $1.3 billion, basically what we're saying is that if all of the projections worked out exactly as projected, we would get back to the upper end of the target halfway between June and September. Now, if we start with $1.5 billion, what we're saying based on the staff's analysis is that we would get back to the upper end by June.",114
-fomc-corpus,1982,I'm a little confused.,5
-fomc-corpus,1982,"Before we get off on this question, let me ask in general whether anybody is radically out of the ballpark I suggested. If people are, let's put it on the table and then dispose of that issue and then come back to the fine-tuning. Mr. Roos.",56
-fomc-corpus,1982,"Well, I think it's obvious that we ought to do what we did last year and pinch out this bulge. If you recall, we had almost the same experience in the middle of last year; and when we took the action we did in April of last year, the fed funds rate did rise from about 13 to 19 percent. It stayed there a couple of months. But then it came down again and we were in a much more favorable position after we had taken the remedial action. So, that's obviously my point of view. I think we ought to do something sooner.",119
-fomc-corpus,1982,Let's just put this on the table and dispose of it or not. You are just an advocate of an aggressive move at the moment in the hope and expectation that that will help in the long run. And you would take all the implications that that may have for substantially higher interest rates in the very short run.,62
-fomc-corpus,1982,"I just might point out, Larry, that when we moved in April, we moved in the context of the strongest quarter in GNP that we had seen for a long time--the first quarter. Now we would be moving in a context of the weakest quarter in GNP that we've seen since the spring of 1980. The economic circumstances are quite a lot different than they were then.",79
-fomc-corpus,1982,"Well, this is clearly an aggressive view on the table. It's a legitimate view. Does anybody want to support it?",24
-fomc-corpus,1982,"Mr. Chairman, I think what you have more or less suggested is an excellent fallback position, and if it developed in that way I'd be just tickled pink about it. But looking at past experience, these trends that develop are so like runs in stockings: They sometimes keep going on. It's like trying to drive on the ice, as I have been recently. If you don't correct until you're way off toward the ditch, you sometimes have to make a pretty big correction. We have looked at this as carefully as we could and tried to find out whether this burst was an aberration or permanent, and I don't think we know the answer to that. So, I think it's safer to minimize the risk by assuming for the time being--though we may be dead wrong--that the bulge is permanent, and I would be inclined to move more strongly against it now, along the lines of what Larry was saying. But by the same token, if it comes out the other way, which is probably just about as likely, then we ought to be prepared to let the federal funds rate come down and use the whole range for it if [M1] comes in overly weak.",237
-fomc-corpus,1982,"It's hard to see it overly weak in my way of thinking, but I--",16
-fomc-corpus,1982,"I don't think we could get that in one month, but if that persisted for a while it could cause--",22
-fomc-corpus,1982,"Oh, if it persisted for a while--",9
-fomc-corpus,1982,"Until recently, I thought the economy was going to be much weaker than I now think it is. I've begun to wonder if it might not be bottoming out, which is something I never thought I would think at this point. But if you look at what happened at the bottom of the previous two recessions, the [M1] growth was not unlike what we've had, so I don't think we can rule that out. I don't know what probability we should attach to it, but I just believe that's the course of lesser risk, because I think further growth now is a little more dangerous than moving the rates up temporarily to try to bring M1 growth down.",134
-fomc-corpus,1982,"Well, these are difficult matters of judgment. The only thing I would say on the other side--without saying this view is wrong because we won't know until afterwards--is that we have had a pretty big tightening move in the market already and we haven't had much chance to see [the response] because it was delayed; in fact, to exaggerate, the market got no message at all almost until very recently. We haven't had a chance to see what kind of reaction that will bring. One can argue that being as aggressive as you're talking about, particularly against the business background that exists, takes too many risks. That's what I feel.",128
-fomc-corpus,1982,"I think that's a good point, and it does add strong support to what you're suggesting. The only thing that keeps me from doing that is remembering that it is so darn hard to hit these short-term targets. And we have missed them so often, despite our best efforts, that I just shift a little in the other direction. But I think your position is a perfectly reasonably one and I would expect most people would think that's the better one to follow.",91
-fomc-corpus,1982,"Well, we've had some expression of view on the more aggressive side. I guess the next logic is to ask: Does anybody want to be considerably less aggressive? Let's get that view on the table if it has any support. Not hearing any, I think we're down to fine-tuning. Just to repeat the specificity so that we have something to fine-tune, the proposal is to use a zero in there for the M1 number and I guess we can leave the M2 number where it is [in alternative B]. And we have a $1.5 billion and a $1.3 billion borrowing assumption advanced so far. Mr. Guffey.",133
-fomc-corpus,1982,"I would opt for the $1.5 billion. Although we've been above that over the past week or two, it seems to me that things are moving in the right direction. I believe Peter said that we had a $600 or $700 million [run-off] last week and a potential at least of some run-off again this week, which would bring the borrowing level back to about $1.5 or $1.4 billion. That seems to me to be the right place to start with a zero [M1] growth in the intermeeting period.",114
-fomc-corpus,1982,Mr. Ford.,4
-fomc-corpus,1982,"I'm reasonably close to where you are, if I understand you correctly--that is, ""B"" with a slight tilt to ""A,"" which would say--",32
-fomc-corpus,1982,I would say a purely cosmetic one. That zero somehow looks more defensible than one percent in terms of what has happened.,25
-fomc-corpus,1982,"Now, wait a minute. I don't think ""B"" with a slight tilt toward ""A"" is accurate because that's January to March. The Chairman is suggesting zero [M1 growth] from now until the next Committee meeting. I think that's a different animal.",53
-fomc-corpus,1982,"Well, no, I meant it to be the same.",12
-fomc-corpus,1982,I understood it to be the same.,8
-fomc-corpus,1982,I meant it to be the same. I think that roughly is until the next Committee meeting.,19
-fomc-corpus,1982,"I would lean a bit toward the tighter end of what you're describing by saying that we ought to assume $1.5 billion on borrowing, especially given that the funds rate today, as it was yesterday, is coming in close to the upper end of this band and we ought to continue with the common sense notion of bracketing the funds range around where it is when we leave this room and allowing some leeway on the upper end of that range. I know that's not going to be real--",100
-fomc-corpus,1982,"Well, I didn't mention that but my instincts are against taking the last 2 days on the federal funds rate as the rate to bracket. I would say the 14 percent is probably what we ought to bracket on those assumptions.",46
-fomc-corpus,1982,Alternative A shows 3 percentage points [of leeway both above and below the midpoint of the range]; the others show 2 points. If you are saying that you want to peg the fed funds and not hit 16--,46
-fomc-corpus,1982,I didn't say that. I said I would worry if the federal funds rate were 16 percent now. I surely would.,25
-fomc-corpus,1982,I can understand on an intra-day basis and it has been 16 percent or right--,18
-fomc-corpus,1982,It touched 16 percent yesterday. The effective rate yesterday was 15.68 percent or something like that.,22
-fomc-corpus,1982,But we're not talking about an intra-day touching.,10
-fomc-corpus,1982,"Still, I'd go along with ""B"" and the zero growth rate for M1 and something like the [alternative B] M2 figure, but I'd want to give ourselves a little room to breathe on where the funds rate goes.",47
-fomc-corpus,1982,I think we ought to do away with the funds rate range. I think this is the perfect meeting just to do away with it.,27
-fomc-corpus,1982,I second that.,4
-fomc-corpus,1982,All right. I think that's a great idea.,10
-fomc-corpus,1982,I'd agree.,3
-fomc-corpus,1982,We say we're shooting for zero growth in M1 and no rate restrictions.,15
-fomc-corpus,1982,Why is this a perfect meeting to do it?,10
-fomc-corpus,1982,"It's the first meeting of the year. We're totally at sea. We have a very simple suggestion from the Chairman, which is that we target for zero [M1] growth and we accept any shortfall. And we take the rate that comes up.",51
-fomc-corpus,1982,"As long as we're going to put out extremes, I'll suggest throwing out M1.",17
-fomc-corpus,1982,So we throw out zero and we come up--,10
-fomc-corpus,1982,"Not using a funds range makes a lot of sense because that range is always misunderstood in the market. They all believe that it cannot be breeched, but actually it is a checkpoint at which consultation begins. I think we'd do ourselves a lot of good by removing it.",54
-fomc-corpus,1982,You're willing to remove the bottom as well as the top?,12
-fomc-corpus,1982,Sure. We opt to take it out; we don't want it.,14
-fomc-corpus,1982,"That doesn't mean that we can't consult under any circumstances, I take it.",15
-fomc-corpus,1982,"Well, I would be very upset if, without any evidence that the economy has bottomed out--I think the only evidence suggests the economy is still going down--we threw out any constraint on interest rates on the up side, as Mr. Partee suggests.",53
-fomc-corpus,1982,"It seems to me that there are lot of people out there who think we're going nuts in the direction of the money supply anyway, and if we just throw out any restraint on the funds rate, given the economy where it is, it's going to convey the notion that we've lost our sense of balance.",60
-fomc-corpus,1982,"You can even leave off the ""of balance"" in that statement!",14
-fomc-corpus,1982,"And I don't think we ought to have a hidden consultation rate that we don't tell the public about. It seems to me we owe the public [information on] the way we're looking at things and the way we're operating and how that works. If we're going to use a 16 percent and 12 percent as the upper and lower limits for purposes of consultation, we should tell the public that.",79
-fomc-corpus,1982,"Well, I have great faith in the conservatism of our management.",15
-fomc-corpus,1982,"Now, if we use a borrowing assumption, which we don't publish, and which is a much more operationally important thing than the consultation ranges--",29
-fomc-corpus,1982,Let us defer this particular argument and settle on the other dimensions. Mr. Corrigan.,18
-fomc-corpus,1982,"I have just one little anecdote here. We talk about all these statistics all the time, and I would note for the record that many of the people who are always telling us what to do tell us we should look at the monetary base. If you look at the monetary base for 1981, it's actually quite stable on a quarterly basis. But the most interesting thing is that the growth rate of the monetary base was slowest in the fourth quarter when the growth of the money supply was fastest. And I think there's a little message there. As to the substance of the short-run decision that we will be making, I personally would have quite a strong preference for having something like the second alternative directive [shown in the Bluebook] as our basic marching order, with M1 at zero and M2 at 9 percent. I would be very comfortable with a funds rate range of 12 to 16 percent. I for one would feel very, very strongly that we should maintain a band on the federal funds rate for some of the reasons that have already been stated. I don't think there is a great deal of misunderstanding in the marketplace as to what that band means right now; most people know exactly what it means. So, I would be very uncomfortable getting away from having a federal funds rate band, and I would fix it at 12 to 16 percent. On the borrowings, again, I would feel fairly strongly that we should start at $1.5 billion. At least as I read the Bluebook and look at what has happened even since this Bluebook was written, I would interpret the staff's analysis as saying that over the intermeeting period as a whole a borrowing level of $1.5 billion should be compatible, from where we are right now, with both lower interest rates and a lower actual level of borrowing. That's how I would look at it, Mr. Chairman.",384
-fomc-corpus,1982,"Mr. Corrigan, may I please just correct one thing, sir? The monetary base has grown much more quickly in the last quarter of--",29
-fomc-corpus,1982,"On a quarterly average basis, I think it is the slowest growth rate of the year.",19
-fomc-corpus,1982,It was in the Bluebook.,7
-fomc-corpus,1982,"No, not according to us. We'll have to put you on our mailing list.",17
-fomc-corpus,1982,There's a different base in St.Louis; we know that.,13
-fomc-corpus,1982,Mr. Boehne.,6
-fomc-corpus,1982,"I'm about where Jerry is. I like your general ballpark specifications, Mr. Chairman. Zero seems right to me for M1 and 8 or 9 percent is acceptable for M2. I feel strongly that we ought to keep the fed funds range of 12 to 16 percent and $1.5 billion on borrowing. And I like the alternative II specification of the directive. I think that captures my sense of it.",87
-fomc-corpus,1982,"You pointed out something. I misspoke when I said 9 percent for M2. I was looking at the numbers down below which were for November to March. I just meant the same number as was in alternative B, which is 8 percent and not 9 percent.",56
-fomc-corpus,1982,"Well, 8 or 9 percent would be acceptable.",12
-fomc-corpus,1982,I don't think it's critical but I was just reading off a piece of paper and I read the wrong number. Mr. Keehn.,27
-fomc-corpus,1982,"Well, philosophically, I'm very close to what Ed has just suggested. I'd feel far more comfortable with alternative B. I would like a directive that would emphasize that we're trying to maintain the current level as opposed to being slavish to any particular number. I would be comfortable with the borrowing level of $1.5 billion. I would feel very strongly that we should not eliminate the fed funds range. I'd be in favor of maintaining that at 12 to 16 percent; given the current rate, that seems reasonable.",105
-fomc-corpus,1982,Mr. Gramley.,5
-fomc-corpus,1982,"I'm very much with Jerry and Ed and Si on the specs. And I'm there because I am deeply worried about what would happen to the economy if interest rates go up again. I think Bob Black said, perhaps inadvertently, that we can't rule out a recovery. But we can't rule out the possibility that there won't be a recovery. I'm particularly worried about what may be happening to business fixed investment. I think that all the risks are on the down side as regards capital formation and that any inadvertent increase in interest rates now, with the aim of pinching this bulge in the money stock, would be a grave mistake. I want to note what we're doing here around the table as we set specs for the short run. We say that we'll take M1 of zero and that for M2, well, maybe there's something to that aggregate but we don't really care much [about it]. I do care and I care a lot. That's because I think we're looking at a world in which M1-B or M1--or what we use for M1 now with other checkable deposits in it--is showing an enormous variation in response to changes in interest rates that very much parallels what has been going on for several years in savings deposits. If you look, for example, at the recent period you'll find that other checkable deposits had a turnaround; in terms of annualized percentage rates their growth was around 26-1/2 percent from October to December. Savings deposits had a turnaround in terms of annualized growth rates of roughly 32 percent. I think the parking argument is very much the reason for it. People are using their savings deposits as a vehicle for temporarily depositing funds that they're going to put back into other forms of financial assets later, and they're beginning to use their other checkable deposits for the same purpose. We're going to see a tremendous amount of variation in Ml, I think, in response to changes in monetary policy and in response to changes in the economy that affect interest rates that we will not see in the nontransactions component of M2 to anywhere near the same degree. I think we get a more stable response to changes in policy, therefore, in a larger aggregate like M2 than we do in M1. I wouldn't push this to the point where Frank Morris is of throwing out all the aggregates altogether; I could perhaps be persuaded if you twisted my arm, Frank. But I do think it means that we ought to give more attention to what is happening to M2, not just for this meeting but more importantly for the longer term.",516
-fomc-corpus,1982,I want any remarks of mine that you may have interpreted the other way stricken from the record because I agree with what you're saying. I just misread the M2 figures. It's not that I don't think it's--,44
-fomc-corpus,1982,"Well, M2 growth in January anyway was 11.2 percent, or that's the estimate.",20
-fomc-corpus,1982,But what does that mean about the nontransactions component of M2?,14
-fomc-corpus,1982,"Well, do you believe that the parked money is going to move entirely out of the Ms? I think a lot of it will shift from M1-B or M1 into M2 components and, therefore, if we set an 8 percent limit, we would have a pretty tough policy.",59
-fomc-corpus,1982,"If you're that concerned, Chuck, about parked money moving from one component of [M2] to another, then focusing on the broader aggregate seems a way of dealing with that. If you look at the monthly growth rates in terms of the billions of dollars of nontransactions components in M2, there was a big bulge in November, but September, October, December and January were all very much the same order of magnitude. We did not have this tremendous burst, and a continuation of that burst, in the nontransactions components of M2. That's exactly my point.",115
-fomc-corpus,1982,"Let me suggest this. We're going to have a little time problem here; I'm going to have to do a little work during intermission. The German mark has been very weak and there's a question of whether we should intervene or not. I don't have any fixed view on this, but I want to talk to [the German officials]. And I have to talk to a few people here. So, I would like to wind up this portion of our discussion fairly promptly, if that's possible. Let's see where we are.",104
-fomc-corpus,1982,"I'm ready to vote on it, Mr. Chairman. I don't have anything to add to the discussion. I think we've settled in here. There seems to be a very general consensus.",37
-fomc-corpus,1982,I just want to make sure that that's what we have. Mrs. Teeters.,17
-fomc-corpus,1982,"Well, I don't object to starting at $1.5 billion on borrowings because that's coming down from where we are. My only difference from the specifications suggested so far is that I think we should be prepared to move toward $1.3 billion. The language here does that, but I think it should be put on the table that we're not going to be rigidly stuck at $1.5 billion of borrowing if things--",87
-fomc-corpus,1982,"Well, if things really turn around. I find it very difficult to specify just where we would be, but I might be very reluctant on that first $3 or $4 billion [decline in M1] to make much change. If it went beyond that, some gradual response would begin to--",61
-fomc-corpus,1982,"The point I'm making is that we went from $300 million to $2 billion [on borrowings] in the last six-week period. So, if we're going to be that flexible going that way, we should be prepared to be equally flexible when we get--",53
-fomc-corpus,1982,"Well, certainly if this January [M1 bulge] washed out, borrowing would be down. There's no question about that. If it really washed out--I don't expect that to happen in that extreme form, but who knows, it might--",50
-fomc-corpus,1982,"Well, I think the only question Nancy is asking is: Will you let the usual arithmetic relationship show through in lower borrowings if in fact there is weakness below zero in the money supply?",38
-fomc-corpus,1982,"Well, I hate to get very specific about this, but I guess what I am saying is that I'm not sure I would react to the first $3 billion below zero. Beyond that, yes.",40
-fomc-corpus,1982,"The way Nancy formulated it, it's basically a discretionary decision. It seems to me that the advantage of starting with $1.3 billion as against $1.5 billion is that then we have a carry-through during the entire period of the lower base. That's because we make the adjustments and the amount of change that results from the reality of the situation doesn't affect the starting point. So, you get the carry-through effect of the $200 million increase in the initial nonborrowed reserve path by starting with borrowings of $1.3 rather than $1.5 billion. I will live with $1.5 billion--in every other respect I agree with what has been put forward--but I'm just not sure that at $1.5 billion we will get 14 or even 14-1/2 percent [on the funds rate]. I certainly don't think 14 percent is what it is likely to produce; it probably will be 14-1/2 percent at best. And given the psychology of the market, we may not get that. I just wanted to have a safety margin to start with. If we don't build it in to start with, Nancy, then it becomes simply a discretionary decision at a later time. And I don't see that--",256
-fomc-corpus,1982,"Well, it doesn't have to be completely discretionary. Even in that first little margin we could take the position that we at least will let it go through to whatever extent it automatically shows through, which wouldn't be very much, unless we've got a big decline, right?",53
-fomc-corpus,1982,"Yes, there--",4
-fomc-corpus,1982,"Mr. Balles, I skipped you completely.",10
-fomc-corpus,1982,"Well, just very quickly, since we are still in a recession, I would go along with your proposal, Mr. Chairman, but with a strong plea or caveat as the case may be that we take such actions as are necessary to avoid the big overshoots that we had on the [monetary growth] paths we set at the November meeting and the December meeting.",77
-fomc-corpus,1982,I wish I knew how to do that.,9
-fomc-corpus,1982,I wish I did too.,6
-fomc-corpus,1982,Mr. Boykin.,5
-fomc-corpus,1982,I would be in agreement with the way you specified it and with the second alternative on the language of the directive.,23
-fomc-corpus,1982,"I'd go along with your proposal, Mr. Chairman.",11
-fomc-corpus,1982,Does anybody else have any comments?,7
-fomc-corpus,1982,"I have nothing to add. I would go along with zero and 8 percent. I prefer not to mention the funds range, not because I think interest rates are unimportant, but because I think it's misleading. But 12 to 16 percent is fine as is $1.5 billion on borrowing.",62
-fomc-corpus,1982,"Anybody else? Let me try to repeat it and maybe we can vote on it. What happens during this coming period will reflect on our longer-range strategy, but leaving that aside, what we're talking about is zero for M1, 8 percent for M2, and $1.5 billion as the initial borrowing assumption. Allowing for Governor Teeters' and Mr. Solomon's comment, let me modify what I said and say we would let [an M1 decline] show through in the purely automatic way but we would be reluctant to make any discretionary adjustment without a really big decline. However, whatever presumably rather small adjustment comes through by itself, if we do begin getting any declines here, we let them show through. It's a slight modification from what I said before. And the funds rate range is 12 to 16 percent. Frankly, I feel rather strongly that 12 to 16 percent is as high as I want to go on that funds range. If we were going to go above 16 percent on the federal funds rate--maybe we'd do it--I'd want to scratch my head and have the opportunity to scratch my head pretty darn hard. I'd scratch my head at 15-1/2 percent, I tell you. At 15 percent, it's--",259
-fomc-corpus,1982,"Mr. Chairman, in view of what you said earlier about being very anxious that we not go above that rate, would you want it to be purely automatic if we did get a continued spurt or would you want some discretionary adjustment in the nonborrowed path?",53
-fomc-corpus,1982,If M1 goes above the zero?,8
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,I think we might well have an adjustment.,9
-fomc-corpus,1982,Would you want that to be an automatic adjustment?,10
-fomc-corpus,1982,"Well, we'd certainly do the automatic adjustment and we might have to do a discretionary one if M1 really is rising. It would call into question this federal funds range and if and as it does, we'd have a consultation. I'd be much more quick to make a discretionary adjustment on the up side, if we have to, than on the down side.",71
-fomc-corpus,1982,"I thought that's what you meant, but I just wanted to clarify it.",15
-fomc-corpus,1982,Is that clear enough?,5
-fomc-corpus,1982,That's fine.,3
-fomc-corpus,1982,We might as well vote on this and have a recess.,12
-fomc-corpus,1982,Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Corrigan Yes Governor Gramley Yes President Keehn Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters Yes Governor Wallich Yes Unanimous.,48
-fomc-corpus,1982,"Well, let's have a recess and return to the other regulatory exchange.",14
-fomc-corpus,1982,"I think we ought to go to Mr. Cross at this stage and dispose of his report. It's particularly relevant in view of the question about intervention. I will just bring you up to date. The mark, of course, has gotten quite weak, with our interest rates going up; other currencies have moved to a lesser degree in the same direction; the mark had gotten to a rather high level. [The Germans] have pretty much given up doing anything. They made a great or semi-great stand two or three weeks ago. but they think this [weakness] so much reflects interest rates and the uncertainty about what is going on [in the United States], that it's hard for them to do anything through intervention alone. That's probably a correct judgment. We have come to a conclusion with the Treasury that if the mark did weaken this afternoon or tomorrow when they probably will be announcing some economic expansionary measures--the latest movement of the mark has been toward some strengthening--we would look kindly upon an intervention gesture. We are not talking about huge amounts but about moving in the direction that indicates some interest on our part. They probably have an interest, too, but they didn't want to do anything alone. And that's the way it stands at the moment.",252
-fomc-corpus,1982,"That would be interpreted in the market as dissatisfaction with the level, not as countering a disorderly or a very volatile market, I think. Wouldn't you agree that that's the way the market would see it to some degree?",46
-fomc-corpus,1982,"Well, I think some mixture.",7
-fomc-corpus,1982,I think we could do this on the grounds that there is an element of disorder when the market pays little attention to fundamentals like inflation and--,28
-fomc-corpus,1982,"But that still comes back to a view about the level. I'm not unhappy about this because it's a beautiful [chance] to finally get a change and a perception of a change in the Sprinkel policy. I do think, though, that the market will be a little confused because when we've had these disorderly or volatile markets [before] we have not intervened and all of a sudden we are intervening in a situation--and this is a big movement--",93
-fomc-corpus,1982,I'm not talking about doing it on a really trivial movement; I'm not talking about a couple of pfennigs anyway.,24
-fomc-corpus,1982,"But we have never said anything other than that we would fight disorder. Now, disorder is in the eye of the beholder.",26
-fomc-corpus,1982,And the beholdee.,6
-fomc-corpus,1982,I think we can make our point in the market without giving away the statement that we do it for disorder.,22
-fomc-corpus,1982,"No, I don't think we give that away to any extent.",13
-fomc-corpus,1982,Does this reflect a slight movement toward pragmatism on the part of the Treasury people?,18
-fomc-corpus,1982,Maybe.,2
-fomc-corpus,1982,Maybe.,2
-fomc-corpus,1982,Where will this all end--this pragmatism over there?,13
-fomc-corpus,1982,Good common sense. We can't have that!,9
-fomc-corpus,1982,"Well, with that background, why don't you go ahead, Mr. Cross.",16
-fomc-corpus,1982,"Well, Mr. Chairman, that comes close to the conclusion of what I was going to say. [Statement--see Appendix.]",26
-fomc-corpus,1982,Any questions or comments?,5
-fomc-corpus,1982,"Sam, do you observe that the yen is more sensitive to interest rate differentials now than it has been in the past?",25
-fomc-corpus,1982,"It seems to have followed pretty closely, at least during these recent weeks, the changes in the interest rate differentials. I haven't looked back to compare that very thoroughly with earlier periods, but it does seem to have happened in this period. Mr. Chairman, I also do have a recommendation.",59
-fomc-corpus,1982,Proceed.,2
-fomc-corpus,1982,[Secretary's note: Text of Mr. Cross's recommendation not extant. Staff notes indicate that he recommended a $1/4 billion increase to $3-1/4 billion in the informal limit on holdings of German marks and an increase of the same amount to $4-3/4 billion on the limit of holdings of all foreign currencies to allow for the accrual of interest on mark balances.],82
-fomc-corpus,1982,"If you're going to be intervening, aren't these two--",12
-fomc-corpus,1982,"If we intervene, then we will need to modify that further.",13
-fomc-corpus,1982,I think it would be prudent to increase that [informal limit] by even more than [the $1/4 billion that] Sam is recommending.,31
-fomc-corpus,1982,I think we could live with--,7
-fomc-corpus,1982,That gives us a little problem. There are three of us on the Foreign Currency Subcommittee and I'm leaving.,22
-fomc-corpus,1982,"It's an informal agreement, I believe.",8
-fomc-corpus,1982,"Oh, I see. Okay, fine.",9
-fomc-corpus,1982,"Maybe the Secretary can correct me, but in the past we haven't dealt with this in terms of a formal vote.",23
-fomc-corpus,1982,"It doesn't require a vote of the Committee. This is purely an informal understanding. I think we can just leave it the way you are proposing, Sam, and understand that if we do intervene, you are not going to exceed this [new limit] right away anyway.",54
-fomc-corpus,1982,We're very close to the [current] limit at the moment.,13
-fomc-corpus,1982,[The leeway] is only $12 million.,11
-fomc-corpus,1982,It's only $12 million at the moment?,9
-fomc-corpus,1982,"Yes, $12 million.",6
-fomc-corpus,1982,With $200 million of interest [earnings to be added] in there.,16
-fomc-corpus,1982,When does that $200 million--,7
-fomc-corpus,1982,"If you raise it now, then we have that much scope and we will be receiving those interest receipts over the next five months.",26
-fomc-corpus,1982,"All right. We can do it any way we want to, but I don't feel hard pressed [to change it]. If we say this [increase from $3 billion to] $3-1/4 billion is generally acceptable, the understanding would be that if we intervene [the limit] is going to have to be more. And the Foreign Currency Subcommittee would presumably review that. Maybe we can [raise] it $1/2 billion, if you want to do that.",98
-fomc-corpus,1982,"The present overall limit is $4-1/2 billion. The Committee could raise it to $5 billion, which would give us a little scope just in case.",34
-fomc-corpus,1982,I think we ought to [raise] it $1/2 billion because sometimes the situation moves fast. And it does seem to me that there is no issue of principle here.,36
-fomc-corpus,1982,I don't think there's any big issue one way or the other. Which do you feel more comfortable with?,21
-fomc-corpus,1982,I would recommend [raising the overall informal limit to] $5 billion and raising [the informal mark limit] by $1/2 billion [to $3-1/2 billion].,38
-fomc-corpus,1982,"Is that acceptable? With that understanding, we will proceed. Now we can return to our long-run ranges in the light of the decision we just made. Let me describe one variable that if I were doing it today I'd do differently than I did a few weeks ago. I agreed to testify on February 10th, which isn't very far off. I wanted to do that in part because I just don't like the idea of a long lapse between our decision and the time that it's announced. I think we should try to get it out of the way as soon as possible. Then there's a recess of the Congress, long in this context, for Lincoln's birthday and Washington's birthday. The alternative, if I don't testify on the 10th or 11th, is that I can't do it until the 23rd or something like that. At this point, if I hadn't semi-committed myself otherwise, I'd just as soon wait until the 23rd and see what happens to these numbers over the next three weeks. I note that because it's not impossible to go back and change that if we want to. There's no point in changing it if everybody is happy with the decision today. But if there were a view that minds could be swayed strongly one way or another by what happened to the money supply over the next--. We would have three weeks more of data, Mr. Axilrod?",284
-fomc-corpus,1982,Pardon?,3
-fomc-corpus,1982,If I didn't testify until [later]--is Mr. Winn here?,15
-fomc-corpus,1982,The 23rd would be the alternate date.,10
-fomc-corpus,1982,"The 23rd is the alternate date, which is a Tuesday, isn't it? We would know--",21
-fomc-corpus,1982,We would have partial data for the 17th and the 3rd and 10th would be published.,23
-fomc-corpus,1982,The 23rd is Tuesday. So we would have partial data for the 17th. What do we have now: partial data for the 3rd? So we would [know] two more weeks' data.,45
-fomc-corpus,1982,Tomorrow we'll have partial data for the 3rd.,11
-fomc-corpus,1982,"We don't have partial data for the 3rd yet? So, we'd have three more weeks' data if we waited.",25
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,There's also the delay in the [President's] economic report and the budget.,16
-fomc-corpus,1982,"Well, we'd use that as part of the excuse for delaying. I wouldn't delay unless there were a strong feeling that it would add a great deal. Before you respond to that, I'd note that in a more general way, as I suggested earlier--based upon what we know now and a feeling that there is some reasonable chance, though I don't know where I would put those odds, that a considerable amount of this January surge in particular will wash out--I would feel comfortable with essentially the same targets we announced before with the same base. I think that would minimize the difficulties all around. What I would be inclined to say is that we would feel quite comfortable as we see things now--I am issuing a nuance statement--[with growth] in the upper part of the range, if that's the way things came about on M1. That's not quite the same as saying we would aim there deliberately. I don't think we can aim that finely a year away but we could say that we find that quite acceptable based upon everything we know now. I think that is consistent with what I said overtly before--but I don't remember precisely the reason we put in a bottom [for the range] as low as [2-1/2] percent--that the only purpose for the lower part of the range was the concern that a technological change, such as the rise of money market funds and sweep accounts and so forth, might have such a depressing effect on M1 that we would want to allow for that. It wasn't a policy assertion; rather than being a sign of a real policy objective, it was a concern that [M1 behavior might reflect] a technological response. All other things being equal, we wouldn't have growth as low as 2-1/2 percent. On M2 we have a set of projections, for what they're worth, that say as I understand them that the range is more or less adequate. In other words, even at the upper end of M1, we'd expect to be within the M2 range; that may be a good or a bad judgment. And if we were in the middle of the M1 range and were presuming implicitly all other things equal--technology and everything else--we would expect more likely than not to be in the upper part of the [M2] range. We would certainly be in the upper part of the range on M2 and maybe threatening the upper limit, which is where we've been all along. And I would say that. Now, one can obviously argue logically: Why not just raise the M2 range? I wonder a bit what we would gain by that as against the explanation that we have been running slightly above the upper end of the M2 range for recent years and as a result of that I think it's understood in the market that the operative part of that range is around the upper limit. One could argue that raising the range puts us nearer the middle, but I'm afraid we might get some interpretation that the operative part of the range remains the upper part. So, if we moved, let's say, to 10 percent as the upper end, people might say 10 percent or slightly above is what we're aiming for because that's where we've been in terms of that range. And that would give us a higher M2 [growth] figure than we have had in any recent year. We also have this pattern where we haven't had any real declines in M2 [growth rates] for a number of years as I recall. In fact, we've had increases I think. It has been fairly steady for three years as I remember, but if you go back to the mid-1970s, M2 growth was much higher. That was back when we had this large component of fixed deposits. It got high when interest rates went down; it got low when interest rates went up. And since basically a flexible rate [has been paid on M2 deposits], M2 has closely tracked GNP very well. I don't know whether that will last, but it has so far. It has been hanging roughly just above 9-1/2 percent, plus or minus every year for those three years. Now we have the staff telling us--for what it's worth and I assume it's worth a lot--that M2 growth should be lower, consistent, of course, with the lower nominal GNP that is being projected.",884
-fomc-corpus,1982,"Mr. Chairman, the staff's view is that the data would have suggested there were stronger arguments for raising the range for M2 in the previous two years than there are this year, given our [GNP] projections.",45
-fomc-corpus,1982,"I think that was reflected earlier when we were at this position. The staff told us we'd be threatening the upper end quite clearly and maybe would exceed it. That's not impossible this year, but as I interpret it you feel more comfortable about the range this year than you felt at any time in the past two years anyway.",64
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"Now, there are these arguments that were presented yesterday, which I think have a degree of theoretical validity. There were two that I recall: One was that if we get more savings, we may get more M2 because that's a savings vehicle for individuals; the second is that if the IRA/Keogh accounts pull money out of what is [not] now encompassed in M2, we would get an upward bias--assuming that we continue to count IRA/Keogh deposits in M2, which is a doubtful proposition. But we'd have the opposite problem of a downward bias if we took [those deposits] out. I was thinking about that just last night and maybe somebody can confirm my off-hand judgment that either of those events would involve literally tenths [of a percentage point] because we're not talking about the whole increase in IRA/Keogh but only about the part pulled out of market instruments and into M2. If the saving rate went up 1 percentage point, let's say, it doesn't mean a one percentage point increase in M2 [growth] by the wildest stretch. The saving rate is first of all calculated against disposable income, which is much lower than GNP. A one percentage point increase in the saving rate isn't one percentage point against GNP, which is where we are measuring this. And it's not all going to go into M2-type deposits. It can go into housing equity or into many other things. So, I think we're talking about tenths in either of those things, although they probably work in that direction and they're theoretically correct observations as near as I can see. But it has struck me that they are not the kind of thing--and I'm just getting a staff comment on this--that would have a really large impact on M2, although, if they happen, they would tend to go in that direction. I don't know if there is any equally clear offset. One could argue that on technical grounds, but we'd be arguing about an adjustment in the nature of 1/2 percent or something of that kind to allow for those things. That is my feel for it, but I don't know whether the staff has any other view. Of course, the staff made an estimate. I don't know to what extent you consciously took these things into account.",462
-fomc-corpus,1982,"Not very consciously at all, Mr. Chairman. I don't know what one would say. One percent on M1 is about $18 billion, which is probably as reasonable an estimate as one might make if you consider 10 million people at a $2,000 maximum per person.",57
-fomc-corpus,1982,"Yes, but we're not going to get that. I don't know what your estimate is for IRA/Keogh deposits, but certainly a large proportion of what goes into IRAs and Keoghs already would have been in M2 anyway.",48
-fomc-corpus,1982,"Yes, that's right. I'm saying as an upper limit I would think 1 percentage point is not unreasonable. So, it would be small in practice.",31
-fomc-corpus,1982,The saving rate could be more influential because presumably this would be money that otherwise would have been going into consumption. I don't know what a 1 percentage point increase in the saving rate would be--,39
-fomc-corpus,1982,$25 billion?,4
-fomc-corpus,1982,It would be about $20 billion.,8
-fomc-corpus,1982,"Yes, but how much of that would appear in M2?",13
-fomc-corpus,1982,Most of it. I should think.,8
-fomc-corpus,1982,Why?,2
-fomc-corpus,1982,"Well, you said more equity in housing. That seems to me extremely unlikely this year.",18
-fomc-corpus,1982,"People just don't borrow. We know one thing, which is that borrowing is going to be low in that area. I'm not sure I've thought this all through, but I think the major change there is how much new mortgage [financing] somebody puts on in exchanging houses and so forth.",58
-fomc-corpus,1982,Housing is nonexistent.,4
-fomc-corpus,1982,"That's one way it would show up, but I would",11
-fomc-corpus,1982,"But housing is not a personal consumption expenditure. Housing investment is an investment expenditure, not a consumption expenditure.",21
-fomc-corpus,1982,That's not what he's talking about.,7
-fomc-corpus,1982,"When one increases the equity in one's house, it shows up in the saving rate, right?",19
-fomc-corpus,1982,"We're not adding housing next year anyway when we have a 17 percent mortgage rate, so why worry about it?",23
-fomc-corpus,1982,"Well, that's what I'm saying. I don't think this is a year in which people are going to be consuming by borrowing on mortgages and in effect running down the equity in their houses and building up consumption. They're going to be paying off those mortgages because they're stuck with them. And that shows up with an increased saving rate, I think. Right, Mr. Zeisel?",75
-fomc-corpus,1982,"We were involved [in a side conversation] here. The answer, I think, is yes. If people don't spend money on consumption items, it shows up in the saving rate.",37
-fomc-corpus,1982,What is the form in which that savings is lodged if one is paying off mortgage debt? It's a decline in indebtedness rather than an increase in--,30
-fomc-corpus,1982,"I think that's true. As Jerry said, if one takes cash income and pays off mortgage debt, then obviously that cash income isn't used to consume and, therefore, it raises the saving rate.",39
-fomc-corpus,1982,"And I'm saying it's not unlikely that that's going to happen because ordinarily we get some new borrowing, which people in effect can use for consumption. This year we're not going to get the new borrowing side of the equation.",43
-fomc-corpus,1982,"Well, we really didn't have it last year either.",11
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,We didn't have any.,5
-fomc-corpus,1982,"The issue is that if there's some deliberate decision to consume less and save more, the logical disposition of the proceeds is to pay off debt or increase financial asset holdings. And I would think that for the average homeowner who has a mortgage well below 16 or 17 percent or whatever he could earn on money market mutual funds, he's not going to pay off his debt, he's going to add to financial assets. So, the counterpart of the consumer balance sheet would be an increase in financial asset holdings and it would likely go into M2--not the whole thing, but maybe 3/4 of [it].",123
-fomc-corpus,1982,Some portion of it. We're just talking about the magnitude of this effect.,15
-fomc-corpus,1982,"It seems to me that the bigger [issue with respect to] what we want to do with M2 is not the fact that we have an additional bias or lack thereof this year relative to last year but that last year we were well over the upper end, or several tenths over. If what we want is an increase in nominal GNP of, let us say, between 8 and 9 percent, then we ought to be choosing a range for M2, given the recent velocity figures, that has a midpoint between 8 and 9 percent. And if we put out another 6 to 9 percent range, particularly if, as I hope, we will be giving increased stress to M2 this year relative to M1, then we would be aiming almost certainly at a target that we will tend to violate on the up side unless we're not going to get that kind of economic performance.",182
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,"I think we are to the presentational question: Is it worth it? If we were going to aim at the midpoint as you say, does that follow the record? I don't think that's the way it will be interpreted because people see that growth has been around the top of the range. And it just looks as if we're raising the target. I think we would have to say that we expect [M2 growth] to be toward or at the upper end of that range. I have no problem with that because it has been there for three years.",111
-fomc-corpus,1982,But we used [the upper end] at least once as a constraint.,15
-fomc-corpus,1982,"I'm not saying we wouldn't use it as a constraint again. I'm not saying we will ignore M2. The relevant issue is where it becomes a constraint. I'm saying a constraint is someplace in the neighborhood of 9 percent. I'm not saying it's a constraint at the logical midpoint, which is 7-1/2 percent. I'm not saying that. And then we have a presentational problem.",80
-fomc-corpus,1982,"I would emphasize the incremental possibilities more than Lyle would. I think M2 has about an even velocity, which would suggest 8-1/2 percent. But then there probably is a bias on the side of getting a little larger increase. So, I think it's very possible that we will be over 9 percent this year. Now, if you say to me that you don't care if it's over by a few tenths, because it was over by a few tenths last year and the year before, then you're telling me that it's not a binding range. And then I don't care where we put it; we can put it at 3 to 5 percent or whatever!",139
-fomc-corpus,1982,"Well, I'm not saying that. There's a difference between being at 9.3 percent and being at 10.5 percent. That is a difference.",32
-fomc-corpus,1982,Not if the range goes up to 10 percent.,11
-fomc-corpus,1982,"No. If the range goes up to 10 percent, I think it will be read that 10.5 percent [growth] is okay. And that's the issue. Obviously, we can we raise the range and say cross our hearts, hope to die, we're going to stay in it; we won't be [above] it. That's the alternative.",72
-fomc-corpus,1982,I'll vote for that.,5
-fomc-corpus,1982,"M2 is very hard to control in a direct sense; we can control it by controlling GNP essentially. Savings is a function of GNP and in that sense, if we get a good M2, we have done a good job on GNP. But I would not get too firmly ensconced on an M2 target precisely for that reason.",72
-fomc-corpus,1982,"Given the imprecision of the numbers, it seems to me that we all ought to agree with the general proposition that we are doing our job well if we come in anywhere within the ranges. We should not give the impression that we are aiming for midpoints.",52
-fomc-corpus,1982,I agree with that.,5
-fomc-corpus,1982,I agree.,3
-fomc-corpus,1982,"Therefore, I think there is a considerable disadvantage in raising the range for M2 because then [it would seem that] what we are really trying to do is to come in closer to the midpoint and we would be disturbed with coming in around the upper end of the range. So, in addition to the staff predictions that we probably will be more comfortable with the M2 range this year than in the previous two years, it seems to me that there is a pretty strong case for not raising the M2 range.",103
-fomc-corpus,1982,"Before we elaborate any more on M2, let me just complete my story and go back to the [presentation] problem. As I said earlier. I would feel very uncomfortable with this M1 target if I thought that this bulge were semi-permanently built in. I do not have the evidence for that now, but if we just go ahead with our targets on the same base, I would be inclined to say--and it is not a very easy thing to say and get it just right--that if it turned out that this bulge more or less stayed in, this Committee would be prepared to review that target rather promptly, particularly in terms of this basing problem that we have. And we would report back even before the normal midyear review if we have sufficient evidence that this is a more permanent kind of--",167
-fomc-corpus,1982,Shift in [demand].,6
-fomc-corpus,1982,"A shift that we did not anticipate. With the passage of, say, a couple of months, one way of looking at it would be that on balance we would conclude that coming up to last year's target range right at the end of the year was a more meaningful [event] than the earlier declines, in terms of the basic outlook regarding the need for money. I'd just lay that out on the table and say that if that is the kind of evidence we get in the ensuing couple of months, we are prepared to review that target. We are not making that assumption with regard to the target right now, and that is why we are sticking with the convention. Now, one thing we could do is to delay the testimony; it would give us three more weeks and maybe we would have a little more evidence one way or another. I guess everybody would feel more comfortable if [M1 in] those next three weeks showed a decline; then this target would look much more reasonable. If it showed no decline over those three weeks, I would feel more uncomfortable with it than I do today. We still would not know. It might decline in March, obviously, but I would have substantially more uneasy feelings that we are too low on the range. So, we could play around for another three weeks before making a judgment if you thought that added something. But the alternative--this is just the way I feel--is to go ahead on the present schedule but just say reasonably clearly that this is our feeling at the time based upon a feeling that there is a temporary element in that figure and that it does not reflect a lasting [phenomenon]. I don't think I would use the term ""shift in demand"" but some English that reflected that. And I'd say that if it does not wash out with the degree of pressure in effect that we judge is right in the market, we would sense that something more fundamental is going on here, which would suggest that we may be using the wrong base for this year's target. And we would be prepared, as I said, to report that.",418
-fomc-corpus,1982,"Does no one share my concern that the forecast is too low? If all our temporary problems get [unintelligible] in essence that we are negating the President's program. I find myself in the odd position of being the only supporter of President Reagan in the room here. Basically, [the staff is] projecting a major continued recession at very low rates of [activity]. And the overall policy may be too tight. Whether we have problems with the base or any of the rest of it, we are just making monetary policy too restrictive to get the sort of recovery that I think all of us want.",123
-fomc-corpus,1982,"Obviously, these questions are interrelated, and you raise the issue in a more fundamental way. Let me just say that, mechanically, the impact of changing the base is just a little over a 1 percentage point [increase] in the targets. In terms of the end of the year, the contour is different than raising the target, but mechanically it gives us the result of being up 1 percent at the end of the year, because we are up 1 percent at the beginning of the year and it just carries through.",107
-fomc-corpus,1982,"If Mr. Meese's comment this morning that the President would want to consult with you turns out to be meaningful, would that have any effect on the timing or on any aspect of this scenario that you are talking about?",45
-fomc-corpus,1982,"Well, I do not know. I did not hear him, and I do not know what to answer to that question.",25
-fomc-corpus,1982,He said--I saw him--that he is going to be consulting with you very shortly.,19
-fomc-corpus,1982,"Who, Meese?",5
-fomc-corpus,1982,"Yes, on the Today show, I think it was.",12
-fomc-corpus,1982,I just meant could that have an effect on your timing in--,13
-fomc-corpus,1982,"On the timing question, you seem to feel that there are no disadvantages, particularly, in delaying for three weeks.",23
-fomc-corpus,1982,"Oh, there is a disadvantage in that we would have to change something that has been announced. I think that is a disadvantage.",26
-fomc-corpus,1982,I see. I just wanted to be sure.,10
-fomc-corpus,1982,I think there is a disadvantage in going [to testify] as early as the 10th because [Congress] might come back and say that we did not give a proper evaluation of [the Administration's] economic policy.,45
-fomc-corpus,1982,I do not think that is the excuse we would use.,12
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,I am not sure how credible it is because they assume we know what it is anyway.,18
-fomc-corpus,1982,"When you say that something would have to be changed that was announced, are you talking about the date of your testimony?",24
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,Or the decision itself?,5
-fomc-corpus,1982,"Well, the date of my [testimony].",10
-fomc-corpus,1982,"Allegedly, no one knows that we are making a decision on long-run targets today. That is always a big deep secret that is reported in the newspapers, but no one really knows for sure.",41
-fomc-corpus,1982,"I am saying that if we delayed the testimony, what I would do is attempt to arrive at a very clear tentative decision today but we would then confirm it [later].",34
-fomc-corpus,1982,So there would not be any question of a leak because we would not have made any final decisions.,20
-fomc-corpus,1982,That is right; we would not have made the final decision.,13
-fomc-corpus,1982,"It is worth pointing out on the other side that there is an advantage in testifying on the scheduled day because then we would begin to accustom the committee, the Congress, and the public [to the idea] that we are willing, when there are technical or structural shifts, to be more flexible on midyear--or I should say intra-year--adjustments. If we wait the three weeks then you are somewhat less likely to put forward that point of view. So, it seems to me that there are arguments on both sides.",108
-fomc-corpus,1982,I agree with that.,5
-fomc-corpus,1982,We have been so flexible!,6
-fomc-corpus,1982,"We have not. And that is why we should begin, when we have a good reason to support it such as when these technological changes and innovations result in shifts, to get people accustomed to our being flexible within the year.",45
-fomc-corpus,1982,"I learned 25 years ago that monetary policy was a flexible policy instrument, and we have been rigid for 2-1/2 years now, which is ridiculous.",34
-fomc-corpus,1982,The world is a little different than it was 25 years ago.,14
-fomc-corpus,1982,"No, not that different.",6
-fomc-corpus,1982,"But I do agree very much with Tony Solomon that if indeed we do want to be a bit more flexible in the future, then the way to do it is to go ahead and testify--we have the best opportunity we are ever going to have--along the lines that the Chairman has just put forth.",61
-fomc-corpus,1982,"The counterargument is that if we are not willing to be flexible from July to early February, what makes anyone think that suddenly we are going to resolve to be flexible between now and, let's say, March?",42
-fomc-corpus,1982,Because we say so. We say it and that does not--,13
-fomc-corpus,1982,"If we can agree that we are going to be flexible, let us start flexing. Let's not postpone this by notifying the public that we are flexible.",31
-fomc-corpus,1982,"Of course, certain market participants are allegedly upset because we have been flexible--if you want to use that word--or volatile. They say that we have not really been able to stick with, on a rather inflexible basis, a set program. One can look at it either way. Does the press know the date that you are presently scheduled [to testify]?",73
-fomc-corpus,1982,"I presume they must. I do not think there is much public discussion, but--",17
-fomc-corpus,1982,They may not.,4
-fomc-corpus,1982,Because there could be dangers in misinterpreting a delay as--,13
-fomc-corpus,1982,"I think they must know about it. I assume that if we change the date, it will be known that we have changed it.",27
-fomc-corpus,1982,"Yes, they do.",5
-fomc-corpus,1982,"Well, Mr. Chairman, what do you think could really happen between now and the next few weeks that would cause any tentative decisions today on ranges for the whole year to be changed?",37
-fomc-corpus,1982,"Just to give an extreme view: If I saw a continuing tendency for the money supply to rise despite the actions that we have taken to reverse it. It is hard to predict everything else that could go on, but if I see no sign of liveliness in the economy and we have rising interest rates and a rising money supply over the next three weeks, I'd be ready to change. SEVERAL. Which way?",84
-fomc-corpus,1982,I would rebase.,5
-fomc-corpus,1982,You would add the 1.2 percent that rebases it?,14
-fomc-corpus,1982,That is right.,4
-fomc-corpus,1982,"Well, it seems to me that if one is uncertain and later may have to say that we need flexibility because things have turned out differently, then one would strengthen one's position by showing this uncertainty a little earlier rather than coming in [firmly] early and then having to backtrack. I think we would have a harder time making that change.",69
-fomc-corpus,1982,"I am not saying that. If we go ahead right now and I testify on the 10th and then the same thing happens that I have just described, I wouldn't change it right then. I would wait another month or so, having already been on record, before I would make the change. But I might be prepared to make it if we had announced nothing at that point. Let me just say, too, that there was some comment yesterday about rebasing being hard to explain. I do not think it is at all hard to explain. The explanation just flows as smooth as silk. Or maybe I am overestimating my capacities to explain. But I distinguish that very sharply from the market reactions and suspicions we would get. They would understand what we are doing; I do not think there is any problem with that. And we do have a logical explanation for it. That does not mean that there are not going to be people in the market who will say that we used this particular technique in order to ease [policy]. That is what they would say, but they would understand.",220
-fomc-corpus,1982,Have we ever rebased before? I am trying to recall.,13
-fomc-corpus,1982,"No, that is the problem.",7
-fomc-corpus,1982,We have always had overshoots in the past.,11
-fomc-corpus,1982,But this has always been discussed as a possibility and then we have not done it. So it is not a new concept.,25
-fomc-corpus,1982,It is not a good idea.,7
-fomc-corpus,1982,"Look, how many times have we been accused of base drift? We hear ""You people always have base drift,"" to which we are going to say now ""By Jove, no more!""",39
-fomc-corpus,1982,The criticism that we would get is that we did not adjust for the base drift when we had it on the up side but now when we have it on the down side we are adjusting for it.,40
-fomc-corpus,1982,[Unintelligible] be the other way.,11
-fomc-corpus,1982,That is right.,4
-fomc-corpus,1982,It is not that they would not understand; it is that they would say there is a bias.,20
-fomc-corpus,1982,They would say it is a one-way deal and we are faking it. It comes across as being dishonest.,23
-fomc-corpus,1982,This is a reversal of Nancy's problem.,9
-fomc-corpus,1982,Imagery.,3
-fomc-corpus,1982,"Some people will say dishonest, but the explanation is--",11
-fomc-corpus,1982,Visually.,3
-fomc-corpus,1982,"When we set these targets, we say we expect [growth] to come in around the bottom of the [range]. We just say we would like to be around the bottom and that's what we're assuming. That is what we assumed when we set the target and we did not change our mind. That is what we say.",65
-fomc-corpus,1982,"Well, of the two approaches you have described, I would very strongly prefer the one you described when you started talking a few minutes ago of implicitly leaving the base unchanged the way we have been doing and taking the hit on the [range]. Then, if we need to come back, I'd overtly state what we are doing, which is that we have decided for good and sufficient reasons to raise the band. I'd be up front with [it].",90
-fomc-corpus,1982,"Even there, my inclination would not be to raise the band. It would be to change the base and say we think we are operating off the wrong base.",32
-fomc-corpus,1982,"Well, I would say change the band. We would be doing the same thing either way. It is just a question of which is--",28
-fomc-corpus,1982,"I don't think it is [the same]. That is my point. If we raise the band, we are saying that from now on we want a higher growth rate. If we change the base, we are saying we do not want a higher growth rate from now on; we have forgiven what happened. I think that is saying two different things.",70
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,It comes to the same thing.,7
-fomc-corpus,1982,It comes to the same thing for the number at the end of this year.,16
-fomc-corpus,1982,That is right. And either way it is an easing of monetary policy.,15
-fomc-corpus,1982,There is a difference in the implication for 1983.,12
-fomc-corpus,1982,That is the important point.,6
-fomc-corpus,1982,"I think that is right. It is the implication for the trend that we are on, not the--",21
-fomc-corpus,1982,Only the expansionists want to change the range.,10
-fomc-corpus,1982,It is not going to do much for our credibility.,11
-fomc-corpus,1982,"After all, the short-run decision that we just made early this morning does logically lead to what Paul said. I don't think it will happen, but if we find that the money supply is strong in February, then we have to do something to give ourselves more room. As I say, I don't think that is going to happen, but it does seem to me that we are better off sticking with the scheduled date for testimony and going on record and preparing people the way you indicated. I would point out that the uncertainty also exists because of the question of whether the innovations that we saw in 1981, which tended to depress demand, will continue in 1982. There is uncertainty not simply on the up side but also on the down side.",151
-fomc-corpus,1982,"To exaggerate a bit, it may be that what the Federal Reserve Board does on sweep accounts for money market funds and what the DIDC does on a new short-term instrument may have more to do with what M1 does this year than any decision we make.",53
-fomc-corpus,1982,Sure.,2
-fomc-corpus,1982,I would second that.,5
-fomc-corpus,1982,"Unfortunately, if we are not careful, we will end up with targets so low that we really have no option as a regulatory body but to permit sweep accounts to save the economy! I am not entirely joking. I just don't think that we can possibly have anything like a well performing economy unless two things happen: One is that this bulge proves to be very temporary; and the second is that we have more innovations that are pushing down the money demand function. That is built into the staff forecast. And if both of those do not come along, we are going to be in tough shape.",119
-fomc-corpus,1982,"There has been an element of that in our targets right along, because that kind of change has led to this persisting increase in velocity. And we are assuming it is going to continue.",38
-fomc-corpus,1982,"Have you thought through the implication of these interest rates for the savings and loans institutions? [Their representatives] were here the other day asking us if we were deliberately putting them out of business. And I would say that, yes, we are deliberately putting them out of business.",55
-fomc-corpus,1982,"No, I want to reject that. I think the implications for savings and loans are very important, but it is not all that clear--I will join Mr. Roos to some extent here--whether the savings and loans would be better off by greater or lesser expansion in the money supply and what that means for interest rates over a period of time. That is a dilemma we are fighting all the time. If we literally believe the savings and loans that it takes a bill rate of 8 or 9 percent to save them--I do not know about that but we will have to redo these estimates--then the only way to save them is by putting the economy in a real--",138
-fomc-corpus,1982,"Well, it is a question of how many we want to save. I think then--",18
-fomc-corpus,1982,Or how many we want to put out of business.,11
-fomc-corpus,1982,"I think we may lose another few hundred as a result of policy, but we would not lose them all. On the other hand, I cannot think of any way we could save them.",38
-fomc-corpus,1982,"[How to] save them, that is the problem.",12
-fomc-corpus,1982,When the FDIC--,5
-fomc-corpus,1982,"I would say they are one of the many casualties of monetary policy, but we did not intend it.",21
-fomc-corpus,1982,"Well, I'm not sure I agree with that either. I still contend that long-term interest rates are the key. And they are not going to come down until the deficit comes down. I think Governor Gramley is making the assumption that we by monetary policy are going to make these changes in what happens to the economy. I do not happen to believe that that is the case because if we give up, then the inflation problem is just going to explode again and the economy will be in terrible shape. We are in a box. I do not think we have the opportunity to move. We have to stay where we are and do our job. We cannot control the economy; we cannot control what the Administration does. You say, [Nancy], that you are supporting the President. It seems to me that the President has to support his program, which he is not doing right now.",177
-fomc-corpus,1982,But he is.,4
-fomc-corpus,1982,"Well, I do not think the key to the thrifts is long rates; I think it is short rates. But in general I agree with what you have said.",34
-fomc-corpus,1982,"Let me make one other rather psychological observation: Bill Ford raised it yesterday. If we are going to rebase --and I do not think we would do this--it would look nicer if we rebased both M2 and M3. M2 does not make that much difference, but it happens to go in a direction that a lot of people are uneasy about anyway. It is only what--a .4 difference? That is not terribly important; it would not be important except for the concern of overshooting there anyway. And since that concern exists, it is important. That would make it more logical in some sense.",126
-fomc-corpus,1982,But then we would tighten the M2.,9
-fomc-corpus,1982,"Yes, slightly.",4
-fomc-corpus,1982,But we are talking about liberalizing the M2 range.,12
-fomc-corpus,1982,"I know; that is what I am saying. People are concerned about whether it is too tight to start with, so it runs against that grain. And that is why we presumably would not do it even though it looks better.",46
-fomc-corpus,1982,We could rebase the top.,7
-fomc-corpus,1982,"Well, we would rebase at the top of the range; that is what to do. But even rebasing at the top of the range costs .4 percent.",34
-fomc-corpus,1982,If we offset the tightening by raising the M2 range--,12
-fomc-corpus,1982,Because we were above the range.,7
-fomc-corpus,1982,"--and we rebase M1, we are in real danger of getting a major reaction by the market, the press, and the public that we are definitely easing monetary policy very significantly.",38
-fomc-corpus,1982,"I will make one more comment and then get some other comments. All this worry about our credibility is there, but at some point if we think we should change, we have to change. We do not build up credibility for the sake of building up more credibility. We build up credibility to get the flexibility to do what we think is necessary. If I were convinced now--more convinced than I am that this change is appropriate--I would say the heck with that point. My trouble is that I am not convinced [the bulge] is going to stay. And if we rebase and then find [M1] falling on us, we would have [allowed for] quite a lot of growth--too much in my judgment--between now and the end of the year. We would have a possibility of growth of a little over 6-1/2 percent, which seems a little too much to me, if M1 declines [and the bulge is washed out]. And since I think there is a good chance it will decline, I would hate to present that now.",219
-fomc-corpus,1982,What I am saying--I think you are misunderstanding me--is that I think we could get away with rebasing M1. But to rebase M2 and then offset it by raising the target range another 1/2 point I think is overkill.,53
-fomc-corpus,1982,"Well, I agree with you on that.",9
-fomc-corpus,1982,"We are better off, if we are forced into rebasing M1, not to rebase M2.",22
-fomc-corpus,1982,"No, I agree.",5
-fomc-corpus,1982,And there are some arguments on why it does not have to be symmetrical.,15
-fomc-corpus,1982,I do not disagree with that.,7
-fomc-corpus,1982,"I disagree with your comments on credibility. I think there is an enormous sense out there that we are still the only game in town in the fight against inflation. If we do something to change that, we are going to do something very important. To me that credibility question is really critical. We are right back in the situation we have been in before, particularly now that the President will not do anything about the deficits. We are in this uncomfortable, improper, nasty situation that we have to deal with, which is that the central bank of the United States has far more responsibility than it ought to have. But the fact of the matter is that we have it because of the way the political system works. And this credibility question is just absolutely vital. We have not yet changed those inflation expectations because everybody thinks that we are going to cave in to the political pressure that is going to be on us. They do not understand all these nuances about demand shifts and linkages and all this other stuff; all they see is that the Fed is the only inflation fighter we have in the country. If we give an indication that we are caving in and if we start making some changes, there are some really serious costs in terms of credibility, Paul. I think that credibility factor is more important than you just gave it credit for.",265
-fomc-corpus,1982,"The central banks that have the most credibility, such as the Swiss National Bank and the Bundesbank, are pretty relaxed with respect to their targets. Sometimes one of them even abandons its targets. And yet they do not lose credibility because there is that basic belief that they will achieve better stability.",59
-fomc-corpus,1982,More people perceive that we have 15-1/2 percent interest rates and 17 percent mortgage rates than whether we are [fostering growth of] the money supply at 1 percent or 2 percent or 3 percent.,48
-fomc-corpus,1982,The trouble is that everything we say here is true.,11
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,Even when we say different things.,7
-fomc-corpus,1982,"Fred Schultz's comments suggest that we should not make a change unless it is clear that if we don't, we are going to be following a policy that we really do not believe in.",37
-fomc-corpus,1982,I believe that.,4
-fomc-corpus,1982,"That would lead to not making a change until midyear. If we find that we have to, fine, we ought to change the targets at midyear.",32
-fomc-corpus,1982,"Well, it could be earlier.",7
-fomc-corpus,1982,"It depends upon how things go, but I could well see circumstances where we would want to do it before midyear.",24
-fomc-corpus,1982,"Well, that could be.",6
-fomc-corpus,1982,"You will be subjected, I am sure, to further questioning about our procedures and whether we just assume that we are doing this in the most satisfactory way, technique wise. That is where we are going to get some flak, I think. I assume that nobody around this table really would welcome or advocate any major changes, such as targeting on total reserves or taking the step that we have heard over and over again, which is going to contemporaneous reserve accounting.",93
-fomc-corpus,1982,"Well, the contemporaneous reserve accounting issue is going to be on our desks very quickly. I will tell you my view of contemporaneous reserve accounting very simply. I do not think it is going to make a lot of difference in and of itself. There is a certain logic in doing it. And if we were living on Neptune, I would do it because I think there is a certain logic just in terms of being consistent with our present techniques. My concern is that people will read into it more than it is worth and we would get more flak rather than less. But that is a psychological point and not a technical point. They will say: ""Now that you have contemporaneous reserve accounting why isn't everything perfect?"" And since I do not think it is going to change things very much, we may end up even more on the defensive. Now, that may not be persuasive as a reason for not doing it because just looked at as a purely technical matter it may well be desirable but marginal. So, my main concern in doing it is only that it will get over-interpreted. If we do that and combine it with some other things, such as closing up the discount window, that would be an entirely different kettle of fish. I am just prepared to argue against that.",259
-fomc-corpus,1982,"Well, at least change the conditions [for access to the discount window]. We do not let them close it altogether.",24
-fomc-corpus,1982,"To make it very much tighter. Yes, obviously, it is [an] extreme view to say close it altogether.",24
-fomc-corpus,1982,"I would say to Larry Roos that having gone to the reserve targeting and monetary aggregates targeting with a great deal of reluctance and skepticism, and having all the troubles and criticism that we have had, I am getting more and more to the point that I do not think it is the right way to [conduct policy]. We ought to be moving back toward interest rate targeting combined with aggregates targeting, knowing that we are not going to achieve either perfectly, but we would have a better monetary policy than we have had and a better economy. We have bounced this economy all over the mat for three years with no growth.",123
-fomc-corpus,1982,"Of course, Nancy, what disturbs me--and I say this with humility--is that I fear that what is being done may not produce the results we sought. Procedurally, I don't think we really are doing what ought to be done to conduct monetary policy in the way that those who wanted to target on reserve targets had sought initially. What I think will happen in the real world--I am not going to be around--is that this will not work. And everybody, broad-brush, will say that the monetarist approach failed when I really do not think that we have conducted a true monetaristic experiment here. But we could argue that for forever and a day.",140
-fomc-corpus,1982,I have a much more practical point. I do not like what we have done to the economy in the past three years. I do not like 9 percent unemployment rates and I do not like interest rates in the 17 to 20 percent range.,51
-fomc-corpus,1982,"But, Nancy, I think a lot of people could say they did not like what happened when we were concentrating on controlling interest rates. That record is a very poor one and probably led to these high rates. Anyway, I do not mean to be cantankerous.",54
-fomc-corpus,1982,"Well, we are not going to resolve that problem this morning. Let me just put this question on the table and dispose of it one way or another: Do we want to try to delay the testimony and delay the decision? Do people think that is going to help them enough so that it is worth whatever public question that arouses?",67
-fomc-corpus,1982,I vote no. SEVERAL. No.,10
-fomc-corpus,1982,"All right. Let us dispose of that option then. We are left with making a decision today, essentially. What I would put on the table is what I said earlier--we can skip to the fine-tuning--that the basic decision would be to keep the targets the same as we already said, or very close to that, with a statement that we are prepared to relook at this, particularly M1. in the relatively near-term future, meaning probably a couple of months, in the light of the concerns I expressed.",107
-fomc-corpus,1982,"With it being clear that if something were to change, we would be making the base adjustment?",19
-fomc-corpus,1982,"We do not actually have to commit ourselves to that, but I would throw that out as the logical possibility without committing us to it.",27
-fomc-corpus,1982,"You would do it in an even-handed way in the sense that you would mention the possibility of a shift in demand due to the innovations and to technology? If so,--",34
-fomc-corpus,1982,"Well, I would not do it in an even-handed way in that I do not visualize any possibility that I would say we would come back in two months and lower the [ranges].",37
-fomc-corpus,1982,"Yes, I understand that. But you would mention that there is this--",15
-fomc-corpus,1982,"Well, I would distinguish between two things. In describing the range, I would say that the lower part of the range is basically designed to take care of the innovations that might appear and that we would not be at all unhappy, as we now see things, to be in the upper part of the M1 range and, indeed, we would expect to be toward the upper part of the M2 range. Okay, that finishes that discussion. Then I would go on to say that if this [bulge] in M1 is more permanent than we think, we would come back to Congress with a new M1 range--presumably rebased, but not committing ourselves to that--in the space of a couple of months. If it became clear on the basis of the evidence that accumulated over this period, that the November-December-January spurt was more indicative of the underlying demand relationship than the August, September, and October low levels--",191
-fomc-corpus,1982,I would vote yes.,5
-fomc-corpus,1982,"I would be in agreement with that, provided that--. Well, you said something about the ranges as specified or close to it. Do you mean as specified?",33
-fomc-corpus,1982,"Well, I am leaving that question until we get to the precise part. I presume we are going to have a [detailed discussion] on exactly what those numbers will be, so I am just talking generally about something the same as or very like what we have. That is the next thing I will take up.",64
-fomc-corpus,1982,"I would be concerned, Mr. Chairman, about the boomerang effects of creating that [specter] of further possible change and all the uncertainty that may [foster]. The Fed watchers will be going right up the wall and looking at us every minute instead of every hour. If, when we first talk about those ranges, we say they may be subject to near-term change, somehow that does not strike me as a very stabilizing influence in terms of expectations.",95
-fomc-corpus,1982,"I do not think we are saying that the range would be subject to change, John. What we would do is rebase the range. In a way we would consider January a part of last year to a degree.",44
-fomc-corpus,1982,That is a--,4
-fomc-corpus,1982,We have rebased every year through base drift only we do it nondeliberately rather than in this way.,23
-fomc-corpus,1982,Using the Federal Reserve calendar rather than the standard calendar!,11
-fomc-corpus,1982,"Well, whatever we say other than that these are the ranges and come hell or high water we are going to be within them, we are going to raise some questions in some people's minds. There is no question that people will be talking about it, for two weeks anyway, if we say anything but that. But the problem is: Do we want to say that? We also may get ourselves in so deep that we can never change the darn things and we may be doing things substantively that we do not want to do. So, we have to balance that off. The fact is that there are going to be a lot of people out there who would heave a sigh of relief if we said that, because a lot of people think policy is too tight.",154
-fomc-corpus,1982,"May I question what it is we are assuming about the behavior of M1 from here on out which would give rise to a change in the targets? Do we, for example, decide that if what we have voted on this morning for our short-run targets materializes, which would get us essentially zero growth between now and March, that we can breathe a big sigh of relief and live within our targets? Making some very rough calculations, that seems to me to imply at most a 3 percent annual rate of growth from March on out to get within the upper limit of the range. So, are we going to say then that we made it and now we can supply 3 percent money growth and that will be enough?",145
-fomc-corpus,1982,I think that depends on what has happened. You cannot just give me the figure on money growth. What is happening in the markets? What is happening in the economy?,34
-fomc-corpus,1982,"Well, let's say the economy begins to show signs of a modest recovery along the lines that the staff has forecast. But the staff forecast was built on the assumption that there was going to be a big drop in M1 during the course of the first quarter. Given the policy targets that we set this morning, we are saying that is not happening; we are saying it is going to stay level. So, from March on we are going to be applying a tighter monetary policy than was built into the forecast, which means that if we want to stay within the range, we will be opting for a weaker economy. Do we want less than 1.3 percent real growth from the fourth quarter to the fourth quarter?",144
-fomc-corpus,1982,"I cannot answer your question precisely. But if you say zero growth from now on and that is accompanied by interest rates as high as we have them now and a weak economy, yes, I would question whether we might not want to ease up on the range. I would begin getting pushed on that. I already have the question, and I would have more questions then.",74
-fomc-corpus,1982,"I would opt to wait a couple of weeks, if I thought I could get anyone else to go along with me, on loosening the reins. But I doubt very much--no matter what happens over the next two weeks--that this Committee is going to be willing to loosen up the ranges. Maybe they are, but I suspect that your suggestion has appeal because I do not think this Committee realizes yet how harsh a monetary policy it is imposing on the economy with the kind of targets we are looking at now, given what I think is going to happen to money. Maybe we will be lucky and money growth will turn negative and we will have a lot of room from then on. But I doubt it. So, I think we are looking at a situation, if we are not awfully careful and if we do not stay really flexible, where we are going to be opting for a still worse economy than what the staff is forecasting.",188
-fomc-corpus,1982,"Governor Gramley, if I might say, believable or not, the staff forecast is based on the scenario you described--that is, virtually no growth in money over the next couple of months and then three quarters of growth averaging 1.3 or 1.4 percent quarterly. And as you have pointed out, that requires, if you believe the models, a resumption of the downward drift in so-called money demands after this quarter at a rate almost as rapid, but not quite, as we had all of last year. So, if that does not develop, then we would get much higher interest rates, at least in the short run.",131
-fomc-corpus,1982,"That is certainly true in your assumption of velocity. But let me put it the other way around. If I understand those staff forecasts as best judgments, if in fact we sat here now and said we were content with being in the upper part of that M1 range, we would have a better business outlook than you have.",65
-fomc-corpus,1982,"That is right, on that assumption of a--",10
-fomc-corpus,1982,With all the other assumptions you are making. And that is reflected in these alternatives that you give. It is scenario 2 instead of scenario 1. We would get a 1 percent or whatever it is higher nominal GNP.,47
-fomc-corpus,1982,"That is right, but with some further downward shifts in [unintelligible].",17
-fomc-corpus,1982,"Yes, I know. That assumption may go wrong, but just holding that assumption.",17
-fomc-corpus,1982,"But if we have Governor Gramley's situation now and we did end up rebasing, say, in March or something like that, the combination of rebasing and being in the upper part of that M1 range produces a couple of percentage points at least in terms of the money growth that is implied just by looking at the midpoint for the period from March through December.",73
-fomc-corpus,1982,"Well, we must not forget that that forecast implies a certain assumption about inflation. If we are lucky enough to do better on that, we can do still more on the real side.",37
-fomc-corpus,1982,"I thought you were going to say if we are unlucky enough to do worse, we would have a bigger problem.",23
-fomc-corpus,1982,"Well, I agree with that too.",8
-fomc-corpus,1982,Both statements are true.,5
-fomc-corpus,1982,"Expectations of which way that will go depend on what we decide to do, presumably.",18
-fomc-corpus,1982,"At the risk of being mischievous, may I point out that this process or line of presentation--namely, getting a decision sequentially on this particular issue--[may prejudice the decision]. You are asking for a decision on that and saying that you are going to inform the [Congressional] committee and prepare the ground that under these conditions we might be willing to make an adjustment and that it would be logical to do it in the form of rebasing. If you get an affirmative decision from this Committee now on that and then go on to ask if we should fine-tune on the target ranges, then the answer I think becomes clearly no. We will look silly, it seems to me, if we make minor adjustments in M1 or M2 even, and then on top of that say we are prepared to take another look at this and do some rebasing. So, if you do not want to prejudice the decision on the last point, it seems to me that you really have to ask for a decision on both.",209
-fomc-corpus,1982,We will get to it in good time.,9
-fomc-corpus,1982,I see. I am just pointing out where it logically leads.,13
-fomc-corpus,1982,"Well, we are only talking about rebasing M1, I believe.",15
-fomc-corpus,1982,"I think so, yes.",6
-fomc-corpus,1982,"I wonder how we lose credibility the fastest: By saying, in effect, that we are going to go back to the base we had for the fourth quarter of 1980 and use the same target range that we had for 1981 and now a lower target range for M1 for 1982, explaining in the footnotes what the numbers are; or by going out in March or April or thereabouts and saying we give up, money is running too fast and we cannot hold it within those targets, so we are going to raise them and retroactively change the base. My feeling is that we are less likely to upset the public and give rise to those concerns Fred Schultz was talking about, if we tell them right now that money growth very recently has been rapid but the fourth quarter was very, very low and, therefore, we are taking a longer-range point of view and still reducing the growth of M1 but basing it from the fourth quarter of 1980. I think we could sell that point of view.",208
-fomc-corpus,1982,"Yes, I think we could sell it. The problem is that it may be the wrong decision. We would have committed ourselves, then, to the decision. I have no problem with that if this [bulge] is going to be semi-permanent. But suppose it does wash out in February and March? Then I think we have too high a target.",73
-fomc-corpus,1982,With 2-1/2 percent as the lower end?,13
-fomc-corpus,1982,With 9 percent unemployed?,6
-fomc-corpus,1982,People would be looking at the upper ends.,9
-fomc-corpus,1982,"Taking the 1.2 percent or so that we are raising it by the implied base shift, then we are talking about 3.7 percent growth in M1 after this shift. And that is not likely to give rise to a new wave of inflation.",53
-fomc-corpus,1982,"Whatever adjustment is made in March or April, especially if you have a meeting with the President, anything that can be construed as being more expansionary at that time of the year will be interpreted immediately as the Fed caving in to political pressure in view of the November elections. They are going to be watching us. The question I hear is: Are you fellows going to be able to stand the heat from the politicians during an election year? And I think we have to be awfully careful that we do not fall into that trap and do something that may be better but that will be interpreted, in effect, as our climbing into bed with this Administration or any other--",134
-fomc-corpus,1982,"I think we have that problem right now, Larry.",11
-fomc-corpus,1982,Even now I think we do.,7
-fomc-corpus,1982,"Well, I think Larry is right: It will be worse in the spring.",16
-fomc-corpus,1982,It will be worse in the spring.,8
-fomc-corpus,1982,"It will be worse if, in fact, the quotation from Mr. Meese that Bill Ford mentioned is correct--that the President is going to pull you over for a little conference. We have not heard that officially yet. We would be better off as a Committee to make our decisions before that occurs.",61
-fomc-corpus,1982,Absolutely.,2
-fomc-corpus,1982,Exactly.,2
-fomc-corpus,1982,Did Meese say he or the President?,9
-fomc-corpus,1982,I did not see it.,6
-fomc-corpus,1982,It was just a passing remark in which he said he felt that the President was going to get together with [the Federal Reserve Chairman]--,28
-fomc-corpus,1982,--for the purpose of coordinating monetary and fiscal policy.,11
-fomc-corpus,1982,It really was not an announcement; it was just a passing remark.,14
-fomc-corpus,1982,I thought it was Meese who was going to do the talking.,14
-fomc-corpus,1982,"It probably is going to happen anyway. Senator Baker has been saying it is going to be done all along. So, there is going to be a natural response to that. I would not read anything more into that than when people like Senator Baker are all over the paper saying it should be done. I see him sometimes anyway and there is going to be a certain amount of hullabaloo about it.",81
-fomc-corpus,1982,"We have real costs in terms of credibility if we change the targets. We ought to change them only if we have good, strong reasons. And I disagree with Larry Roos; I think if we have good strong reasons to change them, we are better off changing them in March or April than right now.",62
-fomc-corpus,1982,"But the problems that Larry mentioned are, of course, there. It just depends upon the setting. If we came out of the clear blue sky and said we are going to change them, that is one thing. If people saw the economy in bad shape, interest rates at 18 percent and so on, we have a different setting. It is awfully hard to predict these things.",78
-fomc-corpus,1982,What are the consequences of being--,7
-fomc-corpus,1982,"Ordinarily I would agree with you that it is better now. But then, better now in which way?",22
-fomc-corpus,1982,The political consequences of being the sole cause of a continuing 9 percent rate of unemployment can be greater than anybody is talking about around this table.,29
-fomc-corpus,1982,"But I do not believe that at all. I just do not believe that the monetary policy that we have carried out has been the sole cause or even the primary cause. I think this country was in for some real economic problems. Inflation was just shooting up like crazy. And I do not think that we can be held responsible for all of this. It is clear that if we are going to change inflation, we have to go through a painful period. There was never an easy way out of this. I refuse to accept the view that monetary policy has to take credit and I do not think it is correct to say that if we change monetary policy, everything is going to get better all of a sudden. I just do not believe that that is going to be the case.",156
-fomc-corpus,1982,"Hear, hear!",4
-fomc-corpus,1982,It seems to be a pretty widespread view that it is the budget that is responsible.,17
-fomc-corpus,1982,Not this year. Our problem is 1983; it is not this year.,17
-fomc-corpus,1982,I think the market looks ahead; and interest rates went up for no particular reason other than the budget.,21
-fomc-corpus,1982,"Well, let me come back and see whether we can resolve this. We have a proposal on how to present this on the table. There obviously are pros and cons. There are problems with it, as expressed by Larry Roos and others; they are clearly there. There are also, obviously, some advantages. If we contemplate that approach, to some degree it is going to affect how people look at the precise decision, which I want to get to next. Do we proceed on the basis of making that decision against that kind of background or not? What is the consensus?",116
-fomc-corpus,1982,What are the options?,5
-fomc-corpus,1982,[The issue is] whether we open the possibility of coming back at midyear or before and in effect confess that we have some question in our mind about whether the range is too tight on M1.,41
-fomc-corpus,1982,Or whether we rebase now?,7
-fomc-corpus,1982,"Well, whether we rebase or not, we just exclude that point and we do not express any doubt about our target. That is the only question on that. Then we get into an argument about whether to rebase now or not.",48
-fomc-corpus,1982,"Paul, would it be possible, without tipping our hand, to say that we might come back if it were tight? Can't you build a case that there are a lot of imponderables and that it may be necessary to change the targets without saying in which direction--just signalling that we are always flexible.",62
-fomc-corpus,1982,Our record shows that.,5
-fomc-corpus,1982,We are always flexible; we just haven't flexed yet.,12
-fomc-corpus,1982,"We do expose ourselves to [heavy] pressure if we say we are flexible. And one has to take that into account. I really prefer the flexibility, provided we can resist [the pressure].",39
-fomc-corpus,1982,Our problems remind me of a definition I recently heard of diplomacy: It is usually the choice between the undesirable and the unacceptable.,25
-fomc-corpus,1982,"That is, I think, precisely where we are. I am just asking for people's judgment on this. One is going to be affected by the next question, so all we can do is ask for a preliminary view on whether that generally makes sense and whether for the moment that is the way we want to approach the other decision.",66
-fomc-corpus,1982,I am not sure what the other decision is.,10
-fomc-corpus,1982,Where the target should be precisely.,7
-fomc-corpus,1982,There are two alternatives: One is rebasing; the other is just to stick with the targets.,20
-fomc-corpus,1982,Or change them.,4
-fomc-corpus,1982,"Or we can change them. We have three alternatives; that is right. Can we pass on to that decision, operating on the presumption for the moment that there will be in the statement something to the effect that upon further examination of this recent bulge and depending upon developments, we would be willing to consider the possibility that the M1 target might be too low?",74
-fomc-corpus,1982,And it would be rebased.,7
-fomc-corpus,1982,"Presumably. I am not committing ourselves to that, but I would refer to the base question.",20
-fomc-corpus,1982,The target is not too low; the base is too high.,13
-fomc-corpus,1982,"You want to be pretty specific about it, because the way you just stated it, it sounds as if we have flinched.",27
-fomc-corpus,1982,"All right. Well, I just did not want to prejudge the Committee. I am willing to state it as the target, with the base the [fundamental] question.",36
-fomc-corpus,1982,"Yes, that is the analytic argument.",8
-fomc-corpus,1982,"Well, I prefer to rebase now, but I do not think I have much [support]; not too many people are with me.",28
-fomc-corpus,1982,I would prefer to rebase now.,8
-fomc-corpus,1982,"Well, I am sure some have that preference, but I take it that it is not the prevailing preference. So, let's go to the targets. We have 2-1/2 to 5-1/2 percent [for M1], 6 to 9 percent [for M2], and 6-1/2 to 9-1/2 percent [for M3]. I must say regarding that 6-1/2 to 9-1/2 percent: What is your projection for next year?",110
-fomc-corpus,1982,For M3? For M3 we would have growth of around 9 percent.,17
-fomc-corpus,1982,And there we probably have the clearest technical reason for saying something; there's just more [financing] running through the banking system. Why were bank credit and M3 so divergent this past year?,40
-fomc-corpus,1982,"Well, we have in M3 many things that are not in bank credit, such as the money market funds and Eurodollars held overseas. I think that is a good part of the reason.",40
-fomc-corpus,1982,"We had a big differential between M3 and M2, and one would think that that would reflect the banking component.",24
-fomc-corpus,1982,"That would be the large CDs, the long-term RPs, and Eurodollars other than overnight--those maturing in more than one day.",30
-fomc-corpus,1982,"Well, I know what it is statistically. Why are large CDs, Eurodollars maturing more than overnight and so forth going up so much more rapidly than bank credit?",35
-fomc-corpus,1982,"I stand corrected on the Eurodollars, which are in L.",14
-fomc-corpus,1982,"Mr. Chairman, there are a number of factors involved here. Arithmetically and I think analytically, one is the way the banks financed their asset growth. It was much more through the issuance of large time deposits and much less through Eurodollar borrowings and the--",57
-fomc-corpus,1982,"Well, that is what I assumed was the answer, as a matter of fact.",17
-fomc-corpus,1982,That is one factor. Another factor--,8
-fomc-corpus,1982,"Eurodollar borrowings are not in M3, right?",13
-fomc-corpus,1982,That is right.,4
-fomc-corpus,1982,"And they went down, in effect, or rose slowly. That is the answer, I guess.",20
-fomc-corpus,1982,The money market funds are another factor contributing to the divergence.,12
-fomc-corpus,1982,What are your latest data on L?,8
-fomc-corpus,1982,"I have already said this but just to get other responses, assuming what I took as the consensus: The argument seems to me pretty strong not to horse around with the figures.",35
-fomc-corpus,1982,That is one view. There is a minority--,10
-fomc-corpus,1982,"Well, some of us had a different view yesterday. I have not changed my mind, but obviously those of us who felt that way appear to be in a minority.",34
-fomc-corpus,1982,"I don't know; there were quite a number on M2, I think. I did not distinguish between voting members and other presidents.",27
-fomc-corpus,1982,"I think there was a majority for not changing it, but there was quite a difference. A number of people did suggest changing it; that is true. At least five of the whole group and some [voting members] did not address themselves to it directly.",53
-fomc-corpus,1982,Why don't you have a show of hands?,9
-fomc-corpus,1982,Let's just take the whole proposition that we say we do not change any of the targets. Who would have a preference for that?,26
-fomc-corpus,1982,That we are not going to change anything?,9
-fomc-corpus,1982,Voting members or everybody?,5
-fomc-corpus,1982,"Well, let's take voting members first. Six. This is all against the background of admitting that we might change later. I do not know how the nonvoting members feel about it. That adds a little weight here when we--",47
-fomc-corpus,1982,"If we went with the present M1 target, would you consider saying that we would seek something at the upper [end of the] range?",29
-fomc-corpus,1982,"Well, I prefer not to say it in terms of seeking that, which just implies a degree of fine-tuning that I think is beyond this. I have no trouble saying that the upper end is perfectly acceptable and that it may well come out that way, as we see things at the moment. It is just a subtle distinction from saying we actually will aim at the upper end. But I have no problem at all saying that as we now see things the upper part of that range would be perfectly acceptable. I think the open question may be what arguments people want to make for changes and we'll see whether that can command any more people than we now have. What would be the nature of [any proposed] change in the ranges for M1 or M2 or M3?",156
-fomc-corpus,1982,"Well, I have stated my argument before. I do not like the outlook.",16
-fomc-corpus,1982,You want them all higher?,6
-fomc-corpus,1982,"I want to change the ranges and I want to give more opportunity for growth and some opportunity to reduce the unemployment rate, some opportunity to reduce the interest rates, and some help to the savings and loan and the housing industries.",45
-fomc-corpus,1982,"No matter what we say about the future, you want to increase everything?",15
-fomc-corpus,1982,Yes. I think monetary policy is much too tight for the state of the economy.,17
-fomc-corpus,1982,"I would like to argue the case for raising the range for M2. Given the fact that we are postponing any decision on rebasing, changing the range for M1 would make no sense at all. We would lose any credibility that we might otherwise hold by sticking with this postponement. But for M2 the most persuasive case seems to be the fact that in the past two years growth has been running over the upper end of the target range. I grant that there may be some arguments to the effect that that problem will be a little less in the future. But, as Governor Partee pointed out, we do not know what these IRA accounts are going to do to the magnitude of M2; and more importantly we do not know what will happen to M2 growth if in fact we get a one point or thereabouts increase in the saving rate. That could add [to M2] considerably. And I would much prefer a target range that had some realistic hope of being realized within the context of a growth in nominal GNP in the 8 to 9 percent range. Therefore, I think a persuasive case could be made for raising the M2 range to 7 to 10 percent.",243
-fomc-corpus,1982,I second Governor Gramley's comment.,7
-fomc-corpus,1982,I third it.,4
-fomc-corpus,1982,"I fourth it. I think we could [present] this, Paul, as being consistent with the President's program. The President is after more savings and more investment, and we have major changes in tax policy that are designed to bring that about. Therefore, we anticipate that we might have a somewhat higher M2 because that is the form in which it would show up. In addition, we have been high on M2 anyway because it is so closely related to the nominal [GNP] increase and expenditures in the economy and, therefore, we are raising it.",114
-fomc-corpus,1982,Wouldn't it make more sense to take the IRA accounts out of M2?,16
-fomc-corpus,1982,"Well, that is going to be very hard to do I'm afraid. They are in a bunch of different deposit forms. They are not just in--",30
-fomc-corpus,1982,"We are going to get statistics on it, though.",11
-fomc-corpus,1982,I anticipate real difficulty.,5
-fomc-corpus,1982,But they are not liquid assets. Are you saying we cannot identify them?,15
-fomc-corpus,1982,A lot of them are in small saver certificates and--,11
-fomc-corpus,1982,"We cannot identify them, as I understand it, without collecting more statistics.",15
-fomc-corpus,1982,We will be collecting data to the end of getting the aggregate instead of just the various subcomponents that we now have.,24
-fomc-corpus,1982,But an IRA is not a liquid asset unless one is 59-1/2 years old or older.,22
-fomc-corpus,1982,"There is a good logical argument for taking them out. But, of course, then we have the opposite problem. I think one could say flatly that in taking them out there would be more distortion in the trend--but we could adjust for it--than in leaving them in. But it moves in the opposite direction.",65
-fomc-corpus,1982,I received a solicitation this weekend from Sears to establish an IRA account.,14
-fomc-corpus,1982,"That probably would not be in M2. If you were prepared to say that we would take account of growth in IRAs and Keogh accounts and any change in the saving rate that occurred in response to the President's program, then I guess I could live with 6 to 9 percent, because I think that would be saying that we would accept something higher than that.",76
-fomc-corpus,1982,How would you feed back the change in the saving rate?,12
-fomc-corpus,1982,Just take account of it. All we do is conclude that it would be higher if we say--,20
-fomc-corpus,1982,I think Chuck's suggestion opens up an interesting area of compromise.,13
-fomc-corpus,1982,"Well, from my standpoint, I am inclined to give more explicit weight to M2. I do not regard that as a--",26
-fomc-corpus,1982,It is very fuzzy.,5
-fomc-corpus,1982,"It is very fuzzy and it says, in effect, that we really do not give a damn what M2 does; we are really concentrating on M1. It says: If M2 goes up above the upper end, so what?",48
-fomc-corpus,1982,"There is an implicit tradeoff in your proposal, as nearly as I can understand it. You want a little higher number but you would make it more rigid, in effect, than it has been.",40
-fomc-corpus,1982,"Yes. I would like to pay more attention to M2. I think it is important for us not just to do that internally but to communicate that because I believe the volatility of M1 is giving rise to a great deal of misunderstanding--and indeed misunderstanding on our part as to the effects on interest rates and the economy of our decisions, which I think is unfortunate. We have to be more tranquil about these short-run movements in M1. And if we do not develop that attitude ourselves, we are going to be building increasing problems for the future.",111
-fomc-corpus,1982,"I don't know; frankly, I am very troubled at the prospect of opening up this rebasing issue and changing the M2 target. I think Governor Schultz is right on the mark on this question. The issue, as Governor Teeters suggests, is getting unemployment down and all the rest, but not for a quarter or two. The issue in some sense is trying to be supportive of a sound approach to fiscal policy. But we are sitting here looking at a fiscal situation that is just untenable. And one of the concerns I have--and maybe it is tilting at our windmills a little--is that if the perception is that we really are easing, any prospect of being able to do better on the fiscal side is weakened as well because that creates the impression that we are going to sit here and monetize all that debt. I am under no illusion that we are going to have a magic wand come over fiscal policy in the next six months; but if we are perceived as easing, I think fiscal policy will go in the direction of further ease rather than the other way around. So, I must say I would be troubled at the prospect of doing both of these things, because for the long term it does not produce the result of lower unemployment and healthier thrifts and all the rest. I think it works the other way.",268
-fomc-corpus,1982,I wonder if there is a common ground here with what Chuck Partee has proposed. It seems to me that the allowances he has spelled out do give us some flexibility on the up side. I think there is some merit in that in terms of bridging the gap here.,54
-fomc-corpus,1982,"I have no problem with that. Maybe that is the practical alternative on the table. Let me leave M3 and bank credit aside for the moment. Let's not get into those; whatever we do with them is literally almost insignificant. I think what I have heard, obviously with the exception of Nancy Teeters, is that if we have this note of reservation, nobody wants to argue about fiddling around with the M1 range. Do I hear that correctly? I will proceed on that assumption. Quite clearly, there are people who want to raise the M2 range. Let me give you two alternatives that I see now. One, consistent with this idea that we open up the possibility of rebasing and review, is that we stick to the targets we now have with the comment that Governor Partee made about M2. What concerns a lot of people about fooling around with any of these is whether we are going to rebase. The alternative is to go ahead and change M2 and not make the comments about rebasing. Would anybody prefer that? Let me put it this way: We stick basically with the M1 range; we raise the M2 range by 1 percentage point; and we do not say anything about the possibility of rebasing. Does that seem preferable to anybody?",260
-fomc-corpus,1982,That is a lesser of the two--,8
-fomc-corpus,1982,I saw three people saying yes; I did not see any others.,14
-fomc-corpus,1982,I would join those three to make it four.,10
-fomc-corpus,1982,I would too.,4
-fomc-corpus,1982,Okay.,2
-fomc-corpus,1982,"Not saying anything about rebasing, I think, would be the sensible thing. That raises the imagery of manipulation. It might cause some people to remember that we have not rebased in the past and this selective rebasing charge could be [unintelligible]. It seems to me if we are going to--",63
-fomc-corpus,1982,"We are not going to do anything about it today. We never do anything about it because we never consider it until we get there. But what we do now seems to me rather silly, frankly. We do it all the time because we get trapped into it; I just regurgitate every time we have to put all this emphasis on what happened in a particular three months of the year. We get locked into that. We say: Well, that is what we did before, so we have to do it again. But that is where we are. There is some sentiment, though I do not detect a consensus, to go that way, which is a possibility. That leaves me with the degree of consensus we have on the other [alternative], which is basically leaving these ranges and making a specific comment about M2 and the savings connection and that we think it is quite likely M2 will be near the top of that range. We say that is perfectly acceptable and, in any event, M2 could be over [the range] if the savings and the IRA and Keogh accounts turned out to be significant. Thus, we are putting you on due warning. That is what we say on M2. On M1, based upon what we know now, we think this range is appropriate. We do not exclude the possibility that, if this recent development seemed to be of a more permanent character, which bears upon the basic demand for money, we would come back to you at midyear or before and change that. That carries some connotation, but I think it is consistent with the decision that we just made that we are not going to fight tooth and nail to reverse January. We already decided that, so I think it is perfectly consistent with what we have already decided. What is the degree of consensus as to how acceptable that is? I want to put it in terms of acceptability at this point. It seems we have the voting members. I guess what I hear is that it sounds pretty acceptable,",406
-fomc-corpus,1982,We are doing it with words not deeds.,9
-fomc-corpus,1982,"All right, I do not detect any other course that is more acceptable at this point. In the absence of any comments that [some alternative would be] more acceptable, let me just describe it again so there is no doubt in people's minds. This is what would appear in the record: We reviewed these targets; considerable concern was expressed about the recent developments in M1 which suggest that some relationships could be developing that we did not anticipate. We think it is too early to make that judgment. We want to reaffirm the continuity of policy, but if we get further evidence that the presumption upon which we established this target is wrong, particularly considering the fact that we ended up below the target last year, we would be prepared to reconsider this matter. But we think it is more likely that we will have some relaxation here, which would make the present target appropriate. On M2, we say we think it is likely and desirable that growth be toward the upper end of the range; it is possible that a higher saving rate combined with the impact of IRA and Keogh accounts would introduce an element here that has not been there in recent years, which would change this relationship somewhat. If that were a discernable influence on M2, we would be satisfied with being somewhat above the upper end of that target. I think that is about as clearly as I can state it. And we just leave the M3 range [unchanged]. Does it make any difference to anybody where M3 and bank credit are? What do you have for bank credit [growth]?",312
-fomc-corpus,1982,8 percent.,3
-fomc-corpus,1982,That is your projection?,5
-fomc-corpus,1982,That is our projection.,5
-fomc-corpus,1982,And what is the range you are suggesting?,9
-fomc-corpus,1982,I think the Committee might as well stay with the range it has of 6 to 9 percent.,21
-fomc-corpus,1982,A very small wrinkle: If people wanted to raise the range for M3 on the very simple argument that we expect more financing to be done through the banking system and that affects M3--,38
-fomc-corpus,1982,"Then we almost have to raise the range for bank credit, don't we?",15
-fomc-corpus,1982,"We might raise the bank credit range slightly, too, then.",13
-fomc-corpus,1982,But suppose we get a switch from large CDs to Eurodollar financing?,15
-fomc-corpus,1982,"Well, nobody pays any attention to those targets.",10
-fomc-corpus,1982,We have yet to--,5
-fomc-corpus,1982,"Well, I guess it is not important to me one way or the other.",16
-fomc-corpus,1982,Suppose interest rates come down and we get some bond financing?,13
-fomc-corpus,1982,Why not drop [those two targets]?,8
-fomc-corpus,1982,"I do not think it hurts anything to have [them]. So, forget about M3 and bank credit; we just take what falls out. Leaving the ranges unchanged is the preliminary suggestion.",38
-fomc-corpus,1982,"We will make the proper adjustment for the bank credit base because of the IBFs. We either have to go from December-January or the fourth quarter, properly adjusted, because of the IBF shifts.",41
-fomc-corpus,1982,"Well, maybe it would be a good idea just to change the base on that to get in the idea of changing a base. Here we have such a clear technological change that hardly anybody could question it,",41
-fomc-corpus,1982,It would still be 8 percent [growth] from the December-January base. That is how our estimates fell.,24
-fomc-corpus,1982,"It would still be the same target, but we would rebase [bank credit]?",17
-fomc-corpus,1982,"Yes, because of the introduction of IBFs. Okay. If there are no other questions, we can vote.",23
-fomc-corpus,1982,"Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley Yes President Keehn Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters No Governor Wallich Yes Eleven for, one against, Mr. Chairman.",58
-fomc-corpus,1982,"Thank you very much. You wanted to say something, Governor Schultz?",14
-fomc-corpus,1982,"Yes, everybody has heard enough from me already, and I guess you are going to hear a little more. But just to make you feel better, I would remind you that this will be the last day that you will have to do this.",49
-fomc-corpus,1982,We might have an emergency shortly.,7
-fomc-corpus,1982,"I wanted to sing a little swan song today. You understand that swans do not sing very prettily but they generally sing a long time, so you will have to indulge me. Just remember that I am very shortly going to turn into an ugly duckling! There are a couple of points that I wanted to make before I leave. You people are going to be under a lot of political pressure this year and a lot of outside pressure, and I have a little political advice for you. You understand that you have to be careful about political advice from a losing politician, and I fall within that category, but that is not always true. It is my belief that over time what is right is the best politics. I believe that if you do what is right and you are steadfast and consistent in your policies, the political pressures will ease and you will not be in great danger from them. You are also going to have considerable internal pressures. I know I felt enormous internal pressures about whether what we were doing was right and whether what we were doing was the best way to go about it. Clearly, there are costs to this technique that we are using; we have all kinds of problems. But when the question is asked of me: If you were going to do anything differently than you have done over the past 2-1/2 years what would you do? I say that I did not like the credit controls and that I think we might have reacted a little better to the increase in 1980, but I honestly believe that the technique we are using now is considerably better than what we were doing. It is like Winston Churchill's comment about democracy being the worst form of government ever devised except for all the others. I think the operative question is not whether this technique we are using now is better than some other technique in an ideal world but whether it is better in view of what we have had to face. It just seems clear to me that it has enabled us in a time of great volatility to adjust interest rates more quickly and to adjust them far enough to have some market impact. I am with Tony Solomon on this. I do not know what these linkages are; they are getting looser and the demand shifts are coming more and more often; I don't know what the heck is money; all of these kinds of things are very difficult. But the real question is: What alternative do we have at this point in time? And it seems to me that what we are doing is the alternative that is best at this point. I read the other day that somebody criticized us for playing to history. I would certainly hope that we do indeed have a sense of history. It strikes me that with the political system we have in this country and an election every two years, it is impossible to take a long-range view in the political sphere. We are the only organization that seems to have the opportunity and the ability to take a long-range view. Again, I think the pressures are going to be enormous because, whatever you do. the economy is not just going to get better very quickly. And the question that is going to be asked of you is: How much pain are you willing to inflict on the economy? I do not happen to think that it is [the Federal Reserve] that has been inflicting the pain on the economy, but that is the question that you are going to get asked. And the answer is: What is the alternative? If you stop now in this fight against inflation, if you do not carry it through, what kind of pain are you going to inflict on the economy then? It is an issue that just has to be faced and I believe it is a lot easier to face it now and overcome the problem now than it will be later on. Finally, I would urge you to remember that you have a remarkable degree of support out there. Nobody is going to love a central bank; and heaven knows, nobody loves high interest rates. But the fact is that the Federal Reserve has built up an awful lot of respect out there. People in this country want to believe in something and you are about all there is to believe in at this time. I think there are a lot of people ready to come to your defense; you have been seeing some comments recently in the news magazines and the newspapers in response to the current criticism. A lot of people out there want to support you. I think you really do need to try to keep in contact with those people and marshal that support when it becomes necessary, because the fact of the matter is that you are still the only game in town. And good luck to you!",939
-fomc-corpus,1982,"Well, Fred, without prejudging any comments anybody may want to make later, I think your contribution on this Committee has been immensely important to all of us and I think we can acknowledge that around this little circle now before we go to lunch where, prejudging it, we can do you a little honor. We appreciate very much those comments on what has been a variety of experiences in your life and your full devotion to this one in the past 2-1/2 years. We ought to adjourn to lunch but I am reminded that I have forgotten two things that we ought to do in the nature of cleaning up. I mentioned Mr. Reuss' proposal to you yesterday and I understood from the reactions that you did all consider that in your minds and did not choose that as a desirable course. I just want to be able to report that to him. Can I take that as a--",181
-fomc-corpus,1982,Not me.,3
-fomc-corpus,1982,"Your position is clear and I can report that his proposal was considered and that one person rendered rather strong support to his point of view, but it did not command the support of the group. I think that is a fair representation of what I have heard. The other thing to clean up relates to the short-term decision. I assumed that what we were talking about was the second version of the directive. Mr. Altmann has a slight revision, which I have not seen. It says: ""...for the January-to-March period no growth in M1 and growth in M2 at an annual rate of around 8 percent."" That is a slightly different way of saying it.",136
-fomc-corpus,1982,"Why don't we say ""no further growth""?",9
-fomc-corpus,1982,"""No further growth;"" good. Maybe we can just stick in a phrase ""Considering the size of the recent growth, no further growth...."" Maybe this is better: ""Taking account of the recent surge...."" And then the next sentence is about as he has it: Some decline in M1 ""would be associated with more rapid attainment of the longer-run range and would be acceptable in the context of declining market interest rates.""",85
-fomc-corpus,1982,"Would it be acceptable without declining interest rates? It would be acceptable period, wouldn't it?",18
-fomc-corpus,1982,"If this happened to be a movement along the function instead of a downward shift in the function, we would get real trouble. If, for example, the economy started to collapse--",36
-fomc-corpus,1982,"Well, one could catch a nuance here which might not be in the sentence; but if it declined in the context of rising rates, we would presumably ease.",32
-fomc-corpus,1982,It struck me as being an inconsistency.,9
-fomc-corpus,1982,"I do not know whether there is a technical word or not. I guess it is not a full description of what we mean. It certainly would be acceptable in the context of rising rates, except then we presumably would move to ease. I do not know whether there is a better way to say that. This is basically a phrase we have used before, isn't it, Steve?",76
-fomc-corpus,1982,"Well, the last time it was used was in December 1980. We said ""In the light of the rapid growth of money and credit aggregates in recent months, some shortfall [from what had been specified] would be acceptable in the near term if that developed in the context of reduced pressures in the money market."" That is what the directive said in December 1980.",77
-fomc-corpus,1982,"Why don't we say ""in the context of reduced pressure in the money market"" instead of ""declining interest rates."" I think that is a little more polite way of saying it. Okay, then we are agreed and we can go to lunch.",50
-fomc-corpus,1982,"Wait a minute, we have the date of the next meeting. That is eight weeks away. Do we want to wait that long? It is a long time. SEVERAL. It is a long time.",43
-fomc-corpus,1982,"I think we probably do, but [we can] have conferences [by telephone].",17
-fomc-corpus,1982,"Well, I guess I would just leave it. It is a long time, but if we want to have a meeting in between we can obviously do it on the telephone. I do not think we need to decide this, but if we felt like having a meeting in person four weeks from now, would that be welcomed?",65
-fomc-corpus,1982,It is a matter of clearing our calendars or keeping them open.,13
-fomc-corpus,1982,It makes no difference to me!,7
-fomc-corpus,1982,I think eight weeks is a long time in the context that we are in.,16
-fomc-corpus,1982,"Well, what we can do is just pick out a date. Maybe I will send you two dates or something and ask you to make sure your calendar is clear. We will not call a meeting, but if we want to call a meeting, you would have kept a clear calendar.",57
-fomc-corpus,1982,Four weeks would be around March 1st?,10
-fomc-corpus,1982,"Well, presumably it would be approximately four weeks from now. I will look for some dates about four weeks from now if that is desirable, but I do not know what my calendar is.",38
-fomc-corpus,1982,I will be in Hawaii.,6
-fomc-corpus,1982,You can come back. There is a place for you. We will give you another lunch if you come back!,23
-fomc-corpus,1982,"Why don't you look around March 1st. I will not call a meeting now, but I will not be allergic to calling one if it seems at all desirable.",34
-fomc-corpus,1982,Would you think in terms of a one-day meeting?,11
-fomc-corpus,1982,"Yes, I do not know about my own calendar, but I do not see any reason why--",20
-fomc-corpus,1982,A meeting on March 1st or coming in then for a meeting on March 2nd?,20
-fomc-corpus,1982,As close to March 1st as I can make it. I may say March 1st if it looks all right from my standpoint.,29
-fomc-corpus,1982,That happens to be a Monday.,7
-fomc-corpus,1982,March 2nd then.,6
-fomc-corpus,1982,"March 2nd, I think. When is the next meeting?",14
-fomc-corpus,1982,March 30th.,5
-fomc-corpus,1982,"If that were an updating meeting, Mr. Chairman, I assume you would not need the full panoply of staff presentations.",26
-fomc-corpus,1982,"No, I think we would have a more informal meeting than usual.  More precisely, we would not have the full panoply.",28
-fomc-corpus,1982,"We have some items to take care of at the beginning of this meeting. First, the election of officers. We need to nominate a Chairman and a Vice Chairman in case you--",36
-fomc-corpus,1982,"Well, I shall undertake this heavy responsibility. I propose and nominate Paul A. Volcker.",19
-fomc-corpus,1982,Is there a second?,5
-fomc-corpus,1982,I'll second that.,4
-fomc-corpus,1982,"Are there any other nominations? If not, we assume we have a Chairman and I'm the Chairman. We need a Vice Chairman.",26
-fomc-corpus,1982,"Well, I propose and nominate in his absence Anthony M. Solomon.",14
-fomc-corpus,1982,"Apparently, Anthony M. Solomon missed the shuttle. I don't know whether that's appropriate for a Vice Chairman! Do we have a second?",27
-fomc-corpus,1982,I'll second that.,4
-fomc-corpus,1982,Is this a rigged election?,7
-fomc-corpus,1982,"If I hear no objection, we will proceed. I have a list of a good many staff members as proposed officers that I would ask the Secretary to read, including Mr. Altmann as Secretary.",40
-fomc-corpus,1982,"Staff Director, Stephen Axilrod Secretary, Murray Altmann Assistant Secretary, Normand Bernard Deputy Assistant Secretary, Nancy Steele General Counsel, Michael Bradfield Deputy General Counsel, James Oltman Assistant General Counsel, Robert Mannion Economist, James Kichline Associate Economists from the Board's staff: Edward Ettin; Michael Prell; Charles Sigmann; Edwin Truman; and Joseph Zeisel. Associate Economists from the Reserve Banks: John Davis, Cleveland; Richard Davis, New York; Michael Keran, San Francisco; Donald Koch, Atlanta; and James Parthemos, Richmond.",119
-fomc-corpus,1982,Would someone like to move those?,7
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,"If there are no objections, we will have the officers duly installed as of this moment. We need a Reserve Bank to operate the System Account.",29
-fomc-corpus,1982,I propose the Federal Reserve Bank of New York.,10
-fomc-corpus,1982,Do we have a second?,6
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,With no objection. We need a Manager for Domestic Operations and a Manager for Foreign Operations; perhaps someone would like to nominate both at the same time.,30
-fomc-corpus,1982,I nominate Peter Sternlight and Sam Cross.,9
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,"Objections? In the absence of any objections, it's unanimous. I'm skipping now to the end of the agenda you have--we might as well get this all out of the way--to the review of the domestic authorization and the foreign currency instruments. Nobody has proposed any changes in those. Does anybody have any objections or questions on that second, or third part? If not, hearing no objections, they are approved. As for the authority for lending securities from the System Open Market Account, we've been renewing this for some years. Any comments? I take it there was some suggestion earlier to make this permanent. Does anybody want to talk to that point?",131
-fomc-corpus,1982,To make what permanent?,5
-fomc-corpus,1982,The lending [authorization] that now has to be approved every [year].,15
-fomc-corpus,1982,"I thought we had to make a determination on this, Mr. Chairman, as to whether it is necessary [for the effective functioning of] the market. Isn't that right, Peter?",37
-fomc-corpus,1982,"That's right. I think the judgment could be made [that it's necessary] on a continuing basis. I don't know that there is anything in the legal basis on which it was set up that required an annual determination of that kind and, therefore, I have suggested in my memorandum to the Committee, which Mr. Bradfield supported, that it could be incorporated in the continuing authorization for operations.",78
-fomc-corpus,1982,"And we approve that every year anyway, don't we?",11
-fomc-corpus,1982,"That's right, yes.",5
-fomc-corpus,1982,"As nearly as I can see, no major policy issue is involved. It gets approved every year anyway. I guess it's just a question of which document we put it in.",35
-fomc-corpus,1982,We might have to bring up only one agenda item next year!,13
-fomc-corpus,1982,I think that's the net difference involved here. I have no strong conviction on this point. Does anybody have any conviction?,24
-fomc-corpus,1982,I don't see any reason for not doing it.,10
-fomc-corpus,1982,Do you want to propose it?,7
-fomc-corpus,1982,I so propose.,4
-fomc-corpus,1982,Second it.,3
-fomc-corpus,1982,"If we have no objection,--",6
-fomc-corpus,1982,I take it anyone who wanted to question it could put it on the agenda?,16
-fomc-corpus,1982,My understanding is that it would be approved every year anyway. It's just a question of what document we're putting it in.,24
-fomc-corpus,1982,It's also the question of whether it is looked at separately by the Committee or considered as part of this entire authorization for domestic operations.,26
-fomc-corpus,1982,"Henceforth it will be part of the authorization. And we look at it separately anyway. That is approved. The final item is a review of the agreement with Treasury to warehouse foreign currencies. I have had no comments on that reported to me. I hear no objections to the warehousing agreement. That will be approved. I guess I skipped over the foreign currency authorization, the foreign currency directive, and the procedural instructions. On the review of those, again, I have heard no comments. If there is no objection at this time, they will be approved. So, all this is unanimously approved. We can now be very, very approving of the minutes, I guess. Do I have a motion on the minutes?",144
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,"Without objection, the minutes are approved. With that out of the way, we will have a report on foreign currency operations. Mr. Cross.",29
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,Comments or questions?,4
-fomc-corpus,1982,What is the status of the Polish financing? Doesn't that come up at the end of this month again?,21
-fomc-corpus,1982,"I must confess I've been away for a few days, but I believe the Polish financing was to be signed as it affected the 1981 maturities. And I assume that it has been signed.",40
-fomc-corpus,1982,"No, next week.",5
-fomc-corpus,1982,"Oh, is it next week?",7
-fomc-corpus,1982,"They were supposed to have paid it off as of Friday but there's a newspaper report, which I think is correct, that there never has been complete agreement among the banks about exactly what has to be paid. The reports I have seen suggested that there was some scope for double-counting, which seems to have been reduced. Interestingly enough, most of the reports of leaders of the banking consortium on the other side of the Atlantic have suggested that it would be signed on April 6, which is next Tuesday. And then the question is: What happens next?",111
-fomc-corpus,1982,That concerns only the interest payments for 1981?,11
-fomc-corpus,1982,"That just completes the rescheduling of the private debt for 1981. The problem had been to bring the 1981 interest payments current. Now, of course, we are 3 months into 1982, so it might lead to some questions as to whether this is an artificial gain.",60
-fomc-corpus,1982,"As of about a week ago they still were not current as far as we could tell from the banks. They had paid off large amounts of it, but most of the banks indicated that they hadn't quite settled everything. The assumption seems to be that they will meet those payments and be ready for the April 6 payment to cover 1981.",69
-fomc-corpus,1982,"Sam, could you expand a little on your statement that other countries felt that when they sold the dollar it had little effect, but that if the United States engaged in the same operation, it would have a major effect on market psychology?",47
-fomc-corpus,1982,"Well, they seem to feel that if there is a coordinated effort, it will have considerably more effect in modifying the market psychology and in indicating that there will be a sustained effort to keep the rates from moving too strongly in the direction they're now moving. One certainly gets the impression that among the major European countries, Germany does not seem to be intervening very much at present and Switzerland has intervened relatively modestly. Japan, as I say, has done dollars of intervention; still, that's not massive. And they do indicate to us in their discussions a feeling that if there is to be any sustained and successful effort to affect these rates, it does require U.S. participation as well.",138
-fomc-corpus,1982,Thank you.,3
-fomc-corpus,1982,I'm not sure I follow your explanation as to why the yen is so weak. Would you--,19
-fomc-corpus,1982,"The yen is weak. I'm not sure I have an extremely compelling explanation. One factor has been that, while we're all expecting the Japanese to have a very large current account surplus this year, the recent figures have not been that rosy. They have not shown a very strong current account position in the past couple of months. Another factor, I think, is that people are concerned that the rest of the world is going to take steps to reduce access to Japanese goods. The EC has talked about bringing this matter up under GATT and they have brought it up under GATT. There is, of course, legislation in our Congress which would apply a bilateral reciprocity rule to it. Now, whether these are the factors that have resulted in this effect, I can't say. The yen has been very, very weak and I'm not sure those explanations would be completely convincing. But they are factors in it.",180
-fomc-corpus,1982,We have a lot of things to worry about and that's one that I worry about a bit.,19
-fomc-corpus,1982,"Could I raise one more question, Mr. Chairman? What's the status of Mexico, with the devaluation?",22
-fomc-corpus,1982,"Well, the devaluation by Mexico was certainly regarded initially as very useful--a successful move in that there were reflows of capital back into Mexico and a reversal of the dollarization that Mexico experienced. So, during the first few weeks there was a very rosy and successful view about it. But there has been a notable lack of a supporting program and increasing concern about the lack of such a program. At the present time there has been a decree to increase wages by really very, very large amounts--amounts which almost nobody thinks can be justified by the devaluation. Mexico had a very large increase in the minimum wage in January of 33 percent. Another 30 percent has been proposed; the employers haven't yet agreed to all of this. So, that adds up to a [cumulative] 73 percent wage increase in the first 2 or 3 months of the year. And everybody is beginning to wonder how long the peso can remain at the level it now is with these kinds of wage increases and the expectation that inflation will run at 50 percent or so this year at a time when U.S. inflation is 7-1/2 percent or so. So, it appears that the initial reaction, which was so favorable, is now giving way to second thoughts. The reflows are perhaps tailing off and there is some concern about what is going to happen in the months ahead.",282
-fomc-corpus,1982,What has the recent inflation rate been in Mexico?,10
-fomc-corpus,1982,"In Mexico? The numbers that I received were 5 percent for the month of January, 4 percent for the month of February, and an expectation of 8 percent for the month of March. That's [over] 17 percent in the first 3 months, so most of the people who are making estimates have estimates for the year of between 45 and 65 percent.",77
-fomc-corpus,1982,What was it last year?,6
-fomc-corpus,1982,The first 2 months of the year were before the devaluation.,14
-fomc-corpus,1982,Yes. The 8 percent reflected the devaluation. Last year it was about 30 percent.,20
-fomc-corpus,1982,"Any other questions or comments? If not, we'll go to the domestic open market operations.",18
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,"There is so much talk in the market about this April [M1] issue, why don't you tell us what you know about April, Mr. Axilrod?",34
-fomc-corpus,1982,"Well, I was going to include a bit of it in my statement, Mr. Chairman, but our underlying estimate for April is somewhere between 8 and 10 percent, as you can see from the Bluebook. In our seasonal adjustment methodology, we have followed strictures given to us by the various academic groups who looked at our seasonal methodology--the last one being a group headed by Jeffrey Moore and including such people as the former Presidents of the American Statistical Association, and the august Mr. Box of Box-Jenkins. And they say avoid judgment. They also asked that it be reproducible outside and that we take into account a technique called an Arima method, which projects the unadjusted data for the year ahead on the basis of the past performance of the data to eliminate the revisions in the seasonal factor by getting a better sense of '82. So, this year we adopted the X-11 Arima method.",186
-fomc-corpus,1982,Wait 'til that gets out! [Laughter],11
-fomc-corpus,1982,"If we had not adopted that method but had continued with our old X-11 without the Arima method, we would be allowing for about 7 percentage points more growth in April than we are now. If we had instead used the present method but unleashed our judgmental man, Mr. Fry, we would have allowed for 2 percentage points more growth. So, that presents a range perhaps of where we might be erring on predicting too low a growth. There are some odds, Mr. Chairman, that what we have done is correct, however.",112
-fomc-corpus,1982,They're infinitesimal!,5
-fomc-corpus,1982,"I would point out that in that case one would look more at what we have judged to be the intrinsic error in the seasonal adjustment process. And at the 95 percent level, that's plus or minus 6 percentage points in any month, at an annual rate.",53
-fomc-corpus,1982,"Mr. Axilrod can only talk in annual rates, I'm beginning to think.",17
-fomc-corpus,1982,"So, in assessing the forthcoming situation for the Committee, we have tilted toward thinking that the seasonal might be understating the actual seasonal increase because of the difficulties of '80 and '81, and thus we are projecting 8 to 10 percent growth rates. If you think that we have understated by 5 percentage points, that would mean we're projecting 3 to 5 percent growth in some real sense. Now, if we are understating, it's probably the case that May and June will be a lot lower. It looks as if May and June would be mostly the times when, whatever error in the seasonal in this period, the curves would be taken out. April is a particularly difficult time.",141
-fomc-corpus,1982,Why would it be May and June? Why wouldn't it be March and February?,16
-fomc-corpus,1982,"Just looking at the data judgmentally, it looked as if that's when it would be. April is a difficult month because we had the credit control program in 1980 and we had a very sharp decrease; and in 1981 we had a very sharp increase, part of which probably can be attributed to the preceding easing of monetary policy when interest rates went down some. The machines have a very difficult time with these extreme variations and we have done some [judgmental] intervention to smooth it in 1980, and these results reflect those interventions. Also, the machine throws out 1981, by the way.",126
-fomc-corpus,1982,Very good machine!,4
-fomc-corpus,1982,[Unintelligible] markets seem to be right.,12
-fomc-corpus,1982,"Well, I feel rather agnostic about it. I am not all that certain. If we follow the advice of a group of academic experts, at times we may be right. And we don't want to discount that [possibility].",47
-fomc-corpus,1982,It's interesting. Are they aware of the fact that we've made these adjustments to our procedure? It seems these adjustments to procedure would lead one to expect a larger rise in April because of what has happened [in the] seasonal.,45
-fomc-corpus,1982,"Well, we have indicated how we make our seasonal adjustments to this. We explained the X-11 Arima. But, of course, the market has the same suspicions most of you and many on the staff have: That this still isn't sufficient allowance for the April seasonal.",56
-fomc-corpus,1982,"Well, it makes us a little suspicious. If I remember what you told me correctly, April in every year since 1975 has been higher, seasonally adjusted.",34
-fomc-corpus,1982,That's correct.,3
-fomc-corpus,1982,"Except for 1980, which we threw out. And then 1981 gets thrown out by the machines.",23
-fomc-corpus,1982,"Well, we didn't throw 1980 out.",10
-fomc-corpus,1982,The last two years aren't in there. And it looks as if--,14
-fomc-corpus,1982,"We didn't throw out 1980, Mr. Chairman. And there is really a technical problem. We intervened through a model to smooth through and--",31
-fomc-corpus,1982,[Unintelligible] at the moment now.,11
-fomc-corpus,1982,"No, it lowered it. In effect, it put in a modest growth rate, which made the machine doubt the accelerated trend in '76 to '79.",32
-fomc-corpus,1982,We're worse off than if you hadn't. It just would have thrown it out if you had left it alone.,22
-fomc-corpus,1982,Is this specific seasonal for April in the public domain? Is that published?,15
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,So the people in the market know what that number is?,12
-fomc-corpus,1982,"Oh, yes; that's right.",7
-fomc-corpus,1982,"Are you not saying that, although we expect something in the 8 to 9 percent range, we should relax until it's 12 to 14 percent or something like that?",36
-fomc-corpus,1982,"Well, I would relax myself if it were between 8 and 10 percent. I think you're getting on to strong policy judgments beyond that. I would not really want to give any technical advice on that particular point.",44
-fomc-corpus,1982,What kind of figures would it take for the market to relax?,13
-fomc-corpus,1982,"Again, it's hard to psychoanalyze people. But I would assume that they would understand that 8 to 10 percent might be the peculiarities of April and the difficulties of seasonally adjusting in the face of tax payments, refunds, and all that.",52
-fomc-corpus,1982,"I don't know if it's so much a particular level. They might feel relaxed about 8 to 10 percent, but it's more whether they get some sense of how we're reacting to it that would make them feel easy or uneasy about it. I think even 8 to 10 percent could bother them if they felt it was causing us to keep reserve supplies more restricted.",74
-fomc-corpus,1982,"Peter, what do you think the range of their projections is now?",14
-fomc-corpus,1982,"I wouldn't be surprised if it were around this 8 to 10 percent range, but I haven't really heard enough to give a good accurate answer.",30
-fomc-corpus,1982,"With the expectation so widespread that April is going to be a month with a bulge, wouldn't there be some discounting taking place at this point?",30
-fomc-corpus,1982,"Yes, there is; it has been in the process of taking place these last couple of weeks or maybe even earlier. But it's partly this concern that there will be a big bulge that is leading some participants to have an expectation now of higher rates in the next few weeks.",56
-fomc-corpus,1982,"Do you think the market is as M1 oriented as it always has been or are there increasing doubts, at least among some people, about M1? Are there doubts in the marketplace, too, [unintelligible]?",46
-fomc-corpus,1982,"Well, I think they were impressed by the evidence of how the January situation was handled. They say that there was a bulge but that to some degree it was accommodated. They feel it was reacted to in the sense that rates did rise, but they feel, too, that it wasn't such a strong reaction--that we were [not] just determined that virtually at all cost we had to push money growth back to path. And some of the comments that the Chairman made at the congressional hearing, I think, supported that interpretation. I think they would expect a similar scenario if there were a bulge in April. They would be looking to see whether we would accommodate the bulge to some degree in the expectation of having it unwind pretty soon afterward.",151
-fomc-corpus,1982,"We have to look alert but relaxed. When we get these bulges [unintelligible], affects the market reaction as to how they--",29
-fomc-corpus,1982,"Steve, you mentioned this 8 to 10 percent figure. What is the dollar increase in the not seasonally adjusted M1 number in [unintelligible]?",34
-fomc-corpus,1982,"Well, I don't think I have that with me. I have the seasonally unadjusted weekly pattern on another paper but I don't have that with me.",32
-fomc-corpus,1982,"I think it's about 30 percent, isn't it, Steve?",13
-fomc-corpus,1982,"Yes, it's 40 percent.",7
-fomc-corpus,1982,"Oh, 40! I thought I saw 30 percent.",13
-fomc-corpus,1982,I don't have that; I can get it by tomorrow.,12
-fomc-corpus,1982,That's a very big number now.,7
-fomc-corpus,1982,"Oh, yes.",4
-fomc-corpus,1982,"Well, there's a huge social security thing coming up again.",12
-fomc-corpus,1982,"If you were using the old method, Steve, what would April have come out to--17 18, 20 percent, or something larger than that?",32
-fomc-corpus,1982,"No, if we keep the same unadjusted increases we now have and use the old X-11 method untampered by Arima, it would be something like 7 percentage points less than this 8 to 10 at an annual rate.",51
-fomc-corpus,1982,"If my understanding of that is right, it would be 1 or 2 percent?",18
-fomc-corpus,1982,"Well, that's a large number and we wouldn't have used it. But that's what it would be if we didn't change our unadjusted number. It allows for 7 percent at an annual rate more increase in money supply [for] the seasonal purposes alone. Instead of the money supply increase unadjusted being 40 percent at an annual rate in April it would have allowed for 47 percent. That's well above what it has been.",88
-fomc-corpus,1982,The old method put that out? I thought I had understood you to say the opposite at first.,20
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,I thought you said the X-11 Arima method assumes a larger seasonal bulge in April.,20
-fomc-corpus,1982,"No, smaller.",4
-fomc-corpus,1982,"That's the reason I asked if the market knew we were doing all this. [If] not, they might conclude there's going to be a large seasonally adjusted rise in April.",36
-fomc-corpus,1982,"I don't think the market knows it for that reason. I think they believe it just [on the basis of] a more simplistic assumption along the lines of: Well, it had gone up in 5 or 6 of the last 7 years, so there's likely to be a big rise this year too.",63
-fomc-corpus,1982,"At present for demand deposits plus OCDs in 1982 we're allowing for, in annual rates again, a 41.6 percent seasonal increase. In 1976 this was 35.9 percent; in 1977, it was 39.8; in 1978, it was 43.0; in 1979, it was 43.7; we forget about 1980; in 1981, it was 42.6; and in 1982, we have 41.6. Under these various methods we could add to that 41.6 this 7 percentage points. As I say, our judgmental fellow would have added 2 points to that to make it 43.6, or the same as in 1979, which is only 2 percent at an annual rate. If we took the extreme, it would be 7 percent.",186
-fomc-corpus,1982,And the one in the Bluebook forecast is which now?,12
-fomc-corpus,1982,"Well, it's what we've been using--the published figure.",12
-fomc-corpus,1982,"So, roughly what you're saying here, in the context of the first two weeks in January, is that we have a situation where on a not seasonally adjusted basis we have 4 weeks out of the 52 in the year that account for a multiple of what the money supply is supposed to grow in a year. Is that right?",68
-fomc-corpus,1982,"Yes. Well, January took care of a good part of that.",14
-fomc-corpus,1982,That's absolutely crazy.,4
-fomc-corpus,1982,Mr. Winn.,4
-fomc-corpus,1982,"Steve, does your Arima [seasonal] adjustment allow for the change in the tax structure this year--that because of the change in the tax laws we shouldn't have the borrowing that formerly accompanied the corporate tax bills and so forth?",47
-fomc-corpus,1982,I doubt it; it's really a time series analysis.,11
-fomc-corpus,1982,"That is going to be a big change, I think, in the way it affects--",18
-fomc-corpus,1982,It doesn't allow for crediting of interest on NOW accounts either.,13
-fomc-corpus,1982,"Yes, as I understand it, this Arima statistical adaptation method makes no effort whatsoever to consider an institutional change, like a fundamental change in the tax law, that impacts during this particular period we're talking about. They're just attempting to take the knowledge from past cycles and apply that based on--",58
-fomc-corpus,1982,"Well, if there were a very large fundamental change in the tax laws or tax structure that we could see would change things, despite all our academic experts, we would do something judgmentally [to adjust it]. But so far as we can tell from the refund estimates and the tax payment estimates, we're not confronted with that.",65
-fomc-corpus,1982,"In that connection, Peter, we now have five months worth of data on the deficit and so far it is running about $2 billion behind last year's deficit, is that right?",36
-fomc-corpus,1982,I think that's right.,5
-fomc-corpus,1982,"And yet all of the revisions to the forecast suggest that this fiscal year's deficits will be higher and higher while [actual results are] running behind. Obviously, with almost half the [fiscal] year gone, somebody is programming either a colossal explosion of spending or a colossal reduction of tax receipts or some combination of the two. What is your technique?",70
-fomc-corpus,1982,"Well, I'm sort of a victim of the experts who give us those views, too. But, in fact, the fiscal expert at our Bank just went through an analysis of this and, even though the deficit is running close to or slightly behind the previous year's deficit, he's still looking for a deficit of somewhat over $100 billion for this year.",70
-fomc-corpus,1982,Over $100 billion?,5
-fomc-corpus,1982,"For this fiscal year it's about $108 billion, I think. More of the tax reduction impact comes along late in the fiscal year--certainly in the after-July portion of it. And the defense build-up is a slow train to get moving, but once that spending gets on its way--",60
-fomc-corpus,1982,"If he says $108 billion and so far we're running $2 billion behind a $58 billion annual rate, that would mean a $50 billion swing in the deficit in the last 7 months of the year. It would add approximately $7 to $8 billion per month of extra deficit from now on to average that, is that right?",69
-fomc-corpus,1982,I'm not sure of that.,6
-fomc-corpus,1982,"Well, if you go from $58 billion to $108 billion, that's $50 billion and there are only 7 months left to create the extra deficit, right?",34
-fomc-corpus,1982,"Well, I did just get his estimates of the quarterly financing needs of the Treasury, which include not only the unified budget deficit but the off-budget estimates. That was going to be something like $13 billion in the April-June quarter and about $40 billion in the July-September quarter.",59
-fomc-corpus,1982,$40 billion? The end of [the year] is when it just blows--,17
-fomc-corpus,1982,"Well, it's partly seasonal, though.",8
-fomc-corpus,1982,"What about that June 30th reduction? That's worth about $35 billion, at an annual rate, which would be $9 billion a [quarter], or close to that. That would be a good deal of it right there.",47
-fomc-corpus,1982,"Thus far in the first two quarters of the fiscal year, we have $70 billion out of our projected deficit of $111 billion. That leaves a mere $41 billion to go and they're not going to have a seasonal surplus. They're going to have a very small deficit in the second and third quarters of the year. And then in the fourth quarter of the fiscal year, the third quarter of the calendar year, we get the tax decrease. It's not very difficult to get up over $100 billion.",101
-fomc-corpus,1982,The second quarter is virtually zero. It's a small negative in contrast to the usual surplus.,18
-fomc-corpus,1982,Surplus?,3
-fomc-corpus,1982,"And from a zero in the second quarter it goes to a $39 or $40 billion deficit in the final quarter of the fiscal year, which is when the tax cut comes along. So it's a huge swing going from the spring into the summer months. I would note also that there's a bit of confusion among many analysts on why the deficit early this year was not as large as anticipated. It is thought that part of it may be associated with the change in the tax law--namely the increase in the [penalty] interest rate, inducing people to pony up the money in January--because receipts in fact were running a good deal higher. So, apparently, it's in part associated with the change in the penalty rate for late [payments].",150
-fomc-corpus,1982,It's 20 percent.,5
-fomc-corpus,1982,Right.,2
-fomc-corpus,1982,"And part of the answer may lie in the trend of the deficit in the next two years. If you look at page I-8 in the Greenbook, [your projection of] the NIA account deficit started out at $74 billion, then $68 billion, then $46 billion, then $47 billion. It was on the way down. This time it's starting to go the other way. And that can make a big difference between where we are now relative to where we were a year ago and how the annual totals add up.",109
-fomc-corpus,1982,"I was just looking for something to be hopeful about, but you're making me feel depressed.",18
-fomc-corpus,1982,"I have had the same hope, but--",9
-fomc-corpus,1982,Mr. Winn.,4
-fomc-corpus,1982,"Could I raise a question? Thinking about Peter's recitation of the policy actions taken over the past months, and then looking back a bit over history, how do you answer the question: Has the policy caused or prevented short-run variability in monetary growth?",51
-fomc-corpus,1982,"Yes, this question came up, not just from the usual monetarists but from a variety of sources when we had a huge group of people at our Atlanta conference. A number of them, like Larry Klein, were very sympathetic to us. But it was remarkable how many--not just the standard old line monetarists--had questions about this. The way it came out from some of them was this: If you say there will be wider variations in interest rates, should you try to control the [monetary growth] path in some way to take some of the fluctuation out? Implicit in that statement is the hidden assumption that we're now successfully operating counter-cyclically in fine-tuning the economy, and they question whether that can be so. I guess the question is: Do you really feel that you're working against the swings in rates so that if we somehow had smoothed the [monetary growth] path it would have produced more violent fluctuations in interest rates than we've seen?",202
-fomc-corpus,1982,"That would be my expectation. If we tried to hold very rigidly to a path in weekly periods, let's say, we would get even more rate fluctuation. I find it very hard to answer President Winn's question about whether our actions contribute to greater or lesser variability in money growth. I think it probably depends some on the time periods chosen. My feeling about it is that looking at periods of a couple of quarters at a time, let's say, what we're doing works in the direction of achieving the desired growth rates. Now, there could be things in our response mechanism itself that lead to some fluctuations of one or two months in character, just because we see a bulge and respond to it and that depresses growth a month or two later. There could be that kind of cycling, but that might be a minor variation around the more underlying trend we're trying to achieve.",176
-fomc-corpus,1982,"We do have a number of people starting to work --they have been at it for about three weeks--on very detailed analyses of the variability we've had since October '79. They are trying to isolate what we can attribute to special credit controls and NOW accounts and are trying to relate the method of operations to any elasticities in response to interest rate changes, with the aim of seeing if the method involves greater fluctuations in both necessarily or if it's an accidental product. I hope we will have some results to report.",102
-fomc-corpus,1982,When do we expect to hit the debt limit now?,11
-fomc-corpus,1982,In June or July maybe.,6
-fomc-corpus,1982,June.,2
-fomc-corpus,1982,"June. The expectation a month or two ago had been that we might hit it in May. But they were doing a little better for a while, so I guess it has been pushed back to June.",41
-fomc-corpus,1982,"Any other questions? Well, we will expose you all to Mr. Kichline's forecast.",20
-fomc-corpus,1982,We have to ratify the actions.,8
-fomc-corpus,1982,"Yes, we have to ratify the actions.",10
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,Without objection. Mr. Kichline.,9
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,"Well, let's take a little time to discuss the forecast or raise any questions about it or put forward any dissenting or agreeing views.",27
-fomc-corpus,1982,"I noted that the data available for March--commodity prices, initial claims for unemployment compensation, and the stock market, all of which are leading indicators--showed an increased weakness in March. That at least raises a question in my mind about whether the second quarter could be negative.",56
-fomc-corpus,1982,"Oh, I think it's possible. You're quite correct that those indicators--and we have really nothing else--point to further weakness in the second quarter. The staff's forecast has about flat final sales, which is risky. All of the positive numbers we see result from a slower runoff of inventories, and forecasting inventories is currently messier than M1. So, I think there's a good deal of risk in the forecast and I would say it's primarily on the down side. The one encouraging thing is that when you add up the various sectors, we're clearly not getting the major declines in spending that we saw earlier. But at this point it seems to me it's very risky and we could have further to go before the economy, in fact, turns up.",150
-fomc-corpus,1982,Mr. Balles.,5
-fomc-corpus,1982,"Well, Mr. Chairman, my question was going to be much the same as Frank's. Maybe I'll still ask it. Jim, in view of the concluding statement in your presentation about the rather grim outlook for the federal deficit and what that implies for the level of interest rates, to what extent does your forecasting model--judgmentally adjusted or not--take into account how the high level of real interest rates, from which nobody can really see any near-term relief, might inhibit or even abort the recovery that we would otherwise expect to have? That's my number one worry these days.",117
-fomc-corpus,1982,"Well, the one formal approach to this is using the econometric model, and for 1983 that model provides high levels of nominal and implied real rates as well. Actually, for 1983 the model would provide a bit more real growth than we have in the forecast. I think one of the real issues is the whole time pattern of this and the maintenance of what by 1983 would be implied real rates of interest in the area of 10 percent or so, given our interest rate expectations. That situation is unlikely to persist; it will change at some point. The question is when. We don't have it changing in 1983, but I do think you're quite correct in asking: How does [economic growth] continue on this particular course? It seems that in a short-run sense what we have is a classic crowding-out situation with a good deal of stimulus provided by the federal government in terms of generating additional incomes in the private sector through the tax cuts as well as the federal purchases in the defense area. But we have very sick housing markets and durable goods markets, which are squeezed out in this process. So, it's a real structural problem. And, obviously, it's also true that forecasting interest rates is very difficult. And one can see the change there.",258
-fomc-corpus,1982,All right. Thank you.,6
-fomc-corpus,1982,Mr. Solomon.,4
-fomc-corpus,1982,"If I'm reading the numbers right, you are estimating a GNP implicit deflator for the first quarter of 5.0 percent; but for the second quarter it jumps up to 6.6 percent and then comes down again substantially in the third quarter and fourth quarter to about 5-1/2 percent. What explains such an abrupt shift in the deflator from the first to the second quarter?",82
-fomc-corpus,1982,"Well, it has to do with changing weights on these things and in part it reflects developments in energy prices. In part it's also the auto sector, where we had more auto sales in the first quarter when rebates were on and we have assumed, rightly or wrongly, that the rebates go off in the second quarter, so there's a bit of a price kick from that. It's mainly the changing weights and the break in world oil prices and gasoline prices and how that feeds in. I guess I'd try and cut through all of that and say that we now very clearly seem to be on a lower inflation path, too low in terms of the underlying rate. Nevertheless, a lot of things have come along in a very positive way recently, rather than these negative shocks that we had been getting before.",158
-fomc-corpus,1982,Governor Partee.,4
-fomc-corpus,1982,"Jim, as I understand it, essentially what you have in the forecast is a generalized shot of purchasing power coming from the tax cut being offset by continued very stringent conditions in financial markets and, therefore, in credit-using sectors of the economy, such as housing and plant and equipment and, to a lesser extent, consumer durable goods. I can't fault the arithmetic of that because it is a big shot that comes from the tax cut. But the effect of this is to extend, and maybe even further aggravate, the extreme frequency distribution of situations that industries find themselves in. [We have] what is generally a flat economy, with housing remaining very low, with automobile sales really still quite low, and with a considerable threat of a decline in capital spending and [that would have] an effect on those industries. It's awfully difficult to state this, but I'm wondering what the psychological impact could be of seeing these industries and these parts of the country continue to deteriorate or at least not improve, looking on through the year. Could it have a psychological effect or something like that on capital spending or consumption that would make this forecast not work out?",230
-fomc-corpus,1982,"Well, these things, as you well know, are very difficult to try to take into account. I think the inherent structural problems in the economy grow over time as we live in a world in which markets on average have been weak now since 1979. It's really a three-year sort of problem. And by the third year of high interest rates, many firms obviously have been weakened in that process. Should a surprise come along in the sense of the failure of a firm--especially a firm not on the list generally talked about but truly a surprise and a major firm--it could have severe consequences. And we have not allowed for that, obviously. There's also a question of what it means in terms of fiscal policy. I think that's rather important. There are lots of programs being talked about in terms of housing subsidies, which could alter this. But they also feed into the budget problem, and I would think the more severe the implied recession in various parts of the country, the more difficult it would be to follow through on spending cuts and tax increases. So, the fiscal side it seems to me is one that's at risk in terms of trying to get a larger deficit reduction program in place.",240
-fomc-corpus,1982,"I might just add to that, Chuck. As I talk to people, I get the feeling that the mood has spread from pessimistic to uncertain. And uncertain is kind of the best shape one could be in. People are very short-term oriented. If an order comes in, they're happy, but they're not at all sure they're going to see an order come along in two or three months. And it seems to me that in this kind of environment people are much more susceptible to bad news than they are to good news. There can be five pieces of good news and one piece of bad news and they tend to zero in on that bad news. And with the high real interest rates that we have and the pressures on the balance sheets, we almost inevitably are going to get some kind of a shock--some bad news--that is going to have a pretty bearish effect on the economy. I just sense that people are skating on very thin ice.",190
-fomc-corpus,1982,"Well, that's along the lines of what I'm thinking. We have had a tremendous increase in business bankruptcies and they could go tremendously higher in the period to come. There are people in towns in the Midwest who have run through almost every avenue of income maintenance available to them and they're about to be dropped off, with no income to speak of, in a situation where they still have to maintain somehow those communities and families. All that gets reported very, very actively in the media, so that it can have a psychological effect on the whole country even though it might be happening mainly in Michigan, Indiana, and Ohio, and a few places like that. And I am concerned about what the--",138
-fomc-corpus,1982,"If I were putting together a forecast, I'd probably be about where Jim is. Although I think there is a bottoming out, I haven't seen a lot of evidence that a recovery is occurring. But it's this thing that one can't measure--the sense of vulnerability to the economy because of the psychology--that really gives me more concern than anything.",69
-fomc-corpus,1982,Mr. Black.,4
-fomc-corpus,1982,"I think Chuck has raised an excellent point, Mr. Chairman, and this could change the whole situation around, but when I get at the bottom line I believe it's a question more than anything else of whether or not we can sustain and extend this recent progress that we've made on the inflation front. I think the staff is about right on the [cyclical] trough; I believe we're either there or very near it and that we have in place some key elements of good recovery in the form of the July tax cut and stepped up defense outlays. But we're going to have to have some kind of rebounding bond market and more generally an increased optimism on the part of businesses to spend on capital outlays before we're going to have any real kind of improvement. And it would deliver a lethal blow if inflation does pick up. It would be bad news for the bond markets and for the mortgage markets and in addition I think it would dilute some of the pickup that we would get from the impending tax cut. And if that's the case, then the recovery is not going to be as robust as the projection. But if we succeed in getting the kind of inflation that the staff is projecting, then I believe the recovery may be even more robust, particularly in the first part of 1983, than they are projecting. And I believe they're about right on the inflation figures.",275
-fomc-corpus,1982,Governor Wallich.,4
-fomc-corpus,1982,"I note that we have had a relatively rare event: namely, that the March projection seems to show an improvement both in progress on inflation and in growth. Now, that by itself is almost implausible. One would think that inflation is wound down by more slack in the economy. And here it looks as though inflation is coming down more than previously expected, while growth is a little better than previously expected; it may be the effect of oil prices, which is an exogenous element. I would certainly agree that there's a great deal of uncertainty about any estimate now. But other than that, it seems to me that there's a considerable degree of consensus about the most likely pattern: namely, a bottoming out in the second or third quarter and then a rise. There's some disagreement about the strength of the rise, but our projection now is coming closer to that of the Administration than it used to be. So, in terms of the most probable course of events, there is a high degree of consensus. The dispersion around that consensus is something else. There is a high degree of uncertainty, but that is part of the process of winding down the inflation. If everybody were completely sure of what he expected, there would not be a great deal of pressure on wages, prices, and financial behavior; and I think we have to accept this as part of the cost of the process and part of the cost of making progress [on inflation], which really has been quite remarkable to date.",296
-fomc-corpus,1982,Mr. Corrigan.,5
-fomc-corpus,1982,"Well, Mr. Chairman, I certainly agree with the comments that have been made suggesting that while the economy may be bottoming out, it's pretty hard to find any evidence that much more than that is happening. Indeed, even that could be transitory. Several points have been made about financial strains or credit quality, call it what you will. My own sense of that phenomenon is that the degree of uneasiness associated with that certainly has increased and perhaps sharply so, even in the framework of the last 6 or 8 weeks. For example, bankers in the Ninth Federal Reserve District, who aren't used to those kinds of things, all of a sudden are speaking very openly and candidly and with some real concern in terms of how they are now looking at the situation. At least in our area, the clear deterioration in the farm sector has something to do with that. It's always hard to make a judgment as to the underlying situation in the farm sector because farmers tend to make it sound bad even when it's good. But, certainly, both the anecdotal and the hard information that one can pull together would suggest that we are perhaps on the threshold of a very troubling situation in the agricultural sector. I'm not sure what can be done about it, perhaps nothing. The thought crossed my mind that perhaps we should dust off the seasonal borrowing program and talk about it a little as a way of maybe trying to provide a little help there. But it clearly is troublesome. On the inflation side, I think the evidence of a slowing or moderation is getting more and more pervasive. About the only place I can't see any hard evidence of it is in some of the white collar service areas, including banking and finance.",342
-fomc-corpus,1982,I thought for a moment you were going to say in the Federal Reserve Bank experience.,17
-fomc-corpus,1982,I left that to you.,6
-fomc-corpus,1982,What is that smile on Steve's face?,9
-fomc-corpus,1982,"The other thing that is taking on a slightly different tone is what I guess I would call a level of frustration that is associated with the interest rate situation itself. Many people look at the obvious inflation [improvement] and they look at interest rates and they see these enormous premiums. Regardless of what those premiums precisely reflect, in a sense there seems to be nothing that is going to get rid of that problem. I don't think it's something that people--at least in a major way--are blaming the Federal Reserve for. Indeed, one gets some feeling that people do recognize that at this point at least the Federal Reserve is locked in to some extent, and I think that's right. At least as I would look at it, when you question what could be done by the Federal Reserve to try to deal with that problem, the hard fact of the matter is that we have very little room to maneuver. I personally can't see how we're going to get much relief from that when we're looking at, in Mr. Kichline's case, $160 billion deficits. Nor can I see, without taking exception with your forecast, Jim, any real possibility for any kind of sustainable growth in the economy with this fiscal situation the way it is. I'd like to think that political and other forces would be brought to bear to do something there, but I don't see that happening either. So, I come out with the sense that we are indeed between a rock and a hard place at this point.",297
-fomc-corpus,1982,Mr. Keehn.,5
-fomc-corpus,1982,"Well, I ought to add to what Mr. Corrigan has just said and report that with regard to the Chicago District, the situation continues to be very, very serious. There is the common perception that the economy's decline may have ended, but I'd emphasize the words ""may have."" Every article one reads leads one toward this consensus view that the economy is near the bottom and heading back up. But in our area there is absolutely no tangible evidence that that has in fact occurred. Mr. Kichline has gone over the major sectors, but I must say that the automotive area is very weak, capital goods are just terrible, and in railroad equipment, for example, there have been absolutely no orders for railroad equipment in months. Virtually all of the plants are now closed and they are closed indefinitely. The heavy castings orders are down almost 70 percent in some areas. Conditions in the agricultural sector, just to add a bit to that, are looking much more serious. There has been something of an improvement on the livestock front but on the grain side it's going to be a very bleak year. Land values are continuing to decline. Although there are not very many sales, those that do occur are at very significantly lower prices and, as a result, there is a growing problem with regard to agricultural loans. Farm credit last year went up about $20 billion or 11-1/2 percent, and it has almost doubled in the last 5 years. Most of this increase has been taken by either the PCAs or other government agencies, who are now by far the largest lenders to the agricultural sector. And as these conditions in the area continue to deteriorate, we think the collection problems are going to mount. And that is going to raise some very interesting questions with regard to how the government is going to deal with this problem. There's likely to be very heavy pressure for a bail-out by the agencies for these different credits. So, as we look at it, there really are no tangible signs at all that we have reached the turning point, and the mood of the general population out our way could not be grimmer. It's getting much more serious. The morale and the attitudes are at a very low level and they are still going down; and there is a concern that any recovery that we might see in the country will leave the Midwest behind. There is a growing fear that although the historical evidence would lead one to believe we are approaching the turnaround point, this time it may be different in that we are in a fundamentally different period and it is going to be much more difficult to get out of this particular recession.",529
-fomc-corpus,1982,"How much do you see those attitudes reflected in wage bargaining, let's say--whether it's union bargaining or otherwise?",22
-fomc-corpus,1982,"I think pretty considerably. There has been a significant change in attitude on the part of organized labor, not only regarding terms and conditions, but in their whole approach to the situation. I'm told, for example, with regard to the automotive industry, that Ford and GM renegotiations have been important financially, but much more importantly the attitude of the UAW is different now. They are much more realistic currently than they were; even 4 or 5 months ago they took a very hard attitude on plant closings. Now they come in and say: Gee, isn't there a way that we can work something out so that you don't have to close that plant?",133
-fomc-corpus,1982,"Do you hear any gossip about the Harvester negotiation? That's in process now, isn't it?",19
-fomc-corpus,1982,"I hear a lot of gossip. Harvester, frankly can't [mirror] the GM and Ford settlements. They've got to get more [concessions].",31
-fomc-corpus,1982,"Quite a lot more, I would think.",9
-fomc-corpus,1982,"They have to get a lot more. Whether they can or not I don't know, because the attitude between management and the UAW, as you know, is very poor there. I don't know of any tangible information about those discussions.",47
-fomc-corpus,1982,"Talking about wage increases, I met last week with representatives of about 20 leading universities in the country and I was struck by the fact that every single one of them is going to be paying salary increases this year of 10 to 12 percent. And when I asked them why, they said it was catch-up--that the university faculties and staff had suffered over the last few years.",78
-fomc-corpus,1982,They finally can get by with great big increases.,10
-fomc-corpus,1982,"Yes, they're going to have volume declines in size, I would think.",15
-fomc-corpus,1982,Their portfolios are doing so well in many cases--at least those who didn't make the wrong decisions--and I guess they're able to play a bit of catch-up.,33
-fomc-corpus,1982,"Well, most schools are now in the process of approving their tuition for next year and a lot are going to be up 10, 12, 14 percent. I think most schools also recognize that this is the last shot at this particular process and that because of the change in the demographics and changing inflation, they won't get away with it again.",71
-fomc-corpus,1982,There's an element of perversity. Some schools want to raise their tuition by a whole bunch just because they think it makes them an attractive school. It's perverse but true. That is literally true.,40
-fomc-corpus,1982,"We have to quit in a minute, but in your survey of land prices in Chicago, you survey prices of actual transactions, don't you?",28
-fomc-corpus,1982,"Yes. But what I'm commenting on is frankly pretty anecdotal. At our board meetings, two or three of the people who are directly involved suggest that there aren't very many sales but when there are, the prices are down very, very, substantially.",50
-fomc-corpus,1982,"Well, I guess I was wondering how it showed up in your statistics.",15
-fomc-corpus,1982,We don't know what price people are referring to in terms of the base from which it has come down--whether it's a recent price or if it happens to be an individual transaction at a very high level. But I don't think there's any question that when the transactions do occur they are at lower levels; a figure of 10 to 25 percent is one that is commonly tossed out.,77
-fomc-corpus,1982,I hear those stories. I just wondered why it didn't show up in your figures.,17
-fomc-corpus,1982,"Well, I think it may be going on now and it's too soon for it to be showing up.",21
-fomc-corpus,1982,Do you have an increase of the number of foreclosures on farm land?,15
-fomc-corpus,1982,"Yes. There are increases in delinquencies, foreclosures, and bankruptcies. But, honestly, the increases are from a very low base. So, it's not yet a broad, pervasive problem. But the actual numbers are beginning to increase.",50
-fomc-corpus,1982,"Just one other comment in that respect: While there are foreclosures and there are work-out situations, there are very few sales. There are offers of land sales in our area but very few sales actually have taken place. That means that the lending institution is taking over the land or their alternative is working with the borrower one more year. So, it's very difficult for us to get a handle on how much land prices have actually dropped because there are no sales to verify it.",95
-fomc-corpus,1982,"There are a lot of auctions, but then [the property] is pulled back when the price comes in at a lower level than is acceptable. Therefore, the banks are beginning to back into the agricultural business.",42
-fomc-corpus,1982,The banks have the bottom bid in the auction--the take-out.,14
-fomc-corpus,1982,"The fact is that if the land price goes down 10 or 20 percent, that means it's going back all the way to where prices were 3 years ago, I guess. That's the problem you have here?",44
-fomc-corpus,1982,"That's an important consideration. But having said that, the banks--rightly or wrongly--lent money at 80 percent of a higher level and, therefore, they have a problem.",37
-fomc-corpus,1982,"Well. Mr. Winn. Mr. Roos, and Mr. Ford, are you going to be relatively brief?",24
-fomc-corpus,1982,I'll be glad to wait until tomorrow if you want.,11
-fomc-corpus,1982,"Well, if you are relatively brief, we can just dispose of this tonight; otherwise we'll wait until the morning. Are you going to be relatively brief, Mr. Winn?",35
-fomc-corpus,1982,"I'll be brief. One, I think there's too much doom and gloom here.",16
-fomc-corpus,1982,We may quit after that!,6
-fomc-corpus,1982,"If you look at the cyclical figures, they don't look as bad to me as the early '70s cycle. While unemployment is high, it started from a much higher level, so the decline [in employment] is really not that great. And if you look at the possibility for inventory adjustment and an inventory cycle and then factor in the tax cut at midyear, it seems to me that we have some very positive forces there. The second comment I'd make is that [I wonder if] we really have adjusted our thinking for the changes taking place in fiscal policy. I must confess that [a deficit of] $160 billion blows my mind as does the [potential for] crowding out. But I think we have to recognize that it's a quite different kind of deficit in the sense that previously we had the tax rebate or whatever that was called and then [the financial system] had to turn around and lend to corporations to supply the goods to take care of the [unintelligible], so there really was a double whammy in the finance market. Today we have the problem that--what was the tax savings for IBM, $100 million? And while that shows up in the deficit, IBM is out of the market by that amount. If you look at the savings certificates and IRAs and other accounts, again there is a different impact on the market from this deficit in terms of financial demands than we had previously. It's not in the sense of $160 billion to zero by any manner of means, but I wonder if we don't overplay the size of the problem just a bit. I'm not saying that I'm happy with the $160 billion deficit, but in terms of its impact on markets we may not get the crowding out because we may get a change in demand. And the deficit is really financing a lot of the savings and corporate needs that otherwise would show up in the open market.",385
-fomc-corpus,1982,I pass.,3
-fomc-corpus,1982,"I think it's perhaps appropriate that Willis Winn close this evening's affair. He's more reassuring about the economy, even more reassuring about the deficit, and then he plans to go off and leave us!",39
-fomc-corpus,1982,"He has changed now that he's retiring. When he was in Philadelphia, he was the most pessimistic director we had in a quarter of a century!",30
-fomc-corpus,1982,"Well, we will be saying goodbye to Willis tomorrow. I'd like to have an executive meeting at 9:15 a.m. tomorrow, if that's okay.",32
-fomc-corpus,1982,"If I recall correctly, and I'm sure I do, we were discussing the business picture. Mr. Kichline had given us what by some lights is a fairly optimistic picture suggesting that the risk may be on the down side, and a number of people had commented on that. And Mr. Ford and Mr. Roos were about to say something. I gather for purposes of secretarial summaries that there wasn't a lot of disagreement with the staff outlook but a lot of worry. That's the way I would summarize what I learned yesterday, anyway.",109
-fomc-corpus,1982,"Well, in terms of our view of the staff outlook, we always compare the staff's forecast to a variety of external forecasts, including DRI, Townsend Greenspan, Chase Econometrics, Citibank, and so forth. I am impressed by the fact that the staff forecast for the next 2 or 3 quarters is by far the most pessimistic of any of the forecasting services. That doesn't necessarily say our staff is wrong, since the record of the forecasting services isn't that great either in terms of the ability to project where the economy is going or what inflation is going to do. But looking at our District, given work we've done with local groups, we do share some of the pessimism that has been voiced, particularly with regard to the agricultural sector. We're having a large problem in our agricultural areas as well as in our forest-related industries; and in the carpet area, we're having a near economic disaster since we produce a third of the world's carpets and they are laying off people by the thousands in that [industry] in northern Georgia. So, we now have four of our six states with more unemployment than the national average, even though we're supposed to be the Sun Belt.",239
-fomc-corpus,1982,You produce a third of the world's carpets?,9
-fomc-corpus,1982,"Yes, that's what they say, in northern Georgia.",11
-fomc-corpus,1982,Does that mean there's a big export business?,9
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"And it's very depressed, just as a reflection of the trends in housing. And then we have the heavy industry over in Alabama and in Tennessee, which we're discovering is more industrialized than the rest of America. I always thought of it as a rural state until I started traveling around it. We have numerous counties throughout the States of Tennessee, Alabama, and Mississippi that have unemployment rates of around 20 percent, which you don't read about in the newspapers. So, there is a lot of pessimism in rural areas and in those specific industries, and certain aspects of agriculture and the housing-related industries are in deep trouble. On the other hand, our service industries and our high-tech industries are doing very well in Florida in an emerging Technology Belt that we have down there. Overall, my view is that there's not a feeling of depression in our area as some of you seem to be reporting. We tend still to have some guarded [optimism]. Or rather, I like the way Ed Boehne put it. In a range from uncertainty to pessimism, our business people are more on the uncertainty end of it. And except in the industries that really are getting clobbered, including the thrifts, the home builders, the forest industry, and farming, people are still reasonably persuaded that the economy will turn around and pick up in the next few months as this staff forecast has it. People aren't lining up to jump off buildings or bridges in our District. That would be my summary of it.",301
-fomc-corpus,1982,"We had two very interesting experiences last week. On Wednesday, we had the chief executive officers of about fifteen of our largest St. Louis-based firms in for lunch. These are large companies which in many instances are multinational in scope. The following day we had eight of the chief labor leaders in our area in for lunch. There was an interesting similarity in their attitudes. There's no question that the industries and, of course labor in terms of unemployment, are feeling very severe recessionary pressures. On the other hand--and I was especially interested in this reaction coming from the labor side--these people recognize that this was part of the process of bringing down inflation. They felt that whoever made the monetary policy and fiscal policy decisions of a year or two ago must have known that this downtrend would occur. They see it as a temporary phenomenon. As Bill said, they anticipate a recovery. And even from the labor group there was a strong recognition, and hope really, that we will continue to look to solving the long-term fundamental problems rather than reacting to the pain of the moment. Even though these people were very outspoken in their expression of momentary pain, they were optimistic for the future. And they were very strong in their support of monetary policy as in their view being much more assured of hanging in there, if you will, than fiscal [policy]. Well, I didn't come away from those two experiences nearly as depressed as some of the others of you were yesterday.",293
-fomc-corpus,1982,What kind of wage settlements did you feel the labor union leaders were looking toward?,16
-fomc-corpus,1982,"I think reasonable, in terms of less-than-might-be-expected settlements. They realize that they have to be flexible under these circumstances and I think this will bode well for the effort to continue to hold down inflation. These guys at least were not bitter in their reactions, and they said that even though their rank and file membership are experiencing things that they haven't experienced for some years, they're not reacting as they might have in the '30s. They're not just saying the world is going to the dogs. I felt more of an upbeat reaction in terms of the long pull than some of the others of you who expressed yourselves yesterday. And in my own short experience on this Committee, I think we've tended to get carried away emotionally on the down side when things are gloomy. Si mentioned yesterday, when you questioned him, what is happening to farm prices in Illinois. I remember just a few years ago we were all extremely appalled at the inflationary upward movement in farm prices. So, I think it's important that we not get carried away and over-react to what hopefully will be a temporary situation.",220
-fomc-corpus,1982,Governor Rice.,3
-fomc-corpus,1982,"Mr. Chairman, you expressed my feelings almost exactly when you said there was general support of and agreement with the staff forecast and some worry, all the same. I'd like first to elaborate on something that President Ford said about the staff forecast in relation to outside forecasts. What he said is correct with respect to the outside forecasts we look at here, but only some distance out. The Board forecast for the second and third quarters is by and large more optimistic than the outside forecasts.",95
-fomc-corpus,1982,"Yes, it's in the fourth quarter.",8
-fomc-corpus,1982,"From the point of real growth in the third quarter, it is the most optimistic, as compared with Data Resources, Wharton, and Chase. In the third quarter only Merrill Lynch is more optimistic than the Board's forecast.",45
-fomc-corpus,1982,"Yes, I'd agree with that. It's farther out, in the fourth quarter, that they have the lowest GNP, fairly high unemployment, and low inflation. For the year they are a little more pessimistic.",43
-fomc-corpus,1982,"That's right. I'm encouraged, of course, by that aspect of our staff's forecast, which projects the recovery to begin in the second quarter with GNP increasing at a 2 percent annual rate in real terms. But I'm worried and concerned that this recovery depends pretty much on what happens to inventories. Without the anticipated reduced rate of inventory liquidation, the recovery I take it will be delayed until the third quarter. In the meantime, there's a good deal of stress and distress out there in the economy with many sectors in the economy feeling a good deal of financial pressure; pessimism was widely reported yesterday. As President Winn says, there really may be too much doom and gloom out there, but it is nevertheless there. Financial conditions have deteriorated markedly for nonfinancial corporations. As you know, the interest coverage ratios for these firms have fallen to record low levels, downgradings of debt ratings have been occurring in large numbers, the business failure rate is running at a record postwar pace, mortgage delinquencies are up, and the housing sales situation didn't look as good in February as we thought it did up until yesterday. We heard yesterday about the farming sector and the problems it was having. In these circumstances, it seems to me that it is important that the recovery not be delayed until the third quarter. While there is every reason for hoping that it will occur as projected in the staff forecast, I think everything should be done to try to encourage an early recovery. Thank you.",297
-fomc-corpus,1982,Governor Gramley.,4
-fomc-corpus,1982,"Well, Mr. Chairman, I have to add my name to the list of the worriers today. I don't know that I would develop a forecast, if I had to make one, that looked any different in significant ways than the staff's. But it seems to me that as the information comes in, increasingly it's calling into question whether or not we're at the end of recession and about to see a rather significant recovery. Obviously, the staff's forecast is not a recovery of the dimensions that we've seen typically in the postwar period after a recession; but it indicates pretty good growth in the last three quarters of the year, a 3-3/4 percent annual rate. And as Frank Morris mentioned yesterday, the price figures have been quite weak. Maybe we're looking at something different now but historically, at least, prices of industrial raw materials turn up before the rest of the economy. Initial claims are still very high. Yesterday we learned that consumer confidence in March, on the basis of the Conference Board survey, was down again. The machine tool orders figures continue to be very weak. There's just no sign of abatement at all in that area, but it's a very small part of the total economy. I would say that there's at least a 60-40 chance that we won't see growth of more than, say, one percent in the last three quarters of the year; that we'll get a bump because of a turnaround in inventory investment from deep negative to small negative or zero or small positive; that final sales will continue to erode, at least in areas like business fixed investment and maybe housing; and that we will see very, very little upturn at all. I think we have seen a very, very substantial weakening of attitudes around the country. I just sense a different kind of attitude than I can ever recall during my period as a professional economist. Part of the reason is the concern about the budget but I think to a larger extent it is a consequence of the fact that continued monetary restraint over a very prolonged period has put the economy into a very, very weakened state. I don't think we should look at what we're seeing now as an unexpected development. We've had as much growth in nominal GNP as we had any reason to expect, given what we had provided by way of increases in the stock of money--indeed, more so because we've had downward shifts in money demand. I think we're making more progress on inflation than we had any right to expect. We're making more progress than the traditional Phillips curve type of analysis would have led us to expect. So, we're looking at a situation now which is essentially of our own making, though not entirely. And now the question is what we do about it. I think we have a very narrow line to walk. I don't think we can afford to give up the progress we've made or to endanger it. But if there is a danger now, it is that we have more restraint than we want rather than less restraint than we want. I'm very much worried about what is going to happen in these next few months.",620
-fomc-corpus,1982,When do the leading indicators come out?,8
-fomc-corpus,1982,"Today, this afternoon.",5
-fomc-corpus,1982,They'll be a little on the down side. Mr. Solomon.,14
-fomc-corpus,1982,"I'd like to ask Steve and Jim a question. How do you reconcile this relatively reasonable increase in real growth in the next three quarters compared with the previous projections with the argument that the financial markets are going to be under pressure, given such a large public sector borrowing requirement? How do you reconcile that with your interest rate projections for the rest of the year in Appendix 2 in which you show the fed funds rate declining?",84
-fomc-corpus,1982,"Well, some of that will be implicit in my comments. In a sense, it assumes that the buildup in liquidity in the first quarter and late last year, reflected in first-quarter average growth in M1 of around 10 percent and also a large increase in M2, is divested; it is used willingly by the public to finance an expansion in spending. If it is not and if the public really wants to hold that liquidity--it wasn't just a temporary reaction to uncertainty which is going to be unwound--then our interest rate forecast of a very slight decline might even seem a bit optimistic, which would make the GNP forecast a bit optimistic. That's how I would respond to it. Maybe Jim--",143
-fomc-corpus,1982,"No, I wouldn't [disagree].",8
-fomc-corpus,1982,"But, Steve, doesn't that prove that the congestion that we're anticipating is not in this calendar year but next year?",23
-fomc-corpus,1982,"Well, as I mentioned to the Board yesterday, I refused to put the 1983 interest rate forecast in the Bluebook this time because that's such a long way off. Attitudes might change and we could have a wholly different outlook. But our basic interest rate forecast is for high interest rates in '83 of about this dimension. And with the deficit being even larger, one might want to question again the possibility of that being associated with the type of real GNP growth we have. But the quarterly model, which is of course often wrong, would suggest growth at these interest rates also. This is somewhat different from President Solomon's question of how can we reconcile this and not have interest rates higher. But even at this higher level, the quarterly model would suggest that real growth will indeed appear to be something like what we have projected.",168
-fomc-corpus,1982,"Well, what are you assuming about the budgetary deficit?",12
-fomc-corpus,1982,"Well, Jim may--",5
-fomc-corpus,1982,For 1983?,5
-fomc-corpus,1982,"I assume all these, yes.",7
-fomc-corpus,1982,"Well, it's an environment in which we have tremendous government borrowing, and the amount of funds raised in the first half of this year is fairly low. That picks up in the second half and, given this forecast, would be substantially higher in '83. Much of that is government-related. The private sector borrowing, in terms of the consumer sector and mortgage borrowing, is very low; it continues to be constrained. Durable goods expenditures are not doing very well either and that's a reflection of the high interest rate environment. So, we get all of this financing but in a fairly tense situation. Steve didn't put the interest rates in the Bluebook but we actually have a sheet with the numbers written down that I look at on occasion, and we have short-term rates drifting up in 1983. So they do rise in this forecast.",167
-fomc-corpus,1982,"Not in Appendix 2, though.",8
-fomc-corpus,1982,"No, in 1983.",7
-fomc-corpus,1982,The Bluebook only shows it through the fourth quarter of 1982.,15
-fomc-corpus,1982,"Right. But this forecast we think would be consistent with some further rise--an upward drift in short-term rates--throughout the year 1983. In long rates, who knows what would happen? We do think that persistence of lower rates of inflation such as in this forecast over an extended period of time ought to bring long rates down somewhat. So, we have a small downward tilt in long rates, but higher short rates. I wouldn't want to be questioned on a specific number for rates, but it seems to me that this is a mix that produces very high nominal short-term rates of interest. And we would have that in there, with rates rising from the levels in the Bluebook.",140
-fomc-corpus,1982,"The bottom line, then, is that you believe, even with real GNP rising close to 5 percent in the second half of the year on average and with this very large budgetary deficit, that we still can have a slightly declining fed funds rate for the second half of this year.",59
-fomc-corpus,1982,"But that assumes, with this strength in demand, that the amount of money created in November, December, January, and to a degree in February, which was just a minor drop, is used by the public--just to use a word that comes easily to mind--willingly. That is, they don't want to borrow additionally to hold that money; they don't have to be cadged out of it by even higher interest rates. That money is used by the public willingly to finance spending. And if it isn't, then I don't think this forecast is consistent with declining interest rates. I don't think this forecast is consistent with your monetary targets.",130
-fomc-corpus,1982,"If it isn't, we probably have the targets too low.",12
-fomc-corpus,1982,Exactly. That's going to be the burden of this implicitly.,12
-fomc-corpus,1982,Mr. Morris.,4
-fomc-corpus,1982,"Well, Mr. Chairman, my thoughts are very much along the lines of Lyle's. I'm more pessimistic short-term than the staff is, certainly. I think the second quarter is going to be negative. I have not seen any basis yet for expecting an upturn. Certainly, the numbers we have in March so far don't support the proposition that the second quarter is going to show an upturn. And it seems to me that we're going to have financial conditions that are going to mean a sluggish recovery--perhaps more sluggish than even the staff has estimated. But there is one cushioning factor in the economy that no one has talked about thus far, and that is the tremendous upsurge in defense procurement, which is really beginning to develop a momentum. That will impact the economy very unevenly. Fortunately, in New England we get about three times our proportionate share of defense contracts, so it is cushioning most of our major corporations--like Raytheon and United Technologies and so on--that are in both the defense industry and domestic industry. I asked them how they're doing and they said that their domestic business is lousy; their export business, which tends to be quite large, has been hit hard by the rise in the dollar. But the defense business is booming and their only problem in defense is getting the production out. So, that will cushion New England, California, Texas, the leading [defense contractors are in those areas]. It's not going to do much for Si's Middle West, though.",304
-fomc-corpus,1982,Governor Partee.,4
-fomc-corpus,1982,"Returning to this question of credit flows, which goes a little with your question, Tony: I was interested in that, too, because here we have rising interest rates and we're talking about crowding out. So, I wondered what the figures would show on credit raised by the economy. I find that in the last three quarters--that is, since [the start of] the period of downturn--the total funds raised in the third quarter, fourth quarter, and the first quarter this year as estimated amount to only 11.8 percent of the GNP. To give you an idea, that's almost exactly the same as in the 1974-75 recession in relation to the GNP. And that compares with 16 percent in 1979, 18-1/2 percent in 1978, and 17-1/2 percent in 1977. So, it's a very much smaller flow of funds to credit users than is typical. It's typical of a deep recession and continues to be typical of a deep recession in the first quarter even though interest rates turned up. And by the way, those figures include the government. If it weren't for the government, indeed, the figures would be close to recent historical lows of only 7 percent of GNP being now represented by credit to private sectors. If you look ahead, the interesting thing is that the staff's flow of funds forecast--they have a flow of funds forecast that's consistent with their Greenbook forecast--doesn't show any improvement at all in private credit flows compared with the GNP. What happens is that the government credit flows go up because of the deficit, but the private credit flows stay around the very low 7 percent area in relation to GNP. That says to me, really, that what is being forecast is whatever interest rate is necessary to keep private credit from getting going again. And that's the crowding out hypothesis, I think. But we should not say that there's a tremendous flow of credit in these markets. As a matter of fact the flow of credit is unusually small and it will remain unusually small relative to recent years even with these large government deficits.",434
-fomc-corpus,1982,Interesting.,2
-fomc-corpus,1982,If that concludes the comments people want to make--. Mr. Boykin.,16
-fomc-corpus,1982,"Given the conditions in the Eleventh District, I guess it'd be fair to say that the level of concern is considerably greater. In a way, one has to take this in perspective given where we were and where it looks as if we might be going. The pessimism seems to be centered primarily in the energy business where the decrease in oil prices has produced quite a bit of concern. Drilling activity has slowed. I mean by that a slowdown in the rate of increase as opposed to an absolute slowdown. Part of it--",105
-fomc-corpus,1982,I thought it actually had turned down.,8
-fomc-corpus,1982,"Not from the information we have. Part of this is attributable to what those in the industry call seasonal factors. They look for a little pickup in a couple of months, but not anything like we have had. The closing of refineries is causing quite a bit of concern. As one person in the industry said, most of those are the ""tea kettle"" type of operations that probably should have been closed anyway. But even some of the major refineries are cutting back on their production. There is growing concern in the commercial real estate development area. It now appears that some projects that were announced are going to be deferred. The petrochemical industry seems to be under some pressure. The media, of course, are picking this up in our area with headlines saying that the recession has come to the Sun Belt. Layoffs that are occurring, while not significant, are receiving quite a bit of publicity and obviously are affecting opinions and attitudes. In the electronics and the semi-conductor business there have been some layoffs. Of course, we have the Braniff problem that stays in the headlines down our way. And I might also mention that with the decrease in the price of oil, the bank stocks, particularly those of our larger bank holding companies, have incurred about a one-third decrease in their price over the last six weeks, which concerns them. They think the concern of the analysts who are looking at the [exposure in] energy loans is unjustified. On the other side, though, we've had just a little improvement in the housing area, but nothing really significant, and a little improvement in autos. I was talking on Thursday to the individual who oversees and he said the economy turned ten days ago and that the recession--",345
-fomc-corpus,1982,What time?,3
-fomc-corpus,1982,"What day of the week was that, Bob?",10
-fomc-corpus,1982,"The recession ended ten days ago. He said that up until then the markets were very poor. But the markets have improved substantially and there's a lot of buying activity and lot of orders being written in the markets now. Again, I don't know whether people down our way are over-reacting in one sense because we are now finally seeing some of the effects of the slowdown. And we are more or less seeing that for the first time, which might cause a bit of an over-reaction. I think the fundamentals down our way really don't look that bad. Agriculture has already been mentioned, and we have basically the same situation in agriculture.",127
-fomc-corpus,1982,Are you getting a lot of in-migration?,10
-fomc-corpus,1982,"Yes, we've had a lot. We're also now beginning to get stories--the press are making a lot of it, or at least are writing about it a lot--about people who have come down to the land of milk and honey and are unable to find jobs and they are living in campers, are out of money, and don't have enough money to go back home. That's pretty isolated. But yes, we've had a lot of in-migration.",91
-fomc-corpus,1982,Mr. Balles.,5
-fomc-corpus,1982,"Basically, in the Twelfth District, without going into a lot of detail and more doom and gloom, we figure the economy slipped further into a recession this month. It's not just the forest products industry. Unfortunately, it's almost all the other major industries we have, including aerospace, where commercial orders are down more than defense orders are up, electronics, nonferrous metals, etc. But, really, what I'd like to do is to come back to a question I raised with the staff yesterday and ask it once more, hoping that they are wiser than I am. I raise this in view of the fact that I have a couple of speeches scheduled this week up in the Pacific Northwest for audiences likely not to be terribly friendly given that the unemployment rates are as high as 25 percent in some counties in Washington and Oregon mostly, but not entirely, because of the forest products industry. The $64 dollar question, of course, is: What in the heck is keeping those interest rates up in spite of the fact that we've had great success in bringing the inflation rate down? For a couple of years now I have been more or less promising these same people that if we got the inflation rate down--bit the bullet and persisted in tight money policy--the interest rates would come down sooner or later. Well, they certainly haven't come down as yet. So, while I have my own explanation, I don't consider it terribly convincing even to myself. I'd like to hear how the staff would answer that question. What is keeping those real interest rates up there despite the fact that we've had very marked success, with more success on the horizon, in getting the inflation rate down? If you can help me, I'd be grateful.",344
-fomc-corpus,1982,"Well, on short-term interest rates, I think it is simply that the Committee's targets are low relative to the demand for money in the current situation. I think short-term interest rates, except for minor variations, are pretty much determined by the demand and supply for money in the very short run. On the longer-term rates, I would say that probably the world isn't yet convinced that the rate of inflation isn't going to get worse when we get out of this rather deep recession. It may not be as bad as it has been, but it may become worse certainly than it is now. Secondly, the policy of attempting to control the money supply month-by-month, which can't be done, has led to fluctuations in short-term rates because of the way the money supply behaves. [It is] out of sync with fluctuations in the business cycle and people are not convinced when rates go down that they're not going to go back up. And, therefore, there is not a great incentive, once short rates go down, to move immediately into the long-term market and capture a higher yield because one could stay short--and who knows?--the short-term rate may be back up later and one doesn't have to worry immediately about getting into long-term securities. So, I think that's another factor, which is sometimes called the liquidity premium, or risk premium. Those are my essential explanations. The thought that the rate of inflation will continue to decelerate over the long run is not firmly in the minds of investors. And they believe there's no real penalty for staying short because they're not convinced that when short rates come down they won't go back up, as has been happening cyclically, because we've been trying to control the money supply independently, in a sense, of the business cycle. And I believe the short-term rates are determined by money demand and supply under the current conditions.",374
-fomc-corpus,1982,Explain that to those lumberjacks!,8
-fomc-corpus,1982,It's like a hit over the head with a 2x4 or something!,16
-fomc-corpus,1982,I think he said that you were responsible!,9
-fomc-corpus,1982,What I interpret Steve as saying in a very polite way is that monetary policy is too tight for the degree of liquidity that the public demands at the present time.,32
-fomc-corpus,1982,And that budget policy is too loose.,8
-fomc-corpus,1982,"But it's highly possible that if we ease the monetary targets, we would bring down short rates but there would be a perverse reaction in the long end of the market.",34
-fomc-corpus,1982,"Yes, I should have mentioned that the way I think the budget outlook enters into this is that it keeps the public convinced that inflation is not going to get better. That's how I think the budget enters into people's thinking. It's not just merely that there will be more securities to absorb, although that's a factor in the government securities market as such, but that the odds are that when we get on the up side of the cycle inflation will get worse. So, it is a strong factor.",98
-fomc-corpus,1982,"Well, I'm sure you realize that this is one part of the country where they're just really screaming, pleading, and begging for relief on the interest rates before they have all gone down the tubes, with 40 percent of Oregon's lumber mills being closed and probably closed permanently. It's the kind of thing that led AuCoin, the Democratic congressman from Oregon on the banking committee, who is not always hostile and is sometimes friendly towards the Fed, to get behind one of the resolutions to force the Fed to do something. He is getting tremendous pressure from his constituents, and it's that kind of thing, Paul, that may lie behind--",127
-fomc-corpus,1982,"It undoubtedly is. VICE CHAIRMAN SOLOMON. I'd like to ask Henry Wallich this question, too, as well as Steve and anyone else who wants to answer: If a perfectly indexed Treasury bond were put out today, what level of real interest would it have to bear in a competitive auction in the market?",65
-fomc-corpus,1982,"I would say it would be a good deal higher than I would have said a year or two ago. I would have said a year or two ago, 1 or 2 percent. Conceivably on a small issue it might even be negative because some portfolio managers would like it to diversify. But today I think there is a realization that real rates, before taxes anyway, are pretty high. So, I would say 3, 4, 5 percent, maybe.",97
-fomc-corpus,1982,"Okay. But real rates are technically the difference between nominal rates and inflation expectations, not the actual rate of inflation. So, if the problem that we're running into, as Steve answered John Balles--and it's something we all know--is that long-run inflationary expectations have not come down, then in the technical sense of the term real interest rates aren't as high as they look. Yes, it may very well be that a perfectly indexed bond, which automatically takes care of inflationary expectations, still would carry only a 2 to 3 percent real interest rate because, if inflationary expectations are taken care of automatically, then why would one assume that a higher interest rate is needed today than a year ago?",143
-fomc-corpus,1982,Do you suggest they sell one to find out?,10
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,"Well, one reason is that there's a rather large transfer of resources from the private sector to the public sector via the credit markets instead of through taxation. And I think it takes a higher real interest rate to bring about that transfer.",46
-fomc-corpus,1982,There also may be built into the so-called real rate now a risk premium to compensate for the extreme volatility of interest rates.,25
-fomc-corpus,1982,"Well, I don't think we're going to resolve this question, so we will go to Mr. Axilrod.",23
-fomc-corpus,1982,"Mr. Chairman, if the Committee will bear with me, I have a a body of anti-climatic comments, I'm afraid. [Statement --see Appendix.]",33
-fomc-corpus,1982,"Well, I don't know where that all [leaves us]. The big question is with respect to M1 and we live in a kind of morass that leads one to put a certain amount of weight on M2. In looking at what has been happening in the first quarter, you said M2 is running a little high. Well, it is, I guess, compared to the base of the whole [fourth] quarter, but if you look at the last three months its behavior has been pretty orderly from what we know now. And I don't think it would require a slowdown in the growth--I haven't done the arithmetic--in its nontransactions component if you look at the last three months as compared to the quarter-to-quarter [growth]. I don't see how it could. So, we have had a big M1 growth and the monthly figures have been more or less in line for M2. If M2 were weak and M1 were high, which has not particularly, if ever, been the case, I'd say we might have an argument for looking at the long-range target at this meeting. But I don't think we have that argument and I would not propose to do so. Anybody can have their own opinion. But if things grow a certain way, it's going to have to continue to be on our agenda for the next meeting in May or the following meeting I suspect. We do have a situation, to put it bluntly, where NOW accounts are way up and the rest of demand deposits are at least being slightly squeezed. They're fairly level or down depending upon what week one looks at. And I continue to have a very large suspicion that there is some liquidity preference shift, at least temporarily, that has been going on. The whole question, when you look at the M1 figure is how long [its rapid growth] will last, as Steve suggested. Who has a comment?",383
-fomc-corpus,1982,"I have a question, and I apologize because I will confess to an inability, Steve, to understand every word in your presentation and the significance of it. But let me just ask a couple of fundamental questions that I think have a bearing on which of these alternatives we choose. Let's assume that our primary long-run concern is inflation and our primary shorter-run concern is the effect of whatever we do on the economy. How would alternative A, alternative B, or alternative C impact output over the remainder of this year and how would they impact the longer-range inflationary situation? How would you describe the three alternatives in terms of their impact on these two results? Could you express that?",135
-fomc-corpus,1982,"Well, I'll try. [A policy stance] somewhere between alternative A and alternative B is consistent in the short run, we believe, with the staff economic projection. One can't be very specific there, but if the choice is somewhere between alternatives A and B, that essentially says that interest rates ought to track down a little in the very short run. Over the long run, as you know, a recovery is projected, fueled by defense spending and the impact on consumer spending of the tax cut at midyear. At the moment, we think that could be done without any further rise in interest rates into late next year because of people having accumulated liquidity. Alternative C says that interest rates might go up, and probably will go up, substantially; and even ""B"" says some rates may have a little back-tracking in them. I believe ""C"" is quite inconsistent with anything like the pattern of recovery [forecast] because whatever initiative might be coming in terms of housing being vaguely sustained and inventories not being a drag, I think the rise in interest rates entailed by alternative C would turn those factors less positive if not absolutely negative. Thus, we would not get an environment consistent with economic recovery not to mention the psychological impact of the greater doubts cast upon the safety and soundness of thrift institutions under the circumstances. That would be my answer. In a long-run sense, one might argue then that alternative C is most consistent with getting inflation under control.",291
-fomc-corpus,1982,"Would ""A"" or ""B"" imply that we're going to seek to get back within our [M1] range? Would that imply relatively slow M1 growth for the last 6 months [of the year]? Let me put it differently: Would that imply M1 growth that could be so slow as to have a recessionary effect in the latter part of this year or an abortive effect on the recovery early next year? Or do you not believe that there is a relationship between--?.",100
-fomc-corpus,1982,"Oh, yes. It depends on where [in the range] the Committee wants to hit for the year. As we tried to show in the table toward the back of the Bluebook, adoption of alternative B, for example, would be consistent with [M1] growth in the second half of the year, on a June-to-December basis, of 3-1/2 to 5 percent, depending on whether the Committee aims at the middle or the upper part of the present range, letting alone any base shifting that might be considered. Alternative A would be consistent with growth in the 2-3/4 to 4 percent range. Our assumption is that inflation rates will be down and that there will be some cyclical expansion in velocity and those growth rates might be generally consistent with a reasonable rebound. It may not be as large as we have there, but somewhere in that magnitude.",182
-fomc-corpus,1982,"I guess I view this somewhat differently than some of you. What disturbs me, Mr. Chairman, is that it is apparent from past experience that when we have had a significant reduction in the rate of money growth--let's say, growth for 6 months below the trend rate prior to that 6-month period--inevitably it almost always resulted in a negative growth situation. That is true if you look back at [the trends in money growth that] preceded previous recessions. When we consider whether or not we would act quickly--to use the expression we've used--to ""pinch off"" another bulge, I think we have to look ahead and recognize that if any accommodation in policy today were to necessitate an abrupt reduction in the rate of money growth over the last half of this year in order to achieve our targets, the probability is that this would bring us back into a somewhat recessionary situation in the last quarter of this year or the first quarter of next year. And I think that is an issue that should be considered in whatever policy decisions this Committee makes today.",220
-fomc-corpus,1982,"Larry, are you suggesting that we pinch the April bulge off so we can let it grow faster after that?",23
-fomc-corpus,1982,"Well, if I had to opt for something, I would say that if there is an April bulge, it should be brought down almost as quickly as possible in order to permit money to grow gradually over the last part of the year. On the other hand, that could cause a 2- or 3-week--if one can define it [that closely]--upward movement of the fed funds rate and other short-term interest rates and that does frighten some people. It's a matter, though, of whether we bite the bullet now in order to position ourselves for growth in the aggregates in the second half of the year or if we tolerate that, as we sometimes have in the past, and then are forced to keep money growing at a very low rate, as occurred for six months last year. In our analysis, that is what we did from May to October of last year, and it was a contributing factor to our present weak economy. Now, this may be seeing it from a monetarist point of view; I assume it is. And some of you may not share that view. But it worries us, looking into the future, that we may be setting the stage for problems at the end of this year and going into next year.",254
-fomc-corpus,1982,"Mr. Chairman, if I just might clarify one comment you made. The nontransactions component of M2 was growing very moderately in December, January, and February, after having grown rapidly in November. The latest data we have for the weeks of March suggest a very rapid growth--something like 12 percent at an annual rate in that month--and that is what brings the growth in the first three months of this year up to around 9-1/2 percent. And we believe you have to get it lower than that--not a lot lower, but maybe down to the high 8 or low 9 percent area. But it's really [due to] the behavior in March.",139
-fomc-corpus,1982,That's not M2 but its nontransactions component?,10
-fomc-corpus,1982,"Yes, but I was just clarifying the point.",11
-fomc-corpus,1982,"Steve, do you feel pretty comfortable about your projection of the aggregates for March at this point?",19
-fomc-corpus,1982,"No. We have the preliminary data [only]. That has a sharp drop of almost $3 billion in the week of March 24, as you know. And we have assumed a rise of $1 billion in the next week, which is a very reasonable assumption. So, in that sense, I wouldn't expect a large variation, but there will be some. I think we're in the right order of magnitude.",83
-fomc-corpus,1982,You think you're as close as you usually are?,10
-fomc-corpus,1982,"Well, I think fairly close. It could vary 2 or 3 percentage points at an annual rate.",22
-fomc-corpus,1982,"I'm somewhat uncomfortable with too precise projections of what any of these numbers may mean and of the interest rates that really may come up. The difference between ""A"" and ""C"" is $3 billion on M1 in June. That's one week's fluctuation.",52
-fomc-corpus,1982,"Well, the fluctuations average out, we hope.",10
-fomc-corpus,1982,Mr. Morris.,4
-fomc-corpus,1982,"Well, Mr. Chairman, I'm still having a little trouble reconciling the assumption that the adjustment to nationwide NOW accounts was completed in December with the fact that NOW accounts have been growing at about a 50 percent annual rate in the first quarter. Somehow, those two things don't come together very well for me. And the fact that most of this money bulge was in NOW accounts raised a question in my mind about whether this bulge means the same thing that a bulge in the old M1 would have meant. This leads me to a question for Steve. It's a hypothetical question, but I'll ask it anyway. If you assume that we did not move to nationwide NOW accounts last year and that the NOW accounts were still confined to New England and New York, would you have expected, on the basis of what has happened, a 10 percent rate of growth in old M1 in the first quarter? Or is that too hypothetical to even--?",192
-fomc-corpus,1982,"First, we don't think the shift has been completed; we think it has come down to modest proportions. Second, I assume--I guess contrary to your view, President Morris--that the increase in NOW accounts that we had is part of or the same as the related increase in savings accounts that occurred at the same time.",65
-fomc-corpus,1982,"But in the absence of nationwide NOW accounts, these deposits would have been in M2 but not in M1.",23
-fomc-corpus,1982,"That's right. And that makes the problem for the interpretation of M1. I'm not interpreting that growth of 50 percent as representing a shift from demand accounts to NOWs or a shift from old savings to NOWs but an aspect of allocating more of one's savings and possibly more of one's income to highly liquid instruments, some of which are now in M1 where they didn't used to be and others of which are in M2.",86
-fomc-corpus,1982,It could have shifted into M1 if we didn't have NOW accounts. We never will know that it wouldn't have. It wouldn't have been a nice figure.,31
-fomc-corpus,1982,"There might have been some more in demand deposits, that is for sure.",15
-fomc-corpus,1982,Didn't a survey of the banks indicate that there was no major increase in the number of accounts?,19
-fomc-corpus,1982,"Well, the increase in accounts--I don't have the number here--has been at the same rate since the beginning of the year as it was from August to November, or something like that. And that probably is a more rapid rate of the birth of accounts. It's much less than it was at the beginning of [last] year, but possibly more rapid than you would expect if there had been no shifts. I think there has probably been a residual shifting. But there would have been no acceleration in this recent period, [based on] the figures we get from the commercial banks on births of accounts.",122
-fomc-corpus,1982,But it does raise a fundamental question as to whether transactions balances as we used to think of them actually bulged in the first quarter or not.,29
-fomc-corpus,1982,"Well, that's right. As the Chairman says, transactions accounts as we used to think of them probably would have bulged somewhat because if you get an increase in liquidity preference, some of it would have fallen into demand deposits. Also, to the extent that reflects the fact that interest rates were going down and one is going to wait until they go back up--the conventional Keynesian sort of speculative motive--that would have fallen into demand deposits. So, I think demand deposits would have been a little higher. But of course we have the old savings account vehicle in there as well, which is probably distorted.",122
-fomc-corpus,1982,"Well, what all this demonstrates is that these movements preoccupy us and they preoccupy the market. But we know very little about them except that we generally accept it as a change in liquidity preference. But we certainly can't identify that very closely. I hope some work is going on that.",60
-fomc-corpus,1982,"Oh, it is. Absolutely.",7
-fomc-corpus,1982,"We may be in better shape--I hope we are--by the time of the next meeting from various directions whether through surveys or otherwise to maybe find out nothing. But if we have satisfied ourselves that we tried a little harder to find out, maybe we will find out something. Mr. Guffey.",62
-fomc-corpus,1982,"Thank you, Mr. Chairman. My view of what we should do in the period ahead is influenced in some measure by a point that Larry Roos made with respect to what we do in the second half of 1982. Let me start my comments by saying that from my perspective all the doom and gloom that was presented around the table shouldn't be unexpected. A year and a half or two years ago, we set upon a course through monetary policy that would bring economic growth to zero or a negative rate for some period of time and then to a very slow rate of growth thereafter. And I think we've achieved that. In a sense, we ought to be pleased with what has been accomplished up to now. The question then arises, for me at least: What do we do in the period ahead in view of economic activity that is zero or maybe even negative for another quarter? In looking ahead, there seems to be a lot of potential for stimulus beyond what we would do at this table, with the deficit and the government spending that is in train for the third quarter of the calendar year, the last quarter of the fiscal year. That's somewhere between $40 and $50 billion that has to be raised in the market and will be spent. Together with the tax cut that comes on July 1, it would seem to me that there is a good deal of stimulus that will hit the economy starting in July or thereabouts and continuing on through the last of the year. So, I'm not so concerned about getting money growth at some higher level to be sure that we don't kill the goose that has laid the golden egg. Therefore, I would like to propose that we look at alternative B or something a bit less than alternative B, which is designed primarily to ensure that as we get into the last half when we get the stimulus that we will have some growth, in the 4 to 5 percent range. And with the projection for the deficit and the amount of money that must be raised by the government in the markets, if we don't have some latitude for growth in the 4 or 5 or 6 percent range, we're going to have interest rates at very high levels. And I would hope that that would not occur. Thus, someplace between ""B"" and ""C"" for the second-quarter period would seem to be an appropriate policy response. With regard to all the talk about the April bulge, I don't know what all that means, Steve, other than that it means uncertainty. And as a result, I am attracted by your proposal--I believe it was a proposal--that we use M2 as a direct informational variable to guide policy during the upcoming period. So, I would take a policy stance someplace between ""B"" and ""C"" for the second quarter, but give some weight to M2 as an informational guide as to what is happening in M1.",581
-fomc-corpus,1982,Governor Partee.,4
-fomc-corpus,1982,"Well, I want to come back to NOW accounts. I have basically the same concern that you expressed, Paul. If you look at the behavior of the narrow aggregate as it used to be defined, it looks as if there's some squeeze on it. If you look at it with NOW accounts in it, it looks rather substantial. As a matter of fact, to put an exact point on it, if you use the old definition of M1--currency and demand deposits--you will find that in the seven months since the cyclical peak it has increased at an annual rate of only 1-1/2 percent, which is the lowest growth rate of the last four recessions. On the other hand, if you include NOW accounts, you will find that it has increased 7 percent at an annual rate in the seven months since the cyclical peak, which is the fastest rate of the last four recessions. So the way one looks at this NOW account surge makes all the difference in the world. It may be that Frank is right. I think we probably don't have a very good handle on how many NOW accounts are being opened. And I rather despair, this far into the exercise, of finding out much really useful information on the number of new accounts. If he is right, it's not going to come out again because those are new accounts and the funds won't come out. Or it may be that Steve is right that [the bulge reflects] precautionary balances but we don't know whether those precautionary balances are going to come out or not. But the fact of the matter is that over the last several months we've had very large growth rates in the NOW account component. What they call OCDs now was still 20 percent or thereabouts in March, Steve. I think that ought to affect the way that we look at this target rate simply because we don't know what is going to happen to that component. We can't continue to squeeze what amounts to corporate balances in order to accommodate the rise of NOW accounts if they continue to rise at a very rapid rate in the period ahead. As I look at those paths, there's nothing at all exceptional about ""A."" It has 4-1/2 percent growth [in M1] in the 3 months from March to June. That 4-1/2 percent growth doesn't sound like a large growth rate to me for M1 and that includes whatever disproportionate increase was occurring in NOW accounts over that time. It didn't seem large in March; it was about 2 percent. February was, of course, minus but that was an unwinding of the demand deposit explosion in January which did in fact, as you expected, totally unwind in the month of February. Therefore, my view is that we ought to be prepared to accept modest continuing growth in M1, and 4-1/2 percent in my view is modest. And if, in fact, these NOW accounts don't come out--that is, if we don't get some correction of this very large increase that we had over the fall and winter--I don't think that will impact on the second half of the year because my view of the matter is that we ought to change our targets. We ought to accept a higher growth rate for the year as a whole, which would have been entirely because of the increase early in the year associated with this explosion in NOW accounts. That's if those balances don't come out. If they do come out, then we can make room for it. I must say I see no reason to squeeze the economy harder and harder at this point in time, given the conditions that we've been talking about and given the fact that we are looking at something that has the cosmetic oddity of an explosion in NOW accounts accounting for virtually all of the strength that we have seen.",768
-fomc-corpus,1982,Mr. Solomon.,4
-fomc-corpus,1982,"I would favor something very close to ""B."" It seems to me that it positions us reasonably well, given uncertainties about the reversal of velocity in circulation. I would recommend a slightly lower initial borrowing target. Instead of $1-1/4 billion, I'd opt for something like $1.1 billion, first of all because that's more likely to prevent the funds rate from going beyond 14 percent. And secondly, if there is a bulge in April--if M1 growth is somewhat larger than the 9 percent--we can accommodate it more easily. That would demonstrate a consistency in policy but at the same time I think it's really better to try to keep rates from exceeding 14 percent in the next couple of months if possible. So, I would not think the answer should be between ""B"" and ""C,"" but pretty much ""B"" or in that area, with a slightly easier initial borrowing objective.",186
-fomc-corpus,1982,Governor Wallich.,4
-fomc-corpus,1982,"I'm starting from the premise that we're not going to get inflation down much more unless we can sustain some degree of pressure. So, I think some degree of pressure is consistent with a moderate rate of growth. I doubt that it's consistent with the 4.5 percent rate of growth of the GNP, not money supply, that the staff has forecast for the second half. That is really quite a good growth rate, and in that environment I think concerns about excessive wage payments will yield very quickly to a feeling that now is the time to catch up--that people have made sacrifices and they need to be rewarded by compensatory higher increases. Now, a policy of about 3 percent [real GNP growth] should allow for possibly some reduction in [un]employment. It depends on productivity. I think it carries some risks that a financial crisis might hit. But as we look at the interest rate projections of the staff, they don't seem to indicate that the problem of the thrifts will be greatly alleviated no matter what we do. There's the danger also that the dollar may go higher. If we do damage to our exports, we may do damage to other countries that reflects back on us. I think that danger is less because they are now beginning to realize that a high dollar is not so much of a risk for them and that they can afford to reduce their interest rates. Now if one accepts, as I do, aiming at something like 3 percent real growth, then I think alternative A really lacks credibility. It lacks credibility, anyway, in terms of our [long-run] targets because it means that we're going to be above our targets for the rest of the year. And we're going to have that held against us continually.",351
-fomc-corpus,1982,Targets? It doesn't say [that] about M2.,12
-fomc-corpus,1982,"Target. [M1] would nevertheless be the key target that people will look at. We will look at the M2 increasingly; I agree that we want to put greater weight on M2 partly because of the uncertainty surrounding M1. If one thinks that the growth of M1 is very low, one might conceptually add some of the money market mutual funds to it--10 percent or 20 percent of which surely are transactions balances--and that would produce a much better growth rate in M1. Now, there is a danger of making the same mistake Mrs. Thatcher did: that is, chasing an aggregate that is actually positively interest rate sensitive. The harder you lean, the harder it blows; as sterling M3 grows, the more they tighten. There is some danger, I think, in our situation of falling for that with M1. So, I would put somewhat less emphasis on M1, but I wouldn't ignore it.",190
-fomc-corpus,1982,Do you mean M1 or M2?,9
-fomc-corpus,1982,"M1, because M1 contains a saving component.",11
-fomc-corpus,1982,But M2 contains all these things.,8
-fomc-corpus,1982,"Well, it may have the same defect. Either way, it would lead me to somewhere between ""B"" and ""C."" And I would not like to see interest rates go up at this point, so I would hesitate to go with a rise in borrowing. But something like the present level of borrowing would seem to me appropriate and would move us toward getting back into our target ranges over the year.",81
-fomc-corpus,1982,Mr. Winn.,4
-fomc-corpus,1982,"My concern is the reported understatement of M1 in terms of our money funds, the sweep accounts, and all these other phenomena. If that were constant, I wouldn't be so concerned; but I think it's a growing proportion, so we may be getting more growth there than we recognize. With that in mind, I'm a little sympathetic to the problem of getting beyond April and what we do from there. I would associate myself with the comments being made with respect to ""B"" leaning a little toward ""C.""",102
-fomc-corpus,1982,"Well, we'll have Mr. Ford, and then we'll have breakfast.",14
-fomc-corpus,1982,"I come out for the ""B"" solution that a number of people have expressed. We also have gone through this exercise that was just mentioned of making some allowance for a small fraction of the money market funds being transaction oriented and other adjustments like that. And it seems to indicate, if you give any credence at all to that, that we are pumping in enough money to keep the economy going. I hope the staff is right with all the Arima stuff that if and when we see this pop in the numbers early in April it will be corrected before we get back here at the end of May. Well, I don't know if you said May and June. Did I hear you right that you would anticipate if we did get a big problem in early April that it would be [unwound]?",161
-fomc-corpus,1982,"It looks as if under all the alternatives that 6/10ths of it comes out in May and, depending on which of the alternatives you pick, either all [the rest] comes out in June or takes a little longer.",47
-fomc-corpus,1982,"Unfortunately, when we get back here in May, I think we'll just have the April figures, basically.",21
-fomc-corpus,1982,"That's right; so we won't know. The timing is bad. I certainly hope you guys are right about that coming down. In the meantime, I would be willing to take the risk of going as high as ""B"" or just a little below ""B"" in the hope that you're right even though we are going to be in a very uneasy position the next time we meet since we may have seen the high numbers you are worried about without having time to have seen whether or not it tails off. I think some caution is in order and, therefore, I'd avoid going toward ""A"" so that, with this neat little table you've cooked up on the bottom of page 10 [of the Bluebook], we leave ourselves some room to breathe in case you're wrong about that. That's why I'd say ""B"" would be a good place to be, with a borrowing assumption somewhere near where we are now, around $1.4 or maybe $1.3 billion; you suggested $1-1/4 billion. In sum, I believe alternative B and somewhere in the $1-1/4 to $1.4 billion area [on the borrowing assumption] would be reasonable.",240
-fomc-corpus,1982,What was that last comment you made?,8
-fomc-corpus,1982,"I'd go with the borrowing assumption associated with ""B"" rather than lightening up on it as Tony suggested. The staff suggested $1-1/4 billion, as I read the Bluebook, and currently I'm told it is at $1.4 billion. Is that right?",57
-fomc-corpus,1982,Borrowing of $1.4 billion is implicit in this week's objective.,15
-fomc-corpus,1982,"The objective, yes. So, I'd stay somewhere around what is in alternative B rather than lightening up on the borrowing. That's because, if we're worried about a big explosion in early April and if that were accompanied by an explosion of borrowing, I'd say we ought to hustle back toward the path.",60
-fomc-corpus,1982,"Why don't have a coffee break. Preston Martin has been confirmed by the Senate this morning, and may even have a signed commission. We'll go out and see where he is.",35
-fomc-corpus,1982,"[We're in] a delicate stage here. Preston Martin, whom I introduced to all of you who have not known him--you can talk to him after the meeting--has been confirmed by the Senate. He has a commission signed. He is not sworn in, so he doesn't have to vote but we thought he could observe this strange [unintelligible]. I told him we are in midstream. I guess we will swear him in tomorrow. We are halfway through people expressing their opinions in varying degrees of precision about what we should do in a very imprecise art. Mr. Black.",121
-fomc-corpus,1982,"Mr. Chairman, given the market fears that the deficit and the recession might push us off the target paths, I think it would be a mistake to let M1 stay above the upper limit for any extended period of time. If such a result were to occur, I think it would reignite inflationary expectations and maybe even more importantly it would weaken long-term markets, which I believe would be a pretty disastrous thing to have happen at this particular point. So, I think it's very important that we react promptly to any out-sized bulge in the money supply in April. January's bulge hasn't washed out completely, and if we are not perceived as reacting pretty promptly to a bulge in April, then doubts about our anti-inflationary resolve will increase. So, I would prefer ""C;"" I could go somewhat toward ""B"" if there's an understanding that we're going to react pretty promptly against any large sized bulge in April that is greater than the short-term figures that we're looking at. And I think it would be desirable to widen the federal funds range; I would suggest 12 to 18 percent.",226
-fomc-corpus,1982,Governor Gramley.,4
-fomc-corpus,1982,"Mr. Chairman, I expressed earlier, in my comments about where the economy is going, the doubts that I have in mind as to the prospect for a recovery of the dimensions the staff is forecasting. I would say again that I think the state of the economy is principally the consequence of monetary restraint--principally our responsibility, not that of anybody else--although I would acknowledge that fears of the deficit are contributing to the mood around the country. It's also our responsibility in the sense that we permitted a rather substantial increase in interest rates right in the middle of a very deep and deepening recession. I'm very much impressed with the line of argument that Chuck has developed. We really have something very, very unusual going on in the growth of M1 as it's currently measured. To put his point a different way: It is true that one could explain small or even moderate sized differences in growth rates of the various elements of M1 on the basis of differences in income and interest rate elasticities. But there's no way in the world that one can explain the kind of divergences that we have seen between coin and currency, demand deposits, and OCDs except by reference to something very, very unusual happening to the demand for OCDs. And we don't know what it is. It may be a continuing shift into OCDs because the process that began last year has not yet been completed. It may be a liquidity preference kind of development. We just don't know what it is.",294
-fomc-corpus,1982,"If I may interject. There's just one factor here that hasn't been mentioned, which I want to mention for the sake of completeness. I think it's probably largely liquidity preference. Part of it may just be a plain bad seasonal. We may not know how to seasonally adjust the OCDs. And maybe the distribution is really different than we think it is.",72
-fomc-corpus,1982,"I think the growth of M1 since last October greatly overstated the extent to which monetary policy has been stimulating the economy. Another factor that convinces me that this is the case is looking at the prospective growth rates, fourth quarter-to-first quarter, of the various monetary aggregates. Although less disparate and less unusual than the fourth quarter-to-February numbers, they still show a progressive decline in the growth rate as you get to the broader aggregates: 10.3 percent for M1, 9.6 percent for M2, and 8.6 percent for M3. I don't think any alternative more restrictive than ""A"" is at all suitable. I think we ought to permit the economy to have the kind of growth in narrow money balances and broader money balances that is needed for some recovery in economic activity. I'd remind you, in looking at alternatives B and C, that the M2 figures in B and C are 7-1/2 and 6-3/4 percent, [respectively]. And our experience in the past several years suggests as a first rough approximation that we are going to get an increase in nominal GNP that is approximately in proportion to the growth of M2. The velocity of M2 has not been very variable recently. And over the last three quarters of this year what our staff is projecting is not a 7-1/2 or 6-3/4 percent increase in nominal GNP, but a 9.4 percent increase, or somewhere around 9-1/2 percent. So, I think alternative A is where we ought to go. And I think we ought to be very, very careful about trying to run too fast to offset a bulge in April which may reflect nothing more than the fact that we've changed our process of seasonal adjustment.",367
-fomc-corpus,1982,What nominal GNP growth do you have for the year?,12
-fomc-corpus,1982,"Now, I was speaking of the last three quarters.",11
-fomc-corpus,1982,Fourth quarter-to-fourth quarter is about 7-1/4 percent. The first quarter is zero.,22
-fomc-corpus,1982,What is it on an annual average basis?,9
-fomc-corpus,1982,6-1/4 percent.,7
-fomc-corpus,1982,"Mr. Chairman, I'd just ask one question, because I'm lost on this argument concerning the effect of NOW accounts. NOW accounts are a part of M1, are they not? And if they are, that money is usable by the banks. It's a different name for a different type of transaction balance. But why does that distort M1 growth if a certain amount of M1 growth is a reflection of growing NOW accounts? I lost that. If we are trying to figure total M1 as it is and are trying to quantify it in terms of the effect of its growth on the economy, and part of that M1 is reflective of NOW account growth, why does that distort the usefulness of M1 as an aggregate?",145
-fomc-corpus,1982,"It's a mixed account, Larry. It has elements of a savings account in it, too.",19
-fomc-corpus,1982,"Yes, but that money is there in the bank and--",12
-fomc-corpus,1982,"Well, the money would have been there before but it would have been in savings accounts.",18
-fomc-corpus,1982,"Another answer to Larry's question is that the present growth ranges for M1 are fundamentally based on the old M1. That is, we wanted to show a progressively shrinking number. Now the fact is that this new M1 is a different animal from the old M1. We are applying the old M1 yardstick to something that is different from the old M1. And that's the source of the problem.",83
-fomc-corpus,1982,"So, you are saying that our original targets were set differently than they would have been had we known that M1 was going to be expanded by the advent of these NOW accounts? I think that's a--",41
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"M1 could also be influenced by other things that change velocity. We've been more often deceived by underestimating velocity gains than overestimating them. And right now we see ahead of us two sources of velocity gain. One is the continued money fund expansion; the other is sweeps. We can't be sure we'll get that velocity, but I think it's less dangerous to bet on that than to bet on the opposite.",85
-fomc-corpus,1982,Mr. Corrigan.,5
-fomc-corpus,1982,"Well, Mr. Chairman, as to the comments that have been made, ranging from chasing aggregates to the NOW account analysis, and did we have a bulge or didn't we: What does it mean? The comments about leaving some room in the second half of the year I think are all relevant. And in the context of this potential April bulge problem, they take on a special significance. But I think they also relate in a fundamental way to an analytic problem that I don't think we have quite dealt with yet. The manifestation of that analytic problem is the simultaneous phenomenon of a lot of interest rate variability and a lot of money supply variability. We sit here, of course, and make judgments about reserve paths and we make judgments about changing those reserve paths. But implicit in both setting the paths and changing the paths is this notion that it is ultimately changes in interest rates that are the trigger variable that sets in place the adjustments in portfolios that in turn ultimately reflect themselves in altered rates of growth of the money supply. Now, that's all well and good. But I think we have to keep some perspective on that. The perspective that I think is important is the recognition that those interest rate changes are only one of the factors that determine the nature and pace of the portfolio adjustments that ultimately do reflect themselves in the rate of growth of the money supply. In the context that we are operating now, it seems to me almost self-evident that the nature of those adjustments in response to any pattern of interest rate change has in itself changed. Indeed to take the extreme--and this is relevant in the context of this April bulge--if we are going to smooth out all those bulges and all those short-run blips in the money supply, we must be prepared to get to the point where the interest rate impact that we can create by changing reserve paths is large enough to outweigh all those other factors, ranging from seasonal adjustment factors on up. Now, as it may impact on the observed behavior of the money supply in the short run, we must be prepared at the extreme to do that in a context in which, at least in my mind, the jury is out as to what the nature of the interest elasticity of money demand is. Indeed, I still find myself, at times at least, attracted to the argument that in some sense we may be creating some of the variability that we have seen in both money and interest rates by the nature of our own activities. I'm not persuaded of that, but at least I have to leave my mind open to it. In that analytical setting, I must say I would be a little troubled with the prospect of aggressively chasing a bulge in the money supply in April, even though that would prolong the amount of time that we might be over the stated targets for the behavior of M1 for this year. Again, from an analytical point of view, I think Mr. Axilrod's earlier comments are relevant here. If that were to happen, it does in some sense aggravate the problem. But at the same time, if some of the speculation around the table about this NOW account phenomenon is accurate, one could still reasonably expect that the NOW account build-up would wind down later in the year and still would leave plenty of room for the kind of expansion in the economy that is implicit in the staff's forecast. The long and the short of it from my point of view would be at this time to go slow indeed in terms of this April bulge, should it materialize. I hope it doesn't because if it doesn't, we're obviously in pretty good shape in any event. As to specifics, I would come out somewhere between ""A"" and ""B."" And if we got a bulge, and the net result were that we ended up with a quarter that looked like ""A,"" that wouldn't bother me all that much either.",778
-fomc-corpus,1982,Governor Teeters.,4
-fomc-corpus,1982,"I'm basically impressed by the fact that all of our worst fears have been realized. We have nearly 9 percent unemployment. For every Federal Reserve District, the opening sentence in the Redbook was about depression or not functioning well or no sign of recovery. We have the thrifts going down. We have a liquidity crisis in the thrift industry in at least half of the Districts. We have a massive reduction in credit ratings, as Emmett mentioned, and a very high level of business failures. What more do you want? We have the economy essentially out flat. And under any of these alternatives we don't get a great deal of recovery. At the end of the [projection period] we get to maybe 75 percent capacity utilization and still have well over 8 percent unemployment. As I thought through it, so many of our other problems would be alleviated if we just had some reduction in interest rates at this point. It wouldn't help all the thrifts, but it would certainly help some. And going along with a 13-1/2 percent or 13-1/4 percent interest rate, [with rates] rising sharply next year, is not my idea of how to put this economy back to work. Given the alternatives that we have and the wide division of preferences here, I obviously want to associate myself with Governor Partee and Governor Gramley and go for alternative A. And if it turns out that that's not doing the job of recovery then, as I said last time, we should raise our targets. We can do it a number of different ways. The one modification I would make on ""A"" is that I would go for a billion dollars of borrowing rather than $750 million because I think the $750 million is too strong a signal that we are going for ease. But I don't think 13 percent is an acceptable level of interest rates for this stage of the [cycle]. I think we can do more. I have some reluctance to ease sharply because I don't think we are going to get the correction in the federal deficit that we need to offset the collision course that I anticipate next year if the deficit is not changed. But, under normal circumstances and with a normal fiscal policy, we should be a lot easier than we are now. And the fact that fiscal policy is so overly expansionary is the only thing that keeps me from urging an even greater relaxation in monetary policy.",486
-fomc-corpus,1982,Mr. Boehne.,6
-fomc-corpus,1982,"There was a good bit of talk earlier about jeopardizing the gains that our policy has brought so far, but the other side of that is that we also must avoid becoming prisoners of our own mechanical procedures. And I think the questions that Chuck and Frank and others have raised about NOW accounts underscore that fact. We don't really have a good handle on M1 and whether we're excessively tight or excessively easy. So, I think we ought not be fearful about superimposing our judgments on these procedures. I would start out with alternative B, but I would accept errors in the direction of alternative A. I would find erring on the side of ""C"" not to be acceptable. I would put an M2 sentence in the directive and use it primarily as an informational variable. I think we ought to give more weight to M2 in this period. But my main point is that we ought to remain more flexible than usual in this period by weighing the incoming information on the economy, the size of the [M1] bulge, if any, and interest rates and so on, and not become overly wedded to a set of policy specifications that we agree to today and that may require more frequent consultations than usual.",244
-fomc-corpus,1982,Mr. Keehn.,5
-fomc-corpus,1982,"I will admit to a significant bias caused by the circumstances in the Middle Western District. And though I certainly don't disagree in any way with the fundamentals of the staff economic forecast, I am skeptical or merely unconvinced with regard to the timing as well as the strength of the recovery. Also, it seems to me that an awful lot of uncertainty about the composition of M1 and M2 has been expressed around the table. Meanwhile, we have an economy that is operating under the very most difficult circumstances possible. While I'm not in any way suggesting a major change in what we are doing or how we are doing it, I do think that we have to provide at least a modest degree of relief, and it seems to me that alternative A is a way of doing that. I would be very strongly in favor of alternative A as a way of trying to accommodate a possible bulge that could occur in April, but particularly because M2 is in a reasonable position within its range. So, I would very much be in favor of alternative A.",209
-fomc-corpus,1982,Mr. Balles.,5
-fomc-corpus,1982,"Well, Mr. Chairman, as I listen to this dialogue and debate, one thing seems to stand out loud and clear as far as many of us are concerned. And I think Frank expressed it and others followed: That the observed money supply has really overstated the effective money supply, given the fact that so much of the growth since November has come in NOW accounts and in OCDs. Therefore, I would join those who would not be in too much of a hurry to lean against that kind of bulge. In responding to the tactical question that Steve posed to the Committee of how long we can continue to let M1 run above its range for the year, if this bulge had come in regular demand deposits, I'd be on the other side of the fence. But since it didn't and since the April bulge will be equally mysterious for a while, I would not be in any hurry to lean too hard against it until we have more solid information as to what we're really doing. I expressed myself pretty forcefully earlier on about the urgency of getting real interest rates down. We can't do much about long rates. That is going to have to be a solution that depends on some major efforts to get the budget deficit down. But I think we can do something in the short run about short-term interest rates. And I'm really quite concerned that in the immediate future, unless these short rates come down, we are going to be inhibiting seriously if not aborting a prospective recovery. Where all this nets out is that I would lean somewhere between ""A"" and ""B"" in terms of what we ought to be doing in the March-to-June period. And as others have suggested, I'd place more emphasis on M2 in view of the low visibility that we are going to have on the meaning of the M1 figures, particularly as we move into April. As I say, I'd not be in too much of a hurry to get back within that range until we get better information on what the true effective money supply is, based on its changing behavior [and] content.",417
-fomc-corpus,1982,Governor Rice.,3
-fomc-corpus,1982,"Well, Mr. Chairman, Governor Partee stated the case for alternative A very well, I thought. I don't have anything really to add to that. I would just like to remind everyone of what I thought I heard Mr. Axilrod say and that is that alternatives C and B assume that the NOW accounts or precautionary balances or whatever you want to call them are going to work themselves out very soon. And if they don't, there is the likely implied risk of their being an obstacle to the recovery. I don't think we ought to take that risk. We don't need to take that risk and I think we'd leave ourselves in a position to be more flexible if we adopt alternative A.",139
-fomc-corpus,1982,Mr. Roos.,5
-fomc-corpus,1982,"Mr. Chairman, as I stated prior to the recess, the decisions we make today have to be made in the context of what they will mean for our policy in the second half of the year. In looking at this, I don't think we can take lightly the targets that we have announced. I don't think we can assume glibly that we can arbitrarily adjust those targets upward when we make our July adjustment without risking a perception by market participants that our action was paving the way toward further inflation. And if we made an upward adjustment in order to bring relief to the economy, I would assume that it would have exactly the opposite effect from what its proponents might be seeking; an upward adjustment in our annual ranges would probably bring an upward movement in interest rates rather than any reduction in interest rates. So, I would opt for something like alternative B because I think it would position us probably as well as we could anticipate under our present difficult circumstances. But I feel just as strongly as anyone could feel that if we temporize, that if we do have an April bulge and if we say we don't want to be mechanistic [in responding to it] or however we phrase it, we are going to get ourselves in a position where we are going to have to live with unacceptably fast growth of M1 in the first part of the year. If we look at it from day to day and from week to week, and if by doing so, as we have occasionally in the past, we validate that increase and don't take action to pinch it out and pinch it out awfully quickly, I think we are going to have to jam on the brakes in the second half of the year. And that is going to bring us a negative reaction in terms of economic activity later this year or early next year and and we will be accused of having precipitated another recession. Regardless of how we want to view it and explain it--and nobody is more skillful than you are, Mr. Chairman, in explaining the confusion that arises out of NOW accounts or sweep accounts or financial innovations--the people out there who set these interest rates have their eye on M1. You can't fool them into saying, well, M1 has performed this way and M2 has performed that way. That is what runs this locomotive and I think we have to recognize those things. And that's why I would disagree with those who say that we shouldn't respond quickly if this bulge occurs. I think it is incumbent upon us to react very quickly.",506
-fomc-corpus,1982,Governor Partee has an additional comment.,8
-fomc-corpus,1982,"Well, yes. Larry, I don't regard that target for this year as set in stone. I think there are circumstances under which we would be prepared to shift the target. What I said was that if the NOW account dominance continues and we find ourselves, let's say when we next meet, looking at a sustained 30 percent rate of increase in NOW accounts or something like that, I think then would be the time to consider whether or not to make an adjustment in the targets for the year, based on an unexpected strength in NOW accounts --not in M1 generally, but in the NOW account performance--because of some kind of precautionary development. Now, I'm inclined to think that [the bulge] is going to come out. I can't understand why people would keep so much money in their NOW accounts at 5 percent interest when they can get substantially more in almost any alternative they could go into. Or, Paul may be right; the seasonal may be bad, but that would bring it out too. That is, if the seasonal has been wrong in the first part of the year, by definition it will be wrong later on and we'll see a weakness in NOW accounts. Or it could be that the sweep accounts will develop so that we'll get an observed slowing in Ml because sweeps are taking money out of the accounts. I don't want to prejudge at this point but I'd just say that if in fact NOW accounts continue to perform as they have so far this year I, for one, certainly would be prepared to change the targets. And I think the Chairman could very readily state why we changed the targets. It would not be because we eased but because of this unexpected development with regard to NOW accounts. We have to have that kind of freedom or we're slavishly stuck with numbers whose contents we don't know. One other comment I would like to make is that I rather agree with the thought that we ought to use M2 more as an information device. But I'm still very concerned that I don't have a good handle on what information M2 is giving us. It looks as if we are going to have to pay more attention to M2 in the period ahead than in the period past, and I would like to have the staff begin to develop a rationale, which so far is totally lacking, for using an M2 guide. [We need information on] what kind of cyclical attributes or interest rates or elasticity attributes M2 would have. I think we need that before we can really rely on it, because we don't know what the behavior of that number [means] in the short run.",523
-fomc-corpus,1982,There have been studies and recent studies made--not that our studies are necessarily all inclusive or all conclusive--that show that M2 is a much inferior predictor of economic activity than M1 and that we can't control it.,45
-fomc-corpus,1982,"Well, of course, there are people who maintain just the opposite: that M2 is a better predictor. I think the last study I was associated with showed that we got very little additional information when we added the M2 components to M1. And I don't know that that has changed much. But M1 is deteriorating, I think, and it may be that we'll have to have a rationale for using M2. There's no reason that can't be developed. After all, until he found that he didn't have so much to hit the Federal Reserve over the head with, Milton Friedman was for M2; it's only recently that he has changed to M1.",134
-fomc-corpus,1982,Could I ask Steve to repeat his proposal on how we might use M2? I don't think I understood it.,23
-fomc-corpus,1982,"Well, what I was suggesting was that if M1 were running strong relative to this 8 to 10 percent that we think makes a rough allowance for the possibly peculiar behavior of April, the Committee might consider in effect adjusting the reserve paths when that is happening if M2 is not running strong--if it were running right around the top of its range or something close to where it is now. On the other hand, I also thought that because of the uncertainties in April, if M1 were running weak, it might simply mean that we did make a good seasonal adjustment; and you may not want to react to that. Then, too, you could take into account the behavior of M2 and, if M2 were also running weak, it might mean that the money supply as a whole could be considered to be running weak relative to your basic objectives. I'm suggesting using M2 as kind of a fly wheel to help judge the behavior of the whole group of aggregates, given the uncertainty about M1 in April and May.",207
-fomc-corpus,1982,"As I read the first quarter, we had a tremendous increase in M1 but the associated increase in M2 was not all that strong. Is that correct?",32
-fomc-corpus,1982,"Well, it was a pretty good growth. I may be off slightly in my number, but it's something like 9-1/2 percent on a quarterly average basis.",35
-fomc-corpus,1982,"That's a little high on a quarterly average basis. If you look at it on a December-to-March basis, it's just about at the top of the range.",33
-fomc-corpus,1982,It would be 9 percent from December to March; it's running right at the top of the range.,21
-fomc-corpus,1982,We haven't heard from Mr. Boykin and Mr. Morris in terms of specifics.,17
-fomc-corpus,1982,"Well, Mr. Chairman, I would favor alternative B. Given the uncertainties and what we don't know about April and what we don't know about the NOW accounts and many other things, alternative B would seem to me to represent a prudent course that would at least position us to address the situation as it becomes clarified without an abrupt change in direction. With respect to the conversation about a change in the ranges, it seems to me that any change should be a very forthright decision as opposed to a de facto working in that direction, which I think alternative A might do. So, at this point in time at least, alternative B seems to me the prudent place to be.",135
-fomc-corpus,1982,"Well, Mr. Chairman, there was a time when we had another man named Martin on this Committee.",21
-fomc-corpus,1982,A much better tennis player!,6
-fomc-corpus,1982,"He used to talk about leaning against the wind. If you want to know which way the wind is blowing right now, the wind is clearly blowing the economy down. Therefore, we ought to have a policy which is conducive to a turnaround in the economy, even if we only get a sluggish upturn as I expect. So, for all the other reasons that Lyle gave, I would support alternative A.",82
-fomc-corpus,1982,I thought you were against a leaning in the wind policy.,12
-fomc-corpus,1982,I used to be.,5
-fomc-corpus,1982,It depends upon how strong the winds are blowing. I guess we've been through everybody with a little variety of opinion.,23
-fomc-corpus,1982,Except for you.,4
-fomc-corpus,1982,"Members of the Committee are nicely split and nonmembers of the Committee are nicely split. We have an odd number of nonmembers, so they're not quite split evenly; there is a small majority. Let me say just, in terms of changing the targets and how temporary this NOW account phenomenon is and whether it's partly seasonal, that I have a little suspicion that we're not going to know by the next meeting, unfortunately. My suspicion is that if it is partly seasonal, we ought to begin learning about it rapidly after April. That's because it may be partly a tax phenomenon: Individuals build up their balances--and they always did, we just didn't know it before--as we move into April. But the timing of the next meeting is going to give us maybe one week's clue to that, I guess, the way it works out. We are not going to have much of a track record, but we will have to live with that.",187
-fomc-corpus,1982,"Well, we wouldn't have to [change the ranges] in fact until the July meeting.",18
-fomc-corpus,1982,"Well, it depends. We can [change the ranges] any time. But by July we certainly ought to have a handle on that. We may not know all the answers; we may not know why; but we will have more suspicions and we will have some results of whatever analytic or survey work we do. Just in terms of the economy, I share the view that was going around earlier. The staff has [projected] a pretty good recovery, considering the circumstances and considering that we don't want to lose the progress on inflation. But there are a lot of doubts that tend to register on the low side rather than on the high side. If we got that much, I wouldn't be unhappy. I don't think we are in a position where it would be wise to try to manipulate interest rates overtly downward. I'd love to see them come down and stay down. I wouldn't love to see them come down for a month and then have to go up again. That would kill us for a variety of reasons, I think. Anyhow, we have this great variety of opinion. I think what is of operational significance before we meet again is largely going to be how to handle this April situation. We don't know in which direction it's going to go. We have a great split in opinion on the Committee. I must say I reconcile that in my mind very nicely, but I don't know whether the rest of you do. Given all the problems we have, I think it may make more sense in the short run--or even in the long-run period given the doubts about what M1 means in some cases--in effect to watch pretty closely what is happening to M2. For M2 over the course of the year as a whole we've been anticipating growth of something between 8 and 9 percent; I suppose slightly below 8 percent is the staff's forecast for the year as a whole. Nobody knows for sure whether it's reasonable analytically or not, but with the kind of nominal GNP that results from a quite reasonable economic forecast I don't think it's a bad forecast in terms of our objectives and where we want to go. And M2 in the 8 to 9 percent area seems to be [viable] against recent experience. Maybe recent experience is no good, but in the last 3 years M2 has been within 1 percent of that and we have never had a decrease in velocity of more than 1 percent. And if it came out in the 8 or 9 percent area, it would seem to allow enough for this forecast, if nothing else went wrong. Given all the uncertainties in M1, and given the doubts in the economy, I would not feel comfortable about tightening up in effect to chase too hard at an April M1 figure if M2 is also running low. I don't know whether that's going to be the case; I have no reason to believe that it will be the case, but I would feel very uncomfortable about ""tightening,"" in the common parlance, with a low M2 figure at the same time. So, I come out close to the A alternative so far as M2 is concerned. Let's say around 8 percent. I'm not sure I'd want to push on M1; it's very doubtful where it's going to go, but I don't know that we have to set out for a 4-1/2 percent M1 figure. I don't even know what it means in the context of dealing with it before the next meeting if we are going to allow for more [growth] than that in April because we will come back by the time we know April and then re-decide on the basis of what we know about April. But the more orderly thing for M1 somehow does seem to me to be something like ""B,"" which on the face of it brings us back about where we want to be, if you take the numbers literally. By June or July it follows what the midpoint of the range would have been if we had started from the base of last year's target rather than from where we did start. It doesn't say we can't raise it if all the analysis shows [the need for] that. But I feel a little more comfortable with something on the lower side for M1, particularly if M1 produces a little miracle for us and comes out lower than we now expect in April and early May.",884
-fomc-corpus,1982,"Well, as you say, as a practical matter, it's almost entirely where we set April. ""B"" has April at 9.1 percent and ""A"" has it at 9.9 percent. I don't care whether it is put at 9 or--",55
-fomc-corpus,1982,"I don't know whether either of those is right. It seems a little strange, putting all our money on somebody's judgmental correction of a seasonal adjustment which is doubtful. It is piling doubts on doubts. But I think we have to reach some judgment as to how we want to accommodate or not accommodate, how rapidly we respond to an increase, and where we set the borrowing in the first place. If we set the path consistent with a lower level of borrowing than we now have, which is what--$1-1/4 billion roughly?",110
-fomc-corpus,1982,The current week's path implies $1.4 billion in borrowing.,13
-fomc-corpus,1982,The last several weeks would average more like $1-1/4 billion.,16
-fomc-corpus,1982,"Well, let me finish. If we [set the borrowing level] below that, theoretically we produce a little easing. If the April bulge is [large] enough, we might have to respond to some degree; it would give us a little more room for responding without being any higher than we would have been in the first place. I don't know whether that is a good idea or a bad idea. But I can imagine that in a difficult circumstance it might give us a little leeway without sending things through the roof. If we have to respond to some degree, maybe it does make some sense to start out at $1.1 or $1.2 billion or something in that area. I guess that's what I would propose and we'll see what happens. I'd leave the federal funds rate range where it is. I'm not sure at this time that I would want to announce a higher fed funds rate range. If anything, I'd rather announce a lower one, but I--",197
-fomc-corpus,1982,Where is it now--11 to 18 percent?,11
-fomc-corpus,1982,"Well, 12 to 16 percent happens to be where it is now. [Not changing it] in some sense just doesn't raise a question. I surely would feel uncomfortable about raising it.",39
-fomc-corpus,1982,Then why don't we widen that range again to where we like it and make it 11 to 16 percent?,23
-fomc-corpus,1982,With a billion dollars of borrowing.,7
-fomc-corpus,1982,"A lot of Committee members would like a wider fed funds range and this seems an ideal time to do it, consistent with those desires, Mr. Chairman.",31
-fomc-corpus,1982,Widen it at both ends? MR. PARTEE and,12
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,"I'm not among those who are enamored of an enormously wide range, but I wouldn't object to that. Well, let me throw something like this out on the table: Something around 8 percent for M2; something close to, say, ""B"" for M1; and 12 to 16 percent for the funds rate range--I don't feel strongly about 11 to 16 percent; and for borrowing let's say $1.1 billion, just to pick a figure out, to start the path off. The operational question is whether we build into the path some allowance for a bulge in April. If we do and it doesn't appear, then we get the borrowings dropping pretty fast.",142
-fomc-corpus,1982,"That's what I was going to mention, Mr. Chairman.",12
-fomc-corpus,1982,"I guess we can make it asymmetrical, if we want to.",14
-fomc-corpus,1982,"Well, we could go whichever way the Committee wants. What we have proposed is given in the Bluebook, which would be allowing for something like 8 or 9 percent [M1 growth] in April to start with and zero in May. But if the first week or two in April seems weak rather than strong [relative to] the 8 or 9 percent, there would be no reason--if it were consistent with the Committee's view--not to reconstruct the path to where it would allow for 3 or 4 percent [growth] each month, as we normally would do, absent some doubts about April itself. But that would depend on getting some evidence in the early part of April.",143
-fomc-corpus,1982,"Steve, when does that bulge come? Does it usually come in the first weeks of April or a little early?",24
-fomc-corpus,1982,"Well, last year in the first week of April, M1 seasonally adjusted rose $5.4 billion: unadjusted it rose $17 billion.",32
-fomc-corpus,1982,"You can see the difficulty of this business just in that figure. We had a $17 billion increase in the money supply in one week last April that came out to $5-1/2 billion or whatever seasonally adjusted. They sit there and guess. Well, maybe this week it will be $18 billion. Who knows when you get that big a figure?",74
-fomc-corpus,1982,This year we've allowed--,5
-fomc-corpus,1982,"And they have made a good estimate if it is anywhere between $5 and $20 billion, I suppose. But that's going to produce all the difference between a minus and a big plus number in the seasonally adjusted figures.",45
-fomc-corpus,1982,The point I want to get at is that we would know early if it is going to occur. It probably would occur early in the month of April; that is traditionally when it has happened.,39
-fomc-corpus,1982,"Well, I am not sure. Is that right?",11
-fomc-corpus,1982,"The earlier it occurs, the bigger the odds are on the month being high. Last year it occurred early. In 1979 the increase unadjusted was pretty large; the first week had the biggest increase but the last 3 weeks had increases, unadjusted, of about 50 percent. So, it was fairly evenly spread in 1979, looking at the unadjusted number. And in 1978 it was more in the first week.",94
-fomc-corpus,1982,"A lot of it does depend on how the tax checks are handled and that would be after the 15th. If they sit on them for a while, then we get a big increase after the 15th.",44
-fomc-corpus,1982,"The market is sitting around worried that the first week will be strong, largely because they have looked at last year. And, as I say, we are projecting a big increase, $3.2 billion seasonally adjusted. If that didn't develop, and the week of the 14th weren't strong, we would get a preliminary view of that in mid-April. Then one would tend to think that it would be better [to construct the] path on a more even basis, consistent with whatever view the Committee has as to what it wants for the 2 months. But it would take a week or two to know about that.",128
-fomc-corpus,1982,That means it would be mid to late April before we'd really get a handle on it.,18
-fomc-corpus,1982,"Yes, if the Committee wants to give some flexibility to--",12
-fomc-corpus,1982,"What we have now deals with hopes, but we have a minus coming up this week. We expect--we have a string of ""ifs"" here--if it held the following week, we would have room for some increase in the first week in April without making April high.",56
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,But who knows whether any of it will hold?,10
-fomc-corpus,1982,"As you suggest this, would you visualize that we would say in the directive that we're seeking growth in M1 at a 3 percent rate from March to June? No, it can't be; that's too low.",43
-fomc-corpus,1982,That isn't very low compared to our targets.,9
-fomc-corpus,1982,"It's well below, I tell you. As we say, we are prepared to take 5 percent or so when we are running in a current state well below what we say our target ranges are. I'm prepared to give up. I'm prepared to concede the winter as being a NOW account surge if it doesn't go away.",64
-fomc-corpus,1982,"Yes, if it doesn't go away. But how do we know that it is going away?",19
-fomc-corpus,1982,"But if it goes away, we ought to be running a steady state that is closer to our target ranges.",22
-fomc-corpus,1982,"Yes, but Chuck--",5
-fomc-corpus,1982,"Yes, but if we also say M2 around 8 percent and the staff builds that operationally into the path, coming out with a path that's somewhere between ""A"" and ""B"" is not as restrictive as the 3 percent.",49
-fomc-corpus,1982,But M2 has very little effect on the path.,11
-fomc-corpus,1982,"Well, [unintelligible] deal more.",11
-fomc-corpus,1982,"Is the path that we are building one that says a 9 percent increase in M1 in April and a 10 percent increase in M2? If so, I'm not worried too much about the words.",42
-fomc-corpus,1982,"Yes, I would buy that.",7
-fomc-corpus,1982,"I am worried about the substance of your argument. I think 3 percent as a target for the second quarter assumes that we are going to get a reversal of this build-up in OCDs, and I am not at all sure that that is going to take place. And I don't want policy to follow a course that is going to push up interest rates if that doesn't happen. On the other hand, if we have a path based on a 9 or 9.1 percent increase or thereabouts for M1 in April and a 10 percent increase in M2, then we can come back next time and look at it again. Maybe that--",132
-fomc-corpus,1982,"Yes, I agree. But I thought we were wavering on what we were going to build into the path.",23
-fomc-corpus,1982,"Yes, that's what I wanted to be sure of.",11
-fomc-corpus,1982,Are 3 percent for M1 and 8-1/4 percent for M2 compatible? The 3 percent M1 [in the Bluebook alternatives] has 7-1/2 percent M2.,44
-fomc-corpus,1982,"Well, that's what we have in there. That assumes a decline in growth in the nontransactions component of something more like 9 percent. That is a drop from the rate of growth we have in the first quarter. If that doesn't happen, then I'd say it's more like alternative A. So, again, it depends on how much scope the Committee, in its own judgment, wants to leave.",80
-fomc-corpus,1982,"The thing that I think we need to worry about now is the phenomenon that happened last summer. In putting more attention on M2, I think we let more constraint develop on the economy ex post than we wanted. And Governor Partee was reminding us over and over again that we were going to do that. I wish I had listened to him then. I think that's something that we have to be careful about in April. If the M1 number happens to come in at 3 percent, let's say, one could easily interpret that as no bulge. But in fact if the economy was weakening and the signals of economic weakness were gathering [momentum], then we would be sitting back and accepting 3 percent and it would just be the wrong thing to do.",154
-fomc-corpus,1982,Then we'd have a quite weak May and June.,10
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,"But if the NOW accounts were starting to unwind, 3 percent wouldn't be the wrong thing to do.",21
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,"If that were happening and if we had a fairly significant continuing growth of currency and demand deposits and M2 and the OCD phenomenon began to unwind, then I wouldn't worry too much about it, particularly if it were not accompanied by further signs of developing economic weakness.",52
-fomc-corpus,1982,We don't know the meaning of that April phenomenon. We'd have a very strange result if M1 in April were going up by 9 percent and M2 were going up quite a lot and we got an easing market.,44
-fomc-corpus,1982,Can we take a vote just to go right on to May instead of all this?,17
-fomc-corpus,1982,Let's stick to the one we all can agree on!,11
-fomc-corpus,1982,"I like the combination that you cooked up here, Paul, if I understand it correctly. You are saying to the Desk, as I would interpret it, to anticipate unusual growth in M1 and don't get excited about it unless both M1 and M2 get completely blown away, with a very high M2 growth rate and an M1 that was going over the estimate that's built in. The Committee would be saying, as I understand you, start to close in on the path and come back to the path fairly rapidly only under those conditions--if both M1 and M2 were being blown away. On the other hand, also resist, if it turns out that the professors and Arima are right, and you find that early in April the money supply is fading away on us. Don't necessarily just sit by with that either and let us get a collapse.",173
-fomc-corpus,1982,"Well, wait a minute. I think I'm saying the first half of what you are saying. The second half is--",24
-fomc-corpus,1982,You wouldn't mind?,4
-fomc-corpus,1982,"I wouldn't mind M1 coming in lower than that. I tell you, I'd be delighted if M1 came in lower than 9 percent. And if M2 were coming in around 8 percent, that would be fine. I wouldn't react to that all that quickly. I would lower that bulge path because the bulge didn't take place. And then if we get weakness coming into May, that's the time to ease.",86
-fomc-corpus,1982,"I think we ought to consider leaving that sentence in the directive that we debated about and put in last time, to implement that thought you just expressed, Mr. Chairman. We said in effect that some slowing in the rate of M1 growth, associated with reduced pressure in the money market, would be okay.",62
-fomc-corpus,1982,"Well, by coincidence or otherwise, I wrote that sentence in myself. That is what I am saying. Just to clarify the issue: Let's cite this ""A"" and ""B"" combination for the quarterly target and say $1.1 billion in borrowing, which raises the path from where we now have it. It says, okay, tentatively construct the path, believing in a bulge in April. If the bulge appears, we have no tightening of that general magnitude. If the bulge does not appear and M2 growth is running reasonably high, we change the path to make it a more even path. If M2 is running weak, we may keep the path up there.",140
-fomc-corpus,1982,And do you go for this widening of the funds rate band to 11 to 16 percent?,20
-fomc-corpus,1982,"Ipsy-pipsy, so far as I'm concerned.",12
-fomc-corpus,1982,"I'm a little worried about the market perception when we narrow or widen the range--I'm not talking about the absolute levels now at all--because the market attributes much more significance to our narrowing or widening that range than we do. We don't really give it much significance. But market observers don't understand why we would be narrowing or widening the range unless it's of some importance to us. I have heard recently views that we are keeping the fed funds rate within a very narrow range in terms of actually looking at the market behavior. So, I don't particularly care, except that if we want to de-emphasize the constraints that are implied by the range, we ought to try, if at all possible, not to keep shifting back and forth between a narrow range and a wider range.",155
-fomc-corpus,1982,"Well, on balance, I agree with that argument. My own attitude would be that if the federal funds rate began going below 12 percent, consistent with everything we have said, I would be in favor of a two-second consultation or none at all. If it began going up in the 16 percent area, I'd be extremely worried.",68
-fomc-corpus,1982,"First of all, let me say that I'm attracted by your proposal with respect to the aggregates and the implications for constructing the path. But it does bother me a bit that you are proposing to drop the borrowing level from about $1-1/4 to $1.1 billion. Actually, this week the [target] level is $1.4 billion. My concern stems from--",78
-fomc-corpus,1982,"How is it running this week, by the way?",11
-fomc-corpus,1982,It's averaging $1.2 billion so far this week.,12
-fomc-corpus,1982,But the path has $1.4 billion.,10
-fomc-corpus,1982,But $1.4 billion is--,8
-fomc-corpus,1982,"And it has been greater than that over the intermeeting period, hasn't it?",16
-fomc-corpus,1982,Over the last several weeks borrowings averaged about $1-1/4 billion; in the preceding several weeks it was more like $1-1/2 billion.,34
-fomc-corpus,1982,Where is the funds rate today?,7
-fomc-corpus,1982,Funds today are at about 15-1/4 to 15-3/8 percent. I think the rate is being affected by these pre end-of-quarter statement date pressures.,37
-fomc-corpus,1982,"Well, my concern about dropping the borrowing level at this particular time is the perception in the markets; they are expecting a big bulge in April. Whether they are right or not is all speculation, but the fact of the matter is it will be visible very soon after this meeting that the borrowing level has dropped from the prior week's level. And it would not be uncommon if [market participants] arrived at the conclusion that we had met and that we had eased in the view of a very large bulge in the money supply in prospect. As a result, I like very much your proposal for the aggregates, but I'd rather have the borrowing level remain about where it is at the present time until we see some additional developments. The path should be constructed on about $1-1/2 billion of borrowings.",163
-fomc-corpus,1982,"Well, you have a point. I don't know whether I'd worry about it or not. Mr. Solomon characterized our proper attitude earlier as alert but relaxed, or relaxed but alert. Maybe it would take some of the steam out of all this worry about April if they felt we were indeed a little relaxed. I don't know.",65
-fomc-corpus,1982,But if you give--,5
-fomc-corpus,1982,I suspect the difference is so small that they won't notice it much because they haven't seen $1.4 billion recently.,24
-fomc-corpus,1982,"Also, there is a special situation in the market whereby in the last few weeks the fed funds rate has come in almost consistently higher than one would expect from the level of borrowing. So, therefore, probably with $1.1 billion we will get about 14 percent with today's conditions. I don't think the market would see that as terribly significant. The funds rate has been averaging about 14-1/2 percent, fluctuating between 14-1/4 and 14-3/4 percent roughly, in the last few weeks with that borrowing level of $1-1/4 billion. So, I don't think we would see that much movement in the fed funds rate.",139
-fomc-corpus,1982,I share Roger's concern. I think he expressed it very well.,14
-fomc-corpus,1982,"Well, you said $1.1 or $1.2 billion. Why don't we put it at $1.2 billion and everybody might be happy?",32
-fomc-corpus,1982,I strongly would prefer $1.1 billion.,10
-fomc-corpus,1982,"We can afford some easing. You know, we are really at the bottom of the recession. I don't see why you are so enamored of keeping interest rates in the 13 to 15 percent range. And it certainly won't help the international situation. We are really ruining ourselves with the rising value of the dollar as far as our exports are concerned. We could afford some narrowing of those differentials in the international market.",85
-fomc-corpus,1982,"Nancy, my concern is not with the short-term rates, but what I think it might do to the long-term rates.",25
-fomc-corpus,1982,The long-term rates haven't moved at all.,9
-fomc-corpus,1982,They're moving down to some extent.,7
-fomc-corpus,1982,There are still 17 percent rates on mortgages.,10
-fomc-corpus,1982,"They're higher than I want to see them, and I surely would like to see them come down. But if we relax much, we may see them go the other way and that would be really bad at this point.",44
-fomc-corpus,1982,"I can't really imagine, Bob, whether we choose $1.1 or $1.2 or $1-1/4 billion for the initial borrowing level, that it is going to affect long-term interest rates.",44
-fomc-corpus,1982,"Well, I think a lot of that is psychological, Chuck.",13
-fomc-corpus,1982,They won't even know what we have decided here until the middle of May and then it will all be history.,22
-fomc-corpus,1982,"Well, they will know what the figures are coming in at. Last week borrowing was $1.3 billion, and if we come in anywhere near $1.1 billion, in view of their expectation that we will have a bulge in April, I think that will be interpreted as Roger expressed it. I may be wrong; it's just my feeling. I think we really have them believing us now, and we have to appear to be moving against that bulge if it's greater than the market is expecting it to be. I'm hoping and rather expect that it's not going to be as big as the market thinks and that we might even have short-term rates coming down. I hope that happens, but--",142
-fomc-corpus,1982,"Well, what I wouldn't particularly like to see happen--but we can't play it all that finely--is to have the market rally a little and the short-term rates go down and that lasts three weeks and then goes back the other way.",48
-fomc-corpus,1982,"Yes, I wouldn't want to force it down; but if that falls out as a result of the aggregates being within what I would consider a reasonable range, I would certainly welcome that.",37
-fomc-corpus,1982,"If we don't get a bulge in April, I suspect we will get a rally in the market regardless.",22
-fomc-corpus,1982,"Well, I think so too. And I hope that's what happens.",14
-fomc-corpus,1982,Why don't we flip a coin?,7
-fomc-corpus,1982,"Well, on the argument between $1.1, $1.2, $1.3, and $1.4 billion, if you go back over the last few weeks, adjustment borrowing in billions has been $1.1, $.99, $.97, [$1.2], and the last week in February it was $1.5. I didn't see the market falling out of bed one way or the other.",88
-fomc-corpus,1982,"You're looking at different figures. I get confused by that, too. You are looking at pure adjustment borrowing. Apparently the figure we use is adjustment borrowing plus seasonal borrowing.",34
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,"So, you have to add $150 million or so.",12
-fomc-corpus,1982,"Well, I think the main point about variability in the level is still there.",16
-fomc-corpus,1982,I think your point is right. But we are a little lower relative to the recent average than those figures say. I don't think [the difference] is big enough to be terribly noticeable.,38
-fomc-corpus,1982,"But the point is that interest rates also have been a full percentage point higher than we anticipated with the level of borrowing over this period of time. So, there's a tighter market with that level of borrowing than we thought there was going to be.",49
-fomc-corpus,1982,But we knew we were guessing at what the rates would be at the time we projected that.,19
-fomc-corpus,1982,What are the borrowing numbers? Now I'm totally confused. What has been the recent record of borrowing that we are associating this beginning number with?,29
-fomc-corpus,1982,I believe the last several weeks averaged about $1.26 billion or something like that.,18
-fomc-corpus,1982,"In the eight-week intermeeting period, the average was $1.4 billion. But the average has been a little lower in March. March 3rd was $1278 million; March 10, $1141 million; March 17th, $1163 million; and March 24th, $1343 million.",68
-fomc-corpus,1982,"Steve, that's just the grand total excluding the extended borrowing?",12
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,Okay.,2
-fomc-corpus,1982,"Well, that $1-1/4 billion sounds fine.",13
-fomc-corpus,1982,"So, in those four weeks it averages to about $1.2 billion.",16
-fomc-corpus,1982,"That's right. So, the aggregates strengthened when the borrowings were rising.",15
-fomc-corpus,1982,"Well, the difference between $1.1 billion and $1.2 billion is not going to make or break me. I think the lower we go the more quickly we may have to snug up a little if April comes in high. So, you play one of those off against the other.",60
-fomc-corpus,1982,We have a little more room with $1.1 billion if April comes in high.,18
-fomc-corpus,1982,"You can argue that we'd have a little more room [to tighten], that's right. We have to show a little more motion--",26
-fomc-corpus,1982,It may be giving a false signal; the rate may go down first and then [go back up].,21
-fomc-corpus,1982,"Well, I think that is what it comes down to. We have to balance a small chance of a false signal against buying ourselves a little more flexibility by moving [borrowing] up again. It is not driving things through the ceiling. I'm not dying to give false signals, and that is a consideration if [the bulge] is going to be temporary. We have more room for flexibility and false signals; [we'll have] real signals once they get that budget in place.",98
-fomc-corpus,1982,Let's not hold our breath waiting for that!,9
-fomc-corpus,1982,"Well, what difference would it make in the funds rate, Steve, with a borrowing range from $1.1 to $1.2 billion?",30
-fomc-corpus,1982,"Well, on our rule of thumb, either 20 or 25 basis points, and that's [likely to be] wrong.",26
-fomc-corpus,1982,We're getting carried away with our own inability to be precise here.,13
-fomc-corpus,1982,And it's not going to make that much difference. We're playing at the margin.,16
-fomc-corpus,1982,"Well, the big difference is in expectations, I think.",12
-fomc-corpus,1982,What is your proposal again?,6
-fomc-corpus,1982,"Make a proposal, Mr. Chairman.",8
-fomc-corpus,1982,It depends on whether we get the bulge or we don't get it.,15
-fomc-corpus,1982,"The proposal is to put in around 8 percent [for M2] and around 3 percent [for M1]--either ""around"" or ""about,"" one of these terms of art that we use--for the quarter as a whole. And I'd slightly prefer just staying with the 12 to 16 percent funds rate range because that's where we are and recently we have been about in the middle of it, roughly. I'd make one wording change. I'd say ""probability"" instead of ""possibility"" in this sentence that's proposed: ""The Committee also noted that deviations from these targets should be evaluated in the light of the probability..."" That suggests a little more weight on the M2 number. I also thought of putting in some sentence, as Bob Black suggested, to the effect that a shortfall of M1 growth, consistent with progress toward the upper part of the range for the year as a whole, would be acceptable in a context of appreciably reduced pressures in the money market, which is very similar to what we had last time. Operationally, what I am saying is that we tentatively allow for some bulge in April in making the target. In other words, the borrowing would not go up with an [M1] increase in April of a magnitude of 9 percent at an annual rate, which I guess is what Steve is suggesting. I gulp a little at something that big, but that's what he said. I'll take it. That's what we would do if M2 in fact is somewhere around this number that we are talking about.",317
-fomc-corpus,1982,"But the number we use for M2 for April is not the quarterly average, presumably.",18
-fomc-corpus,1982,"Well, I was thinking of that.",8
-fomc-corpus,1982,"If we get a bulge in M1, then presumably M2 is going to be higher also, since M1 is a big component of M2. In fact, what is consistent with 9 percent in M1 is about the same or a little bigger M2 growth, is it not?",61
-fomc-corpus,1982,"If you took the alternative A path, we have 9-1/2 percent for M2 in April.",23
-fomc-corpus,1982,"I think Lyle has a good point that we wouldn't want to apply the M2 directive factor, so to speak, on a quarterly basis. We would have to see a stronger growth in April in M2 before we clamped down. And if we're targeting a 9 percent increase in the nonborrowed reserve path for April--",67
-fomc-corpus,1982,"Theoretically, all else being equal, that is right. I don't know what it amounts to quantitatively when M1 is $400 billion and [its growth] is 6 percentage points high relative to the quarterly target, 6 percent or 1/4 of the whole, less than 1/4, 1/5 of the whole, 6 percent at an annual rate. I don't know what that amounts to. What is 6 percent of 20 percent? I guess it's about 1 percent.",107
-fomc-corpus,1982,"Yes, it's probably about 1-1/4 percent, I think.",16
-fomc-corpus,1982,"I will moderate my comment by saying for the month of April ""around 9 percent"" is set for M2; it begins to get me a little nervous, but I guess that's all right. Now, I lost the context of where I was. We have that path for M1; if [its growth] just for the month [of April] is around 9 percent, we hold to it. If it's above that, the suggestion is that the borrowing level would go up. If it is below that, and M2 is also around--I guess in this case someplace between 8 and 9 percent, depending upon how much M1 is below--we might not ease up on those borrowings very much at all until we saw M2 coming in low too, so long as M1 were around the 3 or 4 percent area. If M2 began actually going minus, we would be easing up; or even if it went below 3 percent, we would be easing up.",204
-fomc-corpus,1982,"But in that case, doesn't that mean that the path effectively would have to be redrawn?",19
-fomc-corpus,1982,"Yes, depending upon what M2 is doing we'd have to be redrawing the path. If M2 were weak and M1 were coming in at 9 percent or maybe even higher, we would accommodate it.",43
-fomc-corpus,1982,Will we have enough information to know what M2 is doing during the month?,16
-fomc-corpus,1982,"Well, we do now get weekly M2 data.",11
-fomc-corpus,1982,We do?,3
-fomc-corpus,1982,"We have shifted over to that through the Monetary Control Act data, so we have--",17
-fomc-corpus,1982,By the middle of the month or a little after the middle of the month we should begin getting an idea.,22
-fomc-corpus,1982,"Do you mean that if somebody filed a Freedom of Information Act request, you'd have to give [the data] to them? You prepare a weekly M2?",32
-fomc-corpus,1982,Not if we are quiet!,6
-fomc-corpus,1982,We certainly don't do it in anything except a tentative experimental way.,13
-fomc-corpus,1982,"For the record we do not prepare a weekly M2 number, but we get some hints as to where it might be in terms of trends. We do not have a weekly M2 number.",39
-fomc-corpus,1982,Not seasonally adjusted.,5
-fomc-corpus,1982,"There's a danger, I think, in this operational prescription, and that is that if the economy weakens and the demand for M1 weakens correspondingly, so long as M1 growth is above 3 percent, we would proceed to adjust the path downward. But we would keep initial borrowing where it is and interest rates where they are. If the source of this weakness in M1 is a weakening economy, we have big problems.",88
-fomc-corpus,1982,"Well, wouldn't you expect to see that a little in M2?",14
-fomc-corpus,1982,In one month? I don't know. It seems to me that the shifts in demand for M2 are sufficient so that it may or may not.,30
-fomc-corpus,1982,"Well, I don't know what we're going to know from a weakening in M1, either, for a couple of weeks.",25
-fomc-corpus,1982,I would have thought that we would want to look more at what NOW accounts were doing.,18
-fomc-corpus,1982,"Well, I'd certainly look at that within that total, too. But I suspect this early part of April is going to be so mixed up that we won't be able to make anything out of it.",40
-fomc-corpus,1982,"I would hope. though, if we saw an M1 number that was coming in around 3 percent, that we would want to have a consultation to make sure that we are following procedures that make sense in light of what we see going on in the economy.",53
-fomc-corpus,1982,"Well, around 3 percent is a flex point in terms of this prescription I had. Unless M2 looked pretty strong, we probably would begin easing, just in terms of what I said. If M2 looked strong, we would not [ease], taking literally what I said.",57
-fomc-corpus,1982,"If M2 comes in weak, would you tolerate a higher level of Ml?",16
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,Higher than what?,4
-fomc-corpus,1982,Like 5 or 6 percent.,8
-fomc-corpus,1982,"Well, higher than 9 percent even at some point, if [M2] is weak enough. I think that's what we are saying.",29
-fomc-corpus,1982,That's giving a lot of flexibility.,7
-fomc-corpus,1982,It comes into that application of judgment that somebody made a plea for.,14
-fomc-corpus,1982,"I assume this all contemplates a consultation before the paths would be redrawn, based upon the data that you have just described.",26
-fomc-corpus,1982,"Oh, I don't think so, necessarily. But if there were any confusion about it, we might well do it.",24
-fomc-corpus,1982,I would hope so.,5
-fomc-corpus,1982,I think we are talking in the first instance about a very small change.,15
-fomc-corpus,1982,"Yes, if it's a very minor adjustment we don't need a consultation to do it. If it's a significant adjustment, then there's an advantage to having a consultation.",32
-fomc-corpus,1982,Sure. We're talking here in the first instance about adjustments of $100 million or so.,18
-fomc-corpus,1982,"Well, if M1 is between 3 percent and 9 percent you're talking a minor thing, but if--",23
-fomc-corpus,1982,"Oh, yes.",4
-fomc-corpus,1982,In the extremes--if it's greater than 9 percent or less than 3 percent--it's not minor.,22
-fomc-corpus,1982,If M1 is coming in at 15 percent or at minus 5 percent or something--,19
-fomc-corpus,1982,Which is probably what it will be doing.,9
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,It well might. I would not discount either of those possibilities.,13
-fomc-corpus,1982,"Well, there are so many ""ifs"" here and we are not going to nail them all down or even come close to it. I think we simply have to have confidence in the Chairman's good faith and good judgment to get the Committee back together to take a look at the situation if too many of these ""ifs"" begin to pop up.",70
-fomc-corpus,1982,"I must say that I think we have nailed them down beyond what the situation probably can stand. If we do that, there has to be a certain reliance on judgment. I agree with that.",39
-fomc-corpus,1982,"Operationally, you are going to put in 9 percent for April?",15
-fomc-corpus,1982,At this point.,4
-fomc-corpus,1982,And we are going to start with what initial borrowing level?,12
-fomc-corpus,1982,"Well, I guess I didn't get to that point. There is some disagreement about $1.1 or $1.2 billion. I can live with either.",33
-fomc-corpus,1982,"Well, why don't you name one and let's vote on it?",13
-fomc-corpus,1982,Make it $1.150 billion.,8
-fomc-corpus,1982,"Well, that's an obvious solution. Why don't we put in $1.150 billion. That's my solution.",22
-fomc-corpus,1982,I'll vote for that.,5
-fomc-corpus,1982,"That's a variation of Partee's law, isn't it?",12
-fomc-corpus,1982,"That's a beautiful solution. I was going to ask for preferences, but--. Partee's solution is never quite right but it's just a little bit wrong all the time!",35
-fomc-corpus,1982,It's never right but always wrong.,7
-fomc-corpus,1982,"Well, it's never entirely wrong, either!",9
-fomc-corpus,1982,You know the Solomonic decision is to cut the baby in half.,15
-fomc-corpus,1982,"Mr. Chairman, just so I understand the M2 for April. Left to our own devices, if the Committee adopted 8 percent for M2 growth, we would put in a 9-1/2 percent for April and a 7-1/2 percent for May. That's what falls out of our patterns.",66
-fomc-corpus,1982,"I'd put it a little lower in April. It is just so close, what difference does it make? Put in 9 or 9-1/2 percent; you are not going to judge it that finely anyway halfway through the month.",49
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,All right. Is it understood or shall I run through it again?,14
-fomc-corpus,1982,Is the M2 figure 8 percent?,9
-fomc-corpus,1982,"For the quarter, it's ""around"" 8 percent.",12
-fomc-corpus,1982,"Oh, that's okay. That's March to June you are talking about?",14
-fomc-corpus,1982,"I interpret ""around"" to mean that I would not be very upset if it went a little above 8 percent for the quarter.",27
-fomc-corpus,1982,I would not be either on that [aggregate].,10
-fomc-corpus,1982,"I'd put it at 8-1/2 percent, but that's fine-tuning too much. I don't have to repeat it again. What it amounts to is: With something between 3 and 9 percent on Ml, we look very hard at M2. And we look at M2 when we are outside the range there, too, as to how hard to move, but we would move [if it were] outside that range. I think that's what it means in practice. That great discrepancy between 3 and 9, 6 percent at an annual rate, is judging the money supply within one half percent a month. We have allowed ourselves all of $2 billion leeway.",141
-fomc-corpus,1982,How often do we hit our April projection?,9
-fomc-corpus,1982,How often do we hit any projection?,8
-fomc-corpus,1982,"Well, actually I meant to comment on that earlier and I did not. I just want to take note of the fact that for this period since the last meeting, which was exceptionally long, we came about as close to the M1 and M2 targets as I can ever remember.",57
-fomc-corpus,1982,M1 too.,4
-fomc-corpus,1982,"Yes, both M1 and M2.",9
-fomc-corpus,1982,"A sign of things to come, Mr. Axilrod?",13
-fomc-corpus,1982,"At one point. Don't count on that, either.",11
-fomc-corpus,1982,"That, however, probably increases the odds that we'll be wrong in the future.",16
-fomc-corpus,1982,Probably. Shall we vote?,6
-fomc-corpus,1982,"Yes. CHAIRMAN VOLCKER(?). If I delay 30 seconds, we can have the vote at 1:00 p.m. Ready?",31
-fomc-corpus,1982,"Chairman Volcker Yes Vice Chairman Solomon Yes President Balles Yes President Black No President Ford Yes Governor Gramley Yes Governor Partee Well, I'll say ""yes"" one more time Governor Rice Yes Governor Teeters Yes Governor Wallich No President Winn Yes",50
-fomc-corpus,1982,"Okay, thank you.",5
-fomc-corpus,1982,"I want to start off with a couple of special items. The first item is welcoming Mrs. Horn to our little group. This is going to be a slightly abnormal meeting for you, as you will see in a minute. I may be leaving intermittently most or some of the morning. But we welcome you anyway. We have the females gracing the right side of the table except that we have Ms. Greene on the left side of the table to balance it off. The reason the meeting is going to be a little abnormal is that we have a rather abnormal development in the market to say the least. I know very few facts about this, unfortunately, but there is a firm--I guess we'd call it a firm--[involved in] highly speculative [transactions] that apparently has a large and highly leveraged position and can't meet its bills.",171
-fomc-corpus,1982,It was bound to happen one day or another.,10
-fomc-corpus,1982,I don't understand it all. They have a big long position.,13
-fomc-corpus,1982,Is this a dealer?,5
-fomc-corpus,1982,"It's not a recognized dealer. It is a fringe operator who apparently operated in very large size. The varying estimates of his long position are between $2-1/2 and $4-1/2 billion. He has been financing himself, or raising capital, with some kind of rinky-dink [scheme], taking advantage of conventions in the market where he borrows securities on the face value of the security; he turns around and sells them and gets the coupon and has pocketed the difference, apparently to finance his other operations. Everything was fine except that the coupons came due yesterday and he didn't have any money to pay the coupons. So, we have a potentially large amount of securities overhanging in the market in a distressed situation, and we're trying to figure out what to do about it. Chase Manhattan is in the middle of this as the middleman in the shorted securities. The people they borrowed the securities from claim that Chase is liable and Chase claims it is not, so we have a [mess] there. Losses are well in excess of $100 million just on that set of transactions, and we don't know what else is involved; we're trying to find out. I'm told that the bond market was off a little last night and off a little more this morning. I don't know whether it's due to this situation, but if we get a depressed market, I'm afraid we're going to have to support it. At this point, and I assume it's consistent with our Committee rules, I took some steps to get order in the market anyway if it goes off much more. And that's all we've done so far.",328
-fomc-corpus,1982,Is this public knowledge yet?,6
-fomc-corpus,1982,"Well, not public in general. I don't know when it's going to come out and when the rumors are going to start. I'm sure there already are some [rumors], but I don't know how many. We'll see that in the market. This [situation] came to our knowledge at four o'clock or so yesterday afternoon. Chase and others held a meeting this morning; they tried to make a pro bono publico contribution [by providing] money to meet this payment yesterday. Nobody else volunteered because they all think it is Chase's liability. And Chase hasn't come up with [any money] yet. I don't know whether they will.",128
-fomc-corpus,1982,This is the interest payment?,6
-fomc-corpus,1982,"This is the coupon due. Now, whether there are other financing problems, we just do not know. It just smells as if there may be in this situation, and that's what we're trying to find out. This was pretty much a fly-by-night concern by all indications. They were obviously operating in very large volume.",64
-fomc-corpus,1982,A fly-by-night concern with $4-1/2 billion in [longs]!,18
-fomc-corpus,1982,"The latest report is that they ""only"" have $2-1/2 billion, so we'll see. But they may be put into bankruptcy for that, in which case everybody who is financing that position is going to be frozen. And it will ricochet back into other financing arrangements, I'm sure, in the government securities markets. So, it could be a very large problem. Ultimately, if there's no other solution, we might just have to stabilize this market for a period of time. At least I can see that as a possible scenario. So, I just took this very preliminary step of keeping in touch with the market if it really goes off. I think the next step, if the market comes under more pressure, is that we'll just have to go in openly and buy some bonds. That is very insufficient knowledge, but it about summarizes what I know, frankly. The other lenders involved in this particular short-selling operation are apparently major security houses in New York. There is a group of 7 or 8 of them; they're all well-known firms. They should be able to withstand the loss if things ever settle, so far as we know about the loss. But that doesn't mean it won't send ripples of very deep concern all through the market. Any comments or questions that I won't be able to answer?",267
-fomc-corpus,1982,"Paul, as the Federal Reserve, what is our responsibility in a situation like this--just to keep order? Is that our concern, rather than letting it take its normal course? I'm asking that naively, I really am.",46
-fomc-corpus,1982,"Well, my concern is just a very--",9
-fomc-corpus,1982,"We have a disorderly market clause, don't we?",11
-fomc-corpus,1982,"We do in the foreign [currency authorization] and I thought we had it on the domestic side, too.",22
-fomc-corpus,1982,We used to have one fairly customarily: I didn't realize it had dropped away.,17
-fomc-corpus,1982,Maybe we better [adopt] one fast!,10
-fomc-corpus,1982,"Well, we may want to adopt one; I wouldn't suggest that we do so right at the moment. Let's see what happens and we can adopt one if we have to. Our general responsibility is to the economy most broadly. Larry. [That calls for] some judgment about what is good in terms of the economy. The problem in this case, as in all cases, is that the guy who is responsible is only the smallest part of the problem. If all of the financing arrangements in the government securities market are disrupted, we have a major problem.",111
-fomc-corpus,1982,Do you have any idea at this point what other banks are involved or how long the list of banks is other than Chase?,25
-fomc-corpus,1982,"Well, Chase is the only bank involved in this particular operation. But we don't know what else is involved. I suspect there are perhaps many billions of uncleared transactions sitting out there where other banks would be involved.",43
-fomc-corpus,1982,"And the threat, as you see it, is that they may have to dump the government [securities]?",22
-fomc-corpus,1982,"Well, there are two threats. One is that not only they, but everybody else who anticipates the side effect will be dumping; they will sell their own. That's the market effect, which I think can be withstood in and of itself. The more dangerous thing is that nobody will want to finance anybody anymore.",64
-fomc-corpus,1982,"Well, a little caution in financing is not an unhappy development.",13
-fomc-corpus,1982,"""A little"" I agree with.",7
-fomc-corpus,1982,"We've known of these fly-by-night operators; I don't think this one fits your description. I don't think it's the one we've been tracking but another one. But, you know, it's one of those things. There are very bad practices in the market.",51
-fomc-corpus,1982,"This one apparently took advantage of the market convention. What I don't know is the [nature of the] financing of the rest of the position--the long position--and whether that's a standard financing operation in which there would be a reasonable margin or whether they cut corners there. The margins [in the market] are all low, but there is some distinct margin. If there is a normal margin on the RPs, there's a little margin of protection. If there is not a normal margin on those RPs, bigger losses are staring us in the face out there from a variety of people we don't know about. There's some indication, and it's subject to confirmation, that the major lenders are New York banks. We may have to get the banks together at some point along the line.",157
-fomc-corpus,1982,"Mr. Chairman, although we obviously could make a good case for preventing disorderly conditions in my opinion, just looking at the other side: Is there any risk of our being accused of a bail-out of private dealers or whatever?",46
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"I was thinking the same thing, Paul.",9
-fomc-corpus,1982,There is no way to avoid that.,8
-fomc-corpus,1982,"They're in the bucket [because of] a skinny premium or cushion: obviously, the cushion has to be a function of what happens in the market. If we go in and protect the cushion, we could be accused of bailing out the banks and the security houses.",54
-fomc-corpus,1982,That is the nature of being a lender of last resort.,12
-fomc-corpus,1982,We did very little for Brown.,7
-fomc-corpus,1982,But the U.S. Treasury has an interest in preserving the market for its securities when it's running a deficit of a hundred billion dollars plus. I think that's the public interest in this market.,38
-fomc-corpus,1982,"And, of course, if we only support the market as it drops, we don't bail out a small margin operator that way. We simply prevent the market from discontinuity.",35
-fomc-corpus,1982,"As near as I can figure out, the short sellers, the lenders of the securities, will benefit from a market drop. But lenders on the long side will be hurt by the market drop.",39
-fomc-corpus,1982,Has the Treasury asked us to do anything specifically?,10
-fomc-corpus,1982,"They are aware of the situation. There's no question in my mind that this is a matter of judgment. If it gets bad enough, we can't stay on the side or we'd have a major liquidity crisis. It's a matter of judgment as to when and how strongly to react. We are not here to see the economy destroyed in the interest of not bailing somebody out. The market was still going off the last you heard, Mr. Sternlight?",90
-fomc-corpus,1982,"It was down, but not snowballing. It seemed to be steady at that opening mark of down 1/4 to 1/2 or 5/8 of a point. It was not snowballing.",46
-fomc-corpus,1982,And there weren't any rumors of this or gossip in the market yet that you were aware of?,19
-fomc-corpus,1982,"Well, I'm sure that a lot of firms are talking about it. I'm sure this is getting around. We were not hearing about it at our Desk, though. I don't know that it was getting out to the extent that it would be on the news ticker.",53
-fomc-corpus,1982,"When you have six principal dealers and several commercial banks and they're all talking back and forth with their lawyers and their accountants, it's out. The question is: How much of it is out and what is the reaction of the market? There are no secrets in this business.",54
-fomc-corpus,1982,"Well, if we have to support the long end of the market, I assume we can undo that at the short end so that we don't change the volume of reserves?",34
-fomc-corpus,1982,I'm sure that any reserve impact of whatever the Committee decided it was necessary to do in the way of cushioning a decline could be quickly offset.,28
-fomc-corpus,1982,"But I'm not at all sure that the objective should be to offset the reserve impact. We're talking about what may well be a marked increase in liquidity preference. And if so, we've just got to accommodate it. We are looking at an economy that the latest Redbook suggests is teetering on the brink of going over the edge. Attitudes are very, very pessimistic. There are lots of very worried people out there. Add to this atmosphere a financial crisis, and there's just no question in my mind that that is the factor that will push us over the edge. We can't afford to [allow] that. We cannot let devotion to a predetermined path of reserve growth or money growth permit us to commit a major crime against the U.S. economy. It just can't be done.",158
-fomc-corpus,1982,"Well, before we depart massively from our targets, I think we ought to be very clear that that is the situation. We can't start off with that assumption without evidence.",34
-fomc-corpus,1982,"But I think the Chairman's approach to this, if I understand it, is to be ready in case the market is not functioning.",27
-fomc-corpus,1982,"That is the approach for now. I just wonder how bad this is going to get and I don't think we can answer your question for the reason that Lyle suggested. If this is a minor thing, and we buy some bonds and the situation calms down, of course, we'll offset it. If it turns into a major liquidity problem--just to put it at the other extreme--we not only want to offset it, we will liquify the market. That's the judgment that has to be made at some point along the line.",108
-fomc-corpus,1982,[Prices in] the long market have been inching up over the last six weeks. These people must have been pretty deep under water.,28
-fomc-corpus,1982,That's one of the mysteries of this.,8
-fomc-corpus,1982,Are the positions you're talking about mainly in longer maturities?,12
-fomc-corpus,1982,I wish I knew.,5
-fomc-corpus,1982,You don't know?,4
-fomc-corpus,1982,They're not in bills; they are not largely in bills.,12
-fomc-corpus,1982,A small part is in bills and a long position of around $2-1/2 billion is in notes and bonds. We don't have a detailed maturity breakdown at this point.,36
-fomc-corpus,1982,"When Peter says small, he means relative to $2-1/2 billion!",17
-fomc-corpus,1982,"We are operating in considerable ignorance. But the heart of this problem is not the immediate impact on the bond market; it's a loss to lenders who are not used to taking losses on financing U.S. government securities, to say the least.",48
-fomc-corpus,1982,And who may overreact to that situation.,9
-fomc-corpus,1982,"When you say bailing out the market and liquifying it, do you mean stabilizing it at some interest rate or letting it move a certain amount? Or have you no idea at this point?",40
-fomc-corpus,1982,"Well, I don't think we can tell; we don't know what the problem is. In the extreme, I think we have to stabilize the bond market. In stabilizing the bond market we might have to liquify the money market in the process; it's at the opposite extreme. We'd pull out every tool we have if we got an extreme enough situation.",71
-fomc-corpus,1982,"I'm just trying to think through, Paul, how it could foul up our operations in New York. One obvious channel would be if the losses hit the reputable dealers to the point where it imperils their capital position. That would obviously be of great concern to us.",53
-fomc-corpus,1982,"Well, that concern is not foremost in my mind. I don't say it's impossible, if things got bad enough, but the most immediate risk is a freezing up of the whole market.",37
-fomc-corpus,1982,"Do you mean because people won't lend on governments? But they would lend at some margin, wouldn't they?",21
-fomc-corpus,1982,"Well, yes. In a rational world they'd increase the margins a little. We'll see what happens. I don't know.",24
-fomc-corpus,1982,"But if there are bankruptcy proceedings, of course, that begins to freeze assets.",16
-fomc-corpus,1982,I would remind you that there may be a good many money market funds that are making RPs in the market and it may have been far from their imagination that they or their customers were ever going to take a loss.,44
-fomc-corpus,1982,It's the risk of the game.,7
-fomc-corpus,1982,I told you all not to trust those M2 figures!,12
-fomc-corpus,1982,"All we've done at the moment is to take a precautionary step. I don't even know whether we've contacted a dealer yet, but we are prepared to contact a dealer if the market seems to show some--",41
-fomc-corpus,1982,I thought we ought to get more evidence of a really moving situation.,14
-fomc-corpus,1982,"Meanwhile, I will have to pursue whether we should talk to the New York banks or what we should do in this situation. Considering that point, and in the absence of Mr. Solomon who is ill, I will leave this meeting to Mr. Martin for the time being. Are there any other questions or comments that anyone would like to offer at this stage? When I know more facts, I will tell you. We literally don't know whether this is limited in terms of actual losses to Chase or whether the Chase operation is one example of four other messy situations involving this guy.",115
-fomc-corpus,1982,"Where you have one, you have four.",9
-fomc-corpus,1982,It would be my guess that he hit every sort of financing he could get.,16
-fomc-corpus,1982,They usually do.,4
-fomc-corpus,1982,"One possibility is that somebody is going to put the guy in bankruptcy within a matter of hours and, if he is put into bankruptcy, all those creditors are frozen. And there are a lot of them. Nobody quite knows what will happen. As near as I can understand, nobody has ever tested legally what happens to a repurchase agreement in bankruptcy.",70
-fomc-corpus,1982,"If it did go that route, Paul--Chapter 11 or whatever--is there anything that we can really do?",24
-fomc-corpus,1982,"Well, if some positions are frozen, we may have to do some lending at the window, depending on what happens. But I agree with you that we ought to be prepared to cushion the decline and that we should pay not a whit of attention to the position of the guy who is in trouble. And we shouldn't be in a position of seeming to assist the banks in avoiding losses in this case.",80
-fomc-corpus,1982,"Yes, but we can't avoid that implication [unintelligible]; if we do anything, somebody can accuse us of a bail-out.",28
-fomc-corpus,1982,What form of [liquification] are you thinking about? Is this an RP merely to help the major dealers carry their inventories? Is it potentially a direct loan or do we just go in and buy--?,43
-fomc-corpus,1982,"All I'm talking about now is the possibility of buying some bonds. But, yes, we may well have to help people with their financing problems. But the market [people] generally are the people directly affected.",42
-fomc-corpus,1982,Is that the form of the loan--just RPs?,12
-fomc-corpus,1982,"Using the discount window or an RP, depending upon whether it's a bank or a dealer.",18
-fomc-corpus,1982,"Well, I assume we could do it with a dealer also through the window if we had to.",20
-fomc-corpus,1982,"Well, if we have to, it could be through the window; but I think we can just do an RP quickly with the dealers. But it's clearly a situation where we may not wish to be constrained by an operating directive on precisely how many reserves to put in on Wednesday afternoon. We may end up putting in one heck of a lot. One can visualize the situation where prices are falling and rates are rising, with the federal funds rate very high and a lot of reserves out there.",98
-fomc-corpus,1982,"We do have the precedent of the Penn Central crisis where we did have to put in a lot of reserves through the window. But a few weeks later that had washed out. I think if we deal with a liquidity crisis early, we can--",49
-fomc-corpus,1982,It had reversed itself in about a month to a month and a half.,15
-fomc-corpus,1982,We can't deal with it too late; and we don't want to deal with it too early.,19
-fomc-corpus,1982,"But there was also, if I remember, a calm before the storm. Penn Central went bankrupt on a Sunday and nothing really happened until a week later. And then all of the commercial paper issuers had to come in with their credit lines. We put a big bulge [of reserves out through] the discount window and that [crisis] was over by early August, as I remember.",80
-fomc-corpus,1982,"I think that [crisis] was mainly handled, President Morris, by our removing the Regulation Q ceilings on very short [maturities], and the banks ended up financing the [maturing] CDs [with] very little [difficulty] in the end.",53
-fomc-corpus,1982,"Well, we may have overdone it in that case. But that's the judgment one has to make.",21
-fomc-corpus,1982,"In terms of the impact on reserves over a six-month period, there's very little impact left after three months, I think.",25
-fomc-corpus,1982,"There wouldn't be in ordinary circumstances. If we determined that this [situation] gave rise to a change in liquidity preference, for which there is already some evidence, we would want to change the amount of reserves we put in more or less permanently.",50
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,I don't think we're suffering from a situation where the economy is verging on too much ease.,19
-fomc-corpus,1982,This [problem] isn't happening because of high interest rates; he's having losses because he was short and rates have fallen.,24
-fomc-corpus,1982,This guy was apparently a real believer in the fact that rates were going to fall.,17
-fomc-corpus,1982,He's not the first.,5
-fomc-corpus,1982,"Well, let me go find out what is going on. Why don't you return to the regular agenda if you have no more questions. [Mr. Sternlight and I] will be back.",39
-fomc-corpus,1982,He was short; he was long. You know how these operations are; they are all over the market. These things are always as complicated as the ingenuity of man and woman can make them.,39
-fomc-corpus,1982,And lawyers!,3
-fomc-corpus,1982,"Let's proceed with the regular agenda. The first item is the approval of the minutes of actions taken at the meeting on March 29, 1930--I mean March 29-30, 1982 meeting.",44
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,"Was that a Freudian slip, that 1930?",12
-fomc-corpus,1982,I have to remind you that Freud is out of fashion now. You have to use somebody else! It has been moved and seconded and all are in favor. All right. The second item is the report on the examination of the System Open Market Account. Are Clyde [Farnsworth] and the others here? Just Dave Robinson? All right. Is there any discussion or are there any questions of the operations staff?,85
-fomc-corpus,1982,"I read the report as indicating you had no reservations whatsoever, Dave. Is that right?",18
-fomc-corpus,1982,That is correct.,4
-fomc-corpus,1982,"Fine, thanks.",4
-fomc-corpus,1982,Further discussion? Do we need a formal action?,10
-fomc-corpus,1982,Just ask if there are no objections.,8
-fomc-corpus,1982,"All right, if there are no objections, we'll proceed to item three. Gretchen [Greene] is here to report on foreign currency operations since the March meeting. Gretchen.",37
-fomc-corpus,1982,Thank you. Governor Martin. [Statement--see Appendix.],12
-fomc-corpus,1982,"Thank you, Gretchen. Discussion?",8
-fomc-corpus,1982,"Gretchen, when you described the reaction of foreign central banks to the decline in the dollar, would that reaction be indicative that their concerns over high interest rates really are less based on U.S. interest rates and more on conditions in their own countries?",51
-fomc-corpus,1982,"Well, to the extent that some countries are now finding it possible to lower interest rates in their own countries as they feel it is appropriate--Germany is one case in point and Switzerland is another--their immediate concern about the impact for them is not quite so great. However, they recognize that not all countries are in quite as fortunate a situation as they are. And there is concern about the difficulties some countries are continuing to face in servicing their debts and the credit implications of a generally high level of interest rates. So, I think there is still concern, but it's concern of a different type.",119
-fomc-corpus,1982,Thank you.,3
-fomc-corpus,1982,"The Mexican borrowing was a window-dressing thing until the end of April, as I recall. That is, they had to have a certain amount of cover as of the last day of April. We are more than halfway through May. Does it repeat at the end of May or do they have something that they are doing that will improve their situation?",70
-fomc-corpus,1982,"Well, it may still be premature to make a judgment on that. I must say that the Chairman made it quite clear that he did not feel the credit that was extended at the end of April should be viewed as a precedent for subsequent month-end assistance. And the Mexicans are proceeding with their negotiations on a fairly large--I think $2 billion--jumbo credit. Whether all of this will fall into place in time for the end of May is one of the questions that remains to be answered.",101
-fomc-corpus,1982,Are they negotiating with banks or with the IMF? With whom are they negotiating for the credit?,19
-fomc-corpus,1982,Two weeks to go.,5
-fomc-corpus,1982,They're negotiating with banks for this credit.,8
-fomc-corpus,1982,They have not gone to the IMF yet?,9
-fomc-corpus,1982,They would prefer to be able to handle their problems themselves and to have a program that is sufficiently credible in the market that they can avoid going to the IMF.,32
-fomc-corpus,1982,"Governor Partee, did you have further comments?",10
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,"Gretchen, a $2 billion credit would take care of the Mexicans for how long? How many weeks?",24
-fomc-corpus,1982,What did they need? Was it $600 million that we [extended]?,15
-fomc-corpus,1982,It was $600 million that they drew [on the swap arrangement with us].,16
-fomc-corpus,1982,"So, they are $600 million under water already.",11
-fomc-corpus,1982,"They have sizable debt service requirements in the next couple of months. They also, up until the end of April, have been experiencing regular capital outflows, which have had a negative impact on their reserves. I guess one of the questions still before the court is whether they have taken sufficient action to stem those capital outflows.",65
-fomc-corpus,1982,That's very politely put.,5
-fomc-corpus,1982,"Governor Martin, I might just supplement that: Half of the jumbo credit they are negotiating is to consolidate short-term debts, so it doesn't add to their reserve position. And the other half--if it's a $2-1/2 billion credit or so--would last them roughly one month on their own external payments schedules.",65
-fomc-corpus,1982,One month!,3
-fomc-corpus,1982,"And their latest reserve figures show that they are somewhat worse off than they were at the end of April on their reserve position with regard to their note issue cover. So, if they do receive the proceeds at the end of the month as they hope, they don't have to come to us for this month. But I think what Gretchen is saying is on the horizon is that they may have to accelerate their borrowing or find some other ways to deal with the issue to rebuild confidence.",96
-fomc-corpus,1982,The borrowing requirements are very heavy; they are estimating their gross borrowing for 1982 at $20 billion.,22
-fomc-corpus,1982,"How has the market reacted to the austerity program, or whatever you wish to call it, that the Mexicans have put into place?",28
-fomc-corpus,1982,"I would say that the objectives of the austerity program are welcomed, but there has been some question as to the implementation.",25
-fomc-corpus,1982,"They're in the middle of an election campaign, are they not?",13
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,"And in Mexico, as I recall the history of that country, traditionally if there is a change in such a period, there is an outflow of investments which come back after the new president gets in. Isn't that the way it usually works?",49
-fomc-corpus,1982,"It has worked that way before. And, of course, it doesn't help matters either in terms of the [timing].",25
-fomc-corpus,1982,"Yes, the timing is terrible. This guy is barnstorming all over the country telling the people the great things he's going to do for them and the question is whether he can [carry out] an austerity campaign under those conditions that satisfies them.",51
-fomc-corpus,1982,And I think here we're defining austerity as halting construction on four office buildings.,17
-fomc-corpus,1982,"Gretchen, you've given a rather detailed explanation of why the dollar has declined and yet, as far as I'm concerned, it doesn't get there. It seems to me that the dollar declined without any of the traditional reasons as to why international values of the dollar change. Is speculation [the explanation for] what is going on in the market? Is there something other than rational [behavior]? Your explanations only go a little way toward explaining the total turmoil that has been in that market in the past six weeks.",102
-fomc-corpus,1982,"I share your view on that. And I answered that question for myself in two ways. First of all, there was considerable selling of dollars by the professionals on expectations of a drop in [U.S.] interest rates, not unlike what we were talking about earlier this morning. Secondly, the talk of a budget compromise was interpreted much more positively abroad than it was here. Most people are unfamiliar with our form of government and think more in terms of a parliamentary system. When they read that the President has reached a compromise with the Republicans in the Senate Budget Committee, [to them] that means that the job is pretty much done. The implication about what that would mean for the bond market was held with far greater conviction in Europe than it was here. So it was a mismatch, if you like, in expectations.",163
-fomc-corpus,1982,"Are you implying, then, that the value of the dollar will probably rise again, assuming that the domestic situation stays stuck together? If they don't get a drop in rates, will they reverse that expectation and we could see a rising value of the dollar again?",52
-fomc-corpus,1982,"Well, as I said, there was some short covering. I didn't make a major point of it because it happened, really, in two days. It happened after publication of the retail sales figures last week and it happened yesterday; but it was sufficient to cut in half the drop in the dollar that we had recorded for the whole intermeeting period. The market is extremely thin. We ourselves had some correspondent business to sell about $100 million yesterday and we found it very difficult to do that. The reluctance of people to take positions is quite high, so that it doesn't take a very large force to move the prices by a considerable margin.",129
-fomc-corpus,1982,"Further discussion? Thank you, Gretchen. Peter Sternlight is still working on the gathering of information with regard to the situation involving Drysdale Government Securities and its affiliates, and creditor banks and brokerage houses in New York. Why don't we move to Jim Kichline, who is here, and others for the report on the economic situation. Jim.",71
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,"Thank you, Jim. Ed.",7
-fomc-corpus,1982,"While there are pockets of prosperity in my area, notably in the health area, in general the news is quite bearish. It's grim in some quarters. There are just no signs of recovery, to take an example, has a number of products that they consider leading indicators--and they have been for a number of years--and there's just no life in them at all. In fact, some of them are still going down. If you talk to the economists in some of these firms, they are still optimistic about a recovery later in the year. But if you talk to the top guys in these firms, they may say the same thing publicly, but their attitudes and expectations have definitely soured. One of the things that seems to be at work here is that they see a longer-term deterioration of their competitive position going out into '83, '84, '85, and '86. And that's largely because they're having to cancel a lot of investment plans, given the balance sheet constraint, plus what they see as the high value of the dollar that is putting them at a competitive disadvantage with their foreign competitors. I think the feeling is that even if we got a drop in interest rates soon, which they certainly would like to have, they are really going to be in a very tight spot for a number of years if this situation continues. They see a considerable amount of red ink. So, at least among the people that I talk to in my District, the attitudes--while they weren't good at the time of our last FOMC meeting--are now [focused on] looking out three or four years. And they are saying the damage that the current climate has done is in areas where they think their longer-term competitive position is at stake. And while I think in general they are still supportive of what the Fed is doing, there is some erosion in that support because a number of them are beginning to think that perhaps the situation is getting counterproductive because of the effect it's going to have on their own competitive positions several years out.",408
-fomc-corpus,1982,"Thanks, Ed. Mr. Timlen.",9
-fomc-corpus,1982,"I must say with regard to this recession that things seem to be going a little better for the Second District than for our friends in the Midwest. On the one extreme we have Buffalo, where the steel industry, the auto industry, and the auto suppliers are all having a very, very poor time of it, with very high unemployment. If you go over to Rochester, though, they tell you that it is a city with no trough in their peak. Kodak just issued a record bonus at year-end and it helped some car dealers. In New York City, I would say we're all concerned about the thrift situation, but business construction is quite strong in New York, particularly downtown. We seem to have some of that [in the pipeline] through '84. In the City, the service industries are doing well with some minor upset in employment, although I must say the IBFs in New York have not [unintelligible] 20,000 jobs. It's interesting to talk to bankers particularly about what is going on today; they really don't seem to be worried about what they know, for example, about Braniff, Pan Am, International Harvester, and Chrysler. The reaction to the Braniff [announcement] last week was kind of a ""ho hum."" I must say, though, that the bankers are now talking--in the terminology of the last two weeks--about ""survivor loans,"" which is the only thing that's keeping [some firms] going because of reduced cash flows. Just as recently as last week, the bankers said they were worried about trouble spots that might jump out without warning. And I think we're in [that situation] today. On a personal note, in Manhattan, and particularly midtown, one can't help but notice the number of small businesses that are either throwing in their keys and closing or going into bankruptcy. I know within three blocks of my apartment, I've lost my favorite Chinese restaurant and my favorite Italian restaurant.",394
-fomc-corpus,1982,And that's going too far! President Black.,9
-fomc-corpus,1982,"I think the point that Ed Boehne raised is one that probably concerns us all. The economists seem to think things are a little better than the businessmen do. I was struck at our last board meeting how differently our directors look at this from the way we tend to look at it. The answer lies at least in part in the fact that they are comparing what they're doing now with what they once did or what they did a year ago, whereas we are looking at the possibility of a seasonally adjusted upturn on a monthly basis. And that's always a problem in interpreting the Redbook figures. They always seem to be the worst right before a turn. I guess I'm a little more optimistic than most people on this, if we continue to make progress on inflation. Of course, I'm assuming away this financial crisis; that would make all bets off. But if we continue in that direction, as I think we will, then interest rates have to turn [down] pretty soon and the upturn in housing that we've had should become still stronger. I would think consumer durables also could change very quickly, and even business spending on plant and equipment could turn around rather fast--faster than any of us has been assuming--if expectations are improved by a decline in interest rates that I sincerely hope is just around the corner. But the developments that Chairman Volcker informed us about this morning are the main consideration now that could blow it all out of the water. I would have stayed with an estimate about like the staff's of about a 4 or 5 percent increase in real GNP in these last couple of quarters. I believe they're about right on the second quarter. But of course, we're all guessing on this.",346
-fomc-corpus,1982,"You don't feel that the demand for housing might fade as rates come down? There has been a lot of talk to the effect that when rates come down, housing demand will explode again or at least come back very nicely and quickly turn.",47
-fomc-corpus,1982,It will come roaring back.,6
-fomc-corpus,1982,"But the question is: Are people no longer looking at houses as a source of profits? Are they looking at job instability or income prospects that would make them less willing than they would have been a year ago to pay, say, 13 percent on mortgages?",52
-fomc-corpus,1982,"Yes, I think that's a fair assessment. But I still believe we will see some strength there. That [concern] would certainly weaken [the demand for housing]. People no longer feel sure that they're going to make a profit when they sell a house to upgrade. The behavior of house prices has made everybody who has a house worry a little.",70
-fomc-corpus,1982,"Thank you, Bob. President Ford.",8
-fomc-corpus,1982,"Well, moving down the East Coast, we feel fairly gloomy, as Ed does. We now have in our District, in the supposed Sun Belt area, raw unemployment rates that exceed the national average, which is very unusual for us as you may know. That's weighted for the fact that our two most vigorous states, Georgia and Florida, especially Florida, do have [relatively large] populations. If you weighted it by the population, they would still look reasonably good. If you just take our six states, we now have an unemployment rate that averages just under 10 percent. And that's due to the fact that we have a southern version of Detroit going for us over in Alabama for one thing and the--",142
-fomc-corpus,1982,Pittsburgh II!,5
-fomc-corpus,1982,"In Birmingham, for example, we are down to one U.S. Steel blast furnace in operation and there's a lot of talk that it may be shut down in June. That would create another problem for us in that area and [contribute to the process of] deindustrialization in Birmingham. Other things that had been sustaining our regional economy are also beginning to waiver. Most particularly, we had the energy boom going for us over in Louisiana--a lot of gas well drilling and so on--and there has been a precipitous decline in that kind of activity. We've had heavy layoffs in oil field drilling operations and related activities there. Most discouraging is the fact that even in our high-tech belt, which is emerging around Atlanta and in Florida, we've had companies such as Scientific Atlanta laying off people for the first time in anybody's memory there. Companies that we think of as having a regular 25 percent increase in profits year after year are starting to feel the pinch. So, things are looking pretty serious around the southeastern states in our District. The only thing that seems to be encouraging in our area is the fact that we have the World's Fair going on, which is attracting a lot of people to Eastern Tennessee and compensating somewhat for the manufacturing weaknesses in that state. On the subject of housing finance that you raised, Chuck, while I do think the investment aspect of buying a house is fading somewhat, there's a very strong feeling--I do know a lot of the builders in our area and talk to them regularly, and thrift executives as well--around Atlanta and around the Florida Keys that they are just waiting to get out there. Builders are chomping at the bit. We've had steady increases in permits and housing starts in a number of our major metropolitan areas, although they are still at depressed levels. And I would say our residential markets will come back, though perhaps not with the same vigor as when housing used to be a sure-fire investment as well as a place to live. We have a lot of pent-up demand for housing in Atlanta itself due to some unusual developments there like Georgia-Pacific crossing out ""Pacific"" and coming back to Georgia. We have a pretty good [housing] market. So, we have some encouragement from that side. We have another big minus force and that is that farmers in the Southeast are getting clobbered credit-wise--almost like Mexico, you know. The story is that they are overextended on their debt. We're watching the markets for land very closely, trying to detect signals of any kind of collapse in land prices and we're not seeing it because it seems as if the lenders just don't want to liquidate people unless they absolutely have to. So, we're really not seeing a lot of turnover of property, but we are hearing from a lot of bankers in rural areas that they are not happy about their farm loan portfolios in terms of credit quality. And that just reflects the fact that our farmers are having a tough time throughout the District. Overall, I'd say that the bloom is off the Sunshine states in our area, and that except for a few areas of brightness we're feeling the recession pretty heavily. And there is a lot of worry and concern among business lenders in our District.",645
-fomc-corpus,1982,Governor Gramley.,4
-fomc-corpus,1982,"Well, I listened to my colleague Bob Black and I wish I could share his optimism. If we get a budget compromise and get it soon, I think I would go along with his view that we have a potentially good recovery ahead of us. I think we would get a significant drop in bond rates, a pickup in stock prices, improved consumer confidence, and improved business attitudes generally. But I must say that I think the likelihood of getting a significant reduction of prospective deficits before the election is pretty slim. We have to be prepared for the possibility that we will live for 3, 4, 5 more months with this extremely gloomy set of attitudes pervading financial markets and the nation more generally. I don't think that what Bob is talking about is very likely. On the contrary, I see things going the other way in recent months. Plans for business fixed investment are weakening. I had been worried earlier about the possibility of a very, very large decline in business fixed investment, and I thought that the incoming evidence over the winter months had alleviated that concern; now I believe that that [revised] judgment was probably not right. I think we may see further signs of deterioration in business spending plans in the months ahead. Consumer attitudes are very, very sour. And until that situation is rectified, we're not likely to see a significant pickup in demand for durables. I'm worried, and worried considerably, about the cumulative effects of high interest rates and what they are doing to the strength of business enterprise. Interest charges are transfer payments; what goes out of one pocket ought to go into another. But I'm afraid the effects on marginal propensities to spend in the aggregate are very, very negative as these high levels of interest rates continue. Ratios of interest to profits plus interest have gone up very, very considerably and they're going up further. And that is clearly having a very substantial effect on the ability of businesses to finance their operations, particularly smaller businesses. I'm wondering if the real danger at this point may not be that an episode of the kind we were talking about earlier will cause credit markets to close in the sense that lenders around the country will suddenly stop lending as a means of protecting themselves against the possibility of very serious effects. That's something we need to watch very, very carefully. I hope the staff at the Reserve Banks will all keep in contact with their banks so that we can understand fully what is going on in credit markets. I think we're going to have to be extremely careful to avoid upsetting the situation, which could precipitate a renewed downtrend in economic activity instead of the upturn the staff has forecast. If I had been in the staff's position, I probably would have forecast just about what they did because that's what I think the logic of the numbers suggests. But the logic of the qualitative evidence coming in suggests that all the risks are on the down side and I think that's what Jim Kichline was telling us this morning.",596
-fomc-corpus,1982,"Thank you, Lyle. President Keehn.",10
-fomc-corpus,1982,"Well, the news from the Midwest, which has been grim all along, continues to be very, very grim. On the agricultural side, though, there has been some very modest improvement from a depressed level. Livestock prices are better; and with the expectation of some improvement on the export side, grain prices could be better. Having said that, farm incomes continue to be very low. Capital expenditures for tractors and combines and the like are exceptionally low. And farm land values declined significantly in the first quarter. On an appraisal basis there are few transactions and when they do occur--and the number of farms for sale is up--the sales are taking place at declines in prices of between 15 and 25 percent. On the industrial side, the District has been in a state of real depression for three years; in terms of employment and unemployment we are comparatively far worse off than the rest of the country. The weakness has now become very pervasive. The number of bankruptcies is going up, particularly among the smaller companies. In the month of March in [our] District there were more bankruptcies than in all of 1981. In the capital sector, railroad equipment is all but dead. Trucks, construction equipment, etc. are in an extremely depressed state. Last week we had a meeting of business economists, which we do on a monthly basis, and the general tone was very, very depressing. In fact, it was generally regarded as the worst session that we have had in a great many years of that particular group. So, to add to what Ed Boehne has said, there is in the Midwest also a deterioration in attitude. The great concern is that the recovery is not at hand and that, indeed, we could get ourselves into a cumulative downturn here.",357
-fomc-corpus,1982,"I read that Chicago report, Si, as indicating also a giving up in terms of expectations, not just for the next few months, but for the next several years--along the lines of Ed's comment. Was that the sense of the--?",50
-fomc-corpus,1982,"Yes, there's a sense of greatly depressed morale, if you will, about the [near-term] outlook and further beyond. I'd agree with that, Chuck.",32
-fomc-corpus,1982,"Last month was the first time in my District that I noticed the depressed morale had jumped from, say, the current period, to out over several years. Maybe it has been that way in the Midwest longer, but it just struck me as being apparent in recent weeks in my area.",57
-fomc-corpus,1982,"Si, are you getting a lot of out-migration? Can you measure that in any way?",20
-fomc-corpus,1982,"Nancy, I can't give you a figure as to the number of people actually moving out. Having said that, our employment numbers, as we commented in the Redbook, are just simply atrocious. And the unemployment also is a great deal higher. One would anticipate that in those kinds of circumstances people will leave. But unless there are opportunities in other places that can absorb them, not as many leave as one would expect.",85
-fomc-corpus,1982,"I think both Ed's and Lyle's comments with regard to the so-called ""out years"" represent a new note in our discussions. I can't speak for the March meeting, but there is a different tone, isn't there? There's a different element that we're considering. President Balles.",58
-fomc-corpus,1982,"Well, I can add to the doom and gloom if we need any more, which we don't.",20
-fomc-corpus,1982,"You're the rebuttal, John!",7
-fomc-corpus,1982,"It used to be that some of the bad news from the Midwest could be offset by what was going on in the Dallas and San Francisco Districts. We haven't heard from Bob [Boykin] yet but I have to say that as far as the West Coast is concerned, we're no longer recession-proof. We have very widespread weaknesses in all sorts of key industries. It isn't just forest products and it isn't just home building; the weakness has now spread to aerospace, semi-conductors, commercial construction, nonferrous metals, etc. As one example, at Boeing, which I suspect is one of the strongest aerospace companies in the United States if the not the strongest, employment a year ago was at 75,000 people. It is now down 2,000 from that level and is expected to go down another 8,000. That's a measure of the extent to which the commercial side of the business is down far more than the defense side is up. About the only recent strength we've seen is in sales of electronic equipment. Summing all of this up, and pretty much agreeing with what Lyle had to say, it strikes me that even though business confidence is an intangible and immeasurable, it is really worse than the business statistics. It's worse than what we might expect in terms of patterns of cyclical recovery. And that is really bad news. I'd say that among our five offices, about a fourth of our directors, including the bankers who see spreading loan delinquencies and problem loans or non-performing loans, are now so concerned that they're proposing that the Fed either operate at the top of its monetary growth ranges--and some would say we should go above those ranges deliberately for whatever period is necessary--because of the cumulative damage being done to all sorts of business concerns and individual consumers by the high level of interest rates. They are as worried as I've seen them in my 10 years on this job.",388
-fomc-corpus,1982,"Thank you, John. President Roos.",9
-fomc-corpus,1982,"Well, I guess inevitably I just don't reflect what happens everywhere else around this table. In our part of the Midwest I don't sense the pervasive gloom that some of you are reporting, and we have had CEOs of major corporations in the Bank just within the last two weeks. I sense a general feeling that the economy is near the trough of the recession; I sense a rather positive recognition of some fundamental things that most of our people feel have been put into place. First of all, they're comfortable with the level of inventories; secondly, they are extremely pleased about the downward trend of inflation; thirdly, they see a stabilization, or an absence of further downward movement, in the economy. The basic feeling is that the economy has hit the bottom that was anticipated. The one point that comes through to me constantly is this plea: Please tell your colleagues that the one thing that could push us over the brink is if [monetary policy] becomes expansive because that would move interest rates up. In other words, the basic feeling is that we're down the road in our cure process and they anticipate a recovery and hope that we, in our infinite wisdom, don't do anything to upset that recovery. I would just say, as a relatively senior individual about to go out to pasture, that I can remember every time in the short seven years I've been here that when things were just about to improve a great many of us were saying ""Oh my word, we're facing absolute disaster. A couple more months and if we don't intervene in some way, everything is going to go down the drain."" Well, I think we're on the brink of improvement [as do] most of the thinking people in our part of the country who are out of the realm of politics. I think the politicians on either side always will be overly optimistic or overly pessimistic because that's how they do business. But there is basically a subdued confidence, as I sense it, in our District.",390
-fomc-corpus,1982,"Thank you, Larry. We at last had a rebuttal of some kind.",16
-fomc-corpus,1982,I wish I didn't have to be the guy to do it.,13
-fomc-corpus,1982,Governor Rice.,3
-fomc-corpus,1982,"I don't want to add to the doom and gloom either, but I do have to say that I agree with a good deal of what has been said on the pessimistic side around the table, and I share a good part of the view expressed by Governor Gramley. Although the economy appears to be declining at a slower rate, there is no obvious and convincing evidence that it is bottoming out at the present time or that an upturn is close at hand. The main concern that I have, therefore, is with respect to the timing and strength and possible duration of the upturn--specifically whether we will have to wait for the stimulus we'll get from the midyear tax cut or whether the inventory correction will occur before then and provide the spark for the upturn. I rather doubt that we will see a substantial buildup of inventories in the current environment. I agree with what has been suggested by several people: namely, that the stress in the economy is probably understated by the macroeconomic figures. The data we look at probably don't reflect fully the strain and stress that a lot of business firms are feeling, particularly the debt-laden business firms. And as Lyle pointed out, many of these firms are experiencing the stress of a rising ratio of debt [service costs] to profits. In this environment, I don't think we are likely to see a strong buildup of stocks. So, from my point of view at least, it appears that we will have to wait for the stimulus stemming from the midyear tax cut, which we may not feel until some time further into the third quarter. Of course, that longer delay in the upturn will increase the stress on firms and their vulnerability to failure and bankruptcy. Although the reduction and the elimination of inflation continues to be our primary goal and a matter against which we mount a determined struggle, I think it is obvious in the present situation that we have made a good deal of progress toward reducing inflation and that we've made enough progress so that we can now look around and survey the damage that has been done to the economy. It's also time, I think, to see what we can do to allow the economy to repair some of this damage.",438
-fomc-corpus,1982,"Thank you, Emmett. Comments? Are you commenting on Emmett's remarks or making a separate statement.",22
-fomc-corpus,1982,"No, a separate statement.",6
-fomc-corpus,1982,Would you mind if we went to President Guffey first? President Guffey.,18
-fomc-corpus,1982,"First of all, I'd like to direct a question to Jim Kichline. If I understood your comment, Jim, the Greenbook is based upon an assumption that there will be a budget compromise and that it will be in magnitude about half what the President has recommended. I was under the impression that the assumption had been that there would be no compromise.",71
-fomc-corpus,1982,"No, in February we had taken roughly half of the proposed deficit-reducing measures in the Administration's budget at that time. We have retained that [assumption]; those numbers on a unified deficit basis are around $25 billion in deficit reducing measures both on the tax side and in expenditure cuts. The numbers being talked about in the Congress--adjusting away some of the things such as interest rate declines, which we have not put into these measures--are in the $50-$60 billion range. So, we're at roughly half of what is being talked about in the Congress now.",118
-fomc-corpus,1982,Is that for the remainder of calendar year '82?,11
-fomc-corpus,1982,"No, that's for fiscal '83.",8
-fomc-corpus,1982,Fiscal '83.,4
-fomc-corpus,1982,"What do you assume about cuts further out? It seems to me that the critical issue in terms of the effect on the economy of a compromise is what happens to expectations about further growth of the deficit beyond fiscal '83. What does that mean for long-term interest rate expectations, not just for long-term interest rates now. If one were to assume that we had that kind of deficit reduction for fiscal '83, but much much more in '84 and '85, then I would be quite convinced that the economy would come out of its current slump and turn up. But if that were the only action--a cut in the deficit of $40-$50 billion or somewhere around there--and if that were the figure for deficit reductions in '84 and '85 also, then I don't think we'd get much relief.",163
-fomc-corpus,1982,"Well, we have not, as you know, explicitly forecasted '84 and '85. I think it's perfectly consistent, however, that whatever is done in the Congress would imply larger [deficit] numbers in subsequent fiscal years. In this forecast, however, we have the persistence of very high long-term rates. One of the difficulties, frankly, is that what is being talked about in the Congress is probably not sufficient to induce market participants to believe that things are going to get done in a sizable way. Those numbers are most discouraging. To look at specified cuts: The Congress has raised once again [its estimate of the] sales of outer-continental shelf leases. Frankly, it's running the other way. The Administration has reduced the numbers, but the Congress wants to get the deficit down so they say that the United States is going to sell $8-1/2 billion of those in fiscal '83. Even the Administration doesn't buy that number. I can only say that no matter what the numbers are, if one goes through this line-by-line, it seems to me that the program has to be credible in order to have the kind of impact that you're talking about. And I really don't see that on the horizon. Dramatic things are going to have to happen over the next few months to change this around.",268
-fomc-corpus,1982,"If I may [continue], Governor Martin, there are three or four major economic activities in the Tenth District that I'd like to comment on: the aircraft industry, energy, agriculture, and auto assemblies, the latter being a very big employer in our District. Starting with the aircraft--and I'm talking about the Cessna, the Beach, the Lear jet, the Boeing aircraft--operations essentially are dead in the water, if you will, with simply no sales on the horizon. They are completing their contracts and as a result some unemployment is beginning to show up and quite likely will run out even into the recovery period. In the energy field, the number of rigs operating is down something on the order of 18 percent, May over January. And that suggests some layoffs in that industry, [and with] less piping and other supplies it rolls back to other industries. But the fact of the matter is that that has been a very vigorous sector of our economy, and some downturn perhaps is not unexpected. I would observe also that even with an upturn in the economy in the third quarter or perhaps the fourth quarter, that problem won't be solved simply because it stems largely from the glut in the international market and from the stock markets. [Given] the stock market prices, the numbers just will not work. So, until the oil prices come up on the international scene, we won't see a lot of improvement, but I don't think the downturn will go much deeper. In the auto assembly area, it is well known that there is unemployment, and that sector probably will not come back until the economy recovers. In the agricultural sector, Si Keehn accurately described the situation with respect to some optimism in the livestock area. Prices have increased rather substantially over the last 30 days. That's a segment of the agricultural industry and, to be sure, the improvement is welcome. But on the crop side, there is a glut: there is an overhang in the supply. We are looking at a very good crop and, as a matter of fact, there is no optimism in that area; unless we get the dollar in some better alignment internationally and pick up the export sales, there isn't much hope for substantial improvement. Just to give you an order of magnitude: Net farm income last year was about $23 billion; they are estimating $15 billion this year. And when taken in real terms in 1967 dollars that's almost the present level for the agriculture industry. Having said that, however, the best estimate is that there will be only about a 4 percent withdrawal of operators during this year. In other words, this year will be a washout. They have about one more year of [unintelligible] before we will see some very disruptive developments, such as sales of farm land and equipment in large numbers. In summary, there are some difficult spots. We are in a position in the Midwest where, because of the nature of agriculture to begin with and the energy area, we can weather another 9 months to a whole year fairly well. Lastly, in the energy area, I'd say that the announcement by Exxon of the close out of the shale oil [development] on the western slope of the Rockies, which was a surprise to everybody to begin with, will have some economic impact, estimated to run something like 10,000 in unemployed in that industry in Colorado. That probably won't impact the state, which is a small state and sparsely populated in some areas, to the extent of 10,000 employees simply because those are employees who have been attracted to the area and who quite likely will go home. But it will have a major impact on the economy in that western area.",745
-fomc-corpus,1982,"Thank you, Roger. Governor Wallich.",9
-fomc-corpus,1982,"It's difficult to evaluate the qualitative gloom against the quantitative evidence, such as it is. I wonder whether one reason for the great gloom is not the disastrous profit [experience] that people have been through in the first quarter. Profits collapsed in the first quarter, as one can see from our data, and that is bound to impress people when the details come out; when corporate reports go out. we may get some further impact from that. But it seems to me we experienced this kind of psychology too in 1980, and then we were in the worst recession since World War II. The economy was going down 10 percent per year. Nothing seemed able to stop it. As we know, it was ""coldest just before daybreak"" and it may turn out that way again. There was a big difference in 1980. We had allowed interest rates to fall very sharply and that turned housing around very fast. That [sort of rate decline] has not happened this time and to the extent that it was [induced by] policy, I think it was the right policy. It is somewhat surprising that we're not getting the declines in interest rates that one would expect, given the rate of inflation. But if the economy continues weak, that in itself, of course, would be a factor making for lower interest rates and for an improvement in housing. Now, the elements of strength in the situation, I'm sure we're all are familiar with. I wish we didn't have to count on the large tax cuts and social security increase as a kicker to the economy. The upshot of all this is that hardly any forecasters are seeing a decline even for the second quarter. After all I've heard here, one would expect the second quarter to be a disaster like the first, or worse. Our projection is coming down, but is not yet negative; even if the second quarter were a small negative, which wouldn't surprise me, the decline would be slowing. I find it difficult, with all these elements [of strength] ahead for the third quarter, to think that we are facing a great risk of continued decline [in overall economic activity]. What we're facing, I think, is the prospect of a very moderate advance and the possibility of choking that off. The possibility of the economy going down, barring a financial crisis such as we've talked about here today, seems to me the lesser probability. Thank you.",484
-fomc-corpus,1982,Thank you. Bob Boykin.,7
-fomc-corpus,1982,"I think it would be fair to characterize our economic situation in the Southwest as somewhat sluggish. The oil sector is still in decline; the rig count was down further in April. But there does seem to be a growing feeling that [the oil sector] is probably near the bottom if it's not there, much as Roger indicated [for his District]. Refining operations are below capacity utilization, and unemployment in that sector is down about 12 percent since December. We have had a little pickup in housing starts, but they are still at a low level. Unemployment in the State of Texas rose to 6.4 percent in April and that causes us some concern. We are not used to those kinds of numbers. Growth in bank credit slowed in the last couple of months. The demise of Braniff recently, while it might not have made a ripple in New York, caused quite a bit of consternation down our way. In fact, I wasn't sure I could get here for this meeting.",200
-fomc-corpus,1982,You could rent one of those planes!,8
-fomc-corpus,1982,"In our immediate area that involved about 4,600 jobs that disappeared overnight. On agriculture, again I think Roger described that very well. Our commercial construction seems to be holding up fairly well. There have been some pullbacks on announced projects but there are still a lot underway and some of the larger [announced] projects still plan to go ahead. In a subjective sense, I read the comments of the people I've been visiting with very recently much the way Larry Roos is reading them. Attitudinally, I think the feeling is that if we can just make it [through] another 3 or 4 months, the picture is probably going to look a bit better. I've not heard the concern that you were expressing, Ed--that you are now beginning to hear [expressions of] pessimism about the longer term or ""out years."" Just to end on a positive note: One straw in the wind is that my favorite retailer--some of you know he deals in luxury goods and in fact he says he sells absolutely nothing that anybody needs--did give me a call just to update me. He said he was a little disappointed that instead of his usual 30 to 35 percent monthly increase, it had dropped to about 17 or 18 percent. He attributed it to the peso devaluation. But he said that in looking at the reports that had arrived in the last two days, he thought maybe that had turned around too.",293
-fomc-corpus,1982,Is that stock publicly traded in their name? [Unintelligible] a chain.,18
-fomc-corpus,1982,"At a risk, I've been desperate to close on a positive note for the coffee break. And if two or three of my colleagues will indulge me in this, let us adjourn on that 17 percent upbeat note.",44
-fomc-corpus,1982,"Ladies and gentlemen, the Chairman has asked me to pass on a comment. He will be joining us in a few minutes so that we can hear from Peter and Steve, who are still involved in the Drysdale meeting next door [in the Chairman's office]. He asked me to indicate to you, knowing that you might want to change airline reservations or whatever, that it looked to him as though it would be necessary to reconvene the FOMC after lunch. So, I'm passing that on to you from their meeting. We have a number of people who have comments to make. If the Chairman is back by then, we'll hope to hear from our market-related colleagues. Let me recognize first Governor Partee.",144
-fomc-corpus,1982,"I don't know that I have very much to add to what was said before the break. I'm not optimistic on the business outlook. It seems to me that the new factor is the possibility of a distinctly deeper drop in capital spending than we have been looking at. I would point out to you that the surveys have been progressively less good. The McGraw-Hill survey now shows a sizable decline in real capital spending for the year. And when you talk to businessmen and look at the Redbook and things like that, one gets a sense that there is a very substantial conservatism that is now being introduced into the management of companies and that cash positions are a little strained. But I also have to admit that I have some sympathy with Larry Roos' point. This is a painful, difficult period that we're going through. We expected that, I think; at least I certainly did. It is necessary to squeeze profits unmercifully, Henry, in order to get businesses to cut their costs and become more efficient and to resist wage increases of size. And in the process, we're going to have some business failures--quite a few failures. We have a whole regime of business enterprises that had heavy debt ratios and were banking on inflation. Now that we're not going to have inflation because that's our official posture, they are going to have to fail. It may be a sizable proportion of the business community and it may include quite a few government securities dealers and people who speculate in securities of various kinds. We just have to take these kinds of things as they come because what we want to do, if I understand it--and what we've put the economy through hell for over the last 2-1/2 years--is to reduce inflation. So, let's get the inflation reduced and let the people suffer who are going to suffer as a result. At least that's my view. One caveat that I think is important was expressed at the last Academic Consultants meeting that we had. Somebody said that the recession in 1929 didn't look too bad for the first 9 or 10 months; one might reasonably have thought after that period that the economy was going to recover and would be all right. But there was a second-tier decline. And that was much sharper and it occurred because of financial collapse. So, if we really do have a crisis here with this firm, or if a crisis developed that tested the very financial fabric of the economy, I think we would have to deal with that. But short of that it seems to me that all we're hearing--and there's a considerable amount of it--is the pain that occurs when we have more than just a temporary little recession within a secular upward movement [in the economy] and instead have something that is going to affect a much broader number of people, businesses, profits, etcetera. So, I'm alarmed, but I'm not yet panicked.",583
-fomc-corpus,1982,"We can turn to Mr. Axilrod. I guess that is where we are, right? MR. RICE & OTHERS. We haven't heard from Mr. Sternlight.",38
-fomc-corpus,1982,"Oh, you haven't had that report yet? Well, we will turn to Mr. Sternlight. That reinforces my feeling that we may run over into this afternoon.",33
-fomc-corpus,1982,"It all seems anticlimactic, Mr. Chairman. [Statement--see Appendix.] And, of course, in the wake of this other securities firm that is in great difficulty today, there's an additional great note of caution about financing arrangements even for the highest quality of credits.",55
-fomc-corpus,1982,"Peter, you say the ""other"" firm. Was that reference to still another firm? When you talked about the uncertainty in the market rise earlier--",30
-fomc-corpus,1982,When I mentioned that I was talking about the Drysdale situation that the Chairman spoke of [earlier].,22
-fomc-corpus,1982,I thought for a minute that you might be talking about another firm.,14
-fomc-corpus,1982,"No, that was the one I was alluding to. That concludes my statement.",17
-fomc-corpus,1982,I didn't mean to cut off Mrs. Teeters and Mrs. Horn from the earlier discussion.,19
-fomc-corpus,1982,"As far as I'm concerned, we can go ahead and have the presentation on the alternatives and I will make my statement then.",25
-fomc-corpus,1982,You'll make your comment later on it.,8
-fomc-corpus,1982,"Since I was on the daily morning call for most of the days since the last FOMC meeting, I just want to make a brief observation. I think we gave the staff an unusually challenging assignment for all the reasons you know about, including the seasonal problem with M1 in April, etc. From my perspective, I want to say that both the engineering and the execution under Peter and Steve and their staffs was just really great. There were some nervous moments, at least on my part, around the middle of the month when the projections showed a 14 percent rate of increase in M1 in April and a 12-1/2 percent rise in M2. But, fortunately, that calmed down as the later projections were revised downward and we came in almost smack on target for April, which was an extraordinary and fine achievement.",169
-fomc-corpus,1982,Could I ask Peter a question? You said that the Treasury cash balance went up to $30 billion. Is that an unusual increase?,27
-fomc-corpus,1982,"Oh, yes. I would think that was very likely a record. It had been quite high in February, and we had something of a problem of the Treasury's Fed balance having to go up to about $7 or $8 billion then when the Treasury's [overall] balance had gotten up into the mid-$20 billion area. But when it got up to nearly $30 billion overall, the balance at the Fed went up to a little over $12 billion for a few days.",98
-fomc-corpus,1982,So there really was a very large final settlement--well above normal--in the first quarterly payment.,20
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,That would probably explain some of the run-up in NOW accounts that took place in anticipation of April 15.,22
-fomc-corpus,1982,That could be. I don't know.,8
-fomc-corpus,1982,"Peter, was the currency shipment to Argentina a noticeable factor?",12
-fomc-corpus,1982,"Well, in the last report I had received on those currency shipments to Argentina, they totalled about million from the beginning of April up to then, which was about a week ago now. So, it's not a very big deal [in relation to M1]. The estimate that I saw was [an addition of] about percent to M1 growth in April. Of course, for those who look at currency growth or who follow the monetary base closely, there would be more of a difference in those measures.",102
-fomc-corpus,1982,Does this imply that Argentina is about to become a two-currency country like Mexico?,17
-fomc-corpus,1982,I don't know.,4
-fomc-corpus,1982,"The information I have on that, which is anecdotal only, is that there was great concern. Well, first of all, there are some dollar deposits in the banking system in Argentina. And what was happening was that depositors were taking the dollar deposits and cashing them in for notes out of concern that the deposits might be expropriated in some way by the government and that the notes under their mattresses would be more secure.",88
-fomc-corpus,1982,"We'll turn to Mr. Axilrod at this point. Excuse me, I forgot that we have to confirm the operations.",26
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,"Without objection. Now, Mr. Axilrod.",11
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,"Well, we had a lot of ""whereas"" comments in this report on the possibilities, anyway. Mr. Morris.",25
-fomc-corpus,1982,"Steve, you assume that the impact of the sweep account is certainly going to be to reduce transactions balances. I think that will be the effect in the long run, but it seems to me it is possible that in the short run it could have the opposite effect.",53
-fomc-corpus,1982,"Oh, yes. It could--",7
-fomc-corpus,1982,"The banks seem to be marketing them, at least initially, in a very conservative way, and people may still be willing to keep more in their NOW account as a price for the convenience of combining the money market funds with their deposit account. In short, we could have an increase in M1 as a consequence.",63
-fomc-corpus,1982,I think that's possibly quite right.,7
-fomc-corpus,1982,It could be very troublesome.,6
-fomc-corpus,1982,"It depends on whether we get the very large accounts into the sweep accounts, and whether that is offset by people building up balances in the smaller deposit accounts.",31
-fomc-corpus,1982,"Frank, is this because there is a minimum that one has to--",14
-fomc-corpus,1982,"Yes, one has to have a minimum balance.",10
-fomc-corpus,1982,And those minimum balances are fairly high?,8
-fomc-corpus,1982,"Well, let's say there's a fellow who normally keeps $2,000 in his bank account and $10,000 in a money market fund and the bank offers him a deal where he can consolidate them but he has to keep $2,500 in his bank account. So, his M1 balance goes up by 25 percent. And he's willing to do it because of the increased convenience. If this is a typical account, then we could see a ballooning of M1, which could be very embarrassing to say the least.",107
-fomc-corpus,1982,"I might add, Frank, that one of our largest S&Ls on the West Coast just announced a sweep account and it started at a $2,000 minimum balance. So it isn't limited just to banks.",43
-fomc-corpus,1982,"Competition will tend to bring those balances down over time, but in the short run they may be pretty high.",22
-fomc-corpus,1982,"Well, who would like to comment on this statement and on this great economic monetary policy problem?",19
-fomc-corpus,1982,"May I take my turn now? I have listened very carefully, and I get a strong sense of crisis--which I've been anticipating for quite some time--not just in financial markets but in practically every sector of the economy now. No particular region seems to be exempt. Even if today's problems with the money market are resolved successfully--and we don't have any clue on that as of this point--I think there is another in the wings. Whether it's a particularly new and inexperienced or maybe dishonest broker or whether it's one of our larger firms, we are going to be facing financial crisis sooner or later. I would hasten to point out to you that since we last met we've had five major bankruptcies, all anticipated. Braniff may not have disturbed New York but it obviously disturbed Dallas. We have a list of close to 75 major corporations that have had their credit ratings downgraded. And since that list came out, there have been three additional bankruptcies reported. There are other firms that are obviously very shaky and that have very high debt [levels]. I think much of this crisis and the problems, both in the international market and the domestic market, have come from the high variability of interest rates. And I think people have built into the interest rates now a margin for risk, which reflects that variability. And the variabilities also have created new markets that I don't see any function for except for variable interest rates. Those are the futures markets, the options, and the ultimate silliness--the options on futures, which strike me as just pure gambling or trying to avoid risk. So, it seems to me pretty obvious when one looks at the economic projection, which I don't disagree with, that we are in the process of just pushing the whole economy not just into recession, but into depression. And that's not a forecast of a good economy, I would point out to you. It seems to me utter foolishness to have 9.4 percent unemployment and a 15 percent federal funds rate. Those are just two things that have never occurred in this economy before. The staff has lowered its forecast, and has done so across the board, although mainly in business fixed investment. But everything is down. And when I questioned them about it yesterday, they said ""We no longer can deny the April numbers."" The April numbers are very bad. And they carry that forecast of very slow growth out for a longer period of time. If you look at it closely, there is no recovery. By the time we get to the fourth quarter of 1983, the unemployment rate is down to 8.8 percent and capacity utilization is up to 73 percent. I think we've undertaken an experiment and we have succeeded in our attempt to bring down prices, although I realize they are lower than can be sustained. But as far as I'm concerned, I've had it with the monetary experiment. It's time to put this economy back together again and to get us some stability as to where we're going and how our interest rates are going to operate. I have very little respect for the long-term aggregate [ranges] and I don't feel we have to prove ourselves any more. I think it's time to operate as rational people and to try to get the economy at least started on a tentative recovery. Given the alternatives that Steve has presented, that leaves me in the position of alternative A. I can't conceive of maintaining these interest rates and not having really severe problems as we move into the summer. I'm concerned, as is everyone else, about those deficits. I would hasten to point out to you that approximately $100 to $125 billion of the deficit is due to the recession. And I don't think we should require the Congress to try to offset recession-induced deficits by cutting expenditures or raising taxes. Even if we adjust for that, the deficits are substantial. And that's what I assume the Congress will be working on rather than trying to remove the other part of it. I think it's time to relax [policy] and to reliquify the economy. It's time to permit corporations to fund their securities loans. It's time just to say we are finished one job and to start the next one.",838
-fomc-corpus,1982,Mr. Black.,4
-fomc-corpus,1982,"Mr. Chairman, I think everyone agrees that the economy is in a bad predicament now and that lower interest rates are a prerequisite for any kind of sustained recovery. But where we have the point of difference is how we think we ought to get those rates down. It seems to me that there are two main reasons why rates are staying up. The first would be the uncertainties concerning what might be done by Congress on the present budget impasse; I guess all we can do in that area is to jawbone, as I think you've done very effectively from time-to-time, with the rest of us chiming in whenever we could. But the second reason is a fear that the System at some point may be forced toward some materially easy monetary policy. And against this background, I think the best way to reduce inflationary pressures, and with them interest rates, is to get these monetary aggregates back within the target ranges and keep them there for the balance of the year. So, I think we ought to stay with ""B,"" which we adopted last time. But I would regard that ""B"" part on M1 as the upper limit. I would be glad to accept maintaining the language in the directive about a lower rate or an actual decline in M1, if that's accompanied by substantially reduced pressures in the money markets. I have two other points. The first is that I would be a little concerned about leaving in the sentence in the directive regarding M2--the second sentence in the operational paragraph. We included that last time mainly to cover the effects of the tax-related flows into M1, and we are now well past the tax date. And I wouldn't want to see M1 come in above the ""B"" specifications even if M2 were on path. The second point is that paragraph 10 in the Bluebook states that the staff's best estimate is that an $800 million borrowing level would be compatible with ""B."" The borrowing level in the first four-week period of our intermeeting period averaged $1.3 billion. And since the demand for borrowings is notoriously volatile, I think it would be a little better to start out a bit more conservatively. For lack of a better figure, I would throw out $1.1 billion. And then I'd have a clear understanding with the staff that borrowing would be adjusted down quickly if new data suggested that we had greater-than-anticipated weakness in the money supply and a lessening of pressures in the money market.",497
-fomc-corpus,1982,Mr. Boehne.,6
-fomc-corpus,1982,"Well, as Chuck said, we have been putting the economy through hell. I think maybe a drop of water would be helpful to those poor souls in hell at this point! So, in my view, we've reached the point where we ought to put some downward pressure on rates. Something between ""A"" and ""B"" captures the spirit of what I have in mind. I would have borrowing in the $600 to $700 million range, with a federal funds range of 10 to 15 percent. I would, however, keep the aggregates figures for March to June the same at about 3 and 8 percent [respectively for M1 and M2], with the understanding that if M1 is a little on the high side, that would not be a great concern.",158
-fomc-corpus,1982,Mr. Morris.,4
-fomc-corpus,1982,"Well, Mr. Chairman, I attended a meeting of central bankers from around the world at the New York Federal Reserve Bank last week, and the various countries explained how they are controlling the money supply. The fellows from the Bundesbank criticized the Japanese for being too pragmatic in that they don't have any monetary guidelines or don't seem to have any rules that we know of and are just pragmatic. And the Japanese said: ""Well, let us compare the inflation rates in Germany and Japan and let us compare the real growth rates in Germany and Japan. They said, in effect, that maybe there is a case for pragmatism occasionally in central banking. And I tend to feel that way at the moment. We are in an unprecedented period in that we've never been in a recession with interest rates like this. We've never been in a recession where our corporate sector was not only unable to liquify its position and to structure out its debt, but found itself needing to increase the level of its short-term debt during the recession. So, it seems to me our ability to forecast the economy is pretty limited in this unprecedented period and that, therefore, a pragmatic case can be made for erring a bit on the side of ease at this juncture. So, I would support alternative A.",256
-fomc-corpus,1982,Mr. Guffey.,6
-fomc-corpus,1982,"Thank you, Mr. Chairman. Let me say first of all that my preference would be alternative B, that is, retention of the second-quarter targets that we set last time and for the ""B"" proposal with respect to the intermeeting period of May and June. I would like to pose a question to Steve with respect to the $800 million borrowing assumption associated with ""B."" It isn't clear in paragraph 10 on page 7 whether or not we start the period at $800 million or end the period at $800 million or whether that is the average over the intermeeting period.",119
-fomc-corpus,1982,"Well, President Guffey, what we try to do--if I could take a minute [to provide some] background on that--is based on the results of a study we did a year ago. We try to estimate the rate of interest that would be consistent with the intersection of the money supply target with what we perceive to be money demands over that period. And then, given the discount rate--that rate of interest in here we think is a little lower--that implies the level of borrowing. So, we construct the total reserve path on the money supply target and project, in effect, what we think is the proper interest rate in order to say what the demand for borrowing consistent with that path would be. And that's how we got to the $800 million, given the discount rate. That, in effect, is what we think the sustained amount of borrowing would be over the period.",181
-fomc-corpus,1982,On average?,3
-fomc-corpus,1982,"Yes, and consistent starting out if we're right. Of course, we might very well be wrong in our interest rate projection, but that's a way--just as a first step--of trying to derive a nonborrowed path consistent with that total reserve path.",52
-fomc-corpus,1982,"If that's the case, then it's my judgment that starting with--. Well, first of all, let's say that we have something like a 14 or 14-1/2 percent federal funds rate at the moment with a borrowing level of about $1 billion, which was the level last week as I recall. If we're moving then to construct the paths commencing with an $800 borrowing level, then I would suggest that ""B"" does imply a rather quick downward shift in interest rates. My best judgment is that your [estimated decline to] 13-1/2 percent for the federal funds rate over the intermeeting period may be a little modest. It might be quite a bit lower than that.",143
-fomc-corpus,1982,"May I just make one comment that I think is relevant, particularly in this recent environment? What we have experienced very recently is a little less borrowing and the funds rate just coming down. Before that we had a higher funds rate than we thought [likely] for the level of borrowing. I'm not at all certain that the banking system feels that eager to borrow. If we ever got into a liquidity pressure situation, it may be that they'd want to store up their goodies a bit. So, I'm not exactly certain. It could go that way. I'm really just not certain, President Guffey.",120
-fomc-corpus,1982,"Well, just in conclusion: ""B"" is attractive to me, and my own feeling is that a path built upon these dimensions will give us a lower funds rate rather quickly, which will give the kind of relief that I think some around the table are suggesting may be necessary. I would hate for us to give up the quarterly target [for M1], however, at the 3 percent level.",81
-fomc-corpus,1982,Mr. Roos.,5
-fomc-corpus,1982,"Well, I'd like to express myself in terms of realities. I would question very vehemently any implication that monetary policy in the last few months has really been as tight as some would imply it has been. Even if money growth from April to June is zero, second-quarter growth of M1 will be somewhere between 3 and 4 percent. And when combined with the first-quarter M1 growth of 10.7 percent, that would result in money growth of 6-1/2 to 7 percent for the first half of 1982. That is not starving orphans; it is not squeezing the economy to death. It is relatively robust growth. I would opt for ""B"" because I think it would set the stage for M1 growth of about 5-1/2 percent for the second half of 1982, which should allow for positive growth of real GNP. Even though that rate of growth, when combined with the 6-1/2 to 7 percent growth in the first half, would produce approximately 6 percent M1 growth for the year as a whole, which is slightly above our annual target, it would still work toward reducing the basic rate of inflation from the current 7-1/4 percent. If we were to opt for an expansionary policy of something along the lines of alternative A, I think we would most assuredly end up with 6-1/2 to 7 percent growth of money in the second half of this year, and that sort of money growth would reignite inflationary expectations and start to undo the progress we've made over the past year and a half. The consequence is--and apparently there is some difference of opinion and difference of understanding on the part of some of us on this Committee--that the inflationary expectations resulting from an expansive monetary policy would cause interest rates to rise, and I underscore rise, rather than fall. Finally, while I don't want to get into a philosophical discussion and would rather imply my attitudes toward this, I couldn't characterize monetary policy as it has been conducted as entirely a failure. It has gotten us from those glorious double-digit inflation days that apparently some enjoyed a few years ago to inflation at a tolerable rate. It has brought down short-term interest rates by 300 to 400 basis points. And, unless I am as blind as a bat, I don't think that that is all wrong. Excuse me, Mr. Chairman, but in sum, I would opt for alternative B.",507
-fomc-corpus,1982,Governor Gramley.,4
-fomc-corpus,1982,"Well, I come from a very different position, but I'm going to get somewhere near Larry's. I should begin to think about that; I wonder if my logic is as tight as it ought to be! We have made a lot of progress against inflation but I don't think the battle is over yet by any means. I think the recent numbers on the actual PPI and CPI changes overstate considerably where we are in terms of the underlying [inflation] rate. And, indeed, the underlying rate itself has come down because of this very, very severe pressure on labor markets. But I think we've made enough progress to have gained some credibility and it's time to let the economy grow at a restrained pace and still make progress against inflation. I expressed earlier my deep concerns about the possibility that we might inadvertently push the economy off the cliff. That should be one of our major concerns now as well as doing what is necessary to make continued progress against inflation. However, the room we have to maneuver is very, very limited because of what is happening in fiscal policy. It is true, as Governor Teeters says, that the present deficits are primarily recession deficits; but is not true that the deficits we're looking at beyond, say, the coming fiscal year, have anything to do with recession. The budget deficits projected for the out years take place--and are growing--in the context of a fairly well functioning economy. Indeed, our staff is forecasting by way of a change in the high employment deficit between the first half of '82 and the last half of '83 an $87 billion swing; that's over a period of six quarters. And, of course, it gets bigger and bigger as far out as one can go. That is horrendous fiscal stimulus in process if we do not see a compromise reached that has some meaning to it. I think Mr. Kichline's words are well taken; he said that these unspecified budget cuts being talked about are not going to convince anybody. That is having a negative effect on the economy now because of its impact on expected future interest rates and on some present long-term interest rates. If we were to engage in any actions that suggested, in effect, that we were throwing in the towel, I think the effect on public expectations would be extremely adverse. So, I think we have a little room to maneuver and we ought to use it. We are doing basically what we wanted to do in the second quarter; things are coming out about as well as we could have expected. The money growth rates are about on target and interest rates have inched down a little from where they were. So, I would like to stay about where we are--that is, about ""B."" I might lean a little in the direction of Ed Boehne, going toward ""B+,"" but I wouldn't want to go far enough in that direction to generate a substantial downward movement of interest rates. Although that would be nice from the standpoint of the economy, it would be adverse from the standpoint of public expectations and would take some of the pressure off Congress and the Administration to get something done while there's still time.",630
-fomc-corpus,1982,Governor Rice.,3
-fomc-corpus,1982,"Well, Mr. Chairman, I don't believe that the alternatives we're looking at have much to do with inflationary expectations. Whichever of these alternatives we might choose, I don't think it would have very much effect on inflationary expectations. I just don't think many people out there are greatly worried about the fires of inflation being reignited in the immediate future. So, I don't think that's the issue. The question is how quickly we want to return M1 to the upper end of its target range. I share the view that has been expressed that our main problem is to try to do what we can to get interest rates down. My own view is that there is not much we can do to get interest rates down. If we take alternative A, the most we can look to is a funds rate of around 12 percent; I think the estimate is slightly above 12 percent. That's not a very low funds rate with unemployment at 9-1/2 percent. And with a recession of the kind we're looking at and with the economy in the shape that was described by Governor Gramley, that's not what I consider pushing interest rates down to the levels that the economy needs in order to begin recovery. What we can do, though, is to create an environment in which interest rates can fall more easily than they can rise or where they would be more likely to fall than stay where they are. The only one of these alternatives that increases the likelihood that rates will fall is alternative A. And alternative A really just returns us to the target range at a later date. We're still approaching the target range. And if we don't get there until the second half--the end of the third quarter or the beginning of the fourth--I wouldn't be greatly worried as long as we're facing the kind of economic conditions that we're facing now. So, I would opt for alternative A in the hope that it might encourage--though it may or may not--some downward movement in interest rates. Along with that I would like to see a funds rate between 10 and 15 percent and borrowing in the $500 million range.",423
-fomc-corpus,1982,"Thank you, Mr. Timlen.",8
-fomc-corpus,1982,"Mr. Chairman, I think the Federal Reserve has demonstrated over time--what to many of us seems a very long time--its commitment to its objectives. Today the credibility of the Federal Reserve in terms of that commitment is not at issue. We all recognize that the country has had some success in its war against inflation. But I think this Committee must also recognize that we are encountering a very weak economy. Against that background, the Committee should avoid any dramatic action of easing. I fear that any such dramatic action would be misinterpreted and would stir up inflationary expectations. I do think those inflationary expectations are a real risk in the financial districts, particularly as they contemplate the outlook for the federal deficit. I must state that my thinking is quite close to Ed Boehne's, which will probably make him rethink his position! I do, however, like alternative B. I might shade it slightly in the direction of alternative A and that shading in my mind would be in terms of, say, shooting for borrowings around the $700 million level rather than the $800 million level indicated.",220
-fomc-corpus,1982,"Maybe just for my benefit--I am sorry I got called out here--your concluding comment was ""B,"" I take it?",26
-fomc-corpus,1982,"Shading a little toward ""B+"" but not much.",12
-fomc-corpus,1982,"I didn't hear any of Governor Rice's argumentation. You reported that you were for ""A""?",20
-fomc-corpus,1982,"In a nutshell, I was saying that none of these alternatives can be described as easing. And I just cannot believe that any of them--alternative A at the extreme--would set up any serious inflationary expectations. People are not worried about inflation now; they are worried about staying alive. And alternative A stands the best chance of allowing interest rates to come down somewhat, though it probably won't even accomplish that.",82
-fomc-corpus,1982,"I hope I don't get called out again. I should report that the market on the surface is behaving normally enough. Bond prices are actually up today. I guess the federal funds rate hasn't behaved very well; it remains around the same level or a little higher, but I don't think that has anything to do with this little flurry in the market. I wouldn't think the funds rate is affected. We get contrasting reports about whether the market clearing arrangements are affected. They are not drastically affected at this point, but there's a lot of nervousness about them. And still nobody knows anything about the position of this firm, as near as I can figure out. So, so far so good. On policy, I was going to interject a few comments of my own here. I don't know whether it's time to do that or not but I heard some concerns, which I well understand, and I heard various bits of analysis. I'm sorry I missed the earlier discussion. I think we are in a stage where we could tell ourselves that nobody said it was going to be easy to change these expectations and behavior patterns. I don't think we have changed them completely. We have a situation where prices are moving much more favorably than can be sustained on the basis of cost trends, and we have costs rising at a somewhat slower rate of speed, but a modestly slower rate of speed. There is a real prospect, I think, of further progress in that direction over a period of time. It is going to take some time and we can't count on surface price improvement to continue. Meanwhile, there's a horrendous squeeze on profits and all the manifestations of that around the economy. And I think we are vulnerable to the kind of thing that is happening in the market now in some form of another as time passes. I would also be concerned, and have been for some time, about influences on M1 of the liquidity/uncertainty/precautionary motive that Steve referred to. Did you refer to this survey? I didn't hear it.",408
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"We can always reevaluate our longer-range targets at any meeting. I haven't heard anybody pressing that at this meeting and I think that's probably appropriate because it's very normal to do it at our next meeting. But we have to do it with some care at the next meeting, particularly against the background of the behavior of M1. Steve has outlined the possibility that M1 growth will be quite modest as soon as the economy turns around and as the precautionary motive unravels. I think there's a reasonable chance of that happening. It probably will once the economy turns around, but that assumes that it turns around and, of course, that people perceive that it has turned around. It is devoutly to be wished at this point that interest rates come down. And even more so, I don't think we have much leeway for surprises in the aggregates that drive [interest rates] up through a too mechanistic interpretation of the aggregates. I put this all together in two ways, which isn't unique from the comments I've heard already. I've argued the case before--not always successfully--that unless we have a good reason, we shouldn't change the quarterly targets. However, there are all sorts of ways to interpret that and the operational decision is where to set the borrowing path. I don't know whether Steve is right or wrong; I presume that there's at least a 50-50 chance that he's right that a considerably lower level of borrowing will be accompanied by a growth path in the aggregates that is consistent with the target we already set. In any event, that is basically a two-track strategy that has some appeal to me. Fine-tuning the aggregates in the middle of a quarter I'm not sure buys much. I am not going to [be greatly upset] if M2 growth comes out at 8-1/2 percent instead of 8 percent or even 9-1/2 percent instead of 8 percent or if M1 continues to run somewhat high under a pattern of liquidity pressures as reflected in NOW accounts in particular. I'm right in the middle of something, tell him I'll call him back in just a minute. [Secretary's note: The previous sentence was an aside to a messenger informing the Chairman of a phone call.] In effect, I would at this point take the chance from one point of view or buy the protection from another point of view--however one wants to express it--of easing the pressures on bank reserve positions along the lines of plus or minus what is suggested in ""B."" If it turns out that the figures are more favorable in terms of restrained growth, we could move more aggressively pretty promptly. I think that would bring some easing sooner or later in the funds rate. The borrowing is substantially lower than we've had for a long time. But I am not persuaded that that has to be reflected in precise changes in the targets. I'd be inclined to leave them where they were and then take the chance that that will turn out to be consistent with an easing of money market pressures for which I think there is a reasonable chance. That's how I'd play the risk situation. There is a risk in the sense that whenever we set these reserve paths we never quite know where M1 and M2 and the rest of the Ms are going to come out. I'd play it in the sense that we will take some chance that with a lower borrowing figure, they will behave. If they don't behave, we might have missed a little low on the borrowing side but we don't have to react too quickly on the other side either if there's no very extreme movement within the confines of any of these numbers we're talking about. Well, with that much introduction or comment, I will make a telephone call and return very promptly. Next on the list is Mr. Ford.",755
-fomc-corpus,1982,"I come out right about where you do, Mr. Chairman. I like ""B."" I'd like to see the federal funds rate range widened somewhat. I would not be concerned, as Lyle is, if rates were to drop now. I don't see why rates can't drop, with the high level of real interest rates that we're currently suffering under, toward a single-digit range. That ought to come sooner or later, so I'd want to widen the band, certainly on the lower end. And given the uncertainty that we're facing presently with the Drysdale situation, I'd perhaps just widen the band on both ends. I always like to do that. And a borrowing assumption of $800 million to $1 billion, or somewhere in there, sounds reasonable to me. I am concerned that we not go too far beyond ""B"" toward ""A"" because we don't yet know what will happen as we get into the second half of the year, and I wouldn't want us to give up all our leeway as we look ahead to the second half of the year. My feeling is that we should go generally for ""B"" with a somewhat lower initial borrowing assumption, though not a lot lower than we had last time, and a wider fed funds range--dropping [the lower limit] down to perhaps 10 percent and making the range, say, 10 to 16 percent. That would widen the range to 6 points as we had it some time ago. It would allow for more unusual variability [given] the current conditions that we face with the special situation in the market.",319
-fomc-corpus,1982,Governor Partee.,4
-fomc-corpus,1982,"Well, I think we do need to review the long-range targets. A very, very large proportion of the increase in M1 since the beginning of the year has been in NOW accounts. I think it's 85 percent. I had that number someplace but I can't find it now; but it's a very large proportion. That is suggestive of the possibility of a change in precautionary balances that might not continue, but at least we shouldn't try to offset the lower growth rates for something that occurred in the early part of the year and is already water over the dam. I also didn't know that Argentina accounted for million of the money supply increase in April. That takes off a good deal of the strength in currency this year. I thought that April bulge indicated that people were spending. All that increase in currency indicates is that the Argentineans are afraid they might have their money taken away from them. We should make allowance for that kind of thing, and that's going to continue for some time into the future. As far as this meeting is concerned, I'm also attracted to continuing on the target path that we set at the beginning of the quarter, which is alternative B. It calls for an increase in the money supply in June--May is largely over and seems to be minus--of 4.3 percent or thereabouts and continued expansion in M2 throughout the quarter. I'd be most concerned if we didn't get that June increase. Last year we didn't, if you recall; money growth in June was very weak. And we ought to be prepared to move in case weakness develops as we go through the period. So, I would take ""B"" for this time but reserve [my options] on the question of respecifying the aggregates for the year, which we'll be doing at our early July meeting. I rather like Mr. Ford's idea of widening the [funds rate] range. I wouldn't look forward to a 16 percent funds rate; on the other hand, I do think it could drop as low as 10 percent. So, I would widen it just on the lower end and make it 10 to 15 percent; and I'd choose a beginning borrowing number that is somewhat skewed in the direction of encouraging lower rates, which is probably around $700 million. I would agree with you on that, Tom. In sum, I would take $700 million as my initial borrowing figure, 10 to 15 percent for the funds rate range, and the aggregates as specified in alternative B.",506
-fomc-corpus,1982,"I have the numbers that Governor Partee was looking for. Of the $11.8 billion increase in seasonally adjusted money supply from December to April, $11.7 billion came from other--",40
-fomc-corpus,1982,"Oh, is that right? It's almost 100 percent. I see.",15
-fomc-corpus,1982,"From the fourth quarter to April would be the numbers that you had, I think.",17
-fomc-corpus,1982,Mr. Martin. Is that who we're up to?,11
-fomc-corpus,1982,Yes sir.,3
-fomc-corpus,1982,"Was there any particular comment of great acuteness that the two last people wanted to repeat very briefly? I see where you came out generally. If not, Mr. Martin.",36
-fomc-corpus,1982,"Thank you, Mr. Chairman. I think we have to be aware that there are limits to the impact we are going to make on this recession at this time with ""A"" or ""B"" or whatever set of targets we choose. We must be careful to keep in mind that in addition to a recession, the recovery from which is highly complicated by the level of interest rates, we are also undergoing in this country several structural changes in the overall national economic base. And those structural changes are not entirely responsive to monetary policy. It is obvious that we are in the process of moving from a heavy industry, smoke stack, economy to a service economy. We're well along that path. The difficulty of utilizing a more liberal monetary policy to bring us more strongly out of this recession is involved in that. Much of what we've read in the Redbook, District by District, has been about the changes occasioned by primary employment contraction. And that, of course, produces a multiplied effect on the economic base as secondary employment is hit by that. I submit to you that until our structural changes are farther along in that economic base we will have a weak recovery and that our policies here will have only a limited impact. Furthermore, we face changes in the financial structure in this country of which we all are acutely aware. Those changes are resistant to monetary policy in the sense that the departure of the life insurance companies and the other long-term investors from the financing of industrial plants, industrial parks, and office buildings --their abandonment, if you will, of the debt side of that kind of growth in private domestic investment--is not going to be turned around by what we do here. Those investors are going to equity participations, and in many cases that means that the factory building won't be built and the computer facility won't be installed and the office building will not be constructed, and that's not going to turn around. That is a structural change that has to work its way through until there are additional long-term sources of funds to finance business investment. The same comment applies to housing and housing-related investment--I'm stretching that term a little. The thrift institutions are not going to recover. ""A"" or ""B"" is not going to affect their financial health materially. Lower interest rates will help, but we can't get interest rates low enough, long enough, to bring the thrift institutions back as the primary financers of housing. That is not going to occur. So, those are some of the structural changes. There has been another structural change--I use words any way I like when I have the podium, and I may be cut off any second here for that remark--and it is in federal fiscal policy. It is not entirely the province of one political party. The old days when a $5 or $10 billion dollar appropriation would have bounced through the Congress to revive housing are behind us. When a $1 billion-a-year program is called generous in terms of a level of housing output of 1 million units, you know we have a changed structure there. I don't believe this Administration or its successors will get back into the bail-out of the Chryslers and the Lockheeds and so forth. So, ready federal spending in multi-billion dollar amounts is another structural change, and that has implications with regard to the recovery. I note--maybe I was too many years in the supervision of financial institutions--that I am very sensitive to the upcoming financial crisis that we will have, and I know many of you share this view. Drysdale is just one; there are going to be a number of others. There are thrift institutions that are greatly overextended--and they are multi-billion institutions and they are heavily dependent on large CDs. They are buying all the junk assets they can find because of the fees and the yields on those, which are coming down; they will fail. They may get through this interest cycle but they won't get through the next one. So, from time to time we're going to have to inject reserves. From time to time, or over and over again I should say, we're going to have to play the lender-of-last-resort role; and that is going to persist for some years. I'm not sure that it will be the Penn Central [situation] all over. I don't know that history repeats itself that way. I think the recent bulges in the reserves that we provided and in the various measures of the money supply won't go away because there's going to be another wave behind that first wave. I don't believe that the markets believe us entirely. I think we have a great deal more credibility than we used to have, but don't tell me that part of the disbelief is not reflected in the level of interest rates. I feel there is still disbelief and it is so reflected. Of course, the awareness of how the Congress works is reflected in financial markets. The perfectly normal, usual, ordinary historical process in the way Congress grinds along and finally produces a budget hasn't helped us any in the interest rate situation. I don't put much weight to polling results, but there was a recent poll of 1200 families around the country who were asked if they believed that inflation has come down recently. About a quarter of them said yes, we believe inflation has come down recently and about 75 percent of them said no; and some of them said it has gone up! So, do they believe us? Do they believe in the effectiveness of our inflationary policy? No. It is those considerations that get me over to ""B,"" not ""A."" Absent the structural changes, absent the disbelief, absent the necessity for us to be the lender of last resort, I'd go for ""A,"" frankly, because our credibility is high enough and we've been able to go from numbers of $4.9 billion in the M1 weekly changes and have gotten through that without the markets being that disturbed. I'm trying not to repeat what my colleagues here have said because they so well covered the other aspects of the economy and the price situation and the growth in the aggregates. I'm just trying to add a particular view here. Given the situation as I see it, I would go to ""B,"" but I would hope that with the excellent job done by our colleagues at the Desk--and here I'm second guessing the Desk, if I may put it that way --that if the numbers came in a little high, they would be left a little high. I hope it would be ""B"" but an easy ""B"" rather than a rigid conformance to these numbers, Mr. Chairman.",1328
-fomc-corpus,1982,Mr. Balles.,5
-fomc-corpus,1982,"Well, I guess I ended up as tail-end Charlie, today. Did I?",17
-fomc-corpus,1982,Nope.,3
-fomc-corpus,1982,"I'll try not to repeat some of the views that have already been expressed because I agree with a number of them. I would like to go back to Mr. Axilrod's analysis. That suggests that perhaps we should extend the strategy of allowing a bulge in M1, much as we did in April, and that because of the possible increases that may have occurred in precautionary balances, because of the recession, etc. we should in effect give more emphasis to M2. We agreed in April that we would [accept an overshoot on M1] provided that M2 stayed essentially close to its target for the year. Of all the different options that we might choose that's the one that appeals to me personally as making the most sense at this time. All of us are extremely anxious, of course--if we knew how to do it--to get interest rates down. The question is: How can we, in fact, do it? I'm afraid my perception is that there is probably more of a risk in big overshoots in terms of getting inflationary expectations up again, and hence interest rates up, than the risks we otherwise would run. That was more or less confirmed in my thinking at the meeting last week of the Committee on Investment Performance where we talked to three insurance companies and five investment counselors who handle our retirement fund. I asked each one of them their explanation of why nominal rates are staying so darn high in view of a very significant decline in the actual inflation rate. The answer was pretty much the standard one about the fear that these big deficits will at some point result in the Fed monetizing a good part of these deficits again, recreating inflationary pressures, and thus double-digit interest rates reappearing. Coming down to the bottom line, in view of the conflicting pressures on us, I would favor alternative B for M2, but I would be prepared to be a little more generous on the M1 side depending on the unfolding evidence of this continued buildup in precautionary balances. As Messrs. Black and Guffey pointed out, however, that $800 million borrowing assumption could be a little too generous to keep M1 from getting too much out of hand on the up side. The work that we've done in our Bank on the short-run effects on M1 of the rate of bank loan growth suggests that we might need a higher level of borrowing--say, around a billion dollars--to keep M1 from growing too fast. As far as the federal funds rate is concerned, I would join those who would broaden the range just to make sure we have all the bases covered. I would suggest a federal funds range of 11 to 16 percent.",541
-fomc-corpus,1982,Mr. Keehn.,5
-fomc-corpus,1982,"Well, it's a difficult choice. It's interesting: Alternative C certainly doesn't seem to have had any friends today. Given the gains that we have achieved on the inflation front and, most importantly, given the current state of the economy, I do think we are at a point where we could provide some room for the economy to grow and hopefully some scope for interest rates to go down. Since most of the growth in M1 so far this year has been in OCDs as opposed to currency and demand deposits, it seems to me that we could provide some scope there. I would be in favor of alternative A, and I do think we can accomplish that without any significant adverse reaction. We simply will be getting back to the target at a later date, and in my view there would not be undue negative reaction on the part of the markets. I'd stick with the funds rate range of 10 to 14 percent. That kind of band has been appropriate so far and I don't see any particular reason for making a change in that now. A borrowing level of, say, $500 million would be appropriate.",221
-fomc-corpus,1982,"Governor Wallich, you have your chance to defend ""C.""",13
-fomc-corpus,1982,"Well, I would like to remind you that this is probably the low point on inflation that we're going to reach in this cycle. From here on out visible inflation--[as reflected in] the indexes--is going to rise. I know that the underlying inflation rate isn't as low as the indexes show and that that underlying inflation is likely to continue coming down. Nevertheless, from now on out the newspapers are going to be reporting that inflation has started again. Who was it that did it? I'll give you three guesses! So, I fear that we're in some danger of repeating past performance and that we may shift to an accommodative if not expansive stance too early. And things need not improve, unemployment wise, under such a scenario. Mrs. Thatcher now has 12 percent unemployment and she had up to 20 percent interest rates. That may happen to us the next time around if we start the next expansion from the present level of inflation. I do agree with those who say that our job is to get interest rates down. We need to get credibility for what we've been doing. Interest rates in real terms are surprisingly high and I think this is largely because people don't trust what has been accomplished so far. They see inflation accelerating again. They look at inflation as something on the order of at least 10 percent per year over the long run. I don't see great [problems] in maintaining a degree of pressure at this time. Monetary policy really hasn't been very tight given that it is operating at very high interest rates. We're above our M1 target. We have not made a dramatic effort to get back into it as we did a year ago in April. The concerns that the targets might be too low to accommodate a reasonable rate of growth of nominal GNP have been largely removed. We're now looking at nominal GNP growth of 6 to 7 percent; a target at a peak 5-1/2 percent plus a normal gain in velocity of 2 or 3 percent clearly would accommodate that and even would allow, possibly, for some decline in interest rates. Finally, the danger of provoking a severe downturn seems to me to be protected against--not guaranteed against, obviously--both by the endogenous workings of the economy, such as the inventory turnaround, financial endogenous factors such as the possible drop in interest rates if the economy stays very weak, and the exogenous factors of the tax cut and social security increase. So, it seems to me that we could continue to pursue a policy of moderate restraint until the economy turns. I would lean--I'm not always to be going for ""C""--toward something like ""B-."" That would mean to me a funds rate range of 11 to 16 percent instead of the 12 to 16 percent associated with ""C;"" I'd shade the range on the low side because we do want to get rates down. And for the borrowing assumption I think $800 million is peculiarly low and I would opt for something around $1 billion. Thank you.",608
-fomc-corpus,1982,A billion dollars is where we are now in fact.,11
-fomc-corpus,1982,"Well, that's where it is implicitly; we've never been there. Last week the borrowing averaged $914 million or so and thus far this week it has been just a shade under $800 million.",39
-fomc-corpus,1982,"Peter, as to our operations, you said yesterday on the call that the Desk anticipated that we would hit our borrowing targets of a week ago.",29
-fomc-corpus,1982,"The level implicit in the path is a little over [$1 billion]--about $1044 or $1045 million. But, as Steve said, borrowing has been running around $750 to $800 million so far this week.",47
-fomc-corpus,1982,But would your guess still be that you'd come out about on the borrowing target? Or has that changed since yesterday?,23
-fomc-corpus,1982,"I don't know. The way borrowing has been running I wouldn't be surprised if it stays around that $800 million level today because tomorrow we may be looking at something that's averaging $800 million. Now, how we shape operations tomorrow might depend on the decision reached here today. If the borrowing assumption were to come out around that $800 million level, let's say, I'm not sure there's a great point in obliging that final day of the week bulge in borrowing that would bring borrowing up to the $1040 million average.",105
-fomc-corpus,1982,"Well, borrowing, let us not forget, is in any case the residual; what we are aiming at is the reserve path. And if the excess reserves vary from their assumed level, we will get a different borrowing figure simply because excess reserves are off.",51
-fomc-corpus,1982,The only reason I asked the question is that I was on the call yesterday and the staff thought at that time that we'd probably be about on target. I just wondered if that had changed.,38
-fomc-corpus,1982,"Mr. Boykin, would you like to contribute to our--?",14
-fomc-corpus,1982,"Briefly, I would opt for alternative B. I would do it in a fairly firm way. I don't think I'd want to see it shaded toward ""A."" I would accept the borrowing assumption of $800 million. It seems a little low, but I would accept that.",56
-fomc-corpus,1982,"Mrs. Horn, you are left either to pronounce the benediction or to change everybody's mind, or to bring a fresh point of view in any event. I don't know whether your view is from Cleveland or Philadelphia at this point--perhaps a mixture of both.",54
-fomc-corpus,1982,"The point of view is Cleveland as of a few days ago. I would choose alternative B. If we're either on alternative A or [C], it seems to me we run the risk of the market--or of all of us --being surprised by another accident in the money supply when we're above target. I think that's particularly damaging to market expectations. I believe the market expects us to stay on the track that we seem to be on for this quarter and would not be disappointed by our continuing with alternative B. My staff's work would indicate that the $800 million initial borrowing assumption would shade this path toward ""B+,"" but basically alternative B as specified is where I come out.",137
-fomc-corpus,1982,"Well, we seem to have some considerable, but not unanimous, consensus around some variant of ""B"" with a plus or minus [or] in the middle. I take it a number of people have made the point, and I made the point, that we face the possibility of surprises and uncertainties along the line, which might require a deviation from a strict application of a reserve path. But we have to assume we're talking in the usual manner. There is one consideration that would bear upon me, which I didn't mention earlier, and I don't know whether anybody mentioned it explicitly. I'd like to get interest rates down; it wouldn't hurt my feelings at the very least to give the market a little sense of a lead in that direction. On the other hand, it would be unfortunate if we gave it such a strong lead and created a sizable risk that we would have to reverse it in a considerable way. That would damage precisely what we're trying to do; we always have that risk to some extent. Borrowings have been around $1 billion and very briefly have been a little below that. Actually, the Desk has been aiming at a path consistent with $1 billion. Such a level has been very slow to affect the federal funds rate so far, but presumably at some point it should. The federal funds rate is about where it was when the borrowings were $300 or $400 million [higher]. Sometimes it takes a few weeks. All I'm saying is that, balancing all this out, maybe the $800 million in the Bluebook is a reasonable compromise between a bit of a lead and not being so aggressive that we maximize the chances of having to turn things around on relatively short notice. I really hadn't thought of it before particularly, but as I sit here, I feel that if we promote a great rally in the bond market and have it disappointed in three weeks, we may be better off with a little more moderate increases in the first place. We can't control that because the market has a mind of its own. We can't control it fully, but we can try to avoid giving a false lead. And if we have to go lower [on the borrowing], I'd go lower a little more gradually. That is my sense of that. As for the federal funds rate, it's hard to put the limit below 15 percent when it's above 14 percent right at the moment. But I would not have a comfortable feeling if the federal funds rate went above 15 percent at this particular juncture, and I would want to review that pretty carefully. I am inclined to think we ought to say 15 percent; we should review it if it goes to 15 percent. I wouldn't expect it to do so but I would want to think a bit if it did. The lower end of the range on a 4-point range comes out to 11 percent, which gives us a lot of room from where we are. I don't feel strongly about the lower part of the range. But just to give you something to shoot at, we're at ""B."" And, picking up on John Balles' point, which I think had some echoes elsewhere, I personally do feel more relaxed about M1, given the various influences or uncertainties bearing upon Ml within limits. It's a great source of comfort that M2 is somewhere near the upper end of the range. I have made this point very frequently in informal public and private discussions, though I have not done it in writing or in a big public speech. I think it might be useful at least to suggest in a public speech, of which I have a plenitude still on my calendar, that one should not be too literal or too aggressive about M1 when there is all this uncertainty about the precautionary effects in M1 and so forth. I also would note that that figure gets interpreted in the light of what is happening in the other aggregates and is not looked at just as a figure itself. I have to discuss a bit a letter from Mr. Reuss discussing various resolutions in Congress and what we would do about them. I want to take that up with you. I can do it now or after we make this decision. I don't know whether it's relevant to anybody's decision. So, let me just introduce it. I have been abroad, but he sent me this letter, which arrived on my desk Monday morning, May 12. That means it was sent on Friday. It's a six-page opus. Page 1 says the Senate Budget Committee has tentatively adopted a budget resolution and he's urging the House Budget Committee to have [such a] resolution; they hadn't adopted it at the time he wrote this letter, I guess. Since then the House Budget Committee, in Committee stage, has adopted the same resolution, with the same language as the Senate resolution. It says that it is the sense of the Congress that if the Congress acts to restore fiscal responsibility--that's a big if--and reduces projected budget deficits in a substantial and permanent way, though I don't know how one makes that judgment, then the Federal Reserve's Open Market Committee shall reevaluate its monetary targets in order to assure that they are fully complementary to a new and more restrained fiscal policy. It seems to me a fairly unexceptional kind of resolution and one that can be lived with, since it's entirely appropriate that we reexamine our targets on our own initiative with or without the Congress speaking for this and for other reasons. Obviously, we are approaching the midyear date to make that an explicit part of the [agenda]. Now, Mr. Reuss has been trying to get in a much more specific resolution, and page 2 reviews the background for that. He [unintelligible] it in other ways; he didn't say how specific a directive or resolution at least, but it comes down to a more specific resolution. He says he thinks that is going to prevail when the budget resolution is finally enacted. That's not the resolution they adopted in the Committee. He says here or elsewhere that he's going to press it as part of the debt ceiling legislation. If it appears there, I would note that that is legislation and not just a resolution. Then he has 2 or 3 pages about how the Constitution says that Congress shall have the power to coin money and the Federal Reserve is its agent. He notes that that is in the preamble of some resolutions that he has introduced and he reviews [comments by] past Chairmen [of the Federal Reserve]. I don't know whether he quoted some language from me--he could have; somebody should look it up--but he could have mentally, though he didn't. But he quotes Mr. McCabe, Mr. Martin, and Mr. Burns as saying that yes, indeed, if Congress appropriately by law ordered the Federal Reserve to do something, the Federal Reserve would do it. I don't think he gets right to the point of what we would do if there were a resolution. [He says] it is vital for the Congress to know whether the Federal Reserve will now accede to the directive of Congress or instead assert that it is a fully independent fourth branch of government accountable to no one. [He notes that] the next meeting of the Federal Open Market Committee is on May 18 and that it would be in the public interest to give the Open Market Committee an opportunity to vote on this question. So, I'm going to ask you to vote on--not seriously--whether we will obey the law or not. He suggests a rather vague resolution--well, I don't know whether it's vague or not: ""Resolved that the Federal Open Market Committee will comply with a directive in a concurrent resolution requesting the Federal Open Market Committee, if the Congress substantially reduces budget deficits, to adjust its present monetary target range in order to permit lower interest rates."" That leaves open the question of whether adjusting the monetary target range will in fact speed up the achievement of lower interest rates or not; that is a matter of some controversy. I do not think it's appropriate that I take a vote on this particular resolution that he has proposed, but I wanted to expose you to it. And I wonder whether I can report to him that we have discussed this matter and I will tell him that it is clear in the minds of the members of the Open Market Committee that indeed we follow the law. If Congress had a law that told us to do something, we'd have to do it. But a resolution is a much more tricky thing to handle. I think we probably ought to duck the question of how binding a resolution is, in the last analysis. But obviously we'd have to take it seriously and I'd say so. I would propose to point out in a letter that it would be a very difficult matter if they got very precise in a resolution. It would be a departure, I think without precedent, if there were a really precise resolution. It would create a very serious dilemma if we didn't happen to agree with him. But I would not say what we would do. However, I would like to report that we take their [views], however expressed, very seriously and would certainly give them our fullest attention without [directly addressing] the issue of whether we really would feel compelled if they say that our target should be 8 percent or whatever, to say that our target is 8 percent.",1875
-fomc-corpus,1982,"I would stress the difference between the law and the resolution. If they pass a resolution, it seems to me clear that they didn't want to pass a law.",32
-fomc-corpus,1982,"Well, one hears all kinds of mixed arguments. I don't disagree with you in one sense. But it's not quite as simple as that, I'm afraid. They can put resolution language in a law. If it is resolution language, such as ""It is the sense of the Congress that the Federal Reserve ought to do something,"" which doesn't sound like a law, but is signed as a law, what do we do with it? There is also the more subtle question, when we have always claimed that indeed the Congress has the power and that's in the Constitution and all the rest, of whether they need a law if both houses pass the same resolution. I just don't want to meet that question at this point. It would pose a very difficult issue for us.",152
-fomc-corpus,1982,"Can't you respond just by transmitting to him some sugar-coated, beautiful, unadulterated, double talk? I don't think you have to dignify the gentleman's request. Frequently in the game of politics when somebody tries to put you on the spot, you respond in a very dignified way with some vacuous terminology and hope he makes an inspection trip to the Falkland Islands or something like that!",81
-fomc-corpus,1982,"He's not likely to do that. My own judgment is that we can't evade this issue that fully. He's going to come back. He's going to come back in another letter or hearing very quickly if he thinks our response is too obviously evasive. Now, at the same time, I don't think we can answer the question. And we should not, in my opinion, prejudge precisely what we would do without even knowing what the resolution is.",89
-fomc-corpus,1982,"We also run the danger that if we don't pay some attention to the resolution, they will pass a law.",22
-fomc-corpus,1982,"I'd be very much impressed by a resolution. After all, this is not just any Congressman; this is the Chairman of the Joint Economic Committee, the ex-chairman of a Banking Committee, and a Congressman who has announced he is not going to run for reelection. If he can get the whole Congress behind him to support a particular path for monetary policy, as long as it's not too specific, I would take it extremely seriously and be inclined to vote with it.",94
-fomc-corpus,1982,"There is no question that they will pass a resolution. The sentiment is very strong. The question is whether we will get a resolution of the type that the Committee has adopted, which I think is the probability. The danger is something much more specific. But it depends upon whether it's said precisely; I don't think we can answer. It could put us in a very great dilemma. It has to be taken seriously; I don't think there's any question about that. Also, some of us have to go to a lunch and we have to quit for the time being. Maybe we can think about this over lunch and come--",124
-fomc-corpus,1982,"Do you have some idea, Mr. Chairman, when we return how long you think [the meeting will run]?",23
-fomc-corpus,1982,"Well, I don't think it's going to take very long, because I think we were very close to concluding. We have to resolve this issue in general terms and I don't think we will need more than a half hour, I would guess, and maybe less.",52
-fomc-corpus,1982,Would it not be possible to take a vote now on the directive? There's a consensus probably on the resolution as you have outlined it.,27
-fomc-corpus,1982,"Well, okay, if you're willing to go that fast. Let me just repeat. What I'm suggesting is that I would prefer just to keep the wording of the directive with a modification in the time period. That's where we are. Instead of just rewriting it, we'd have the same substance with a different time period. I would take out those intermediate sentences that we had before and just say this is it. I'd make clear, not in the directive but in the interpretative language on the Committee discussion--the policy record or whatever we call it--these nuances that we're a little less worried about M1 and that if it went a little high we wouldn't be all that concerned, particularly provided M2 is okay. I'd leave that to the policy record. Is that what it's called? Mr. Altmann has suggested that we put in a phrase that for the short run the Committee reaffirmed its decision of the previous meeting. It's 50-50 for me. We are in one of these peculiar cases where we are right on track with what we said at the previous meeting in terms of the aggregates. We can leave in that first sentence--well we can't really say the tax date--but we can leave in the sentence saying that M1 is affected by these liquidity shifts and so forth, if we want to.",263
-fomc-corpus,1982,I think that would be a good idea.,9
-fomc-corpus,1982,I don't have the precise language. We'd have to modify that language.,14
-fomc-corpus,1982,"All we have to do is to make it: ""The Committee also noted that deviations from these targets should be evaluated in light of changes in the relative importance of NOW accounts as a savings vehicle."" Just cut out everything from--",45
-fomc-corpus,1982,Okay. That's consistent with--,6
-fomc-corpus,1982,Just drop the next sentence.,6
-fomc-corpus,1982,"Drop the next sentence. The borrowings are $800 million and the funds rate range is 11 to 15 percent, if that's the most natural thing to say here. Do you want this clause saying we reaffirmed? I'd be inclined to leave it out.",53
-fomc-corpus,1982,How would you like 10 percent for the bottom of the funds range? There was some expression around the table for that.,25
-fomc-corpus,1982,What did you say on the federal funds rate?,10
-fomc-corpus,1982,I said 11 to 15 percent. Governor Partee is suggesting 10 to 15 percent.,21
-fomc-corpus,1982,I prefer 10 percent. What do we have to lose by letting it go to 10 percent?,21
-fomc-corpus,1982,Let's go to 10 percent.,7
-fomc-corpus,1982,You might ask for a show of hands or something.,11
-fomc-corpus,1982,"Well, I'll see. Is that the majority sentiment--to go to 10 percent? It seems to have a fair amount of support. That's the proposition. Is it clearly enough understood? We will vote then.",43
-fomc-corpus,1982,Chairman Volcker                  Yes President Balles                  Yes President Black                   Yes President Ford                    Yes Governor Gramley                  Yes President Horn                    Yes Governor Martin                   Yes Governor Partee                   Yes Governor Rice                     Yes Governor Teeters                  No Governor Wallich                  Yes First Vice President Timlen       Yes,58
-fomc-corpus,1982,"We can call the meeting to order and seek approval of the minutes, if someone wants to propose that.",21
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,"Without objection, we'll approve the minutes. Before I go any further I want to make a remark about confidentiality. There were some articles about the last meeting; I don't know whether they were based upon any confidential information or not. I have some other indications, not very serious, of numbers that may have come from Federal Reserve meetings of this sort. I don't know where this stuff came from--maybe no place. But it presents an occasion to say again that we cannot operate, or at least I cannot operate effectively in this room, if I have the sense that there are going to be any leaks. There isn't anything much we can do about them in one sense, certainly not ex post. I would only bring this to your attention and note the great importance that I, and I'm sure you, put on this matter. There's only one recourse, which is obvious, if we have some sense of lack of confidentiality. There are a lot of people in this room and we could make it quite a few fewer; we can't make it less than the Committee members.",213
-fomc-corpus,1982,We could try that too!,6
-fomc-corpus,1982,There's no other way--except that maybe we could bring the Committee members in one-by-one!,19
-fomc-corpus,1982,Secret ballot.,3
-fomc-corpus,1982,I don't mean to make light of this because I don't think it is light. I would just note that there's no recourse if we get some sense of this happening. It's still very stultifying in any event. I will say nothing more. We can go to the agenda and the staff report on the economic situation.,65
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,"If I may just interrupt a minute, Jim: Of that roughly 4 percentage point [difference in the projections of] nominal GNP, how much of that is prices and how much is real?",40
-fomc-corpus,1982,"In the Congressional budget [resolution], they have 4-1/2 percent real and 7 percent prices.",23
-fomc-corpus,1982,And what do we have?,6
-fomc-corpus,1982,"Are those annual averages, Jim?",7
-fomc-corpus,1982,"No, that's fourth quarter to fourth quarter. They have nominal GNP in '83 of 11-1/2 percent, real GNP of 4-1/2 percent, a deflator of 7 percent, and a fourth-quarter unemployment rate of 8 percent.",57
-fomc-corpus,1982,About half the difference is real and half of it is prices.,13
-fomc-corpus,1982,Right. [Statement continued--see Appendix.],9
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,"Well, I suppose we might as well go to you, Mr. Axilrod, even though it may be a little premature. We'll go back and discuss the economic situation after you are finished.",40
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,"Well, who would like to make some comments or ask questions, particularly about the economic situation but even general questions or comments on the strategic decisions facing us? I'm not looking to rush to a decision on this matter necessarily this afternoon, and I want to get back to the foreign side. I'll just cut this off in a while and get back to the matter we have to take up in the international area.",81
-fomc-corpus,1982,"Well, if nobody wants to start, I will. I agree with the staff that we're going to have a recovery. I think that's coming. But I suspect that it will be more of a statistical recovery --one that economists can point to rather than something that businessmen are going to identify with. It seems to me that business attitudes are still pretty sour and that balance sheets are pretty well strained. So, my guess is that, given the level of interest rates, your forecast is probably pretty optimistic, with most of the risk on the down side. How would you assess the risks of a deviation?",120
-fomc-corpus,1982,"Well, I would agree with you. Certainly our perception is that the risks are on the down side for real growth. Looking at the various sectors, the business sector is the one that probably worries us the most. While we have over the last several forecasts reduced the expected performance of investment outlays--as Jerry mentioned, it's about normal now--what we didn't mention is that the normal range in the postwar period is -2 to 17 percent and we're at 8 percent. So, there's a lot of room at one end or the other. Looking at the data and trying to make some allowance for that, in our judgment that 8 percent is about right. But surely the Redbook and the qualitative comments that we pick up are worrisome. I don't see any major risk of this being an explosive recovery and I perceive the risk to be on the down side. And I think the financial structure of the various sectors and the level of interest rates are real problems as we look ahead.",201
-fomc-corpus,1982,"I've heard a good deal more concern expressed by bankers in recent weeks about credit quality problems going out over the next 6 months or so. If I keep hearing a story enough times, I think there's some credibility to it. They say they now think that customers they had never really thought about as being a problem are going to be a problem over the next 6 months. I don't think anybody in the room could do any better job of putting together a forecast. I believe Jim has done his usual good job. But with interest rates where they are and the weakness of the business sector, the odds are on the side that we're probably going to have a weak recovery. And while I wouldn't forecast it, I would not rule out that there is a reasonable chance the recovery could abort and that we could have another recession in 1983. On the longer-term strategy, I would come down on the side that it's time to show some flexibility [in setting] these targets at midyear and I would raise the [M1] target. As I look out over the next 6 months, it seems to me that we would have to keep M1 [growth] at 3 percent or under during the second half in order to [lower it to] the top end of our target [range for the year]. If we get a 10 percent bulge in July, we would have to live with something like 1-1/2 percent growth from August to the end of the year. Maybe velocity will increase and maybe liquidity demands will go down, but it seems to me that there is a very large risk here and that we need a little breathing room. There is, of course, the risk on the inflationary expectations side and on credibility, but I believe our credibility would be enhanced by being realistic. It's just very difficult to sell the limits that we imposed on ourselves. So, some flexibility and some upward adjustment in the targets would make sense given the situation we're in.",399
-fomc-corpus,1982,Mr. Balles.,5
-fomc-corpus,1982,"I wanted to ask Jim Kichline a question on page 2 of the package of charts, which deals with the Federal budget. It comes as a surprise in a way that you and your people are looking at a much larger deficit in fiscal '83--some $60 billion larger.",58
-fomc-corpus,1982,It's $60 billion more.,6
-fomc-corpus,1982,"It's $60 billion--actually $62 billion--greater than in the official budget resolution. I have a couple of questions on that. I don't doubt that we could see an outcome like that, but is that view widely shared among independent analysts, so to speak? If it is, it will have a certain bearing on expectations, psychology, and everything else.",72
-fomc-corpus,1982,"Well, we had one of our people look at some of the letters coming out of brokerage firms in New York, and among the folks who watch this I think the general perception is that a deficit in the area of $140 to $150 billion is a likely outcome. In fact, market developments after this was enacted are probably consistent with the view that the market didn't believe $104 billion.",78
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"In fact, [the market] had already discounted those actions. So, I think $140 to $150 billion is the kind of number that is being talked about.",34
-fomc-corpus,1982,"I see. My fear is, and I'd like your opinion, that that in itself is going to be a factor damping any possible future decline in long-term interest rates or delaying such a decline and holding those rates up longer. Is that a warranted fear?",51
-fomc-corpus,1982,"Well, truthfully, I don't know how to forecast long-term rates; I'm not sure I know how to forecast short-term rates either. But in any event, in our flow-of-funds accounts we do think that the picture that is emerging, given the monetary assumptions, is that this budget outlook really is consistent with crowding out. It didn't occur in 1975 in a classic sense, but we're talking about a period when we're expecting real growth in the economy associated with what would normally be some rising demand. And the Treasury pounding away and essentially taking half of the total funds raised is a situation that from a credit market point of view has to apply upward pressure on rates. MS. TEETERS(?). John, this points up the inappropriateness, I think, of trying to establish growth rates for next year when we're right in the middle of the budget process. [It would be better] if we could wait to do this until late in the fall or even early next year. To try to establish growth rates with all the uncertainty about this particular aspect of it just highlights the problems that we have.",225
-fomc-corpus,1982,"Let me make a comment. We're supposed to be undergoing this exercise by law in the light of what the Administration is projecting and what its plans are and so forth. I don't know of any different plans in terms of any legislative initiatives. They are working on their forecasts. I don't know the exact [numbers] or, if I knew, I've forgotten. But they are subject to change anyway. They have a forecast which is I'm sure in real terms somewhat higher than the staff's forecast, but it's not out of sight. It probably has a higher [real] GNP and higher prices, which also makes--. [Secretary's note: The Chairman, speaking to a messenger who informed him of a phone call, asked ""Is he on the phone?""] MESSENGER. I don't know, sir.",164
-fomc-corpus,1982,"I guess it's not urgent. So, they probably come up with a significantly higher nominal GNP from the combination of the two, although I don't think the differences are going to be tremendous in either element. But putting that into a budgetary picture, they are closer to the staff estimate than to the budget resolution.",63
-fomc-corpus,1982,Is that right?,4
-fomc-corpus,1982,"They haven't settled on it yet. But they are not down at $104 billion, where the budget resolution is, by a very considerable margin. Now, just what they're going to print, I don't know. But in general terms, apart from the economic assumptions, I don't think they would deviate widely from the kind of assumptions that the staff has made as to how much of the budget resolution's specific actions will be converted into real actions.",89
-fomc-corpus,1982,"Thank you. In addition to the question I had, Mr. Chairman, I do have a comment. Ed Boehne has in effect already made it for me. I have been hearing essentially the same kind of talk from a very wide circle of businessmen and bankers in our District. They are more worried than I've seen them worried in my adult life about the spreading risks of bankruptcies for a great number of institutions that they would not normally consider being on a problem list. I'm tempted to follow the same strategy that Ed has already mentioned--I guess that's strategy 2 in the Bluebook--and have a temporary easing of our monetary targets. If we're going to do that without generating fear that the Fed will embark on a permanent accelerated program of rapid monetary growth, midyear is about the only time we can do it and get away with it in the sense that we concurrently could combine a modest upward move in the 1982 ranges by 1/2 point or so with a retraction of that for 1983 on a provisional basis--despite Governor Teeters' well stated comments about all the problems of setting forth 1983 ranges. If we did that, we could head off, or at least minimize, the dangers of announcing a change in an upward direction from our original 1982 ranges. That was my provisional leaning coming into the room. Ed has already stated the reasons for it and I'm still reserving final judgment on that until I've heard a full-scale presentation of views, pro and con, from the other members.",310
-fomc-corpus,1982,Governor Partee.,4
-fomc-corpus,1982,"Well, I want to pick up on Ed Boehne's comments too. It's extremely hard to believe that we wouldn't get some recovery out of a $40 billion tax cut--$30 billion in taxes and $10 billion in social security--starting tomorrow. And the inventory numbers in the aggregate, though there are some exceptions, seem favorable to a slowing at least in inventory liquidation. That ought to be enough to give us some increase in the period immediately ahead. But I, too, am concerned about a relapse as time goes on and as we get into 1983. I note in particular that the staff's forecast for this period presumes a flattening out, relatively quickly in terms of the cycles that one goes through, in real business fixed investment. They have it dropping rather sharply through midyear and then stabilizing. I wonder what the basis is for expecting that there would be such a sudden stabilization of that number considering that it consists essentially of business plant and equipment. Almost everything I've heard--and it's in the Redbook too--about what is happening in machinery orders and equipment suggests continued deterioration there as well as in commercial construction of shopping centers and office buildings. Again, almost everything one hears suggests substantially growing problems with overbuilding in the office area. And then, finally, oil and gas well drilling, which I guess is a fair size item in the [business fixed investment] figure, has been affected by the outlook for a sharp drop in oil prices. The effect that has on drilling activity has been reported at our last several meetings. Considering that it's an item with a long lead time and considering these things and the financial state of many businesses, one wonders how [corporate] budgets could be considered and approved that would call for rises in capital spending, how the funds could be raised, and how the contracts could be let and all this would result in a stabilization of real business spending by the middle of next year. It just seems to me that instead there might be a very, very protracted and sizable continuing decline in capital spending as we go through next year. And that would greatly change the first half of the outlook. Similarly, the residential construction industry is demoralized. They're concerned not only about the price of money, which you forecast to be remaining at 16-1/2 percent, but about the availability of funds because the savings and loans are going bankrupt, and also about the possibility that people will be pulling back from making commitments of that kind in an environment where housing prices are no longer rising appreciably and in many cases are falling. It's also an environment in which balloon payment loans will be maturing next year, and many more bankruptcies and foreclosures and takeovers of property will result from that. So, one wonders whether there would be the basis for what is, in terms of percentage rates of increase, a pretty sizable rise in residential building. My final concern has to do with net exports. Although those charts that Ted Truman presented are very calm, I think there is a very real possibility that there won't be very much recovery abroad or, if there is much recovery abroad, that there won't be the financial capacity to hold up exports to some countries like Mexico and Canada that are important to the United States. Indeed, given the price of the dollar, the price of equipment purchased in this country is now so high that it seems unlikely that we would do very well in that area. So, if we did have greater weakness in plant and equipment continuing in 1983, a failure of residential construction to recover, and a further deterioration in net exports, or more than forecast, I think that constitutes sufficient basis for thinking that the recovery may falter before too many months have gone by. If it does, and does so in an environment where interest rates have stayed high, I'm sure that the financial distress that the bankers are worried about will be with us in spades. It's very difficult to forecast. So, as I see it, that's our hazard. The question that I have is how we should plan a posture for monetary policy that will minimize the very real risk of a true shock to the economy later on--probably not until 1983. I'm not sure; I'd rather hear other peoples' reports.",855
-fomc-corpus,1982,"Governor Wallich. We're still at a very preliminary stage, I think.",15
-fomc-corpus,1982,"I see a recovery as much more likely than continued stagnation. I guess I don't differ too much in that from what others have said. There are risks on the down side, perhaps in the form of unforeseeable financial shocks or perhaps in the form of a gradual attrition of investment spending. I would remind you that, unfortunately, this is going to be the shape of the future if the budget doesn't come into better balance. There will be less investment in the economy than we normally would expect and more consumption, which we will get as a result of the tax cut. So, a shift to that posture is not all that unexpected. On the other hand, there may be some factors that do help sustain investment. The financing gap is moving toward zero. Cash flow is strong, although unfortunately not from profits. So, I see a greater prospect of a continued recovery than of a resumption of the downturn. We are probably at the bottom of the recession. At that point everything looks very bad in absolute terms, in level terms. In terms of rates of change, obviously, things have improved a great deal. Things are flattening out now. And I think one ought to look at them in terms of the rates of change rather than in terms of the levels. Meanwhile, we're shifting from a situation where we've done better so far on inflation than on growth and employment, which again seem to be becoming the less achieved objectives. I fear that we're reaching the low point of inflation and may find it rising from here on out and in this I differ somewhat from the staff forecast. We will get to a stage where we'll be telling each other at subsequent meetings that we did better on growth and the unemployment rate, but unfortunately worse on inflation. That leads me to think that we need to maintain a degree of pressure in order to continue wringing out the inflation.",374
-fomc-corpus,1982,I thought you were going to suggest we need more than one tool of policy.,16
-fomc-corpus,1982,"Well, we do. We miss every conceivable goal but in the optimum manner of what we can do with one tool; we can't hit them all. As for the strategic decisions, it seems to me we should not be rigid. If we need an increase in the ranges, we need it and should do it. It's not clear to me that the loss of our credibility from overshooting is any less bad than the loss of our credibility from raising the ranges when it looks as if [we are] caving in. There is a reason for thinking that these targets may be too low. The logic of our approach involving a steady money growth and, therefore, cyclically varying interest rates is that in a recession interest rates should come down very sharply. They did in 1980; they have not done so now. And that raises the question of whether these ranges are indeed too low. But on the other side, I see factors that are likely to make them more adequate. First, going into recovery will accelerate velocity. Second, various technological changes that may be ahead ought to tend to accelerate velocity. Historically, we've been fooled more often by underestimating velocity gains than by overestimating them. I realize either risk is possible, but if I had to make a decision, I would bet on the rise in velocity. Accordingly, I would be cautious in changing the ranges.",277
-fomc-corpus,1982,Governor Gramley.,4
-fomc-corpus,1982,"Well, I guess I'm going to say about what everybody else has said, so I'll try to be brief. I would put down a forecast that doesn't look a lot different from what the staff has written down. But I, too, think the risks are predominantly on the down side. I would mention three factors on that. One is the extremely gloomy attitude that prevails in the business and financial community and to some extent, too, among customers. All of us could list a dozen different reasons for that, but I think increasingly a perception is growing and is reflected in the kind of deficit estimates that are being made now in the financial markets that we may be in a state close to paralysis in terms of finding our way out of this fiscal box. It's a very frightening situation. The second factor that has been mentioned a couple of times is the possibility that shocks--and I wouldn't call them just financial shocks, Henry, but shocks that originate in the financial sector which may be affecting primarily nonfinancial firms--may be coming along that will cause great consternation around the nation and make the attitudes still worse. The third factor is the fact that the staff's forecast depends on the expectation that interest rates won't rise as recovery begins. And that is in turn predicated on a judgment--and I think there are strong arguments for it as well as against it--that we will have a downward shift of money demand, which will permit an increase in velocity of something like 5 or 5-1/2 percent at an annual rate. That may happen and then again it may not. What I would hesitate to see us do is to adopt a strategy now that conditions the kind of economic performance outlined here, which is really a miserable performance, on the assumption that that will happen and if it doesn't happen, the outcome will be much worse. I think we need to try to find a strategy that gets us out of that box. I look at the monetary aggregates as Henry does and say that there are good reasons for thinking that we haven't provided enough money. I think credit developments are reflecting that. In Jim's chart on funds raised by domestic nonfinancial sectors as a percent of GNP, if you take the difference between the total and the federal part, the number is down to barely over 6 percent of GNP. Now, that number has a long-term historical growth trend. If you look at a chart that plots that ratio from 1952 on and plot a trend line through it, a normative ratio would seem to be something like double that figure. That figure is as low as it is now in part because the economy is in recession but in major part because interest rates are so very high. I think we have to be very careful in trying to work our way out of this box. We can't solve all these problems, but I think we can help to solve one of them. And that is that we have more restraint on the [economic] system from the monetary side than we want at the moment. In trying to provide some way to let money grow a little faster, we ought to look over all the alternatives. One of them is to raise the targets for 1982; another is to leave them where they are but make a clear, public announcement that we're going to permit money growth to exceed that target for reasons having to do with liquidity preference or for technical reasons. The third--and here I think one can make an argument with some cogency that perhaps the idea of continuity of policy over a longer period working toward lower growth of money and credit and toward reducing inflation--could best be presented if we rebased our money growth targets for 1982, taking into account the fact that we undershot so much last year. But again, I don't know which way we can do this and best maintain credibility.",770
-fomc-corpus,1982,Mr. Solomon.,4
-fomc-corpus,1982,"Well, since I agree with Lyle's presentation, let me try and answer that last question, or at least give my personal view on it. My own view is that we should say that we would tolerate a modest or limited overrun in view of the NOW account behavior, that is NOW account funds not acting as transactions money. The reason I think we should choose that rather than either of the other two options--rebasing or raising the targets--is first of all that raising the target a half point to 6 percent target implies a precision that is almost ridiculous, given the possible swings in velocity in the second half of the year. If we were seriously considering 6-1/2 percent, that might make more sense. But I don't see the point of changing the targets a half point when I think it would be more consistent and better received in the markets if we simply indicated that we would tolerate a modest or limited overrun in view of the NOW account behavior. Stepping back, I think it's worth mentioning that our forecast is significantly different from Jim's. We have significantly higher real growth in the second half and significantly higher inflation. We are almost 1-1/2 points higher on real growth, at 3.9 percent, and almost 2 points higher on inflation. We think inflation will be about 7.3 to 7.5 percent.",279
-fomc-corpus,1982,Is that for '83 or '82?,9
-fomc-corpus,1982,"No, for the second half of '82. The Board staff has inflation coming down steadily from the second quarter; it drops from 6.1 to 5.7 percent in the third quarter and then drops again to 5.4 percent in the fourth quarter, whereas we think it will be around 7-1/2 percent in the second half of the year.",77
-fomc-corpus,1982,You're talking about the GNP deflator?,9
-fomc-corpus,1982,"I'm talking about the GNP implicit deflator, yes. For what it's worth, I don't conclude anything from that except that this difference in forecasts tends to corroborate a feeling that, as has been expressed here, we should be prepared to tolerate a modest overrun or raise the target, if it were the consensus view that it had to be raised a whole point. It's just that I don't think a half-point increase makes much sense.",88
-fomc-corpus,1982,You would say that very clearly to the market?,10
-fomc-corpus,1982,Right.,2
-fomc-corpus,1982,"Yes, so that people wouldn't keep saying that the Fed has to get money down into the range and therefore will tighten.",24
-fomc-corpus,1982,"At the time that Paul testifies, I would announce it.",13
-fomc-corpus,1982,An overshoot?,4
-fomc-corpus,1982,"[A limited overrun] wouldn't be much of a move beyond what he said earlier when he talked about the upper part of the ranges and then he talked about the NOW account behavior and we were quite comfortable, et cetera. I think it would be less likely to be interpreted as a reversal of policy or caving in to Congressional pressures to raise the targets. Even though other people haven't discussed '83 too much, I think it would be dangerous to lower the '83 targets. In other words, I would want to stick with the 5-1/2 percent rather than do another half-point cut the way we've been doing the last couple of years. Among miscellaneous points, I believe it is worth mentioning that, like Lyle, I feel not at all confident that we will see a reversal of the strength that we've seen in liquidity preference. I think it's very possible that we will continue to see this phenomenon and that we could see a very uncomfortable pressure on interest rates if we don't give ourselves a little more room. And one reason we ought to give ourselves more room in the revision of the '82 target is that it will influence our decision on the intermeeting growth path, the targets we'll get to tomorrow. That's all I'd like to say now.",252
-fomc-corpus,1982,Mr. Roos.,5
-fomc-corpus,1982,"I would start by saying that as far as the remainder of '82 is concerned I would prefer alternative A. which implies an M1 growth of 2-1/2 to 5-1/2 percent--in other words, maintaining our present range but with the understanding, either tacit or stated, that M1 will be permitted to grow either at the top or slightly above the 5-1/2 percent upper limit of our range. As for the longer-run growth strategy, I would prefer strategy IV, which assumes that M1 would indeed grow at 6 percent or thereabouts this year and be reduced to 5-1/2 percent in 1983 and 5 percent in 1984. I am really not surprised, according to the way we analyze the effect of money growth on the economy, about output. I'm not amazed or surprised about where we are at the present. I think the present extreme softness in the economy can be directly attributed to the period of approximately 6 months last year when we permitted money to grow at a very, very low rate. I believe there is a definite relationship [because of] an abrupt reduction in money growth and our keeping it at below trend for as long as a 6-month period. In looking ahead, I think the downside risk is a very real risk because if we decide to attempt to bring growth of M1, which has been at about a 7 percent rate for the first six months of this year, significantly within our announced range for 1982, that would entail reducing the rate of money growth to about 3 percent for the last six months of the year. And if we were to fall into that trap, it's almost certain that next year we would face either a continuation or an acceleration of the recession we're presently experiencing. And that would pose a severe threat to what we've been trying to do because then those who are apostles of expansion would most certainly be on our backs and ask us [unintelligible]. If we go into another economic dip in '83, I think that could well spell the end of an attempt to control money growth intelligently--some of you might not consider it intelligently--to accomplish certain economic purposes. Now, if we feel that we will resist the temptation to jam on the brakes over the last six months of this year in order to bring the aggregates within their ranges, we have the question of whether it's better to adjust our ranges upward and announce that now or to recognize at least among ourselves that there probably will be some overshoot beyond our stated ranges for the rest of the year. Before receiving the Bluebook, I on three occasions tested groups of people at home: our board of directors, twelve corporate treasurers of our largest companies who were in for lunch, and most recently the five heads of our major banks. I asked them this hypothetical question: If the Fed faces the inevitability of an overshoot of its present range in the last six months [of this year], do you think the Fed is better off to adjust its range upward or to tolerate the strength for the rest of the year and then say that there were certain circumstances that caused us to overshoot these stated targets slightly? And this is no exaggeration, Mr. Chairman, there was unanimity, and I underscore unanimity--not one voice to the contrary. They said: For heavens sake, don't adjust your ranges upward because if you do that, it will be interpreted as a dramatic indication that you are softening up on your anti-inflationary effort. This was just the judgment of a bunch of people, but they felt that the danger to our credibility would be significantly less if we were to allow a minor overshoot of our stated targets rather than announce an upward adjustment of those targets. So, that's where I stand.",771
-fomc-corpus,1982,Mr. Black.,4
-fomc-corpus,1982,"Mr. Chairman, I share many of the concerns that Lyle expressed about the risks in this economy. And I come down to the bottom line that the most likely outcome is very near to what the staff has projected. We actually come out a tad more optimistic in expecting a little more real growth, a little less inflation, and a little lower rate of unemployment. But we were assuming a 4 percent rate of growth in the money supply. So, to show our versatility and flexibility, we tried it at 4-1/2 percent and came out pretty much the same way. It really didn't change the [outcome] appreciably. But I do have a lot of differences with most of those who have spoken about what we ought to do with our long-run targets. I'm disappointed, of course, as I'm sure all of us are, that we're ending the first half with M1 and M2 apparently above the upper limits of our ranges. And depending upon what this new revision does to M1, that aggregate might be well above the upper end of its range.",217
-fomc-corpus,1982,"It can't be well above. Of course, that does depend upon what one assumes for June but it can't be well above. I don't know what your interpretation of well above is. This week we'll be within the range.",44
-fomc-corpus,1982,"[This week M1 is] moderately down. I hope that what the staff now forecasts is what happens; in that case I don't think one can say ""well above,"" but I don't know whether that [projection] really will hold up. I recognize the possibility that this burst in M1 may well reflect unusually strong demands for liquidity on the part of the public or it may be partly a reflection of the unusually sharp drop we had in interest rates toward the end of last year. But it's at least equally plausible that it has resulted from our having put out too many reserves, as I think John Balles' memorandum suggested very cogently. We're now in a situation, of course, that to stay within our targets we're going to have to decelerate the rate of growth in the aggregates. And that puts us between a rock and a hard place. But even though it isn't a very comfortable choice to think about having to slow down the rate of growth in the aggregates somewhat from where they've been, I think it would be a serious mistake to raise the long-run targets. It seems to me that the key to the sustained recovery has to be an improvement in the financial conditions of the business sector. And I don't really believe we're going to get that unless we have an improvement in the long-term capital markets--a reduction in long-term rates. And as you, Mr. Chairman, and others have stressed very well, we have a commitment to lowering our targets gradually over the long run to get them to a noninflationary rate. If we were to move the targets now, as Larry's survey suggested, I think most people would interpret it as an abandonment of our stated objective. And such a change in the public's perception of what they think we're doing could postpone indefinitely the strengthening in the capital markets that I think we so urgently need. So, I would opt very strongly for retaining our present targets and hope that we don't overshoot them. So far as next year is concerned, my inclination is to cut those ranges by about 1/2 percentage point.",416
-fomc-corpus,1982,Mr. Guffey.,6
-fomc-corpus,1982,"Mr. Chairman, everything that I want to say has already been said, so I'll synthesize quickly: First, I think that the staff's forecast is probably as good as any forecast and secondly that the risk is on the down side in the latter part of 1982 simply because the forecast is based upon some downward shift in money [demand] or an increase in the velocity that may or may not occur. Those are all prospective judgments and there is no historical record really to support them. But having said that, it seems clear that we are in risky waters. There are businesses in financial stress; I don't think we should be surprised at that in view of the monetary policy we have been running. We have achieved some good on the price side. Starting from that point, on the question of what we should do for the last half of 1982--the choices being to retain, raise, or rebase--I'm attracted by the arguments that say that we should probably retain the 1982 ranges of 2-1/2 to 5-1/2 percent and 6 to 9 percent for the aggregates, with some sort of public announcement in your testimony that growth would be at the upper end or even [that we would] tolerate some modest overshoot rather than take the affirmative step of increasing the ranges up to 6 percent, for example. As Tony has pointed out, those are very modest increases and they really are not very meaningful. And because of the credibility concern, I'd rather stay with the current ranges and make a public announcement that we're going to be flexible rather than do what is necessary to come within the 5-1/2 percent top. As to 1983, it would be my preference to reestablish the range for M1 in 1983 at the current 2-1/2 to 5-1/2 percent with the explanation that we will indeed be at or near the top of the range for 1982 and that because of past performance we don't expect it to be within the range by the last half of this year and thus the 2-1/2 to 5-1/2 percent [in 1983] is still consistent with our professed desire to move money growth to lower levels over some extended period of time. There is a lot of flexibility between 2-1/2 and 5-1/2 percent if we achieve 5-1/2 or 6 percent for 1982. If we want to reinforce the commitment to move to lower growth rates in 1982, we might consider adjusting the M2 range down 1/2 point. If you recall, we have not had any downward adjustment in M2 for two years now, I believe. And if the [MPS] model means anything at all, it would suggest that in 1983 M2 will grow somewhat more modestly than M1 and thus a 5-1/2 to 8-1/2 percent range for M2 would be consistent with what we're looking for in M1 at 2-1/2 to 5-1/2 percent.",642
-fomc-corpus,1982,Mr. Keehn.,5
-fomc-corpus,1982,"To start first with the economic situation: My comments are repetitive of what I've said in the past and repetitive of what we've already heard. The situation in the Midwest continues to be very, very serious. I keep reading about the recovery that is going to occur but I am coming to the view that it is something we all hope will come but perhaps may not. Indeed, I'm beginning to have a lurking suspicion that we could be on the front edge of something much worse than we realize. Virtually all of the sectors in the Midwest [economy] are continuing to deteriorate. The capital goods figures were in the paper. All the major companies are continuing to review their capital expenditure programs and each review results in a further curtailment. The steel industry is operating at a capacity level not seen since the 1930s; that speaks for itself. In the agricultural sector, the situation is a touch better on the livestock side but not on the grain side. And the farm implement manufacturers really are in a very, very difficult state. So, my comments, regrettably, are unchanged from what I have said before; indeed I think things are a little more serious. One CEO perhaps summed it up best by telling me the other day that in his view the situation is terrible, that it is getting much worse, and that an attitude of fright is now beginning to spread over the business community. I think perhaps we have a new problem, though I admit it's a bit anecdotal, in that I'm hearing some comments from various bankers that I've talked to about the buildup in problem assets. I've been astounded by the increase in total loans that has taken place this year in the face of the recession that we're dealing with. I have just a hunch that there are a lot of loans that are, to use the euphemistic phrase, desperation loans, and that we could be seeing some nonperforming assets resulting in some losses. Summarizing my comments about the District: The situation is very, very serious. With regard to our strategy, unless I were to hear some very specific definitional and structural reasons to change our targets this year--and I haven't heard them so far--I think that we are the only credible game in town and that to change the ranges this year would run a very significant risk. I would leave the ranges this year as is, but I would certainly aim at the high side and wouldn't be the least bit upset if we were to miss or go over. Looking ahead to next year, in light of my comments, I think to reduce the ranges for next year would be a very serious step and I certainly would be inclined to leave them just where they are.",541
-fomc-corpus,1982,Mr. Ford.,4
-fomc-corpus,1982,"Picking up on what Nancy said, I really wish that we could wish away the problem of having to decide. But as the Chairman pointed out, we have the law to contend with and we have to get up there and say something [about the ranges]. Looking at the budget picture: If you figure that this [fiscal] year, which is 2/3 behind us, the deficit has run right around $100 billion, the difference between the first projected resolution on the budget and the actual has averaged over $50 billion per year for the last three fiscal years, including this one. My feeling is that the market, as suggested in the summary we got from the staff, is looking at $104 billion as pie in the sky and that something more like what the staff put in is what the market would consider realistic, based on differences between previous first resolutions and actual performance recently. And that says that fiscal policy is very expansive and unlikely to improve in the context of an election campaign. Were we to come in behind that and give the signal that we're purposely changing the monetary track to move to a more expansive mode by raising the targets on top of the existing fiscal situation, then we would appear to have both a more expansive fiscal policy and a more expansive monetary policy. Our so-called flexibility wouldn't achieve the results in the area we get the most heat about, which is interest rates--""the results"" being a reduction in interest rates with the hope that it will relieve the pressures on peoples' balance sheets and the interest payments they have to make, for those who have to make them. We could well find it to be counterproductive in the area of interest rates because the market would simply mark up the real premium in demands in response to both fiscal and monetary expansion. So, I'd go with the group of people who have said: ""Let's not change the stated range."" And certainly let's not make a superficial change that has a definite signal value by adding 1/2 point. That gives a signal but it really doesn't amount to anything quantitatively; we would be throwing in the towel symbolically without doing anything substantively. Therefore, I come out for staying with the range we have for the long term. At this point I don't feel inclined to continue to drop the range in any significant way for next year. I'd rather hold off for a while on that until we get more information. So I come down with people who say--it seems like the majority of the people here--we should stick with what we have on the range that we have stated and continue to say we're trying to get within the range and pray like the devil that we're in the range this week and don't get blown out of it.",544
-fomc-corpus,1982,It may last one week.,6
-fomc-corpus,1982,"Mr. Chairman, there is a fourth possibility that wasn't mentioned and that is to rebase using the second quarter as the base. That is to say, in effect, we overshot but now we're going to--",43
-fomc-corpus,1982,"There is also another possibility obviously, just mechanically, which is raising some ranges and not others. But on rebasing at the second quarter, as a matter of reporting to you if nothing else--and it may be more than reporting to you--Mr. Reuss had a suggestion for us as usual when I was testifying a few weeks ago and that is specifically what he said. He said ""Why don't you rebase on the second quarter and adopt a range specifically of 2-1/2 to 7-1/2 percent for the second half of the year?""",117
-fomc-corpus,1982,"Well, I was thinking of the same range for the remainder of the year as earlier specified.",19
-fomc-corpus,1982,"But there's still a fourth possibility here and that is, if we say we're going to overshoot--",20
-fomc-corpus,1982,We have more than four already!,7
-fomc-corpus,1982,"All right, I'll suggest a fifth. If we're going to overshoot, it seems to me that we have problems in explaining ourselves to the market because we leave them without any information as to what is an acceptable overshoot. One possibility is to more or less quantify what we find to be an acceptable overshoot, given all the uncertainties, which we can outline, and they have been outlined. We could stay with our ranges for this year and then give some idea as to what the acceptable overshoot would be--in the neighborhood of an extra one percentage point or something of that sort. It may turn out that as we go through the year growth will come back down into the ranges and we can just forget about the extra 1 percentage point that we've added on. I'm concerned that we never change the ranges, gentlemen, and we're supposed to be flexible. So, it would be something if we could break out of that cage, which seems to me very desirable.",194
-fomc-corpus,1982,Let's be flexible somewhere else this time.,8
-fomc-corpus,1982,We've changed the ranges; we always change them downward. See how flexible we are!,17
-fomc-corpus,1982,I think she means we've never changed--I don't believe we have--by making a midcourse correction in a range tentatively announced in July for the following year. We have never changed that.,39
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,That's the kind of inflexibility that has bothered me also.,13
-fomc-corpus,1982,Prior to '79 we were probably the most flexible--,11
-fomc-corpus,1982,Mr. Morris.,4
-fomc-corpus,1982,"Well, Mr. Chairman, we've been describing the M1 box into which we have woven ourselves rather tightly here. I've heard a number of people say that they think our policy is too tight but we can't do anything about it. And it seems to me that that is indeed an unfortunate situation to be in. It has cleared my mind considerably to have arrived at a conclusion that M1 is no longer a reliable guide to policy and I would recommend that view to all of you or recommend that you at least contemplate it. It clears one's mind on such issues as contemporaneous reserve requirements and many other things. If you look at the situation, last year M1 ran low relative to the other aggregates and low relative to expectations. We didn't understand why it ran low last year. Although I don't recall debating it very much, we didn't decide to rebase our M1 guidelines for 1982.",179
-fomc-corpus,1982,But we did discuss it at length.,8
-fomc-corpus,1982,"We did? Well, we came up with the wrong conclusion, obviously.",15
-fomc-corpus,1982,"You were so indifferent to M1, you didn't care!",12
-fomc-corpus,1982,"Now M1 is running high relative to expectations and we don't understand that either. And now we're looking at a situation for the last half of this year, according to our official projections, in which we are projecting a resurging economy combined with an--",50
-fomc-corpus,1982,That's rather an overstatement.,6
-fomc-corpus,1982,"Of course, but we are coming out of recession and going into positive real growth, a higher nominal GNP, and that is going to be accompanied by a slower rate of growth of M1 and a deceleration in interest rates. There's nothing that is impossible in economics, but the probability of having those three things come together, based on historical evidence, is very low it seems to me.",79
-fomc-corpus,1982,"If I may just interject, Frank: What were the probabilities of having an acceleration in M1, a declining economy, a declining inflation rate, and a rise in interest rates over the first half of the year?",44
-fomc-corpus,1982,"That was also very low. But one cannot build a case for expecting an improbability on the basis of having suffered through one in the past. If we're going to get out of the M1 box sometime--and I think ultimately we're going to--why not now? So, I propose a range for this year of 8 to 11 percent in total liquid assets.",75
-fomc-corpus,1982,"You have the statistical data to back that up, so we can all look at it carefully?",19
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,What is that? Is that L?,8
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,And how are you going to construct reserve paths on that basis?,13
-fomc-corpus,1982,It has the great advantage that we don't know the figure for three months!,15
-fomc-corpus,1982,"Well, I think we could know the figure if we set out to get it. If we decided it was an important number, we could get it fairly currently.",33
-fomc-corpus,1982,How has L been doing?,6
-fomc-corpus,1982,That's a cheap advantage of it: That we don't know the figures.,14
-fomc-corpus,1982,We'll ask you to do that research for tomorrow.,10
-fomc-corpus,1982,Steve doesn't know the answer.,6
-fomc-corpus,1982,Mr. Martin.,4
-fomc-corpus,1982,"I would join those of us around the table who have pointed out the downside risks when we consider a consumer-led recovery. I think we are all aware that the consumer is in a very different frame of mind and financial frame of reference than he was previously. It's all very well to indicate the improvement in the liquid assets of consumers as a group; but in terms of consumer demand for durables, we're likely to witness in the latter months of this year and in 1983 the factor that Governor Partee brought out, which can be built on a little. When we talk about residential building and the financing thereof, I would take no exception to his comment. But when we think about the mass of consumers--those tens of millions of consumers who already have mortgages and trust deeds, many of whom for some years have been in the habit of refinancing those residential mortgages and pumping that money into durables not to mention trips to Europe and kids going to private schools and a lot of other good things--those same people are witnessing the cocktail party conversation now about how much so-and-so lost when he was transferred to Boston or whatever. And they are finding that that source of funds has definitely dried up. In fact, there are others within that group of consumers who are having difficulties now meeting the [higher-cost] refinancing that is being imposed upon them. And as that kind of conversation wafts its way through suburbia, not to mention exurbia, the tendency is to build up those good old precautionary balances and to have a liquidity preference that is a bit different from what it was when one could go and get $15,000 or $25,000 on the residential mortgage. I'm not so sure that those precautionary balances are going to be translated into spending and that we can count on the projected changes in velocity. Indeed, as the shocks that Lyle and others mentioned here occur--and we don't need to attach a probability to failures of major corporations and failures of major financial institutions in the country because I think those failures are a certainty and will be exaggerated by the media--the effect on the consumer of these shocks is going to be significant. Talk about a multiplier! This also says to me that there are implications not only with regard to precautionary balances held by consumers on the one hand and business firms possibly on the other, but it has implications for the kind of financial climate that we maintain--a liquidity climate or availability climate, if you will--for the economy in general given that individual crises will be magnified at a time when consumer psychology and attitude are important. And it seems to me for us to skate too closely to constraint or to usual or historical norms would be very dangerous. So, to the extent we can do so without upsetting the markets, I lean in the direction of liberality. In terms of the question of overshooting versus raising the targets, I think we have to realize--again thinking in terms of what the consumer understands and what he does not understand--that there have been improvements in the control of inflation. The consumer does not understand the [technical] matters; if you start talking to him about velocity, he becomes very glassy-eyed. I think the consumer can understand that if we raise the targets, we may be liberalizing [policy], and he may feel that's a bad thing. I don't think he will ever understand our explanations, however well expressed by anybody--excuse me, Chairman--about the overshooting phenomenon. I'd lament the raising of targets; that would communicate something we don't want to communicate. But I think we can explicate the overshooting process on and on and have good reasons and understand that it is more acceptable. I hate to see us locking ourselves into what we should call bracketmania or target madness so that we raise the targets and then say okay we raised them, now [we have to] make them. I hate to see us overstress the targeting as such and would rather see us have the flexibility of saying sure we're over, or yes we're under, and here are the reasons.",815
-fomc-corpus,1982,Even though they don't understand them?,7
-fomc-corpus,1982,I'll reserve on that. Yes.,7
-fomc-corpus,1982,Mr. Corrigan. We have just two or three more speakers to go and I want to turn [our attention] to our friends south of the border here before we get finished today and maybe say a few things myself.,45
-fomc-corpus,1982,"On the economy, Mr. Chairman, I made a forecast that looks like everybody else's, and the fact that everybody's forecast looks essentially the same is one of the things that worries me. I think it suggests that none of us knows what is going to happen. I do agree with all that has been said on the downside risks: I think that's where the problem may lie. But there is at least a tinge of a different interpretation one could put on all that has been said, and that is that we may be losing sight of the fact that in all of this there are also some things that have occurred in the fairly recent past that aren't all bad. The inflation improvement is no longer just a statistical aberration; it's very real. We have a situation where in my judgment, for the first time perhaps in the postwar period, businesses are really looking at themselves. They are not just going through the superficial aspects of counting noses and cleaning house in the conventional ways. Beyond that, I think we do recognize that the consumer has done a reasonable job of getting his balance sheet in order. There's the prospect, if we're right about a near-term recovery, that at least the deterioration in corporate liquidity in a statistical sense could moderate. Fundamentally, what I am suggesting is that in all the doom and gloom there are some elements that with a break or two might bode very well for the future rather than all being on the down side. However, I do agree that the downside risks are there. And they all come back to the question in some simplistic sense of the way to alter the balance of the risks that everybody has talked about. It seems to me to reduce to the proposition of: How do we get interest rates down? That's the one thing that would alter that balance of risks. I don't want to sound too agnostic on this score but my sense of things is that jiggling the money supply and the ranges that we're talking about jiggling either in real terms or in target terms isn't the answer. That is not what is going to get interest rates down. The interest rate problem, as I see it, is a combination of an expectational phenomenon partly growing out of the fact that the reality of lower inflation has not sunk in--and maybe we shouldn't expect it to have sunk in this fast--but more fundamentally a continuing reflection of this overall Federal budget situation. I think a great opportunity was missed a couple of months ago and that miss was very visible in the eyes not just of Wall Street but of Main Street. Regardless of whether the number is $140 billion or $160 billion, the sense on the budget situation is that it is in fact deteriorating. And it's very hard for me to see how, given that and the other factors I've mentioned, there's a lot we can do in jiggling monetary policy that really is going to get at that fundamental problem in the near term of lowering interest rates, which again I think is the only thing that really can alter the balance of risks. Taking that into this strategic discussion about the targets, let me do it backwards by looking at 1983 first. I very plainly would come out in favor of leaving the 1983 targets where the 1982 targets are, across the board. I would do that partly in the context of saying that there is more than the usual amount of uncertainty. But I might also suggest, depending upon what we do for 1982, that keeping the same targets for 1983 might well produce a situation in which the actual growth of money in 1983 is lower than in 1982. But I certainly wouldn't be disposed to do anything now other than restate for '83 the targets from '82. Now, on the question of the '82 targets, I do count myself in the camp of those who would say: ""Let's stick with what we have."" I say that for a couple of reasons. First of all, I am willing to put my bet on the proposition that we will get some rise in velocity in the second half of the year. I say that partly because I do think that some of that NOW account activity could wind down; and I also would suggest that the kind of velocity increase that we would need to achieve in order to see the economy behaving something like Jim's forecast isn't all that big. If we had 5 percent money growth in the second half of the year, that would leave us in pretty good shape vis-a-vis the M1 target.",905
-fomc-corpus,1982,And above the targets. We would be above with 7 percent for the first half.,18
-fomc-corpus,1982,"No. Well, it depends upon what your base is. If you go to June--",18
-fomc-corpus,1982,"Well, I mean the base is the fourth quarter.",11
-fomc-corpus,1982,"No, what I mean is that it depends on where one is going from. That 7 percent may be right for the second quarter, but looking from June to the rest of the year we're going to be very close to the target in June, if these numbers hold up.",56
-fomc-corpus,1982,Where will we be in July?,7
-fomc-corpus,1982,"We don't know. But if you just look at [growth] for the rest of the year from June, I think--no, it depends on what you use as the base.",37
-fomc-corpus,1982,"Yes, I agree with you. I was looking at the fourth quarter to the second quarter.",19
-fomc-corpus,1982,"Well, I don't think we would be all that bad off. My point is that if we had something like that, it gets the kind of economy that Jim is projecting. You're talking maybe about a 4 percent velocity [increase] or something, which doesn't strike me as all that unusual in those circumstances. So, analytically, I don't find it hard to envision a set of circumstances in which we could produce that result. But beyond that, I must say, along with Tony, that even if we're talking about changing the target by a point, it strikes me as adding an element of precision to something that inherently is not all that precise. And if we get a bulge in July and we change the targets, I could be really cynical and say that then the markets are going to say: ""My word, they're really going to miss."" And are we any better off? I don't know. But the fact of the matter is that even if we miss by a point, that's not a lot. It's $4 billion or something like that. We get weekly changes that exceed that. So, I would stay where we are. I think changing them, particularly in the context of the fiscal situation, does entail a very high risk of some significant loss in credibility when all that has been achieved so far is so fragile. I don't want to lose that. There are a lot of different ways to skin this, Mr. Chairman, but I would hope that perhaps between now and when you ultimately have to testify we can at least find the time to look at some of the presentational aspects of those target ranges which I think hurt us as well, whether we change the targets or not. I don't want to get into that in any great detail now, but while 1 percentage point sounds like a lot, $3 or $4 billion on a quarterly average basis doesn't sound like a lot to me.",383
-fomc-corpus,1982,Draw a chart with a zero base line next time.,11
-fomc-corpus,1982,You could draw a line.,6
-fomc-corpus,1982,"Well, we don't want to get into that. Mr. Boykin.",15
-fomc-corpus,1982,"Mr. Chairman, Jerry in general terms said pretty much what I've been thinking. Obviously, the downside risks are there. I have a feeling that I don't view the risks as quite as great as most of you around the table. I happen to think that we're doing pretty well where we are. For 1982 I would reestablish the targets where they are. I'm very sympathetic to Nancy's point about flexibility. I would love to be flexible if I can ever find a reason for it. I think the course we've charted really isn't all that bad. In fact, I would like to see us actually come within the target range that we specified by year-end. I think it's doable. It is supported by the staff's forecast, with which I really don't have any quarrel. Looking longer term I think we will be in a much better position if that actually occurs, assuming that we still have an economy after that!",187
-fomc-corpus,1982,That would certainly get a--,6
-fomc-corpus,1982,"I guess I would say this, Frank: I think I know where we ought to be; the issue is whether we can get there from here.",30
-fomc-corpus,1982,"Well, if a Texan makes a statement like that, I'm really scared!",16
-fomc-corpus,1982,"For 1983, I would differ from Jerry. I would be inclined, much as Bob Black was, to reduce the ranges a little for '83 with a very clear understanding that whether that would hold or not would depend on developments and would be firmed up at year-end.",57
-fomc-corpus,1982,You're going to be flexible in February!,8
-fomc-corpus,1982,We've never been flexible in February before.,8
-fomc-corpus,1982,"But he's looking for a justification to be flexible, Nancy.",12
-fomc-corpus,1982,One point on flexibility between the preliminary figure given in the testimony in July and the figure adopted next February is that it's always easy to go down a half point; it's a lot harder to go up a half point if we put our preliminary target a half point lower.,53
-fomc-corpus,1982,"Well, in terms of our stated long-term objective of a gradual reduction in the growth rate of money, this is an extremely critical time. That's very obvious. But I don't think anything has occurred to this point that should deter us from that over the long term. And I would have some concern if we were giving preliminary signals that it may not be the thing to do at this point. But depending on what happens between now and next February, if the circumstances certainly indicated that we shouldn't reduce the ranges or should maybe even raise them, I think it would be much more understandable and much more justifiable. The credibility issue is extremely important. I'm inclined to give quite a bit of weight to the perceptions problem myself.",143
-fomc-corpus,1982,Governor Rice.,3
-fomc-corpus,1982,"Well, Mr. Chairman, much of what I had in mind was very well stated by Jerry Corrigan. I do think the main difficulty and the main thing that puts us into the dilemma we are in is the current level of interest rates. I agree with Chuck Partee that our main objective ought to be to find a monetary policy strategy that would minimize the likelihood of shocks to the economy caused by monetary policy. But listening to the proposals that have been made this afternoon before 5:00 p.m., none of these seems really to get at the basic problem that Jerry dealt with at some length. And that is: How do we get interest rates down? In my judgment none of these proposals is likely to get interest rates down. So, I'm in a position of trying to choose the least bad of the alternatives before us, and I think the least bad is the one that Tony proposed: That is, that we stick with the current targets but allow ourselves the flexibility to come in above these targets--and in my judgment, considerably above these targets--if necessary. I want to say that I'm very gratified to see so much flexibility around the table, and flexibility in unexpected quarters in some cases. I hope we'll continue to be--",249
-fomc-corpus,1982,You may provoke a longer discussion!,7
-fomc-corpus,1982,That's because some people didn't know the end-of-June figures. That's the only reason.,18
-fomc-corpus,1982,"I hope we will continue to be flexible and continue to be willing to do as much as we can. I'm not convinced that it will be possible to do enough. Anything we're likely to do or can do wouldn't be enough, but I hope we'll continue to be flexible enough to try to do as much as we can in the direction of lowering interest rates. In general, I go along with the staff forecast. I very much hope that it turns out to be right.",94
-fomc-corpus,1982,"Just for purposes of clarification, when you say none of these things in your opinion has a probability of lowering interest rates--",24
-fomc-corpus,1982,Significantly.,4
-fomc-corpus,1982,What you're saying is that there is nothing we can do by ourselves to do that; I presume that's the implication. You're not holding out on us with some other plan that would do this?,38
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,How about a national usury ceiling?,8
-fomc-corpus,1982,I guess I'm not worried about that. Governor Teeters.,12
-fomc-corpus,1982,Excuse me. Could I just say that for 1983 I would stay with the present targets.,21
-fomc-corpus,1982,"My initial response when you were about halfway through the discussion was that it would be more diplomatic if I kept quiet. However, I would like to make some points about where I think the ranges should be. I can see all the arguments for not raising the ranges. On the other hand, if we just say we are going to tolerate going over them, then we will have problems with the people with sharp pencils in New York who sit down and figure out how much money can grow over the rest of the year in order to come within the targets. So, I feel fairly strongly that we have to give some indication as to what the overreach that we will tolerate will be. I think that will help them. It's the clearest way to send a signal to the market that we will tolerate lower interest rates because they probably would associate and accomplish what you're after, Emmett. So, I think we can't just go up [to the Hill] and say fuzzily that we're going to go over [the target]. We have to make some determination about what is bearable. And maybe we want to make it larger; I think the 1/2 point won't do it, Tony. A point probably would, and a point-and-a-half would be an even stronger signal to the market to bring the rates down. For next year, I see absolutely no reason to lower the ranges at this point. That's putting us into a box that we put ourselves into a year ago and we're now trying to get ourselves out of it. I think it's foolish to do that. In fact, it might be good policy as a general matter year after year to say that we're not changing the ranges at [midyear] and thus leave ourselves maximum flexibility come February.",352
-fomc-corpus,1982,"Mr. McDonald, you bring a message from--",11
-fomc-corpus,1982,"Other than no baby to report.... I can pick up on President Keehn's comments about economic conditions. Ours are the same or very similar to what they are in the Chicago District. Our unemployment rate in April and May has been 12 percent. And this occurred despite a slow. steady reduction in the labor force in recent years. Comments were made about steel operating now at 45 percent of capacity; and [conditions in] the auto industry and manufacturing industry are very similar, although our banks are showing less signs of strains than their counterparts nationally. Loans and assets and deposit growth have exceeded the national average as well as the year-earlier performance. Our loan-to-deposit ratio is about 75 percent, which is about 11 points below the national average. Savings and loans, on the other hand, are plagued by continued deposit outflows. In our ten largest S&Ls, losses were at the rate of a million dollars a month over the second half of '81. There's a possibility that half of these [institutions] will have to be merged, perhaps later this year. The weak economy in Ohio has contributed to a projected billion dollar deficit in the Ohio budget by June '83 and this is going to be met by a 50 percent increase in the income tax surcharge effective tomorrow. So, for low and middle income families, the surcharge will virtually offset the reduction in the [federal] income tax.",287
-fomc-corpus,1982,A surcharge on the state income tax?,8
-fomc-corpus,1982,"On the state income tax, right. As for the target ranges, we agree with the [current] path. Longer run, I would agree with Presidents Black and Boykin and support, consistent with sustaining a gradual disinflationary posture, reducing them by 1/2 percentage point and staying within the targets. There are those who say it's bracketitis or that type of thing. But we are getting more and more comments from bankers and business people saying that you at the Fed set the targets and you ought to stay within the ranges. We all recognize the same thing that you do around the table, but that's seemingly very serious.",128
-fomc-corpus,1982,Let me turn to Mexico because we have people waiting for an answer here. We distributed a paper on Mexico and people presumably had that last night.,29
-fomc-corpus,1982,"No, they didn't. They got it when they arrived.",12
-fomc-corpus,1982,"Well, you have it. You've all read it and studied it carefully. Let me bring you up to date. We are providing essentially some window-dressing money and it's only window-dressing money. We'll keep it in the bank tonight. It is less than the full amount of the swap. You were asked for your approval of that yesterday or the day before, whenever it was, and that has been done. The more important question is the need for real money. I don't know that anybody knows how that stands precisely. But there's a clear possibility that they may need some money, if not today, tomorrow or the next day. These days are particularly critical with respect to Mexico because there happens to be an election over the weekend. It's their quinquennial event. It's always troublesome in Mexico not because they don't know the victor, but because they have some concern over the size of the plurality and they have a long electoral process which stretches out. They are somewhat limited before the election as everybody is. They have an electoral college vote late in July, so they don't like to upset things too much before the electoral college meets. There is a state of the union message in September by the outgoing president, who never likes to bring up any bad news or make any big policy changes; and the new president doesn't come in until December. So if you think our process of changing command is lengthy and has its inhibitions, theirs is worse. They have obviously tried some borrowing in the private markets. They spent a lot of time negotiating a big loan of $2-1/2 billion and they signed up the lead banks well over a month ago as I recall. The banks went out and tried to syndicate it. And I might say it has a very liberal margin, higher than they had been paying, but not a Brazilian standard of 2 percent or more. It was around 1 percent or a little less.",385
-fomc-corpus,1982,1 percent.,3
-fomc-corpus,1982,"I forget the exact [margin]; it doesn't make any difference. The banks found out during this period in going out and syndicating the loan that there was very little response, which I think is symptomatic of banking attitudes toward Mexico at this point. So the leaders in the syndicate got stuck with most of the loan because they had agreed to underwrite it. The loan presumably went through today finally. It was going to be signed every week and never got signed. I presume it got signed today. But by this time there is no money left of the loan because half of it goes into refinancing short-term debt that these same banks had put on some time ago and the other half goes to repay a bridge loan that they had made when they agreed to make the loan in the first place. So, there isn't any cash from the loan. And it's all symptomatic of the international financial markets closing up pretty tightly on Mexico now. Mexico has a program that is described in that paper. It's hard to tell, but the sense is that they're not having a big run or outflow from Mexico; such an outflow was not unlikely before the election. And the fact that they got through apparently without [outflows] of big size anyway before the election is somewhat encouraging. But the sense is that there are a lot of short-term as well as medium-term loans maturing and they can't roll them over now. So they have a cash bind. To give you some idea of the overall problem, which probably is in the memorandum, their plans were to borrow $27 billion gross this year as I recall. That's over $2 billion a month. That would lead to a net increase of about $11 billion in outstanding indebtedness, which is less than they did last year. But they have to get almost $1 billion a month net to [finance] their balance of payments [deficit], and that doesn't assume a big outflow from Mexico. Against all those numbers our swap is not overwhelming in size. It can help them get through the election; it may help them some days thereafter, if we do it, or intermittently thereafter. But they obviously have a basic confidence problem they are going to have to deal with. And they have begun to deal with it. I think it's at least a token of good faith. As was noted in the memorandum and the telegram, Mexico's finance minister and central bank governor have gone around saying more openly than in the past according to my memory: ""Too bad, but no growth for a year or 18 months because we have a big adjustment problem here."" And that has been said quite publicly and openly. But they have come to us; they haven't much other recourse that I know about for getting money in the short run. It's not quite clear what they are going to need in the very short run. Our problem, of course, once we get into this morass, is: How do we get repaid when they have that kind of borrowing need? And the loan is not going to be repaid unless they have access to public credit. I don't mean public credit; I mean access to the market. I don't know of any access they have to public credit in big ways. The United States government may lend them a little money, but that's not going to amount to a hill of beans.",672
-fomc-corpus,1982,The IMF?,3
-fomc-corpus,1982,"Access to the market is what I mean. And, of course, from that point of view the question arises about the IMF. The IMF doesn't have enough money to take care of them for very long, but the IMF can be critically important in terms of encouraging reinforcement of their program and encouraging confidence so that the market is reasonably open to them. I might just mention that on top of all this they have the de facto bankruptcy of the biggest company in Mexico complicating all this with its many outstanding international loans. The reason Sam Cross isn't here is because he is in Mexico City with a proposition for our lending them some real money as opposed to just window-dressing money if we can get a satisfactory commitment--to the degree one can get a commitment now as a practical matter--that the loan will be of limited duration, that in the last analysis they will borrow from the Fund as a means of repayment, and that if they are going to have to borrow from the Fund that implies some approach to the Fund before the maturity date of the loan. We have talked with the Treasury about this--both the Treasury and the Administration more generally one might say--because this obviously has broader ramifications. It is the kind of thing that we would naturally want to get their view on in terms of its other implications, and they also have some lending capacity. The Treasury has a swap agreement with Mexico of only $300 million, which is now written and has been for a number of years to say that they will only lend to them if Mexico has an IMF program in place. And there is some much vaguer language in the statute that doesn't say that an IMF program has to be in place but to some degree restricts their flexibility on how the ESF lends money. The upshot of all this is that Sam went down there to find out whether they would agree to a letter in effect saying that they would borrow from the IMF in the last analysis if they have to in order to repay this. And we have asked the Treasury whether they are willing to send us a letter that in the last analysis, assuming that Mexico has an IMF program which is consistent with their swap terms, they either would join us in lending to Mexico or help take us out if that were necessary. Probably if they do borrow from the IMF, under IMF procedures, the IMF cannot in the immediate instance lend them enough money to repay our swap in the full amount because the tranche that they would in normal circumstances be eligible for without some passage of time is what--$300 to $400 million?",511
-fomc-corpus,1982,"$300 million at the minimum, but it could be as high as $400 or $500 million.",21
-fomc-corpus,1982,"There's a little room for flexibility here, but we can't be certain. We would have to wait another quarter or six months or whatever for the next tranche. We have a [draft] letter that apparently they are prepared to write, which surprises me a little just in terms of the tenderness of the political situation there, two days before an election. That's a tough problem for any country, too. I did not mention in the background that the present president of Mexico on a number of occasions said he would borrow from the IMF over his dead body. I can read the letter to you. Did you give me a copy of that letter?",127
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"I will read to you. I will not go down this word for word in the sense that there may be a little room for changing it slightly, but I think it has the essential elements that we were looking for. And this would be a letter to me, presumably. ""I'm pleased that an agreement has been reached in reactivating the swap arrangement. In order to bolster market confidence and strengthen Mexico's reserve position, the Government of Mexico in coming weeks will accelerate the implementation of its stabilization program that was announced on April 21..."" I might say they have said that they were going to do that anyway. That's nothing new. The letter continues ""and, as necessary, intensify that program. The Banco de Mexico intends to repay its drawing as soon as its reserve position permits."" Now, let me just put a little gloss on that sentence. They think they're going to get a loan--what amounts to a loan, I guess, in that it's a prepayment for some oil sales in Europe --next week so we could be repaid as early as next week if that goes through. And that's the intention. But that doesn't mean they wouldn't be back. They need $2 billion a month. And all they are doing is anticipating next month's oil sales. They won't come in the normal way. So, we may get repaid next week, but it's not the end of the problem by any means. ""The agreed drawing will have a maturity of one month, subject to one additional three-month renewal on mutual agreement. In any event, any and all drawings made under the swap arrangement will be finally liquidated no later than October 31, 1983."" That would be the one month plus the three months. That's an earlier date than we suggested to them. I don't know why that ended up being earlier. ""The Government of Mexico and the Banco de Mexico will take all actions required to meet these obligations including, if necessary to meet the final liquidation date, timely drawings from the International Monetary Fund. Accordingly, if necessary to meet these obligations, the Government of Mexico is prepared to undertake detailed discussions with the International Monetary Fund with a view to establishing an International Monetary Fund program for Mexico in the fall."" Basically, the only difference in this from the letter we suggested to them is that we tried to pin them down a bit more as to when in fact they would walk in the Fund's door and say ""We want to talk."" This is a little fuzzier, but--",500
-fomc-corpus,1982,I think you ought to emphasize how much damage a leak from this meeting--particularly about the language that's here--would do. I can't underestimate it.,30
-fomc-corpus,1982,It's very sensitive; there's no question about that. The other letter is a letter from the Treasury saying that they recognize this other situation and some language we haven't fully worked out to the effect that they think the drawing is appropriate and they would participate in credit to Mexico as soon as the IMF has agreed to a conditional credit program for Mexico. [Secretary's note: Copies of the letter from the Treasury and the letter to the Government of Mexico in their final form are included in the Appendix.] That's the background. I would propose approval.,106
-fomc-corpus,1982,The Treasury gives an endorsement?,6
-fomc-corpus,1982,"[Yes], that in the present circumstances and with these understandings, subject to agreement, the drawing seems clearly appropriate.",24
-fomc-corpus,1982,Who signs the Mexican letter?,6
-fomc-corpus,1982,Mancera.,4
-fomc-corpus,1982,I guess the idea is that both Mancera and Silva Herzog will sign the letter.,17
-fomc-corpus,1982,Is there evidence that the president has changed his mind on going to the IMF--that he isn't just going to fire those two people?,27
-fomc-corpus,1982,"Well, they could be reinstated by the new president.",12
-fomc-corpus,1982,I don't know that I can answer that question and I'm not sure it's appropriate to ask.,18
-fomc-corpus,1982,That's December.,3
-fomc-corpus,1982,"What I would guess would happen--this is only a guess, of course--is that when October comes around we will be told that under Lopez Portillo they will not go to the IMF and they will ask us for a three- or four-month extension so that Miguel de La Madrid will go to the IMF.",63
-fomc-corpus,1982,He takes office the first of the year?,9
-fomc-corpus,1982,The first of December.,5
-fomc-corpus,1982,First of December.,4
-fomc-corpus,1982,"Well, I don't know because they changed the date [in this letter to October 31st]. Obviously, that's a possibility. Why did they advance the date? Maybe they want the outgoing president to do it.",43
-fomc-corpus,1982,I'm not sure they--,5
-fomc-corpus,1982,"Well, I don't know what--",7
-fomc-corpus,1982,"What is $600 million going to accomplish, granted that we owe them good relations and have ongoing relationships with them? They need nearly twice that a month. And if they don't get money from any other source, particularly until late in the year, I don't see how they can avoid either a devaluation in very chaotic conditions of inflation already, default on the debt, or exchange control.",77
-fomc-corpus,1982,"Well, I don't know how you want me to divide up my answers. For the rest of this week it avoids all that chaos that you're talking about on the eve of the presidential election. And thereafter, a number of considerations enter in. Do we have an interest in encouraging them to take further measures and to go to the IMF? I think our presumption has been ""yes."" Is this a lever to accommodation that is consistent with that increasing possibility? I'd say ""yes."" One can argue about it. If they run out of money, they can do nothing but let the exchange rate go, and nobody knows where it will go. It at least gives them a little money in the short run to maneuver and, if that's going to happen, hopefully to arrange things in a little better way than would happen otherwise.",164
-fomc-corpus,1982,"I'm inclined, obviously, not to question this decision; I think we have to do it. But I am concerned about some of the ramifications. I recall from when I used to travel and study in Mexico that there is a distinct pattern--I think you mentioned it briefly--in that normally in the heat of an election campaign, whatever else is going on in the economy, there is an outflow of funds from the country. And then after the election is over there is a reflux of their own people's money coming back in--I'm not sure about the pace of it--provided they sense that the new government is going to take hold and everything is going to be cool. It seems to me that if we're going to do this poking around--as Henry was saying this $600 million is peanuts against the magnitude of the problem--that what would be most helpful to the Mexicans, if we want to help them, is not just to give them this money, but to get together not only with our own Treasury but with the IMF so that after the elections are over we can get them to say that they have a program that's serious and that the IMF is with them and America is with them. The hope is that we could get at the element of the flight of capital so that it doesn't exacerbate the basic economic problem.",267
-fomc-corpus,1982,"I don't know what is going to happen with regard to the flight of capital. As I say, in some ways it's surprising that they haven't had more before the election. There is the theory that after the election there will be some reflux. On the other hand, one can make the argument that nobody thought anything was going to happen before the election, so the capital flight will come after the election. So, we can speculate about everything. But in terms of your general vision, I don't know how to do this, but all those bases have been touched.",112
-fomc-corpus,1982,"Have we looked at the banks? That is another concern. The last time I looked at the major U.S. banks, many of them had half their capital committed in Mexico.",36
-fomc-corpus,1982,"Mexico has become the world's largest borrower, exceeding Brazil in the past year. And what is the amount from American banks alone?",25
-fomc-corpus,1982,$20 odd billion,4
-fomc-corpus,1982,"Well, that's big.",5
-fomc-corpus,1982,It's $21-1/2 billion.,9
-fomc-corpus,1982,And that is part of their problem--that the banks are nervous anyway. They have lots of reasons to be nervous both domestically and internationally. They are choked up to the back of the throat anyway and they feel a lot more choked up now than they did last year when they were getting there.,62
-fomc-corpus,1982,"I don't think we really have any alternative. Even though $700 million is not going to solve their problem and they understand why we're pushing them toward the Fund, which would solve their problem, they--",40
-fomc-corpus,1982,"Well, of course, even that is a [unintelligible]. The amount of money involved from the Fund isn't going to solve their problem either.",31
-fomc-corpus,1982,"I'm not talking about that. I'm talking about the good housekeeping seal, obviously. But it would be so incredibly misinterpreted [in Mexico] if we were to refuse to cooperate. The only grounds for refusing--and I can't see this as very legitimate--would be to pressure the Treasury to step in right away. It seems to me the only possibility is in the package approach. But I don't see how we could refuse, given the fact we have this huge neighbor to the south and all kinds of intricate interrelationships. I just can't see how the U.S. government could refuse to be helpful, particularly since they agreed to the conditions without any waffling.",134
-fomc-corpus,1982,"Who knows? I don't know these people well, but in this context I think they have been as frank and open with us as we could expect and with their own public before an election.",38
-fomc-corpus,1982,"Except that if I read the memo right, the minister overstated their reserves by--",17
-fomc-corpus,1982,"Oh, they've engaged in a little window-dressing.",11
-fomc-corpus,1982,That will do the reserves--,6
-fomc-corpus,1982,"Paul, do we know why Lopez Portillo is so opposed to going to the IMF?",18
-fomc-corpus,1982,"Well, a very similar situation arose at the time of the last election when he was the incoming president. I'm not familiar with all the details of that, but there was a long negotiation and they had some considerable difficulty. They had a big devaluation--at the time they had a fixed exchange rate--and broke a record of several decades of keeping a fixed exchange rate with the United States. And it was a troublesome program, as these always are, once the program was in effect. Whether there's any cause and effect or not [I don't know]. We had lent to them before that, too; the timing was very similar, a few months difference. We got repaid essentially out of a combination of IMF-Treasury funds. The timing wasn't precise. And the Mexican economy began doing better thereafter. Now, they were greatly helped by the fact that they happened to discover oil shortly after the IMF program went into effect. And the oil in the end may have proved to be a much better good housekeeping seal than the IMF program in and of itself. I don't know what particular scars he carries from that, but he obviously carries some.",229
-fomc-corpus,1982,"The way I understand the Mexicans' mentality is that they think of themselves as being on the brink of or already in the class of industrialized nations. And the view is that only so-called developing countries go with hat in hand to the IMF, getting instructions on how to behave. That is how I see it.",64
-fomc-corpus,1982,Developing countries like the United Kingdom?,8
-fomc-corpus,1982,"It is a very broad political objection in Latin America. They are not at all positive with respect to the IMF, to put it very mildly. So, I don't think the president, either this one or the next one, has a great deal of leeway. He has to face a hostile political opinion.",62
-fomc-corpus,1982,"The opinion is very similar in Brazil. But as Tony was just mentioning, this kind of approach has almost a precise precedent--the last time we lent. I don't know whether we ever extended any money, but we agreed to lend to the United Kingdom prior to their going to the IMF 4 or 5 years ago. That was part of a bigger international arrangement. But the basis of it was virtually identical to this one.",86
-fomc-corpus,1982,Will we have the letter signed by Treasury officials before we actually extend the money?,16
-fomc-corpus,1982,"Oh, they said they will sign the letter. I suppose we will, but that doesn't--",19
-fomc-corpus,1982,"And this is the credit limit, is that right?",11
-fomc-corpus,1982,I don't think we'll lend them any money today. What?,12
-fomc-corpus,1982,$700 million is the [swap line] limit?,11
-fomc-corpus,1982,"Yes, that's the line, but I don't think they'll have to draw on that fully before the election. And they say they expect to repay it next week. But they will be back.",38
-fomc-corpus,1982,It's a futile question.,5
-fomc-corpus,1982,Are you going to be coming back to the full Committee every single time if they repay?,18
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,What about making the line bigger?,7
-fomc-corpus,1982,That's what I was wondering about--whether that would be the next request.,15
-fomc-corpus,1982,"That may arise, but we don't have to face that now; that question has not been raised.",20
-fomc-corpus,1982,That would be equally misunderstood.,6
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,I don't think we want to volunteer it.,9
-fomc-corpus,1982,"Oh, no.",4
-fomc-corpus,1982,The question has not been raised.,7
-fomc-corpus,1982,I think we should approve it based on the record of other countries with a resource base like Mexico who have finally gone kicking and screaming or however to the IMF and proceeded within certain constraints.,37
-fomc-corpus,1982,They may not go to the IMF. But what they are saying is that they will go to the IMF if they have to. They are not admitting that they will have to.,36
-fomc-corpus,1982,"They'll have to. VICE CHAIRMAN SOLOMON(?). Okay, I move it.",20
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,"In the absence of any objections, we will approve it. Now, whether we actually will extend any money before the weekend is something of an open question.",31
-fomc-corpus,1982,"It's traditional, Mr. Chairman, if you want to do it this way, to note that the approval is conditioned on Sam's negotiations being successful. Maybe that's implicit.",34
-fomc-corpus,1982,I think that is implicit. The essential element is this reference to their willingness to go to the Fund.,21
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,With that understanding it is approved. might as well wait until the morning to make any remarks I have at this stage. Thank you. We will quit for the night.,34
-fomc-corpus,1982,"I will briefly return to the saga of Mexico. They now think they are getting their advance oil payments today, so they don't need the swap drawing before the election. That's all off, but we can assume that they may well be back very shortly under the same conditions, so I think we can let the approval stand. It doesn't look as if they will [need to draw on the swap line] this weekend. On these long-term ranges, I detected--I think accurately--a good deal of consensus in thinking, even if there were some differences on the mechanics of how to present this. I might say initially that I have a certain sympathy for Frank Morris' suggestion of clearing the mind by forgetting about all this. I follow the philosophy that if we didn't have any of these ranges and [Congress] just left it up to us, we'd be better off. But I don't think the world is ready for that. I don't think it is going to have that requisite degree of confidence in our judgment, unencumbered by some numbers. In that connection, I forgot to mention--I didn't exactly forget, but we haven't done much work on it--that we're going to get questioned about why we don't use a credit aggregate and what that would mean and so forth. For lack of preparation, if nothing else, I don't think we're ready to discuss a credit aggregate in great detail this morning. But I have to look at some of those numbers and see how we rationalize what we're doing in terms of credit numbers. My inclination would be to say that they are useful to look at but are not going to add much in terms of targeting--in the short run anyway. Statistics are not as readily available in the short run for us to see what we're doing. But the past evidence, so far as I remember it, is that if we look at the credit numbers we don't get much different answers than if we look at the broader monetary aggregates anyway. We will do a little more exploration to see whether I can justify that position and talk about it when I have to testify because I will have to; I've been asked to do so specifically.",430
-fomc-corpus,1982,"You probably are going to get questions also on why we don't target a range of real interest rates, a monetary policy Henry Wallich has suggested at times. I think some sentiment for that is building in some quarters on the Hill.",46
-fomc-corpus,1982,That implies we can define real interest rates. I thought we made great progress in reducing real interest rates last month. We reduced them by about 10 percent at an annual rate.,36
-fomc-corpus,1982,"Well, we'd have to use a moving average of inflation on that. We couldn't do it once a month.",22
-fomc-corpus,1982,On the Hill or in The Wall Street Journal?,10
-fomc-corpus,1982,"Somebody mentioned other ideas about getting interest rates down. It's a relevant comment in the sense that, obviously, there is a lot of concern about interest rates and a lot of ideas or non-ideas being circulated about what to do about interest rates, such as credit controls. One idea I have heard is that the Democrats are going to have a push to reinstate the Credit Control Act. We're going to have to testify on that, right? National usury ceilings and a tax on interest rates are two others; I don't know whether there are any others. I don't see much promise in those ideas, but they are circulating. It's symptomatic of the time. I don't know whether anybody around here has any bright ideas. But, that's the background in which we're working. I don't have anything to say that differs much from what people were saying yesterday in terms of general business conditions and, indeed, the monetary side. Everybody talks about the risks on the down side and I agree that the biggest risks are clearly on the down side. But I don't think we can discount the possibility that the economy might do better than we're talking about. If we get a recovery, we may get some unanticipated inventory movements and a better GNP number than we're talking about. The important risks are on the down side, though. Nobody is going to mind if we get a flukish inventory number and GNP looks bigger than any of these projections. People talk about interest rates being the key, and in one sense I agree with that. But I think we're talking more generally about financial constraints: the liquidity problems of the economy; the concerns that many businesses have about their own liquidity positions and investment programs and their balance sheet constraints, to the extent that they are distinguished from interest rate constraints. All those risks would be maximized by some major increase in interest rates during this period because of the psychology as well as the real effects involved. I don't know how one can be sure that that is not going to happen, but [that possibility] is tied in with the business risk and, of course, with the budget problem. In an ideal world we could do something about the budget maybe, but there is no practical chance of doing anything about it in the next six months. I found myself asked by an Administration official very recently: ""Ideally, what can we do to help?"" And I was almost speechless when it came to the budget because I couldn't think of anything practical that could be done in the next 6-month period. As a matter of fact, let me say that I think the problems of the business world and financial world are partly accommodating to high interest rates and trying to cope with them and the balance sheet pressures. It's a big intermixture of problems that involve just plain adjusting to disinflation. I was struck recently by an example of that. In general terms we have a potentially serious banking problem that some of you know about arising out of a bank in Oklahoma that's teetering, or more than teetering. The bank itself isn't all that significant, but it has participated in oil loans mostly and some real estate loans all over the country in very concentrated lots and in very large amounts. It's a small bank participating in huge amounts of these loans, and we don't know quite what their quality is at this point. But there is a major question about the quality and conceivably maybe even some fraud in the situation. These participations have been building up apparently right through recent months in very large volume. I mention it not only because [the situation] is potentially serious in itself but because here we have banks making these loans overly casually, apparently. The loans are largely in the oil area, reflecting a psychology I suppose that anybody who digs a hole in the ground now or even promises to dig a hole in the ground had a bonanza because the price of oil was going to go up forever. And the price of oil suddenly doesn't go up forever and all these loans look awful. This has nothing to do with the interest rate--well, it may be modestly complicated by the interest rate--but much more with the fact that all the casual presumptions were that the price of oil would be $50 a barrel or whatever in 1984 and $90 a barrel in 1990. Those presumptions no longer look like such good bets, and there isn't any money to deal with the loans. And there were a lot of dry holes, I'm sure, at the same time. It's a striking case of people making investment plans and lending plans on the presumption that they were going to be bailed out by higher prices, and that presumption is now in doubt. I suppose it's inherent to some degree in the disinflationary process that people haven't really believed it up until now. I share the general view about the likelihood of an economic outlook somewhere generally along the lines that everybody has been talking about. But whether we can negotiate our way through this period and whether we have a soluble problem or not remains to be seen. I can spin out this nice scenario of what is going to happen this year and later in the decade--and I think it's plausible and not even unlikely in one perspective--but there are a lot of risks. I don't know whether we're dealing with an impossible dream or an impossible problem in trying to get through this period to a noninflationary economy without still more problems than we have. And we have plenty already. Everybody is focused on the question of whether we have enough money and what is going on in terms of liquidity demands. I don't have anything particularly to add there. I share the general feelings that have been expressed by most people, I think. I read an analysis the other day of this kind of problem, which I'll read to you: ""Other things being the same, it is highly plausible that the fraction of their assets individuals and business enterprises wish to hold in the form of money, and also in the form of close substitutes for money, will be smaller when they look forward to a period of stable economic conditions than when they anticipate disturbed and uncertain conditions. After all, the major virtue of cash as an asset is its versatility. It involves a minimum of commitment and provides a maximum of flexibility to meet emergencies and to take advantage of opportunities. The more uncertain the future, the greater the value of such flexibility and hence the greater the demand for money is likely to be."" That almost sounds like my recent testimony. But it happens to be from Friedman and Schwartz, A Monetary History of the United States 1867 to 1960. The problem is that it's one thing to look back in history and say in the light of hindsight that we had all these shifts in the demand for money, which we should have taken care of, and it's another thing to recognize them as they are taking place. And we're in the midst of trying to recognize them when they take place. I feel quite confident that we have an enlarged demand for liquidity due to the uncertain future. A greater than usual value of flexibility is attached to cash and near-cash assets. The problem in a cyclical context is largely, or maybe entirely: How do we measure that? And, of course, we have the problem of overfeeding or overaccommodating it, which can build up more inflationary potential than we want in the future. The targets for the money supply are supposed to brake that, I suppose. Their value is that we don't jump too far and we think hard before accommodating that [liquidity demand] too much. When I look toward the longer-term targets--and this is somewhat premature, but I think we ought to have it in the back of our heads--we have had an upward trend in velocity for many years now, but that trend has accompanied rising inflation and rising interest rates generally, and one would expect to see both of those factors reducing the demand for money. If we were really successful in getting inflation down, and presumably that should be accompanied by lower interest rates over a period of time, I don't think it necessarily follows--abstracting from institutional change, which of course we're also having--that that long-term trend in velocity would disappear. The historical trend in velocity before the postwar period was toward decreasing velocity rather than increasing velocity. As I say, it's premature to suggest that that is where we are now, when we have such strong cyclical factors, but it bears upon how indefinitely into the future one might logically reduce [the growth in] the money supply. One has to look at that factor and keep it in mind at some point along the line. When you look at the next six months, presumably velocity will go up. Everybody is more or less assuming that with respect to this year's target. But, as has been said by practically everybody, making a judgment of how much is extremely difficult. Looking at history, it is unambiguous that velocity goes up during the early stages of a recovery. This is an exceptionally weak recovery that we're projecting, as has been said; I don't know how that bears on it. Since the '54 recession, the average increase in velocity for the six months after [the beginning of] a recovery has been something like 5-1/2 percent. We are projecting something in the neighborhood of--. Wait a minute; I'm not sure about this number. If money increased something like 5 percent or a little less on a quarterly average basis during the second half of the year, with the kind of economic projection we have, velocity would be what, Mr. Axilrod?",1929
-fomc-corpus,1982,"If money increased 5 percent on a quarterly average basis, velocity would be around 3-1/2 percent. If money increased, say, 5-1/2 percent from June to December, that would produce a quarterly average increase of more like 4-1/2 or 4-3/4 percent, which would make the velocity increase more like 4 percent.",79
-fomc-corpus,1982,The lowest velocity increase we've had during the first two quarters of a recovery in this period is 3 to 3-1/2 percent. The highest we've had is 8 percent.,38
-fomc-corpus,1982,But that was associated with a different pattern of interest rate movements than we've had.,16
-fomc-corpus,1982,"Well, I don't know what the interest rate pattern will be in the next six months.",18
-fomc-corpus,1982,And they were also stronger expansions--I'm pretty sure that's true--at least in real terms.,19
-fomc-corpus,1982,"Well, I don't say we should count on these higher velocity figures. I'm just citing the figures. We are in the neighborhood of the lowest velocity increases that we've had, if you just look at that particular set of figures mechanically. I don't think the M2 velocity is very relevant during periods when we had interest rate controls on so much of the M2 components. The only recovery in which we didn't have a lot of controls was the one in 1980, when the velocity increase in M2 was enormous. I don't think that tells us much about M2. In view of these uncertainties, a lot of people have talked about flexibility, and I think that's the key to the whole thing. We need a certain degree of flexibility in trying to judge things as they occur. The Ms at the extreme might slow down because of this liquidity desire, particularly as reflected in NOW accounts if that reverses itself. But I wouldn't want to count on that in the next 6-month period. So, that leaves a large element of uncertainty. We have a lot of options as to what to do, as was made clear. What I would suggest at the moment is that we return to the issue of the longer term after a discussion of the shorter term because that discussion may give us a little enlightenment on what we want to do. I would also say that I'm not at all sure that I want to reach an absolute conclusion on the long-term ranges at today's meeting because there is a long time lapse between now and when I have to testify. And twice now we have had informed press reports between the time that we met and the time that I testified, which in my view is unfortunate. I'm not even sure [whether the information was leaked]; the reports may have been based largely upon speculation by the reporter rather than anything else. They happen to have been very close to the mark. I don't think it would be entirely bad to get a good idea of where we're likely to end up but I'm not sure we have to say that we made a decision. It might be good to be in a position to say we actually haven't made a decision and, if we're close enough, we can confirm it by telephone closer to the time I actually have to testify.",450
-fomc-corpus,1982,When do you testify?,5
-fomc-corpus,1982,"Either the 19th or 20th of July. I was intending originally to do it earlier, precisely to cut down on the time period [between our decision and my testimony]. But now it appears that the Administration estimates that we are supposed to be considering and integrating and so forth aren't going to be available until the 15th. I was going to testify on the 14th or the 15th, so that doesn't look possible. If we put the testimony off until the following week, that creates a much more substantial gap in timing. The Administration hasn't settled on its own estimates yet, so technically in terms of our charge we're a little in the dark. I don't think there is going to be anything startling. I think they're debating about an economic outlook a bit better than ours in real terms and a little worse than ours in price terms--meaning a bit higher--as I suggested yesterday. Just where they're going to settle, I don't know. We will see in the end. But, let's go to the short term and see what enlightenment that casts upon the long term. Do you have some choice words for us in that respect, Mr. Axilrod, or are you finished talking?",243
-fomc-corpus,1982,"I think I'm about finished talking, Mr. Chairman, but I might just call to the Committee's attention the alternatives presented on page 10 and also note that the base from which those alternatives take off, which is June, is probably lower than presented in the Bluebook. The Bluebook had the June growth rate at about 3-1/2 percent; the data we had as of yesterday, which will be firmed up in a couple of hours--and it could change some, I'm sure--suggest that the June growth is closer to zero or maybe a small positive. Alternative A, the 5-1/2 percent growth rate, would leave M1 by September running at a 6 percent rate; with the new lower June base, alternative A would leave M1 much less above the path by September--more like at 5-3/4 percent. So, it would be 1/4 point above the top of the path. The [aggregates] should all probably be viewed as somewhat closer to the path than is indicated, with M1 moving within the range under alternative B and much more within the range under alternative C, given these weak end-of-June numbers. I should also add, of course, that the weak end-of-June numbers, if they hold up, run the risk of July being higher in terms of growth rates if the July level that we have estimated is about right. The special factors to take into account in July, of course, are the cost-of-living increase on social security payments, which will affect the first week of July and to a minor extent the July average by maybe about a percentage point in our estimate, and the beginnings of the tax decrease. The first paychecks to reflect the tax decrease probably will start in the second week of July, and our estimate is that it will have a temporary effect within the first month of roughly 2 or 2-1/2 percentage points. So, we think those two special factors will add 3 to 3-1/2 percentage points to the July rate of growth. Our maximum estimate before we had these end-of-June weak numbers was a growth in July on the order of something like 9 percent, give or take a little, at roughly current money market conditions. So we have constructed a path for Committee consideration that is very similar to what we constructed at the beginning of the first quarter and the beginning of the second quarter. The path has a relatively large growth rate in the first month followed by very modest or no growth in the succeeding two months. Our luck will run out on that at some point but it seems to have held up in the first two quarters. The other technical point I might add, Mr. Chairman, is that it is not so clear as it was in April that there might be an error in the seasonals because there have been high Julys and low Julys over the past several years. It isn't like April where in recent years all Aprils have been high except for the period of credit controls. So I think the jury on July is out and we can't be very certain about any verdict with regard to the seasonals [for that month].",647
-fomc-corpus,1982,"Let me just interject. Bearing on this issue--you probably didn't bring the figures along and I didn't either--just for the interest of the Committee, the staff has been experimenting with seasonal adjustments, which they were forced to do by Governor Gramley's suggestion that when we publish a four-week average we compute a new seasonal. For some reasons that are unfathomable to me, they couldn't use the regular famous Census X-11 method so they have been developing or bringing to fruition some work they have been doing that involves an entirely different method of seasonal adjustment. In seasonally adjusting the figures, one can apply the same method to the monthly figures and the weekly figures as we get them. And it results in ironing out these bumps that we get in the first month in a quarter largely by taking it out over the following month of the quarter. We've been getting big increases in the first month of the quarter, particularly in April and January, and then declines in the following month. Lo and behold, this new seasonal for this year indeed shows a sizable increase in January but about half what it was. It was a 21 percent annual rate of increase and the new method cuts it to 10 percent. And the money supply growth is almost as flat as a pancake thereafter, or rather a rising pancake. I mean that it shows a very steady growth rate after January. It takes the April bulge out completely, as I recall. And instead of having a minus in May, it shows an annual rate of increase of 3 or 4 percent in May, after an increase of 3 or 4 percent in April. I think the increase runs at an annual rate of between 2 and 6 percent. It's a trivial difference every month since January with this new seasonal. So, we've had a very steady monetary policy!",368
-fomc-corpus,1982,You mean the reason the Administration is so [unintelligible] is because of our seasonal adjustment program?,22
-fomc-corpus,1982,"It doesn't make such a dramatic change last year. The major change is basically that it has a bigger seasonal adjustment factor for the first month in a quarter and a smaller one, or the reverse, for the second month in a quarter. The change is less in July than in these other quarters, but it is significant in July too.",67
-fomc-corpus,1982,Are we going to call this the Beryl Sprinkel seasonal?,13
-fomc-corpus,1982,"Well, to the eye, it's a better seasonal pure and simple. I think there is an inherent flaw in the method we use now in that it never catches up to reality. I will present [the experimental seasonal] in an appendix to the testimony, anyway. If we didn't have the problem that people would think we were pulling a fast one, we'd change to that seasonal right now because it does look better in terms of this repetitive pattern we have involving the first and second months of a quarter. But it bears upon July because that new seasonal would show a smaller increase in July.",117
-fomc-corpus,1982,"If it is to be believed, it would take roughly 5 points off the July seasonal and add it to August.",24
-fomc-corpus,1982,Why not publish both of them each month and then make a switch next year?,16
-fomc-corpus,1982,"Well, we might [publish it] in a somewhat subsidiary way. In effect by putting it in the testimony we would do that. We can put it in and say that people ought to look at this and give us any criticisms they have of it. I take it that it is quite a radically new method of computing the seasonal.",67
-fomc-corpus,1982,"Yes, but it is the method recommended to us by the experts on the Committee on Seasonal Adjustment when they presented their report. So, it's well grounded in the current literature on seasonal adjustment.",38
-fomc-corpus,1982,"Steve, the Chairman mentioned its applicability this year and last year. How about some of the other years?",21
-fomc-corpus,1982,"Well, we carried it back and it doesn't, in some way fortunately, smooth out last year all that much.",23
-fomc-corpus,1982,How about the preceding year?,6
-fomc-corpus,1982,It does some but the basic pattern looks--,9
-fomc-corpus,1982,"Not nearly as much as it smooths out '82, which I think gives more credibility to the smoothing out of this year.",26
-fomc-corpus,1982,How about 1980 or 1979?,10
-fomc-corpus,1982,It smooths them but just a very little. There would still be the erratic movement around the time of the credit control program and that sort of thing.,32
-fomc-corpus,1982,It's capturing recent information.,5
-fomc-corpus,1982,"Of course, the further back you go, just theoretically, you would expect it to make less improvement because the seasonal is adjusted as it gets later information. Allowing for a bulge or lack of a bulge or whatever, depending upon which way you look at it, obviously creates problems in setting a path for the near term. So, I guess we have to discuss two things: What kind of general growth we would like to have ideally in the next 3 months; and how to handle the uncertainties surrounding this year's seasonal and other impacts and why. What?",114
-fomc-corpus,1982,I don't know that Steve was done.,8
-fomc-corpus,1982,I don't know if he's done either. Do you have anything else to say?,16
-fomc-corpus,1982,"I was going to add only one thought, Mr. Chairman, which is that I don't know if it's clear that alternative A is the one that would be more consistent with a decision to run at the top of the present ranges or with possibly raising the present ranges. All of the alternatives are consistent in a sense with anything the Committee decides for the long run; the fourth quarter can always be adjusted. But alternative A is more consistent--even more so with the downward June revision--with running closer to the top. And alternatives B and C, of course, would be more consistent with retaining the present ranges and an effort to run growth down within the range rather than close to the top. Those were all the comments I had, Mr. Chairman, apart from the Bluebook.",156
-fomc-corpus,1982,"May I ask a technical question, Mr. Chairman? If one were to leave the September levels where they are and start with the new lower June base, what would the growth from June to September be?",41
-fomc-corpus,1982,"I had that somewhere. What I have immediately at hand, Governor Gramley, is that the new Q4-to-September growth rate would be reduced by about 0.3 percent. The level of June is down $1 billion, roughly, so that would be $3 billion. I guess it's not quite 1 percent higher on the growth rate if you kept the September level of M1 that is in here.",85
-fomc-corpus,1982,Do [the new sseasonals] have an effect on M2?,15
-fomc-corpus,1982,"I don't have the new M2 figures, Governor Partee, but the effect on M2, if nontransactions don't change, should be roughly one-fourth the effect on M1. In answer to Governor Gramley's question, for M1 we have not quite 1 percent higher growth from the new lower June base; at the present [level] we've projected for September, M2 would be about 1/4 of a percent [higher].",91
-fomc-corpus,1982,"Let me be unduly suspicious. My vague memory is that our estimates of M2 at this point in the month are not very reliable. We don't have very up-to-date information. On that June figure I suspect there is more uncertainty about M2 than about M1, isn't there?",58
-fomc-corpus,1982,They are a lot better than they used to be.,11
-fomc-corpus,1982,I guess we're getting--,5
-fomc-corpus,1982,You're using the weekly reserve accounting now?,8
-fomc-corpus,1982,We have rough estimates.,5
-fomc-corpus,1982,"All right. Let me just make one further comment about what seems to me to be the nature of the problem--I think this corresponds with what many people said--with respect to the long-term ranges. Apart from focusing on the numerology, what may be equally important or more important is how we react to whatever happens, particularly given this uncertainty about the seasonal in July. We may want to be more passive in some sense in reacting, depending upon what happens or doesn't happen in the early weeks of July. Now, with that much introduction who wants to say something? Mr. Black.",118
-fomc-corpus,1982,"Mr. Chairman, I'm very happy, as most of you might suspect, by this revision in the June M1 figure. If I've computed it correctly, this will allow us to bring M1 by September to the top of the upper band without having to slam on the brakes. The figure that I've computed from June--and what I'm doing is using the May figure for June since we're assuming a zero rate of growth--would allow us to hit the target while letting the money supply grow at 4.6 percent. I think that gets us out of the dilemma I suggested we were in yesterday--being between a rock and a hard place--because if we did that, it would preserve our credibility by coming in at the top of our target and we wouldn't have to say that we deliberately plan to overshoot the target, which I think would be [ill advised]. At the same time, we'd be aiming for a higher rate of growth in M1 than we appear to have gotten over the last three months, so I don't think we'd have to risk any severe tightening in money market conditions and the dangers that might entail. So, I would urge very strongly that we aim to be at that top part by September, and I would take whatever M2 figure Steve thinks is compatible with that. I'm guessing that a borrowing level of about $900 million might be about right and, as usual, I would like to widen the federal funds range. Just in case July is wild, I'd like to be able to go to 17 percent and then hope like the devil that we didn't have to [go that high]. At the same time, I'd like to reduce the lower end to 10 percent and hope that we get a better performance than we expect in July and could let the funds rate come down.",361
-fomc-corpus,1982,"First of all, let me say that we don't know what these numbers are late in June and we have had very large revisions in these preliminary numbers. Before we conclude this meeting we will have another reading on this week, but next week is very uncertain.",51
-fomc-corpus,1982,"Well, let me make a couple more points, if I might. What I'm really interested in is getting back to the top of that line [shown in the Bluebook chart] by September.",39
-fomc-corpus,1982,"Yes. Assuming the June figures are right, I don't know what that translates into in terms of a growth rate.",23
-fomc-corpus,1982,That's 4.6 percent.,7
-fomc-corpus,1982,From June?,3
-fomc-corpus,1982,"It's 4.6 percent, if we figured it correctly.",13
-fomc-corpus,1982,"Well, assuming it's a lower June number--",9
-fomc-corpus,1982,"Assuming June growth is zero, that means the level is the same as May. [The implied growth] is 4.6 percent, which is surprisingly good. I think that's something that we all--",42
-fomc-corpus,1982,Let me just make sure that arithmetic is right because--,11
-fomc-corpus,1982,Something doesn't sound right.,5
-fomc-corpus,1982,"Yes, it sounds to me like too low a growth rate, if June wasn't absolutely right, but I may be wrong.",25
-fomc-corpus,1982,"We checked on that. If I alone had calculated it, I would be very suspicious of it; but Al Broaddus did it too, so I feel more confident. If you put the June figures at the level of May, I believe we figured it would be about 0.6 of a percentage point above the upper bound at that point.",71
-fomc-corpus,1982,I think that's about right.,6
-fomc-corpus,1982,"So, if approached almost asymptotically, one can see it has to be--",18
-fomc-corpus,1982,Approached how?,4
-fomc-corpus,1982,Asymptotically--a word that I learned back in high school!,16
-fomc-corpus,1982,"6/10ths. In dollars, it's a billion above, isn't it? June would be $1 billion above the implied June target level, wouldn't it?",32
-fomc-corpus,1982,"What is the revised number, Steve?",8
-fomc-corpus,1982,$451.5 billion.,6
-fomc-corpus,1982,"Yes, and I think the target for June is 450.5 billion, isn't it?",19
-fomc-corpus,1982,"Could we have the numbers, Steve? This is getting ridiculous. Could we have the June-to-September numbers for page 10 that reflect your current estimate of June?",34
-fomc-corpus,1982,"Well, they will change in an hour, which is why I'm a little reluctant, but--",19
-fomc-corpus,1982,"That might be better than what we have now, because right now we have--",16
-fomc-corpus,1982,"June is going to be a lot closer to the May level than the number that's [on page 11]. So, around $451.5 billion is about where it would come out.",38
-fomc-corpus,1982,"Well, I know it is going to change, and that is the reason I'm stressing that what I'm interested in is hitting the top part of the range by September. Whatever that number would be, that's the rate that I think is about as high as we ought to go. One other suggestion, if I might, Mr. Chairman. At times like this when we have soft numbers for our base, I wonder if it would be worth considering using the May figure, which is a hard number, for expressing the rate so that we all have some reasonably firm number in mind. It's rather tricky to come up with rates if the number does change in the middle of the meeting and we have to make these computations. I have my calculator here, which I probably couldn't operate, but in case the number is different and I can't figure out--",167
-fomc-corpus,1982,"Well, I guess we can do either, but I suspect that that's putting undue importance on any particular number. The May number isn't very high either and the difference in these growth rates we're talking about--. As this conversation illustrates, if we get a $1 billion revision in a number, which is nothing in the larger scheme of things, and blow that up to an annual rate, it looks like something significant.",83
-fomc-corpus,1982,"Well, that's the reason I really favor point targets. That gets back to my--",17
-fomc-corpus,1982,"I might say, Mr. Chairman, that President Black's calculation is certainly correct.",17
-fomc-corpus,1982,"Boy, that's a relief! That's the best news I've heard since the money supply figures were revised.",20
-fomc-corpus,1982,The September top of the range would be somewhere around 4-1/2 percent from a June base of $451.5 billion.,28
-fomc-corpus,1982,"Okay, with that clarified, let us proceed.",10
-fomc-corpus,1982,"I was trying to be helpful, Mr. Chairman. I'm sorry if I muddied the waters on that. I happen to have been on the call, which is the only reason I had access to that figure ahead of some of the rest of you, and I thought it might be helpful to throw that number out.",64
-fomc-corpus,1982,Governor Martin.,3
-fomc-corpus,1982,"Mr. Chairman, I do not have my calculator and I have no doubt that I would fail to operate it if I had it, so I will not get into the billion dollar question. I would be in favor of keeping the [current] targets for the balance of 1982. I would be in favor of a relatively passive form of implementation of our policy so that if we miss the upper limit of the target by September--in due deference to my colleague, President Black--I would not be concerned, provided we went along the course suggested by Governor Teeters yesterday. One of her suggestions yesterday was to be more explicit with regard to our attitude of tolerance so that we remove from the markets fears and premonitions or the expectation that we will be coming on hard to bring the [monetary growth] numbers down, which will produce certain interest rate impacts. The reasons for my position with regard to the upper limit of the target came out, as was obvious to all of us, in the discussion yesterday. It is the downside risk; it is the unusually high degree of uncertainty; it is the peril that corporations and financial institutions confront; it is the great uncertainty of the international situation added to all of these. And as the Chairman has indicated, it will be 6 months or 8 months or X months before the Congress begins to resolve a $60 to $70 billion swing between estimates of the deficit. I view ranges and targets as tools. My own experience in business and government has been that you use budgets and targets and ranges and brackets in your work. And in the real world, either in government or outside it, those targets, brackets, ranges, objectives, and goals are usually missed by whatever organization it is. The mature individual understands that these are tools and not the sacred writ. Now, I don't have any great insight as to whether velocity will go up enough or not enough. Frankly, I don't believe anybody else has. That is again a reason for my thesis of tolerance of results relative to goals and targets. I think we should keep our targets for the balance of '82 at this time and we should operate in a more explicit, but relatively passive, mode for the upcoming period.",448
-fomc-corpus,1982,I hear your music and understand your music as implied in general terms to the next quarter. At some point we have to make a reserve path and come up with a borrowing number or something. I don't know whether you want to throw out a number now or later.,53
-fomc-corpus,1982,"I think a 4.6 percent increase [in M1] is not enough. I'm not sure that a 5-1/2 percent increase, as in alternative A, is enough. It might be enough if indeed July has a certain configuration. So I would go for alternative A, but I'd be quite tolerant if alternative A were exceeded.",71
-fomc-corpus,1982,"In the short run, anyway.",7
-fomc-corpus,1982,In the short run.,5
-fomc-corpus,1982,Governor Partee.,4
-fomc-corpus,1982,"Well, I come closer to Pres than to Bob. I didn't say anything about the longer-run ranges yesterday because I'm so concerned about how we will confront the very great problems that the economy is probably going to be facing. My view of the short run is probably no different from my view of the long run. That view is that we don't know what is going to happen to velocity and we have to be flexible enough to recognize changes in velocity when they occur. The thing that we do know, though, is that the economy can't stand higher interest rates because the financial fabric of the country just won't tolerate higher rates in this environment or the environment one can see in the reasonably foreseeable future. So, what I would like to do is to have a sort of normative number for setting the path: a specification for M1 of 5 or 6 percent--we might even say of about 5 to 6 percent--and for M2 of about 9 percent. [M2] has run consistently high and there's every reason to believe that it may tend to run high if precautionary demands remain as they have and if we get any saving effect out of the tax cut. So I would say around 9 percent [for M2]. And then it seems to me that we ought to reestablish 15 percent as the upper limit on the funds rate--not as an indication to consult or anything like that. I'd say we would seek growth in the area of about 5 to 6 percent for M1 and about 9 percent for M2 provided that does not drive the funds rate above 15 percent. That's a really radical change compared to what we've done before, but it seems to me that the threat of higher interest rates is so great now that we can't tolerate it and we have to put that in as a limit.",370
-fomc-corpus,1982,"Chuck, may I inquire, sir: If we make a strong statement in reference to interest rates, doesn't that imply a significant departure and doesn't that signal that once again we are trying to balance interest rates and aggregate growth?",44
-fomc-corpus,1982,I guess what I'm saying is that I will accept any aggregate growth to keep the funds rate below 15 percent.,23
-fomc-corpus,1982,So you are placing primary emphasis on--,8
-fomc-corpus,1982,On that upper end of the funds rate range for the time being.,14
-fomc-corpus,1982,"On a weekly, daily, or monthly basis? Well, you are proposing a significant change in policy.",21
-fomc-corpus,1982,"I would want to say so long as the funds rate does not move rather consistently above 15 percent. I don't mean daily; I'm not even sure I mean weekly, Bill--maybe biweekly or something like that. But I don't think we can tolerate the effect on the market of a funds rate higher than 15 percent, which is a little higher than where it has been. It gives us some [upward leeway], but I just think we need to draw the line now.",99
-fomc-corpus,1982,"Mr. Chairman, just so I don't appear to be too much of a Simon Legree, may I say that I'm just as interested in getting rates down as anybody else but I differ on the method for doing it.",44
-fomc-corpus,1982,"Well, one way to do it is to crash the economy.",13
-fomc-corpus,1982,"Well, that is not the method I am suggesting. We may have been a little too tight last year [unintelligible].",27
-fomc-corpus,1982,Governor Gramley.,4
-fomc-corpus,1982,"My thinking runs very much along the lines of Chuck's. I think it's possible that money demand may shift down again in the third quarter, but I don't think we can set forth on a course of monetary policy which starts with that as a proposition and, if it doesn't happen, lets interest rates rachet upward significantly further. I want to try to find a way of designing some specifications that will permit a bit more money growth if, in fact, this downward shift of money demand does not happen, but that will not let things get completely out of hand. One way this might be done is to leave the September levels where they are and to recalculate our June-to-September growth rates accordingly. If I understand Steve right, that would mean something like 6-1/4 to 6-1/2 percent for alternative A, 4-3/4 to 5 percent for ""B,"" and 3-1/4 to 3-1/2 percent for ""C."" I would start with that. Is that right, Steve, roughly?",216
-fomc-corpus,1982,"Isn't it only 6/10ths, if this other calculation is right?",17
-fomc-corpus,1982,Well. I was rounding--,6
-fomc-corpus,1982,[Unintelligible] get down to the upper end.,13
-fomc-corpus,1982,"Yes, I was rounding to $1 billion instead of the exact $1.3 billion and for M1 I would add about a percentage point.",30
-fomc-corpus,1982,"Well, whatever the numbers are, I'd make those adjustments to M1 and whatever corresponding adjustments need to be made to M2. Then I would take the quantitative specs of ""A"" and the initial borrowing of ""B."" By doing so, we would be putting together a set of specs that say in effect that we may have more money growth than the staff has counted on if this downward shift of money demand does not happen. If, in fact, we find that money growth is falling short of this path set forth by the specs of ""A,"" then what I would do is split the difference. I would take half of it and lower money growth and half of it and lower interest rates. That's how I would proceed, and I would get around the problem of having to put in a proviso clause that would specify a strict upper limit for the federal funds rate.",175
-fomc-corpus,1982,"What is the borrowing in ""B""?",8
-fomc-corpus,1982,"Well, the borrowing would be $800 million to $1 billion; taking a midpoint of $900 million would be all right.",26
-fomc-corpus,1982,And you think your strategy would keep the rates from going up?,13
-fomc-corpus,1982,"Well, it has a chance. It may not, but I would count on the Chairman to use his good offices to call us in for consultation if we had serious problems with rising interest rates.",39
-fomc-corpus,1982,"Are you proposing a 15 percent cap, too?",11
-fomc-corpus,1982,"No. I'm proposing the 11 to 16 percent range. the initial borrowing assumption of alternative B, and the quantitative specs for M1 and M2 of ""A"" modified as I indicated.",40
-fomc-corpus,1982,Governor Teeters.,4
-fomc-corpus,1982,"Well, I want to get interest rates down. I'm not worrying about them going up, because I think that's intolerable. Therefore, I would move toward what Pres and Chuck have said but a little more strongly. If we do get some increase in velocity, we should let it carry through and take the drop in interest rates that I think we need to keep this economy going and to avoid, really, almost a catastrophe. So, I would take the specifications of ""A"" but raise them. I would go at least to 6 percent and perhaps tolerate 6-1/2 percent for M1. I think we need a signal in the market that we have eased or rates won't come down and, therefore, I would drop the borrowing. I would take a borrowing level preferably of $300 million, but I could settle for $400 million. And we need to handle it fairly flexibly. It's seven weeks until the next meeting. Certainly in seven weeks--and probably later in July--we will have a better reading on where we are. It's not an intolerable period of time to let policy run fairly freely. And if we're wrong, we can reverse ourselves at that point. But at least we ought to experiment to see if we can bring ourselves out of this [recession].",261
-fomc-corpus,1982,That would mean a very sudden drop to about 12 percent.,13
-fomc-corpus,1982,"Well, I have no--",6
-fomc-corpus,1982,"If we started with $300 million borrowing, that would be a very sudden move, not a gradual one.",22
-fomc-corpus,1982,"But I think that's what we need to signal the market. We can phase it down over a couple of weeks, but it's going to take a fairly sharp drop in borrowing to get the message across that we are easing on monetary policy.",47
-fomc-corpus,1982,"What range of rates are you looking for, Nancy?",11
-fomc-corpus,1982,"Well, I can't even tolerate a 15 percent upper limit, as Chuck can. I think 14 percent is outrageous in the situation we're in. I would much prefer a cap of 14 percent and say that we are not going to go above it. We've had enormously adverse reactions over the past couple of weeks as the rate has edged back up to the 15 percent level.",77
-fomc-corpus,1982,Mr. Guffey.,6
-fomc-corpus,1982,"Mr. Chairman, I share the feeling of most of those who have already spoken about getting interest rates down. It's a question of how to do it. The June numbers complicate the analysis, obviously, but I would probably go for [an M1] range something like Chuck has suggested but a bit lower. I would narrow it to 5 to 5-1/2 percent. Either of those accommodates some uncertainty as to what the June figures will be and what the shift [in money demand] may be in the third quarter. I would just point out that 5 to 5-1/2 percent growth is substantially greater than what we achieved in the second quarter; the June figure would indicate that we achieved an average of 3 percent for the second quarter, and moving to 5 to 5-1/2 percent is indeed somewhat more expansive. To avoid being slavish to the targets, I would retain the 5 to 5-1/2 percent top for the remainder of the year. Growth in that range in the third quarter would bring us someplace near the top end if the June figures are indeed real, but would not bring us into the range. However, we would have another quarter to deal with that. So, 5 to 5-1/2 percent seems reasonable to me. My concern is that we should have some easing in money market conditions, and I think those kinds of rates would do it providing we start out with a borrowing level, which I think may be consistent with what I'm trying to achieve, of about $600 to $700 million. My last point is that if growth in July--which I think is the month of great uncertainty--comes in greater than the 9 to 10 percent that we're talking about, I'd tolerate that growth. So, the paths would be constructed in such a way that they would be changed in July if we got a much larger bulge than the 9 to 10 percent. And interest rates would not move up because of that excess growth that we're expecting; we just would not have the dimensions right. In conclusion, I would like to see interest rates come down and I think [M1 growth of] 5 to 5-1/2 percent for the quarter is more expansive than we have had in the [recent] past. I do not want to see interest rates go up because of some aberration [in M1 growth] that may appear in July and, thus, I would have a caveat, either implied or in the directive, that the staff would accommodate that greater growth.",526
-fomc-corpus,1982,Mr. Ford.,4
-fomc-corpus,1982,"Well, I sense a rather interesting shift in the perspective of the Committee. I will talk about the things I agree with first. I was happy to hear you, Mr. Chairman, indicate that there is some chance that the economy may be getting better. I guess I'm a hopeless optimist, but I always notice that economists have a penchant for gloom and tend to acknowledge that a recovery has happened after it has happened. I hold onto and cherish this ray of hope that the economy may actually be turning around now, with three upward ticks in the leading indicators and all the other positive things that one can point to if one wants to be a little optimistic. It may be improving right now. There is, of course, the downside risk that everybody has expressed. That can't be discounted or ignored. I certainly am not a fan of high interest rates, but I very strongly oppose any shift in policy toward putting on a maximum rate cap, particularly the notion that a number of people who have already spoken have expressed of setting a rate cap at or below the present level. This week the fed funds rate is averaging around 15 percent and I'm told that it's a somewhat unusual week. But I certainly wouldn't want to vote for a policy that said that rates had to be at or below their present level, with the further notion that if they should move even a little above the present level we'd automatically validate that with whatever increase [is necessary] in the money supply. So, I guess you're going to have to put me down for being closer to Mr. Black in that I [would not] vote for something like the rest of you [have advocated]. I put most of you down for ""A"" or ""A+"" or ""A-."" Put me down for ""B"" with a borrowing assumption around where Lyle Gramley and Bob Black had it, at about $900 million. And like Mr. Black, I very strongly favor always having a range of interest rates that is broader rather than narrower. I would say we ought to allow for at least some movement in both directions from where we actually are the day we make the decision. Therefore, I'd go for a fed funds range up to 17 percent before we would get on the phone [to consult] and down to 10 percent or below if we should be lucky enough to see rates happen [to move] in that direction. So, I come out at ""B"" with a borrowing assumption of around $900 million and a fed funds range that is as wide or wider than we now have.",513
-fomc-corpus,1982,Mr. Boehne.,6
-fomc-corpus,1982,"Well, I'm in the Martin and Partee camp, if that's the way we're dividing things up. I think the economy needs lower interest rates. At a minimum, I think we have to avoid higher rates. We have very little room to maneuver rates down, but we ought to take advantage of whatever room and opportunities we have, even to the point of probing or coaxing a little--testing the limits a little --to see if we can at least bias rates in a downward direction. So, in terms of the overall strategy, I would come out broadly in the ""A"" category. I would handle a July bulge passively, much the way we handled it in January and April, accepting the bulge and then trying to work it off in succeeding months rather than with a prompt active response. As for my view of the targets, I really can't improve on the way Preston said it. I think we should approach them flexibly. They are a tool of management. And if we hit them, we hit them. But our goal is the economy and we should not religiously pursue some specified number. So, I would take a rather flexible view on the targets.",237
-fomc-corpus,1982,What is your borrowing assumption?,6
-fomc-corpus,1982,"Oh, $400-$500 million.",8
-fomc-corpus,1982,I ran out of names. Mr. Roos.,11
-fomc-corpus,1982,"Well, I would opt for alternative A with a borrowing assumption of $900 million or something like that. But I am concerned about the implication of some of the opinions that I've heard. I don't think it's necessary to repeat that everybody around this table would like to see lower interest rates. But these interest rates are quite obviously affected by how the financial markets view the signals that we send or the signals that we are imagined to send. And I think any change of wording in the directive that could be interpreted as signaling even temporarily a return to placing primary emphasis on controlling interest rates--placing a cap on interest rates or anything like that--would be disastrous because people would say, after they've seen the effect on inflation of our 1979 change of emphasis, that we're going back to the old way of doing things. In an historical perspective I think the last thing the markets want to see --and this goes for this business of flexibility--is a return to a fine-tuning, interest-rate-control-oriented method of conducting policy. I think everybody always has to be flexible. On the other hand, I'd hate like the devil to go on the open seas and know that the captain did not set a course before we left port and that he changed signals every day. We'd be going around in circles. And I honestly believe that for almost 15 years--and I was part of it, although I disagreed with it--the Federal Open Market Committee went around in gigantic circles, which led to our present predicament and resulted in high interest rates. With that speech, I will hush up, Mr. Chairman, and opt for alternative A and a borrowing assumption of $900 million.",334
-fomc-corpus,1982,Mr. Keehn.,5
-fomc-corpus,1982,"For reasons based on the current economic situation, as I commented yesterday, I think we should set a target that has a reasonable possibility of getting us back down to the top of the range by the end of the year. I would not choose a target now that would deliberately put us over the range by the end of the year. And going along with Governor Martin's comments, I certainly wouldn't be slavish with regard to staying in the range. By that I mean that if we were to run over as we go from now to the end of the year, so be it. Having said that, I also wouldn't choose a target that would leave very little flexibility if the July bulge turns out to be very high. So, I end up between alternatives ""A"" and ""B,"" probably ""A-"" rather than ""B+"" and an M1, say, of 4-1/2 to 5 percent. I would broaden the federal funds range from 10 to 15 percent to 10 to 16 percent. And I would be strongly opposed at this point to trying to set any kind of interest rate cap for fear that that would signal too major a change. My borrowing range would be, say, $600 to $800 million.",253
-fomc-corpus,1982,Mr. Balles.,5
-fomc-corpus,1982,"I indicated yesterday in the preliminary go-around that as I look back a year ago or even six months ago at what we were expecting and forecasting, it's clear that the economy is in poorer shape in terms of real growth and unemployment and that we're better off than we had hoped on the inflation side. That's really the basis on which I rationalize my departure from our longer-term program of gradual diminution of monetary growth. I feel now that we deliberately ought to plug some countercyclical considerations into short-term policy, that is, for the 3 to 6 months ahead. And it's on that basis that I am in favor either of announcing an increase in the 1982 range or permitting a modest overshoot, maybe up to a point. The difficulty with not announcing it or at least saying that we're going to tolerate an overshoot is that if we have an overshoot and the market doesn't hear us say anything about not correcting it, they are going to assume that we will correct it. And that sets up expectations of a tighter policy in the weeks and months immediately ahead. They will be anticipating some action by us to tighten up again. So, we're in somewhat of a box on that score, Mr. Chairman. If we don't decide to increase the '82 range formally, I think we have to go in the other direction, which a number of people mentioned yesterday and which I also find satisfactory, of indicating rather explicitly that we do anticipate some modest overshoot and thus by that action remove anticipations that we are about to tighten. That would be particularly true if the markets see a close to double-digit increase [in M1] in July, which I gather is not out of the realm of possibility, Steve, based on both the--",351
-fomc-corpus,1982,"It could be double-digit, I'm afraid.",9
-fomc-corpus,1982,"--income tax reduction and social security payments. If we saw close to a double-digit increase in M1 in July and didn't say something about tolerating an overshoot or increasing the range, I think we would have set up anticipations in the market of a very near-term Fed tightening that could cause interest rates to go up significantly. And that would be a very dangerous thing to allow to happen right now. Well, in a word, I'd come down, bottom line, in favor of alternative A, with the borrowing assumption that would be consistent with that--maybe in the $700 to $800 million range.",123
-fomc-corpus,1982,"Do you want to cap interest rates, too?",10
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,Governor Rice.,3
-fomc-corpus,1982,"Well, Mr. Chairman, as I said yesterday, I don't think any of the alternatives that we're considering now are likely to reduce interest rates significantly from their current levels. I would like to believe that alternative A would, but I don't think so. Since it's unlikely that we'll be able to do anything to get interest rates down within the limits of what we're thinking about, I think we should at all costs avoid doing anything that would likely result in an increase in interest rates. So, of course, I find myself in agreement with Pres and Chuck. That means I would [support] alternative A and would be willing to see some overshoot from alternative A. And I agree with Chuck that we need to put a cap on the funds rate. I think it's important that we send a signal to the market that there is some point at which we will begin to look at interest rates again. I do not agree with the view expressed that we can't afford to send a signal to the market that we care about interest rates or that we only care about the aggregates. To indicate to the market that beyond a certain point we care would be a very positive thing to do right now. If we announce that we would not accept a funds rate above 15 percent, that would indicate that we are flexible, that we're looking at a broad range of factors, and that we feel some sense of responsibility for the economy. So, I favor alternative A and I support the funds rate cap and whatever borrowing is consistent with that--about $500 million.",307
-fomc-corpus,1982,Governor Wallich.,4
-fomc-corpus,1982,"Well, I don't think this is the time to make a fundamental change in policy. We may come to that; it may turn out that we can't stay our course. But right now we have an expected recovery; it's not in the bag but there is a broad consensus that things are turning around. So, why at this time convey signals that I think would be deeply alarming to the market? Now, I agree that interest rates are too high. But I see them as too high to allow the economy to operate at a decent level of investment. I don't believe that these interest rates necessarily are going to bring on a financial crisis. If there is a financial crisis, I think it will come as a result of some specific circumstance--whether it's the Home Loan Banks or something that happens in Mexico or something else. But I don't think the present level of interest rates is unsustainable for somewhat longer for a great majority of businesses. Furthermore, I'm not convinced at all that we would get very much benefit on interest rates if we eased now in a way that is visible to the market. At the short end, yes, for a while. But what do we do then next year when rates begin to rise again and we have to pay the bill for what we are trying to buy right now? At the long end it's very doubtful what would happen to rates. Maybe a signal that we care about rates--a signal that we're not going to tolerate an increase in rates--would be favorable, but the market could just as well react in the opposite direction if people think we are pegging rates again. They will think we are going to flood the economy with liquidity as we've done in the past; and we may be shooting ourselves in the foot. I have a similar uneasiness about announcing a tolerance for an overshoot. It's very difficult to decide whether it's better to change the ranges, which I said yesterday I might be prepared to do, or just to keep overshooting. If we declare that we're willing to overshoot, we're going in the direction of the temporary debt ceiling--the permanent debt ceiling is hundreds of billions below the temporary one--and we'll always be looking at the tolerated range, which may be very high, and have a formal range that is low. I don't think that would be a viable posture. Given all this, I think we have a chance now of getting back on track somewhere by the fall or by the end of the year. If these new numbers hold, we could even do it by September, but I'm not all that bent on doing that. I favor alternative B with, say, $1 billion of borrowing and M1 at 5 percent--and the path set to accommodate the expected July bulge so that it doesn't drive up interest rates immediately--and the funds rate range as it is here. It wouldn't be the end of the world if the funds rate went to 16 percent. I do think that things would change very dramatically if it were known that we have capped the rate and are willing to put in any amount of reserves in order to hold it there. So, an 11 to 16 percent range seems reasonable to me.",638
-fomc-corpus,1982,Mr. Corrigan.,5
-fomc-corpus,1982,"Well, Mr. Chairman, I'd like first to ask Paul Meek: Where does the market think we want borrowings right now?",27
-fomc-corpus,1982,It's a little confused.,5
-fomc-corpus,1982,"Well, that's understandable, but--",7
-fomc-corpus,1982,Borrowings were $900 million the week before last and about $1-1/2 billion last week. I would think somewhere in the $800 million to $1 billion area.,37
-fomc-corpus,1982,"That's the market perception. Steve, could I ask you, too: Back in April, when we were looking at a similar situation in terms of a money supply burst, we adopted a path; but as I recall we had some kind of fail-safe understanding. How did we finesse that?",58
-fomc-corpus,1982,"I forget the exact wording but my memory of it is that we said that if April came in a little stronger than was in the path, that would be tolerable. I forget the exact wording, but we can get the April directive if that--",50
-fomc-corpus,1982,But there was some understanding--,6
-fomc-corpus,1982,"I think there was some understanding, if I'm remembering right, that if April came in a bit stronger than the skewed path that it would be tolerated so long as [M2] reflected some offset to Ml.",43
-fomc-corpus,1982,"It was provided that M2 was essentially within its growth range for the year, Steve.",18
-fomc-corpus,1982,"As an aid to judging, that's right. That is exactly right.",14
-fomc-corpus,1982,"Well, fundamentally, I'd start off by saying that the thought of doing something that would be construed as a basic change in policy right now is totally unappealing to me. I just don't think the time is right to do that. I am very sensitive to the problem of an increase in interest rates. But if July really turns out to be a problem, I think we can finesse that, for example, by doing something like we did in April. And I would certainly want to do all the finessing we could do in that event. My instincts, in terms of the short term, are very much driven by the same considerations that I mentioned yesterday in the context of the long term. I don't think there is a heck of a lot that we can engineer that is going to produce some fail-safe reduction in interest rates, much less an absolute assurance that they won't rise. I would lean toward Governor Gramley's earlier suggestion, which if I understood it was basically to focus on the September numbers as we see them. As he worked it through, I think he was suggesting maintaining quantitative money targets that are something like those in ""A,"" but preserving in that context the funds rate and borrowings targets that are more or less compatible with ""B."" That would be quite satisfactory to me. Borrowings would be $800 or $900 million, or something like that. I don't care whether we put the funds rate range at 10 to 15 percent or 10 to 16 percent; I don't think it matters a whole lot. But I would look for the possibility of putting in the directive something that does allow a little more flexibility in accommodating any real aberration in July.",338
-fomc-corpus,1982,I am out of names at this point. Mr. Boykin.,14
-fomc-corpus,1982,"Well, Mr. Chairman, I would line up with those who are arguing for alternative B, for the reasons they've already given, with an initial borrowing assumption of around $900 million.",37
-fomc-corpus,1982,Mr. Solomon.,4
-fomc-corpus,1982,"Well, let me say first that this is the strangest FOMC meeting I've attended. There seems to be a whole change or shift in mood. It's true that I missed the last meeting; I was ill. Maybe it started last time. But during the depth of the recession there was a much tougher attitude than I hear today. I don't know what is bringing about this change, although I share in that view, as indicated by my remarks yesterday. Anyway, without carrying that further, it seems to me that it's important--and here I want to emphasize what Henry said--that there not be an impression in the markets of a sudden reversal or shift toward easing. It would be very politically suspect. They see the pressure on us with widespread speculation now that we will ease. And yet at the same time there's a gloom and doom atmosphere out there and very little expectation that interest rates will fall. There's an ambivalent feeling. On the one hand, they see the pressure on us [to ease] and some people think we may ultimately give into it. But nobody expects that we're going to give into it that quickly. Therefore, I think it would come as quite a surprise if there were a sudden drop in rates. So, that is why I think we shouldn't go lower than about $800 million on the initial borrowing assumption. On the other hand, I would go along with a 5-1/2 percent intermeeting target [for M1] and an 8-1/2 percent target for M2. I don't think that has to be increased. The fed funds range is unimportant. I see no reason to cap it. And in particular, there would be no reason to cap it if we accept Jerry Corrigan's suggestion, which I agree makes sense, that if the July [M1] bulge comes in at more than we're allowing for, we accommodate it within reasonable limits. So, I would urge the Committee, even if it's going in the direction of easing--which it clearly is--to do so in a cautious way rather than in the kind of sudden movement that would be likely if we started off next week with a $300 or $400 million initial borrowing assumption.",446
-fomc-corpus,1982,"Tony, with $800 initial borrowing, regardless of what we do with the rates of growth in the Ms, there is absolutely no change from where we have been for the past 3 months. And we're going to have interest rates that are fluctuating between 14 and 15 percent. That's no change in policy.",64
-fomc-corpus,1982,They may be higher.,5
-fomc-corpus,1982,And they may be higher.,6
-fomc-corpus,1982,"Well, first of all, borrowing was $1-1/2 billion last week.",18
-fomc-corpus,1982,It's close to being--,5
-fomc-corpus,1982,"It has been averaging closer to $1 billion; I think it was around $900 million in the last few weeks. It seems to me that the fact that we're building our [M1] path on as generous a target as 5-1/2 percent, assuming that there aren't some sudden flukes in the money supply, will permit rates to come down. But I just don't think we want to be perceived as coming in with a very sudden drop in the initial [borrowing assumption]. That's a matter of judgment. We can ask Paul Meek. I don't know; I haven't discussed this with him. If we do have an initial borrowing assumption of $300 or $400 million, I think we'll have a sudden drop.",149
-fomc-corpus,1982,I believe that would be Nancy's intent--that there be a change.,15
-fomc-corpus,1982,A sudden change.,4
-fomc-corpus,1982,"Well, a 14 to 15 percent federal funds rate for the next three months in my mind is absolutely no change. If it takes a drop to $300 million to get it down to 12 percent, my word, that's [only] a 2-point drop. That doesn't sound to me like a plunge in the market at this point.",71
-fomc-corpus,1982,"Well, I think the market would be quite surprised. And I do think that we have enough credibility in the markets that accommodating a July bulge, after the January and April experience, is considered likely by the markets.",44
-fomc-corpus,1982,Why are the rates going up? Why have funds been trading at 15 percent for the past month? Was it because the borrowings were well above the $800 million that we specified at the last meeting?,42
-fomc-corpus,1982,"Well, I think we had the funds rate trading up in the last week largely because of the June 30th statement date and the pressures for banks to dress up their balance sheets for that. I would say, with the billion dollar level of borrowing that was our objective, that a funds rate somewhere around 14 percent or a little above was what was indicated; that is about where it was in May before we lowered the borrowing level to $800 million. Then the rate went down for three weeks to 13-1/2 percent; but it came back, as funds strengthened, to wind up the period roughly where it was at the beginning. SPEAKER(?) Following the last Federal Open Market Committee meeting, the funds rate dropped from the 14-1/2 percent area down to 13-1/2 percent, and it was there for a period of 10 days or 2 weeks--I forget exactly. Was that a shock to the market? How did the market react to that percentage point drop?",206
-fomc-corpus,1982,"Well, the market was encouraged at that point. Its expectation in May was that if the economy was weak, in fact interest rates would ease off. So dealers and others in the market accumulated positions in the expectation of being able to sell at the higher prices to others in the market. We had an abrupt reversal in June, which was not related to the funds rate or to our posture but to the prospect of [a large volume of] Treasury financing coming within a very short period of time. The Drysdale and Comark episodes also were factors and the anticipation of a July money supply bulge was a factor. But the main thing was that the Treasury expected to raise $50 to $55 billion this quarter. And being stuck with inventories that customers weren't buying at lower rates, they had to clean the decks. So, interest rates adjusted up quite sharply through the middle of last week--by 100 to 120 basis points at the intermediate and long end of the market and less than that at the short end. In the last two days, with the successful sale of the 4-year notes, a little of that ground has been retraced, with the 4-year issue having trouble at 14.96 percent and moving down to 14.68 percent or thereabouts. And the 7-year issue that is being sold today is expected to come out about 40 basis points lower in yield than it was on Monday.",289
-fomc-corpus,1982,"Let me ask you a question, Paul. If we started with an initial borrowing of $800 million and an M1 growth path of 5-1/2 percent, where would you expect the fed funds rate to be in the first couple of weeks?",52
-fomc-corpus,1982,"I think it would gradually be eased down from above 14 percent, roughly toward 13-1/2 or 13-3/4 percent or something like that.",35
-fomc-corpus,1982,13-1/2 or 13-3/4 percent.,14
-fomc-corpus,1982,It would be back close to where it was in early June.,13
-fomc-corpus,1982,"I think that depends heavily on what kind of increase we get [in the money supply] in the early part of July. If we get a great big increase, the funds rate is going to stay up; if we get a small one or the expected increase, it probably will plummet. Governor Partee, you wanted to--",67
-fomc-corpus,1982,"I seem to have shocked quite a number of people with my suggestion that we ought to put a cap on the funds rate. First of all, I don't think that is as extraordinary a suggestion as was suggested by some subsequent speakers. We often have conditioned monetary policy on some notion of limits. We used to condition money market conditions on the basis of ""so long as bank credit doesn't exceed a certain amount"" and then ""so long as the money supply is within a particular range."" This is just simply conditioning the money supply target on a maximum funds rate expectation. In fact, it seems to me that my proposal isn't that much different from what we had prior to the fall of '79. My concern is that the market is very sensitive and nervous and that events that could lead to fright in the market may well push up the funds rate. Now, we can stop it from going up, but in the end we'll provide a lot more reserves trying to stop it from going up [as a result of] a Comark or a Drysdale or an Oklahoma City bank failure or whatever may occur in the period ahead. And it seems to me that it would be better to say that we would not expect the funds rate to exceed 15 percent in any event. It won't exceed 15 percent if we say that. And I think that would give us an upper limit that is not unreasonable. People say it's like a peg again. Well, the peg was at 2-1/2 percent, Henry, not at 15 percent. You say it's like the debt limit. We're not talking in terms of a permanent thing; we're just saying that for the time being, given the rate of inflation, given the balance of credit demands in the economy and the needs of the economy, we would not expect the funds rate to exceed 15 percent in any event. I don't think it's as radical a suggestion as other members seem to feel.",389
-fomc-corpus,1982,"But if it got there, we would provide unlimited reserves?",12
-fomc-corpus,1982,"Yes. Because I agree there is going to be a recovery, but my concern is much, much deeper than that. I believe the recovery may be very wishy-washy and that it may be followed by a collapse. And I think we ought to have a point at which we say: This is it for the time being and we're not going to tolerate--tolerate is too strong--but we would not expect the funds rate to trade consistently above 15 percent.",96
-fomc-corpus,1982,Do you think it's useful to have that in the directive that gets published? Or would you feel it would be equally--,24
-fomc-corpus,1982,"Yes, and I would make it in Paul's statement if I were--",14
-fomc-corpus,1982,In Paul's statement?,4
-fomc-corpus,1982,"Chuck, how would that differ from the pre-1979 practices of our Committee?",17
-fomc-corpus,1982,He said it would be similar.,7
-fomc-corpus,1982,It's similar on the top side.,7
-fomc-corpus,1982,"Are you implying that there wasn't a change in October '79? If I understood you, you said it would be similar to pre-October '79--that there is precedent for it.",38
-fomc-corpus,1982,I'm just saying that we have plenty of precedents for constraints on policy.,15
-fomc-corpus,1982,Before 1979.,5
-fomc-corpus,1982,We've had various constraints since '79 and we had some then also.,14
-fomc-corpus,1982,"This is not the same as pre-October '79. What we did after October '79 was to set federal funds rate limits, which for a while we regarded as fairly firm, and we said we'd have a special meeting if the funds rate exceeded a certain limit. It seems to me that is what we're saying, in effect, now except that we're saying it a little more firmly on the up side.",82
-fomc-corpus,1982,"Under the pressure of the monetarists, I think we changed it about a year later.",19
-fomc-corpus,1982,We also had a bottom limit in the spring of '80 in that we weren't going to let the rate go below 10 percent or something of that sort. We haven't consistently stayed within the limits.,40
-fomc-corpus,1982,Mr. McDonald.,5
-fomc-corpus,1982,"I can sympathize with the desire and the need for lower interest rates, but higher monetary growth can be associated with higher interest rates. I agree with Governor Wallich's comment that it's not time to make a fundamental change in policy or to convey alarming signals to the market, and I would support the 4 percent [M1 growth target] in alternative B.",73
-fomc-corpus,1982,Mr. Morris.,4
-fomc-corpus,1982,"Well, Mr. Chairman, if I had to cloud my mind again by thinking about M1, I would support Governor Gramley's formulation. While I sympathize with Governor Partee's general point of view, I think it would be a big mistake for us to announce that we were willing to peg interest rates again. One thing we've learned in the last few years is that the presence of an intermediate target for monetary policy has sheltered the central banks--not only ourselves but the Germans said the same thing at that meeting in New York [as did] the British and the Canadians and others--from a direct sense of responsibility for interest rates, and I think that has contributed to a stronger policy posture. To begin, even in a little way, to back away from that would be a serious mistake strategically. And while I think we're following the wrong intermediate target, I believe it would be a big mistake to start doing without one.",186
-fomc-corpus,1982,What do you mean we're following a wrong intermediate target?,11
-fomc-corpus,1982,M1.,3
-fomc-corpus,1982,"Oh, I see; I'm sorry.",8
-fomc-corpus,1982,"Well, I've completed my sheet except for Mr. Volcker, at which point I will declare a recess.",22
-fomc-corpus,1982,"The numbers we are looking at seem almost ridiculously out of proportion because they come in the middle of our discussion about the weekly figures. The figure that we have at this time, which usually holds up pretty well--within a few tenths by the time we publish--is the same for this week; and for next week it's the same as we had it yesterday. The preliminary number, which is worth very little for the next week, is down a little more than we thought yesterday. It's in that direction, but that is subject to a margin of error of a couple billion dollars. So, it tilts a bit more toward the lower side than we thought yesterday, but the significance of this is not that it changes the June level, although it may change it by a tenth or two. If anything like that happens, we get a little cushion for a bulge in the first week or two of July because we're going to be starting July from a considerably lower level than we anticipated a week or two ago anyway. And it could jump by $4 or $5 billion in the first week in July and only get back to the level of the first half of [June]. I don't know where July will actually be. And I certainly don't know where the first week is going to be. Occasionally in a week like this we've had increases of [up to] $9 billion, but it could be much less. If we get anything less than $2 or $3 billion, I imagine the market would go through the roof because--",308
-fomc-corpus,1982,The stock market would go [up] too.,10
-fomc-corpus,1982,"--it would be so much better than they thought. We have to keep in mind that this is a preliminary comment, as you obviously know, and that any of this numerology we put down either for the paths or for the federal funds rate will not be announced for 7 weeks on our present schedule in terms of any direct market knowledge, barring anything I would say in my testimony. Let me also make a note of reservation that applies to all of these targets, but I think it's relevant in terms of the concerns that have been expressed about the bulge in interest rates or financial circumstances. I do not find it at all difficult to imagine that we would have some financial events to which we would appropriately respond by putting in a large amount of liquidity--something that may turn out to be far in excess of anything we're talking about in terms of the fine distinctions that we make at these meetings. We obviously can't talk about that much, but I think it is just a fact of life. If we have a financial crisis, we have to respond to it, and those numbers have very different meanings in those circumstances than they do otherwise.",228
-fomc-corpus,1982,On a net basis you're saying?,7
-fomc-corpus,1982,"Sure, it's quite possible. I'm not saying we would do it with great eagerness. We would make a judgment at the time. But if we have a crisis, we would respond to the crisis. And we may respond to it on a net basis if we think we can get by with that; if we can't, we won't. I go back to the very first lesson of central banking, which is that in a crisis you lend freely. It's a matter of judgment when that arrives. We all obviously would love to see interest rates down. Barring any great crisis now, the question is how much we can do [to achieve] that by, to overstate it a bit, force majeure--in a way that looks artificial, if that's the right word. That's because the risk is that whether we're successful or not in the short run [the effort to reduce rates] may backfire because it won't look sustainable to the market. [The market] itself will react or [the decline] won't look sustainable in policy terms or we will damage our long-term policy objectives. Put another way, to the extent we can encourage or nudge interest rates down, the more support we have from observable events, such as what is happening in the money supply or elsewhere in the economy, the better off we will be rather than trying to make it a decision that appears ex cathedra and discontinuous in terms of our own policy. It just may not be very productive however much we care. In approaching these variables and trying to put it together, let me try to suggest--for something to shoot at, anyway--several things. Let me go directly to the interest rate question. A number of people have said that it would be a mistake to signal a great change in our structural policy. There might be some dispute over what that is, but I share that [view] implicitly for the reasons I just suggested. It may not be very productive over a period of time in terms of impressing the market and it may create more doubts and uncertainties than we want to, whether or not they see it 7 weeks from now or see it in our actions in the market. That does not mean that I don't have a lot of sympathy for the substance of what those people have said regarding their concern about higher interest rates. I'm not sure that the way to handle this isn't to keep the same [funds rate] range we have now, without changing its statement in the actual directive, but to include to a limited degree the discussion in the policy record, against the background that I myself would be very hesitant, unless there were overpowering reasons, to see the federal funds rate go above 15 percent. I would want to think twice, three times, four times, or whatever, before condoning that for any period of time. Circumstances may be such that we don't have much alternative in the end. Maybe the economy will be looking reasonably good and the money supply will be going wild or something and we would have to tolerate [a funds rate above 15 percent], but I would want to think pretty hard about it. So, I would put in the same range we have now, 10 to 15 percent, without changing the wording but with the knowledge that I would feel very hesitant [to accept it] if in fact the market produced rates of 15 percent continuously for any period of time, and I would certainly want to consult reasonably promptly. I'm not talking about a window-dressing week or day; what I am talking about is something that looks more lasting than that. In terms of the numbers, we have to consider this a little in terms of how consistent it looks with whatever we're going to do in the long run, which we haven't fully decided on by any means. But there was a majority opinion yesterday to keep the long-run targets the same for this year. And that is my instinct, too, bolstered particularly by the other members of the Committee. And a tentative view I had of the need for flexibility and tolerance of growth above those ranges was somewhat reinforced, certainly, by our discussion and what I think was the general opinion yesterday. I doubt that we can keep the range the same and then credibly say at the same time that we fully expect to be above it. There's a nuance or more than a nuance of difference to say that we kept the ranges the same because we do expect and would like to be at the top end, let's say, but that we also would tolerate under a lot of circumstances coming in higher. I think ""tolerate"" is the key word; I can imagine a lot of circumstances in which we would say that. It's a loose toleration, if I can state it that way, as kind of a general background. But assuming we keep the range the same, I have the feeling that we shouldn't adopt a short-term range that on the face of it raises a question of inconsistency. Now, we're all roughly within that ballpark; it's just a question of where we come down precisely. I'm still a little confused about the precise numbers now and we don't know those for next week for sure and all the rest. But what it comes down to is that growth around 5 percent--maybe a bit above or below--brings us very close to the top of the M1 range in September. Maybe we can tolerate a little more growth than that. It seems to me to be consistent in a visual sense as a reserve path determinant. Now, whatever we say about the long-term ranges, such as a willingness to tolerate an overshoot, we would say about the short run, too, I presume. There may be some difference of opinion about that, but certainly if July comes in high, I sense that there is a willingness not to put much weight on July alone--that we would have a sluggish or passive reaction, as a number of people have suggested. That is, July would have to be quite an extreme number to push us off whatever borrowing path we set.",1219
-fomc-corpus,1982,Could we have the new seasonal adjustment in the Bluebook from now on?,15
-fomc-corpus,1982,I don't see any reason not to put it in there.,12
-fomc-corpus,1982,The old seasonal is in there.,7
-fomc-corpus,1982,"No, from now on he says.",8
-fomc-corpus,1982,"Oh, yes, surely.",6
-fomc-corpus,1982,For the next meeting.,5
-fomc-corpus,1982,"I don't know exactly how to word it, but what I'm saying, particularly if we go a bit skinnier than some people have suggested on the [M1] number--and I'm in the 5 percent area--we need in the directive itself a clear indication of tolerance for an overshoot in the next month. I'd put down a reasonably liberal figure for M2, but something that is judged reasonably consistent with that for M1.",89
-fomc-corpus,1982,Both could surge here because of the tax cut.,10
-fomc-corpus,1982,"I think [M2] does reflect some of the same liquidity [preference motives] that M1 reflects and, indeed, one would expect it to. Most people when they go liquid don't actually go into transaction balances. I think we're seeing individuals do that. Businesses go into other kinds of balances. Then we're left with the borrowing level. This is not exactly the way to express it, but we went fully--I suppose with some qualms about whether the scientific projections of the staff were right--with the staff [view] last time in reducing the borrowing level in the hope that interest rates would go down a little and the money supply would stay down. As it turned out in the end that has been correct except that we had an intervening increase in the money supply. We had a [pattern] of movement that was not the most felicitous, which sent [borrowing] up a bit in the intermeeting period. Now we are back pretty close to where we started out, and borrowing has been a little above $800 million. I would go down at least to $800 million in borrowing on the same theory; we can argue about whether we could tolerate something a little lower than that on the theory that it would be a good idea to create some conditions that presumably would be reflected in a lower funds rate and would encourage a market [rate] decline. But overdoing it would create a substantial risk that we'd have an adverse reaction ultimately, being followed up with what is deemed to be by the market, if not by us, an excessively rapid increase in the money supply; and we would lose, on balance, instead of gaining. But then the question becomes: How do we act thereafter? I wasn't exactly sure what Governor Gramley had in mind, precisely, in his suggestion. But the sense of what I think he was saying, qualitatively, I would share. I don't know how to reduce it to a formula, but if the money supply came in on the low side, we would let that be reflected in a decline in interest rates up to a point. But we wouldn't mind taking a little of it in the form of a little slower growth in the money supply, too, if interest rates were going down rapidly. We kind of [split] it, as he said. I don't know whether we can reduce it to a formula, but we might reduce the reserve path a bit if interest rates went down sufficiently and welcome a slightly slower growth in the money supply during this period. We'd be very reluctant and sluggish and passive on the up side if the money supply came in high in the short run. So, let's have a little discussion of these variables just to--",542
-fomc-corpus,1982,"May I just make a technical comment? If I've understood you right and you're going with 5 percent for M1 and the appropriate number for M2 from June to September with a new lower June base, you in effect are saying that you are prepared to tolerate a September number for M1 that is a tiny bit less than what is in ""B.""",71
-fomc-corpus,1982,"Well, that's what I'm not sure about. Is that what it comes out to--that at 5 percent M1 would come out a little less than the target?",34
-fomc-corpus,1982,"[The level] is $457.0 billion, if you take $451.5 billion for June.",22
-fomc-corpus,1982,What is the target level for September?,8
-fomc-corpus,1982,I don't know; I don't have that.,9
-fomc-corpus,1982,The upper limit is $456.7 billion.,10
-fomc-corpus,1982,I see. So we'd still be a bit above it.,12
-fomc-corpus,1982,"But again, what you're doing is assuming that the June figure is a solid one and that it signals the first of a series of downward shifts in money demand, which is built into these specifications in the first place. If that doesn't continue, unless we have some sort of understanding that we're going to operate on money market conditions, interest rates will begin to ratchet up. And that's something that I just don't think we ought to do. One way to get around this might be to go to a May base. A number of 5 percent from a May base would be a lot more satisfactory from my standpoint.",122
-fomc-corpus,1982,It's the same number.,5
-fomc-corpus,1982,If you take 5 percent from May to September--,11
-fomc-corpus,1982,You have a lot more room.,7
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"What is the level you get with that, Lyle, for September?",15
-fomc-corpus,1982,It's about $459 billion. We'd have essentially what is in alternative A.,15
-fomc-corpus,1982,I see; that's right.,6
-fomc-corpus,1982,"It's a bit less, but in round figures it would be $459 billion.",16
-fomc-corpus,1982,"Well, my concern is not so much [how] we can trace [the right number] through all these mechanics. I don't think we know down to the last billion or two. It's just a question of selecting ranges that appear more or less consistent with what we say for the longer run; obviously, there's no certain answer to that within a narrow range. Saying something like 5 to 6 percent isn't so bad. But if we said 6 percent, where does that leave us in September? Is that going to be considered consistent with the long-run target? That's my problem. I do want to say we're going to be tolerant of an overshoot. And if we make the number too high and say we're tolerant of an overshoot, what message are we conveying? That's the kind of--",161
-fomc-corpus,1982,"But can we say we're going to be tolerant of an overshoot without giving the market some idea of how much? Otherwise, they will be drawing out all sorts of possible--",35
-fomc-corpus,1982,We can talk about the bulges we have already been tolerant of.,14
-fomc-corpus,1982,"Yes, but what they do, Preston, is that they sit down and figure out the rate at which the money supply has to grow for the last six months and--",34
-fomc-corpus,1982,"My sense is that that argues against [your suggestion], Nancy. One can argue it any way but if we say that's a big number, then we have a problem. If we say it's a relatively small number and in fact we overshoot it, we're right back into that calculation. If we're a little vaguer, we avoid that arithmetic or we try to avoid the arithmetic. We never avoid it.",81
-fomc-corpus,1982,But we may cause more chaos by not doing it.,11
-fomc-corpus,1982,"No, I agree with Paul. It would be very hard to indicate the extent of the overshoot we'd tolerate, particularly since aside from this precautionary [demand for money], which could become greater actually in the next few months, we have the natural workings of a tax cut, the first effect of which is to add to household balances. And that gets to be a big number when it is annualized.",83
-fomc-corpus,1982,"I think what we have to say in terms of our tolerance--whether we're talking about the short run or the long run--is that we can only judge that at the time in the light of all the circumstances. If we observe events that suggest the overshoot is originating in a precautionary demand for balances, we are going to be more tolerant than otherwise. And how do we judge that? We judge that by what the economy is doing and what interest rates are doing--I get interest rates in through that avenue--relative to what our internal analysis of the figures suggests, as we have in the past. I don't know what else we can say.",131
-fomc-corpus,1982,That's a good way of handling it.,8
-fomc-corpus,1982,"Do you mean that if in July we appear to be getting a bulge of over 9 percent in money supply growth that you would adjust the nonborrowed reserve target upward unless there were some indications that this growth was being generated by a strengthening in the economy? If what happens is that the amount of borrowing goes up and interest rates go up, then that is not accommodating in the sense that I would use the word. And I--",88
-fomc-corpus,1982,"I mean that to the extent that the July problem is seasonal, it is not what I was just talking about. It's just pure uncertainty about July in terms of seasonals and the tax cut and so forth. At what point we accommodate that absolutely and completely, or stop accommodating it absolutely and completely, I don't know. You say 9 percent; starting from such a low level, 9 percent implies a bigger increase during the course of July than Steve was assuming in the Bluebook. The 9 percent now becomes a bigger increase for the monthly average for July than it did when the Bluebook was actually written because we're starting so low with the same--",132
-fomc-corpus,1982,"About 11 and a fraction percent, I believe, is what we figured out.",17
-fomc-corpus,1982,Yes. That sounds right.,6
-fomc-corpus,1982,[Unintelligible] target on 11 percent.,12
-fomc-corpus,1982,"But that means targeting on quarterly levels or on the levels for the month and not on the growth rates. If we target the levels, then it seems to me what we need to do is to decide what our specifications are relative to the month of May. If we're adjusting the whole quarter downward for this fortuitous development in June and we end up having a 5 percent growth rate for M1, we're ending up with a level in September that is at or slightly below where we were in alternative B in the first place. And that, it seems to me, does not come to grips with the problem that these specs have built in them a downward shift in money demand, and if it doesn't happen, then we're in really big trouble.",149
-fomc-corpus,1982,"My feeling, Lyle, is that this will turn right around.",14
-fomc-corpus,1982,"My only difference with you is that we may be in really big trouble, but I don't think it's going to involve a difference of 1 percent in the growth rate from June to September.",38
-fomc-corpus,1982,I think we have to allow for a bigger July because I suspect that this change in late June is just temporary and that we will get a bigger July surge.,32
-fomc-corpus,1982,"Oh, we can get that; it depends upon what you mean by a July surge. If we get the same July surge on a weekly basis, we will come out with a smaller monthly number.",40
-fomc-corpus,1982,I'd say we will have a larger surge than we expect for [July] and that it will be because this is just a temporary development.,28
-fomc-corpus,1982,"We can have quite a large surge in the weekly sense in July and come out where we expected. We'd have to have quite a big increase in July now, I guess, to go above a 9 percent growth rate on average, if next week's figure is right. It's obviously not impossible. If we started out with a nice $9 or $10 billion figure, I guess we could get that. But that's what it would take, wouldn't it, because we had a $4 or $5 billion figure in [the projection]?",107
-fomc-corpus,1982,For--?,3
-fomc-corpus,1982,For the first week in July.,7
-fomc-corpus,1982,"Yes, we have about a $4-1/2 billion increase in the first week of July.",21
-fomc-corpus,1982,"So, it's now $3 or $4 billion lower than you expected it to be?",18
-fomc-corpus,1982,"Yes, about $4 or $4-1/4 billion lower.",15
-fomc-corpus,1982,So we would have to have an $8 or $9 billion increase to have the [previously expected] July level?,25
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,That isn't impossible; it's quite possible.,8
-fomc-corpus,1982,"Steve, does this revision in the June number bring the quarterly average back down to 3 percent?",20
-fomc-corpus,1982,"It brings the March-to-June growth rate to 3 percent, that's right.",17
-fomc-corpus,1982,"So, what is happening in June is that we're reverting to what you originally expected?",17
-fomc-corpus,1982,"Yes, we're right on the target we set for the quarter.",13
-fomc-corpus,1982,"Yes, we're right on the target the Committee voted for.",12
-fomc-corpus,1982,"It's just [a different] pattern, that's all.",11
-fomc-corpus,1982,"Unfortunately, the path instead of being a U is a hump.",13
-fomc-corpus,1982,We're lucky it isn't a dromedary--a double hump.,14
-fomc-corpus,1982,"It may be. We just don't have the next quarter yet. Well, there are too many permutations and combinations to decide all of these things, I'm afraid, but I am talking about accommodating a real bulge in July should it develop. We could say 5 to 6 percent for the quarter. My only hesitancy is: Is it worth having somebody coming back at us saying 5 to 6 percent is clearly inconsistent with your saying that you are not changing the targets for the year as a whole.",104
-fomc-corpus,1982,That's the thing to worry about.,7
-fomc-corpus,1982,And even then I would want to put in some tolerance numbers because I don't know what the difference between 5 or 6 percent is in this kind of period. It's a shot in the dark anyway.,41
-fomc-corpus,1982,"Well, 5 percent approaches the upper limit and 6 percent moves slightly away from it.",19
-fomc-corpus,1982,"That's right. If we were squarely on the target in June, 5 to 6 percent would be something like the right thing to say. It just says we're going to stay right around the upper end of the target.",46
-fomc-corpus,1982,"What about something like ""about 5 percent"" with an understanding that ""about"" is more generous on the top side of 5 percent than on the short side of it?",36
-fomc-corpus,1982,"Well, I was going to say ""about 5 to 6 percent.""",16
-fomc-corpus,1982,"Well, I'm going a little beyond that in a sense. I'm suggesting that we say about 5 percent--and ""about"" may be the right word--but I would say something explicitly about tolerating some overshoot.",45
-fomc-corpus,1982,"Steve, how does this fit? If we use these specifications, would you think the [federal funds] rate would be about 14-1/4 or 14-1/2 percent?",41
-fomc-corpus,1982,"If borrowing were around $800 million, I think that would bring the funds rate to 14 percent or a little below--probably more below.",29
-fomc-corpus,1982,That's what we had last time with the rates well above that.,13
-fomc-corpus,1982,"I would add an important caveat. In the first place, the July 4th holiday weekend often has fairly high funds rates for the same reasons as the statement date. Secondly, if financial pressures or financial problems develop and they become known, sometimes that gets associated with a high funds rate as these pressures immediately hit the banks and they have to lend or some uncertainties develop. That, too, could produce a relatively high funds rate. But in a normal situation I would say the $800 million would be [associated with a funds rate] of something under 14 percent.",115
-fomc-corpus,1982,"One way of playing this is to set the borrowing level slightly below $800 million. The more we go below, the more it increases the risk that we might have to reverse it instead of opening up room for coming down further quickly if things develop in a satisfactory way.",54
-fomc-corpus,1982,Do you have some notion as to when you would begin to get uncomfortable on the down side in terms of the federal funds rate?,26
-fomc-corpus,1982,I'd get very nervous around 6 or 7 percent. I'm serious!,15
-fomc-corpus,1982,You want a positive real interest rate?,8
-fomc-corpus,1982,That would still be positive.,6
-fomc-corpus,1982,"Not on last month's figure. Not on most people's figures, I don't think. There's always a question of the rate of speed and how far to go, but I suppose we would only worry about it to the extent that we thought what was going on was so temporary that the rate was just going to rebound. If we thought it was going to stay wherever it went, we wouldn't be concerned about it.",81
-fomc-corpus,1982,I think 10 percent is reasonable.,8
-fomc-corpus,1982,"Well. Mr. Chairman, since you quoted one of your favorite philosophers earlier on I'd like to quote one of mine. The quote goes something like this: ""I think we tended to make mistakes in the past not at the end of an expansion or the end of a boom, and not so much in a recession, but by providing too much stimulus during the early part of an expansion period when things tend to get out of control before one realizes it. I hope we don't make that mistake again."" I think you know who the philosopher is that I refer to. I like that statement. That was made two summers ago. I think we're right there again.",132
-fomc-corpus,1982,Providing too much stimulus is the least of my worries.,11
-fomc-corpus,1982,"The point of this quote is that we always realize too late that we put in too much stimulus. So, I feel strongly that we should never set a cap on the funds rate at right where it is. We have to allow at least for a little change. We're talking about putting it at 15 percent when it is already--maybe for window-dressing purposes--right around 15 percent. We have to give ourselves some room to breathe on rates and not give people a formula to work with which would allow for a very rapid expansion when we may regret it later. So, I'd be more cautious. I'd set the borrowing at over $800 million and put a wider range on the funds rate to include something above where it is. I always get nervous about setting the interest rate cap--",159
-fomc-corpus,1982,"Well, before we get to that, on the [M1 growth rate], I suppose one way of stating it is 5 percent or more. The only thing I don't like about that is the connotation that we wouldn't tolerate any shortfall; I think we would tolerate some shortfall if things went the other way, as you have suggested in--",71
-fomc-corpus,1982,Or set the upper limit at 5-1/2 percent.,14
-fomc-corpus,1982,"When I was tolerating the shortfall, it wasn't from 5 percent.",16
-fomc-corpus,1982,"Given the news about Mexico, we could say 5 percent ""poco mas o menos.""",19
-fomc-corpus,1982,"Yes, let's put that in. Mexico is in the news.",13
-fomc-corpus,1982,"I think when we say ""about,"" everybody reads it to mean ""or more.""",17
-fomc-corpus,1982,"You know, there has been no discussion of the impact of this on the international value of the dollar. If we maintain rates at 14 to 15 percent, what is going to happen to the international value of the dollar?",46
-fomc-corpus,1982,It's going to reduce Henry Wallich's expense account!,11
-fomc-corpus,1982,"It's going to reduce our exports, which is going to reduce the value of the dollar.",18
-fomc-corpus,1982,Ultimately.,2
-fomc-corpus,1982,Eventually; we don't know exactly when.,8
-fomc-corpus,1982,"But won't this continue to keep the value at least high, if not rising?",16
-fomc-corpus,1982,"My presumption in saying $800 million is that if things behave more or less as we're thinking, the funds rate is going to be--though heaven knows what it'll be on July 4--below 14 percent and the dollar will probably weaken. Who knows? The problem is not the desirability of getting interest rates down; the question is whether by reaching too fast for that objective we may not be able to keep them down.",87
-fomc-corpus,1982,"Couldn't we put something in the directive, Mr. Chairman, that says we are shooting for about 5 percent with the understanding that we would be tolerant of unusual developments in the money supply early in the period, associated with the tax reduction and all that, and use that as--well, as our excuse?",62
-fomc-corpus,1982,"Well, I think we have to say we will be tolerant early in the period, but my tolerance extends beyond that and is not just a technical judgment affecting July. But if the whole thing looks too low after July and interest rates are under great pressure and the economy is going no place at all, I would also be tolerant apart from the July bulge to a degree.",75
-fomc-corpus,1982,I agree. Why should we limit ourselves to those technical factors? Why limit ourselves in the actions that we may have to take? What is the point of boxing ourselves in?,35
-fomc-corpus,1982,"But by setting the borrowings at $800 million, right there we've locked ourselves in.",18
-fomc-corpus,1982,I think we ought to tilt that down; make it $700 million.,15
-fomc-corpus,1982,"I think we ought to tie it to something. We can tie it to something like liquidity demands that are out of the ordinary or some unusual liquidity demands, which gives us lots of flexibility in terms of what we may want to do.",47
-fomc-corpus,1982,"How will you control that--to come back to the other dimension? That's why I'd keep this federal funds range lower than some other people would. That is the occasion for considering precisely moving somewhat above the path, if we wanted to implement the judgment of being tolerant.",53
-fomc-corpus,1982,"Well, since Nancy mentioned the dollar, I should mention inflation. It has been mentioned no more often than the dollar has in our discussion. The economy has turned around--I'm looking at Joe Livingston's list of 54 economists who say it turned around in May--and we're now getting ready to do what we weren't prepared to do all the first half of the year.",74
-fomc-corpus,1982,But don't be absolutely sure. Industrial production will probably decline in June.,14
-fomc-corpus,1982,"Also, we haven't had the financial fallout yet from the recession.",13
-fomc-corpus,1982,It always comes late. Bank losses always peak a year after the recession. I shouldn't say they always peak; they rise after the recession develops.,29
-fomc-corpus,1982,"Henry, there's a 6-month lag in FOMC reactions.",14
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,Only six?,3
-fomc-corpus,1982,That's why I gave that quote.,7
-fomc-corpus,1982,"My position, Paul, is that 5 percent is pretty tight unless we take Lyle's construction and make it May to September. Then 5 percent seems all right. That's the way of getting the number, if you want the number at 5 percent.",53
-fomc-corpus,1982,Then the arithmetic is wrong.,6
-fomc-corpus,1982,Let me point out something that may be perfectly obvious. Anything above 5-1/2 percent moves us away from the upper limit. Anything less than 5-1/2 percent moves us toward it.,43
-fomc-corpus,1982,"My position is that I'd rather raise the upper limit. But if it is decided for policy or for strategy reasons that we ought to hold the limit, then I'd want to overshoot. I'm quite prepared to overshoot.",44
-fomc-corpus,1982,And those numbers are only good if June holds at zero. Growth of 5-1/2 percent will move us farther away if the June number is [higher] than zero.,37
-fomc-corpus,1982,"Roger, it seems to me that if it's above the target, regardless of how much above, anything less than 5-1/2 percent moves us back toward it, doesn't it? Am I mixed up on this?",45
-fomc-corpus,1982,I was just focusing on your comment on 5-1/2 percent.,16
-fomc-corpus,1982,"Well, if growth is anywhere above it [through June], anything below 5-1/2 percent is--",23
-fomc-corpus,1982,The difference between 5 and 5-1/2 percent for the number is very small. All I'm concerned about is how to visualize--,29
-fomc-corpus,1982,"Why don't we compromise by having ""about 5 percent"" with it understood that in drawing the path we're going to come closer to 5-1/4 or 5-1/2 than to 5 percent. In other words, ""about"" is interpreted liberally to start off with.",61
-fomc-corpus,1982,"But not 5-1/4 to 5-1/2 percent. A quarter of a percent at an annual rate is not [interpreting it] liberally. If you take the September levels that we have here and use 5 percent from May to September, the June-to-September implication is 6-3/4 percent. That's what I thought I was talking about when I made my proposal in the first place.",89
-fomc-corpus,1982,I thought you were proposing 5-1/2 percent.,13
-fomc-corpus,1982,"No, I was proposing keeping the September level, not paying too much attention to the fact that June was as low as it was. And what I was saying about accommodating was really designed to go in the other direction. I was saying that if in fact the money supply comes in weaker than that and the difference were not construed as evidence of a collapse in the economy, I would be prepared to compromise in the sense of taking part of that shortfall in lower money growth and part of the shortfall in lower interest rates--not accommodating in the other way by setting a number low and then letting the overrun occur.",124
-fomc-corpus,1982,"It seems to me that we need to capture the spirit of what we're trying to do here and have language that does that. And ""about 5 percent, allowing for unusual liquidity needs"" captures it. When we start talking about shifting the base from June to May or about 5 to 5-1/2 percent, that seems to me a kind of precision that is more than we can expect. If we had been doing this twenty-four hours ago, we would be doing it some other way. We have six weeks ahead of us. We need to capture the essence and the spirit and know that we have some flexibility rather than being too precise.",132
-fomc-corpus,1982,"But looking at Lyle's suggestion in perspective, it might be helpful to [note] that if we did use a May base, we would hit the top line by September if M1 grew at 3-1/2 percent. So, at 5 percent, we hit the top line somewhere between September and the end of the year.",70
-fomc-corpus,1982,I'm prepared to acknowledge the possibility that we may have to overshoot this year.,16
-fomc-corpus,1982,"Yes, I realize that. I was just trying to put that in focus because, as I indicated earlier, ordinarily I'd think the idea of using a May base was a good one. In this case I would have to be pragmatic and say I'd rather use the June base because that would enable us to do what I think we ought to do and express it in terms of a high percentage increase, which I would like to do.",86
-fomc-corpus,1982,"Well, could we say ""about 5 to 6 percent""?",14
-fomc-corpus,1982,"The other way to do it is to make it quite clear that we're talking about an overrun and have an understanding amongst ourselves as to how much we're thinking about in very broad terms. Then we could use language such as Jerry suggested: ""The target is 5 percent or somewhat more if the liquidity preference of the public remains high."" The ""somewhat"" in my case would mean that I'd be willing to tolerate growth up to 7 percent for the quarter.",93
-fomc-corpus,1982,"Well, the explicit reference to liquidity preference is reasonable since we're banking on a rise in velocity here. If that doesn't come in, accommodation is appropriate.",30
-fomc-corpus,1982,"And that's consistent with what Paul is going to be saying in his testimony, too. We could apply pretty much the same language to the directive that you think you would be using in your testimony [about] tolerating.",44
-fomc-corpus,1982,What does it imply for the target path?,9
-fomc-corpus,1982,"Well, I'm assuming that it would be somewhere in the neighborhood of 5-1/2 percent from June.",23
-fomc-corpus,1982,What does it imply for interest rates? Do they still stay at 14 to 15 percent?,20
-fomc-corpus,1982,"No, they don't, if things behave normally. That's the big question mark. Then it would mean that [the funds rate] probably would be around 13-1/2 or 13-3/4 percent in the initial two weeks or so. But, of course, if there's a fluke in the figures and they come in strong, then we prevent [rates] from going above existing levels. At least I understand that to be pretty much the feeling in the group. And that's what Paul says too.",105
-fomc-corpus,1982,"I like the idea of [the language] being consistent with the testimony. When we say ""5 percent or something more, if liquidity preferences remain high,"" that is very much the theory of the testimony, or of the Humphrey-Hawkins report if not the testimony.",55
-fomc-corpus,1982,"If we use that argument, you can even put Milton Friedman's statement in your testimony.",18
-fomc-corpus,1982,I don't think that's better; I think that's worse! Can we agree on that?,17
-fomc-corpus,1982,"Well, I think what you are stating is where I started off.",14
-fomc-corpus,1982,"But I would hope that the path will be drawn fairly liberally--certainly for the month of July at 11 percent or thereabouts, and then less in--",34
-fomc-corpus,1982,"Well, let me have Steve address that because he told me the opposite. It's just an interpretation of what is liberal. I can agree with the liberality, but I take it from what Steve told me before that even 9 percent in July seems terribly liberal at this point just because we're starting at such a low level at the end of June.",70
-fomc-corpus,1982,"Yes. Our expectation at the moment is that July would be lower because of the very low base that we're starting off with for the end of [June]. On the other hand, August could be higher because--",42
-fomc-corpus,1982,"Yes, he's saying that July would be lower and August would be higher than he would have thought before.",21
-fomc-corpus,1982,"But doesn't it imply, Steve, whatever tendency might be there because of the fundamentals, that things should if anything be easier in early July rather than tighter?",31
-fomc-corpus,1982,"Let me word it this way. What we're talking about is that we're not setting the base from right now. We're setting the base--within limits--from whatever happens in the first week or so in July. When we talk about a borrowing level, that's what we're talking about, within limits. I hate to just throw out a figure here but, given the low level from which we're starting, if the first week or two of July came in at as much as $6, $7, or $8 billion, we're still talking about $800 million of borrowings. If it came in at less than $4 billion, considering where we're starting from, we're probably talking about a lower level of borrowings right from the start. The question of a higher level would only be relevant if [the M1 bulge] were really something extreme, such as 9, 10 or 11--",181
-fomc-corpus,1982,"What is 9, 10, or 11?",12
-fomc-corpus,1982,Billion.,3
-fomc-corpus,1982,The dollar increase in the money supply in early July.,11
-fomc-corpus,1982,"We would get a much more favorable downward impact on long rates if the market sees a gradual and steady decline in short rates than if we have a relatively sudden drop in short rates. [In the latter case] if the numbers don't come out right, particularly in August, we'd get a rise again. The market has its own views as well. And if we get too much downward movement in short rates in July, they may not believe it is sustainable and we will not get as healthy an effect as we could get in the bond market.",108
-fomc-corpus,1982,Or even in the short-term market. It is not just the speed of the reduction; it's whether the reduction is convincing in terms of what the market itself observes.,33
-fomc-corpus,1982,"We have in the past, at least once, specified a declining level of borrowing over the intermeeting period. That would get to your point, Tony, of trying to bring it down gradually over a period of time.",44
-fomc-corpus,1982,I don't remember.,4
-fomc-corpus,1982,"I don't remember, Paul.",6
-fomc-corpus,1982,"I don't either. That's hard to do, of course, because it depends on what happens to the aggregates.",22
-fomc-corpus,1982,"It's hard to do unless we specify a range, which captures that element.",15
-fomc-corpus,1982,"Let me just say that I think the publication of these numbers, if they hold up, will itself change some expectations in the market about what we're likely to do in July and beyond. There could be a substantial sense--",44
-fomc-corpus,1982,"I hate to try to be so precise with all the permutations and combinations but I think what we're talking about is this: Let's take $800 million, if that's the number. We have to operate a week before having any indication of what is going to happen in the first part of July. So if $800 million is the [borrowing] number, what I'm talking about is keeping that at $800 million, which would require an adjustment in the reserve path in the first week of July if the number in the first week in July is as high as X, given that the last week in June holds up. I guess that figure might be as high as $8 billion. And then take off [from there]. If it came in below $4 billion, just for purposes of example, we'd lower [borrowings] right away because it would look as if we were heading for a lower July than we expected. If it came in above $8 billion, then we'd have a question. Then we'd come to our federal funds limitation, anyway, at some point. Even then we wouldn't move very vigorously. So, we would readjust the reserve path in any event the next week, depending upon how July starts, with a very broad range of tolerance and a presumption that borrowing is going to be around $800 million; we're much more likely to lower it than raise it if the first week of July came in low. I think that's the operational significance of what we're saying.",297
-fomc-corpus,1982,It sounds good. I don't know how to put it in words for the directive.,17
-fomc-corpus,1982,"Well, we don't have to bother with that in the directive, I don't think. It's just a--",21
-fomc-corpus,1982,We could interpret that in light of any potential revisions of June 30th also. It could go either way.,23
-fomc-corpus,1982,"What we're saying is that we're not going to react to any figure for the first week of July, given how low [a base] we're starting from, unless it's enormously high.",36
-fomc-corpus,1982,Or pretty low.,4
-fomc-corpus,1982,"Well,--",2
-fomc-corpus,1982,"No, if it's low, we would permit some downward movement in the rates.",16
-fomc-corpus,1982,Yes; we'd react by letting them go down.,10
-fomc-corpus,1982,"Anything below $4 billion, you would lower it?",11
-fomc-corpus,1982,"Look, I threw that figure out, but I-",11
-fomc-corpus,1982,"Yes, I pretty much agree--",7
-fomc-corpus,1982,"Well, isn't the point here that if the end-of-June numbers held up and we drew the path with the monthly pattern as it is in alternative B in the Bluebook, with an initial level of borrowings of $800 million, that anything less than roughly a $10 billion increase in the money supply in early July should produce an easing of money market conditions?",74
-fomc-corpus,1982,That's right; that's leaving the July level where we have it. It would imply something like a 12 percent rate of growth from June.,28
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,So we do that and we take account of liquidity preferences and--,13
-fomc-corpus,1982,"We would not draw the path, if I understood the Chairman, on this July level. It would be a quite lower level, interpreted as he mentioned.",31
-fomc-corpus,1982,"You might draw the path today, but you'd change it on the basis of whatever things look like. It's not an operational path beyond this week.",29
-fomc-corpus,1982,How do you decide how to draw it after that?,11
-fomc-corpus,1982,"Depending upon what happens in July, with the presumption that we start the borrowings at $800 million, if that's what we decide on--$800 million being attuned to the first week in July, not this week.",46
-fomc-corpus,1982,What does that imply for interest rates in the first week until we have to decide what to do with the borrowing path thereafter?,25
-fomc-corpus,1982,"Well, we're in a window-dressing period, so I don't know. If we were not in a window-dressing period, I would say a little lower. They probably will be a little lower anyhow with these money supply figures we're publishing. We just don't know. I'd be quite confident of that if it were not for the window-dressing and the July 4th weekend. What are we talking about--tomorrow? So, I don't know what the funds rate will be tomorrow. To give you the honest answer, God knows what the funds rate will be tomorrow.",116
-fomc-corpus,1982,Seasonally adjusted.,4
-fomc-corpus,1982,It's unseasonally adjusted.,6
-fomc-corpus,1982,I'm not even too certain about that.,8
-fomc-corpus,1982,"If we release our money supply figure a little earlier than usual, we might be able to move it the way you want.",25
-fomc-corpus,1982,Release the money supply figure earlier than usual? How do we do that?,15
-fomc-corpus,1982,"Well, I don't know what time it is firmed up, but the markets would have time to move a little if it's released earlier.",28
-fomc-corpus,1982,We can't start playing that game.,7
-fomc-corpus,1982,"Oh, you mean actually releasing the numbers.",9
-fomc-corpus,1982,We can't do that. The market will then start reading something into it every time we change the time of the release. We'll go out of our minds.,31
-fomc-corpus,1982,"Well, in any event, we have an agreement with the SEC that we won't release it until 4:10 p.m.",26
-fomc-corpus,1982,Now that's being specific!,5
-fomc-corpus,1982,I was just being facetious. It wasn't interpreted that way.,13
-fomc-corpus,1982,"[As far as] collecting the numbers a little early, it would solve all our problems if we could collect the money numbers before the numbers existed!",30
-fomc-corpus,1982,My wife tells me repeatedly that people don't know when I'm joking and I've just demonstrated the validity of that.,21
-fomc-corpus,1982,"Oh, I see. We apologize. After a few hours here, we lose our sense of humor anyway!",22
-fomc-corpus,1982,"Well, before I reformulate all this, does anybody else want to comment on the federal funds rate range? I drew one response out of Mr. Ford.",32
-fomc-corpus,1982,"Well, I would oppose Mr. Ford. I think 15 percent is plenty high. And the rate is below 15 percent now--I think it is 14 percent or a little below--so there is a little upside room. In any event, I would say what I did before. I don't care what the short-run implications for the aggregates are, we can't stand to have higher rates at this moment in time. So, I agree thoroughly with what the Chairman said. I still think it might be better to say it [publicly], but I'll withhold that until a later date when it becomes more extreme as a need than now.",131
-fomc-corpus,1982,"I'd second that. I think 10 to 15 percent, using the same language we have used, is the appropriate way to handle it. And the Chairman himself has indicated that he would consult, if we got into an area that--",48
-fomc-corpus,1982,I would support Mr. Ford on the basis that it's practical to have a little slack in operating and there is no sacred writ about it. A rate of 15-1/8 or 15-1/32 percent will not cause the world to spin on its axis in a different direction.,60
-fomc-corpus,1982,I like 10 to 15 percent. And I would hope that we would have some language in the directive indicating that it's 5 percent or somewhat more if liquidity preference runs high.,37
-fomc-corpus,1982,"I think 15 percent is [not] high enough. I think we won't have to go above it, but I'd feel much more comfortable if we had the leeway to do so if we needed to. I would hope we would not have to use it.",53
-fomc-corpus,1982,"So, you want 16 percent?",8
-fomc-corpus,1982,"Well, I said 17 percent, but since I'm in a compromising mood today, I can stop at 16.",24
-fomc-corpus,1982,15-1/8 won't do?,8
-fomc-corpus,1982,How about 15-1/32?,9
-fomc-corpus,1982,I like the 32nd!,7
-fomc-corpus,1982,"I don't think anybody will go broke over the difference between 15 and 16 percent. The one area where there has been steady and really disastrous pressure of interest rates is the thrifts, and that is where precisely the least has happened.",48
-fomc-corpus,1982,"Well, I think it's more significant than that, Henry. I agree with you, in general terms, but if the funds rate gets toward 16 percent, it may trigger a 1 percentage point increase in the prime rate, which I think would have very considerable significance psychologically for the economy, for financial markets, and for other interest rates. It would not be a very happy situation.",78
-fomc-corpus,1982,"If we trigger what seems like a severe bulge in the money supply, interest rates would go up anyway.",22
-fomc-corpus,1982,"It's only because we haven't raised the long-run target that we're sitting here figuring out how much we have to make the growth rate decrease in the last six months [of the year]. If we raise our long-range targets, we can take this bulge and nobody will question it.",56
-fomc-corpus,1982,Not if we indicate that we'll tolerate some bulge.,11
-fomc-corpus,1982,"People are sensitive to bulges not only for the week. [If we] say we will tolerate [bulges], they may be sensitive even to our saying that we will tolerate them.",38
-fomc-corpus,1982,I think they'll be more sensitive if we tell them we're not going to do it because then they can figure out how much [money growth] has to go down in the last six months [of the year].,42
-fomc-corpus,1982,"In terms of this bulge issue--and I think it's worth voting on--given what has happened in the first two quarters, I don't think the market is going to be anywhere near as sensitive to--",41
-fomc-corpus,1982,"I think they've been quite sensitive to it. That's part of the reason the rates are where they are now. But they probably have discounted it pretty well. And this is enormous. Well, let me reformulate this; I'm not sure I'm saying anything much different from where I started. On the [short-term M1] range we're saying ""about 5 percent."" I don't know whether to put it in the same sentence or different sentences but we start with a figure of about 5 percent. We certainly add the thought ""or somewhat higher"" with some language not only about the arbitrariness of the July bulge for seasonal reasons but an assessment of liquidity pressures and demands or whatever in the economy. I think we'd probably do it in two sentences. We will put down an M2 figure that is reasonably liberal; I wouldn't mind putting down a 9 percent M2 figure. Does that bring us within the M2 targets by--? No, the upper end of the M2 target is 9 percent, isn't it? So it wouldn't because we're above it now.",217
-fomc-corpus,1982,M2 may run stronger for June.,8
-fomc-corpus,1982,"We're above the M2 range. Just mechanically we can't [move into the range if it grew at 9 percent]. That might be an argument for leaving it at 8-1/2 percent, but I'd say 8-1/2 or 9 percent.",55
-fomc-corpus,1982,I would not expect any downward revision in M2 for June; it might even be up a bit.,21
-fomc-corpus,1982,"Obviously, we have to examine the 10 to 15 percent or the 11 to 16 percent alternatives on the federal funds range. I still prefer the 10 to 15 percent. We have borrowings starting at $800 million and they're going to remain at $800 million within a very broad range, particularly on the up side, of whatever happens in the first week of July. I mean that we will allow for a big bulge in the first week of July. If M1 for the first week of July comes in weaker than expected, we would consider reducing borrowings. We will proceed. That's about all I have to say.",131
-fomc-corpus,1982,Why don't you ask for just a show of hands before we get into a vote?,17
-fomc-corpus,1982,A show of hands on what?,7
-fomc-corpus,1982,"Well, as you said, we have a selection on the federal funds range and we have a selection on whether to say ""5 percent or somewhat more"" or just ""about 5 percent"" and then whether to put in another sentence. Those are two things at least. And we have the M2 question. People might be constrained to vote against it just for some little reason.",77
-fomc-corpus,1982,"Well, let's see whether we can deal with this federal funds rate range.",15
-fomc-corpus,1982,It's now 10 to 15 percent. Do you really mean to raise the lower limit to 11 percent? Did I hear you say 11?,31
-fomc-corpus,1982,"No, 10 to 15 percent or 11 to 16 percent. Either leave it the same as it is now or raise it.",29
-fomc-corpus,1982,"Well, I'm not proposing to raise the lower limit; I want to be clear about that.",19
-fomc-corpus,1982,Just the upper limit?,5
-fomc-corpus,1982,You're proposing 10 to 16 percent?,9
-fomc-corpus,1982,"At least 1 percentage point [on the upper limit] to allow ourselves a little breathing room from where we are the day we start, that's all.",31
-fomc-corpus,1982,"Yes, I agree with that.",7
-fomc-corpus,1982,A range of 10 to 16 or 9 to 16 percent at least gives us some room to breathe.,24
-fomc-corpus,1982,10 to 15 percent toward 10 to 16 percent?,13
-fomc-corpus,1982,It might signal a fundamental change in monetary policy.,10
-fomc-corpus,1982,"Yes, you mean tolerate [higher] interest rates.",11
-fomc-corpus,1982,"If we have an understanding that the Chairman is going to consult if the funds rate is over 15 percent, that ought to be the upper end of our range. We ought not to say one thing and have an understanding on something else. If you're going to wait to consult until the fed funds rate gets up to 16 percent, I'm not happy with that.",73
-fomc-corpus,1982,"Well, I must confess that I'm not either. In the end we might well have to, in some sense, let it go to 16 percent. But I feel strongly enough about it that that is a point where I would want to take a look at it.",54
-fomc-corpus,1982,"I think consulting if it's over 15 percent softens the rigidity, and I would go along with it.",22
-fomc-corpus,1982,All we've ever done when it hits the ceiling is let it go through. [Consulting] hasn't triggered any action to keep it below that level.,30
-fomc-corpus,1982,"It's a different understanding, isn't it?",8
-fomc-corpus,1982,"Well, I think the understanding is basically the same. All I'm telling you is that, indeed, I would want to consult, which carries some implication that in consulting I might be biased toward making some allowance for it, as things now stand. Now, heaven knows what the conditions will be. If our money supply went up $15 billion in the first week of July, I might feel differently. But right now I don't. I would not want to let the federal funds rate mechanically go up to 16 percent, I must confess.",108
-fomc-corpus,1982,"Mr. Chairman, if you want to start with an $800 million borrowing level, that is the borrowing level adopted at the May meeting, when the funds rate range adopted was 10 to 15 percent. That would be an unchanged--",48
-fomc-corpus,1982,"There's another good argument for keeping it where it is. It looks awfully funny to me, if we're in a meeting where we are trying to make sure that we adopt a directive that does not countenance increased interest rates, to raise the upper end of the federal funds range. That just seems rather strange.",62
-fomc-corpus,1982,It seems strange to me that you're not lowering it when your objective is to lower interest rates.,19
-fomc-corpus,1982,It's not my objective to force them down.,9
-fomc-corpus,1982,Why don't you get a show of hands?,9
-fomc-corpus,1982,"My reason, just to repeat, is that I would be concerned substantively if the funds rate went above 15 percent. Whether we ultimately permit it or not, I'm concerned enough so I'd want to consider it carefully. I also think it conveys some message of being asymmetrical. If the market interprets that as our being more concerned about an increase than a decrease, I would say that's not inappropriate. So, how many would find 10 to 15 percent acceptable?",95
-fomc-corpus,1982,In the sense that's it's better than 11 to 16?,13
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,Preferable.,3
-fomc-corpus,1982,How many prefer 10 to 16 percent?,10
-fomc-corpus,1982,"And I'd rather see it go down than up, as I vote that.",15
-fomc-corpus,1982,I like the rest of the specifications; it sounds reasonable to me.,14
-fomc-corpus,1982,"Well, I don't know whether I'm talking about 8-1/2 or 9 percent on M2; I guess I don't care that much. Let me just take M2. What do you want to put in for the upper limit on M2? It seems to me it's either 8-1/2 or 9 percent.",70
-fomc-corpus,1982,"Excuse me, Mr. Chairman, we really haven't come to grips yet with the point Jerry raised earlier: How do we, in our directive or instructions to the Desk, finesse this July bulge? I was reminding Steve, who compared it to April when we faced that bulge because of the tax payment matters, that we phrased things in a way that we would tolerate a considerable bulge in M1 provided that M2 was approximately within its growth range for the year. So, the figure we pick for M2 may have unusually important consequences.",112
-fomc-corpus,1982,"Well, I'm not prepared to have that kind of proviso.",13
-fomc-corpus,1982,He hasn't suggested that.,5
-fomc-corpus,1982,The July bulge is a different finesse.,9
-fomc-corpus,1982,Exactly. He already said--,6
-fomc-corpus,1982,The way we want to handle the initial borrowings--,11
-fomc-corpus,1982,And we wouldn't have the M2 caveat this time under Paul's formulation.,15
-fomc-corpus,1982,"Well, that's what I'm trying to find out. What is the intent on that?",17
-fomc-corpus,1982,He already explained that.,5
-fomc-corpus,1982,"Oh, I wasn't intending a caveat of the sort we had then. We have whatever it is implied in the normal course of events; the tolerance sentence would apply to both.",36
-fomc-corpus,1982,"Okay, all right.",5
-fomc-corpus,1982,"Well, I would prefer 9 percent for M2. M2 has been running strong relative to expectations almost persistently for the last year or more. And, with the tax cut, I certainly think it's likely to run strong in the period to come.",52
-fomc-corpus,1982,"If we were so fortunate as to see interest rates decline also, there would be the usual lag in the downward adjustment of yields on money market mutual funds and hence a tendency for [funds to move] into those from market instruments, which would help keep the M2 numbers up. So, I would prefer 9 percent also.",67
-fomc-corpus,1982,I would also for the same reason.,8
-fomc-corpus,1982,Same here.,3
-fomc-corpus,1982,"I don't mind 9 percent; I'm not sure how valid that reason is. We exclude the institutional funds from M2 now don't we, which is why we got that May--",36
-fomc-corpus,1982,Institutional--,3
-fomc-corpus,1982,"Well, it would help the individuals too.",9
-fomc-corpus,1982,Household money.,4
-fomc-corpus,1982,But presumably [for households] it will come out of other accounts that are in M2; that's a different thing.,24
-fomc-corpus,1982,"Oh, no. I wouldn't say that it will come exclusively out of other M2 accounts. I think we could get a significant transfer of individual savings out of market instruments into some funds.",38
-fomc-corpus,1982,Some; I don't know how soon it would come in.,12
-fomc-corpus,1982,"Well, it's not [unlikely], so that 9 percent sounds better to me.",17
-fomc-corpus,1982,Is the preference 9 percent?,7
-fomc-corpus,1982,I don't mind.,4
-fomc-corpus,1982,Seven [members prefer 9 percent].,8
-fomc-corpus,1982,"On M1, we're trying ""about 5 percent."" I suppose we say both--about 9 and about 5 percent--in that same sentence, immediately followed by a sentence saying a somewhat higher growth rate would be acceptable. What we can do is write something out and look at it immediately after lunch. But it would be something along the lines [that somewhat higher growth] would be acceptable ""depending upon an evaluation of liquidity pressures in the economy"" or ""if demands for liquidity appear to be related to uncertainty and precautionary needs"" or some language of that sort.",116
-fomc-corpus,1982,"If we're going to apply the tolerance of an overshoot to M2 as well as to M1, I have a mild preference for making M2 8-1/2 percent.",38
-fomc-corpus,1982,Use the lower number and keep pumping.,8
-fomc-corpus,1982,But I'm not going to do or die [over that.],12
-fomc-corpus,1982,Maybe 11 or 12 percent?,8
-fomc-corpus,1982,Maybe zero?,3
-fomc-corpus,1982,Not M2.,4
-fomc-corpus,1982,"In your testimony you're also going to talk in terms of tolerating overshoots in both the Ms, right?",23
-fomc-corpus,1982,"Yes, but of course we haven't really set those targets. It depends upon what we do with M2, but if we kept the ranges the same, we would have to do something presumably. The arithmetic works out better, as you say, but you're getting within a range of tolerance where I don't really care that much. And if that makes people happier, I think we can live with that.",80
-fomc-corpus,1982,I would like your sentence on some exception to refer not only to precautionary demands for liquidity but to temporary tax cut effects.,25
-fomc-corpus,1982,"Well, that has to be mentioned too. I just don't know how to construct it. It might take another sentence, such as ""It is also noted that in the short run seasonal uncertainties combined with these other things might lead to a bulge in July, which would be tolerated."" That's the sense of it. I think we need that in there.",71
-fomc-corpus,1982,"Well, of course, the tax cut effect also could be in August because some people are not going to get it until the end of July.",29
-fomc-corpus,1982,"Let's say ""in the immediate future"" or something like that. But both thoughts--the seasonal uncertainties with the social security and tax cut effects and the more general liquidity issue--will be in there.",40
-fomc-corpus,1982,Okay.,2
-fomc-corpus,1982,That leaves the borrowing level. Is $800 million the right number? Or conceivably $750 million--,22
-fomc-corpus,1982,"We've taken all the other specifications of ""A"" except the borrowing.",14
-fomc-corpus,1982,"Yes, what's the significance of that?",8
-fomc-corpus,1982,I'm just questioning whether they are compatible.,8
-fomc-corpus,1982,"Well, of course, we have a revised June. I would have some preference for tilting a little to the side of ease by making it $700 million. I don't feel strongly on the $800 million. It may not make so much difference.",51
-fomc-corpus,1982,Let me make this great refinement. We'll make it $800 million with some effort to stay with $800 million and take the risks on the low side rather than the high side of $800 million in this very short-run period we're talking about.,49
-fomc-corpus,1982,Wasn't $800 million the target last time?,10
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"And it averaged out well over $1 billion, didn't it?",13
-fomc-corpus,1982,We don't publish the initial borrowing figure,7
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,"So, what are we arguing about?",8
-fomc-corpus,1982,Not at the time; it's published after the year has been completed.,14
-fomc-corpus,1982,After what?,3
-fomc-corpus,1982,It's in the annual report put out by the Desk.,11
-fomc-corpus,1982,"In New York. Yes, but that's a year later.",12
-fomc-corpus,1982,At the end of the year.,7
-fomc-corpus,1982,"Yes, but it determines the path.",8
-fomc-corpus,1982,"We can seasonally adjust it, though.",9
-fomc-corpus,1982,Is that clear? Should I attempt to repeat it all again?,13
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,"No, it couldn't be done twice!",8
-fomc-corpus,1982,Let's vote.,3
-fomc-corpus,1982,Chairman Volcker Yes Vice Chairman Solomon Yes President Balles Yes President Black No President Ford No Governor Gramley Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Teeters No Governor Wallich No President Keehn Yes Eight for and four against.,51
-fomc-corpus,1982,Okay. What happened?,5
-fomc-corpus,1982,A folder fell off the chair.,7
-fomc-corpus,1982,The folder was so shocked by the results!,9
-fomc-corpus,1982,By itself.,3
-fomc-corpus,1982,"We are back on the long-term ranges. As I said, I don't think we have to push to a conclusion, but I'd like to have a little better feeling [of the consensus] than we have at the moment. I've been operating on the assumption, implicitly, that of all the various alternatives we have, which are considerable, we won't change any of the numbers for this year, but we will give a rather clear explanation that in the light of the uncertainties of the situation we are obviously prepared to tolerate some overshoots. And within that context, while we're prepared to tolerate some overshoots, we're not exactly aiming at them; otherwise we would change the target. There's a difference between tolerating and aiming. But we don't think an overshoot is wholly unlikely, and the Congress and the public ought to be duly warned that there could be an overshoot if developments continue the way they have in the first half of the year.",189
-fomc-corpus,1982,"But rather than attribute it to uncertainties, wouldn't you attribute it to the behavior of NOW accounts?",19
-fomc-corpus,1982,"Well, the NOW accounts are a subcomponent. We can certainly point that out, but in that context we also would point out that we had the alternative, as indeed we said in February, of choosing a higher base and choosing the lower end of the target. And we cite that as giving some sense of the dimension of this: That if we had chosen the other base, we would still be within the range and so forth and so on. I might bring other analysis to bear, but that's the essential message that would be given.",108
-fomc-corpus,1982,"Yes, I wouldn't want to limit it to NOW accounts. I think it should be broader than that.",21
-fomc-corpus,1982,"Okay, but I wouldn't refrain from using something like--",11
-fomc-corpus,1982,I would certainly mention NOW accounts.,7
-fomc-corpus,1982,"When we talk about uncertainties, that gets misread. It looks as though we'd do anything that the de facto situation pushes us to. I was just having a problem with the term ""uncertainty.""",41
-fomc-corpus,1982,"Well, NOW accounts are certainly going to loom in the analysis.",13
-fomc-corpus,1982,Would it be a temporary overshoot so that it wouldn't in principle raise the base for next year?,20
-fomc-corpus,1982,"Well, I don't know that I want to face that problem explicitly. In a sense we're talking about temporary overshoots but with some warning that the overshoot may be long enough to extend through the end of the year. But that's a fine balancing. I don't know exactly how to word it.",60
-fomc-corpus,1982,"It would be useful to get some of the attention away from where we actually end up in the final quarter or the final months of the year because making it precisely in those time frames, I think, is a fallacious target.",46
-fomc-corpus,1982,"Well, that comes back to Mr. Corrigan's point about presentation, which we can think about a bit. It's a little harder this year in some sense than last year. Last year we were well within the implied annual numbers, as I remember. We ended the fourth quarter low but looking at the year as a whole it was fine. This year it won't be the reverse, I don't think; maybe it will. I wouldn't say until I look at the numbers more closely. I don't know if there's anything else to be said for this year. For next year, my own inclination is that the simplest thing to do is just to say that, as we've shown this year, there's quite a lot of question about how demand for money will go for a variety of reasons that we have illustrated, so tentatively we're just going to keep the same ranges for next year that we had this year. Obviously, that's subject to change. We consider [next year's ranges] more tentative than usual, but obviously keeping the ranges unchanged for next year allows a lot of room for slower growth next year than this year which, if velocity patterns are normal, is what we would expect.",235
-fomc-corpus,1982,"Mr. Chairman, I would strongly encourage you to develop the analytic line of reasoning you were presenting yesterday for how velocity [behavior] for the period ahead, if we succeed in bringing down inflation, can bring down interest rates. It may be a very different animal than what we've been dealing with before and we have to be sensitive to that in setting our longer-range targets. That would give us another reason for not taking a step in a downward direction for 1983.",94
-fomc-corpus,1982,"What I would suggest is that I will hear any comments you have now, but I will reduce some of this to what might be in the actual language that we would adopt and circulate it to you over the next week or so. And that will be the precise focus for a discussion over the telephone, leaving open the question of whether we have a bright idea and may want to change one of these targets. But that's the direction we seem to be going in at the moment, if I read this right. And I will give you some alternative language that we could adopt over the telephone.",117
-fomc-corpus,1982,"The 2-1/2 percent scares people. I think they use it more for rhetoric than anything else, but if we were to use 2-1/2 percent as a real possibility for the lower end of the range this year, it would mean zero essentially for the rest of the year. If we use it for next year, growth would be dropping from the very upper point of the range or even above the 5-1/2 percent [upper limit] down to 2-1/2 percent, which seems like a very low number. I just throw that out.",121
-fomc-corpus,1982,"But you don't want to narrow the target range, do you?",13
-fomc-corpus,1982,"Well, I don't know. We could keep the target range equally broad by raising both the lower and the upper ends.",24
-fomc-corpus,1982,We usually look at the midpoint and we're operating already at the upper end conceptually.,17
-fomc-corpus,1982,But we never looked at the midpoint that seriously this year.,12
-fomc-corpus,1982,"That's right. We said in the earlier testimony that we expected growth to be in the upper part. But do we gain anything by raising the lower limit? I guess in a way if we raise the lower limit, people take it more seriously. The reason I look somewhat toward not changing the range is what everybody said, which is that we don't know how to change it without possibly getting ourselves in more difficulty. A half-point change seems trivial. If we go one point, I think we have to hit it. And we may not hit it. But then all this arithmetic will be running on full speed. The instant it's running close to 6-1/2 percent, everybody will be [focusing on] what next week's money supply figure will be. In a way, we have less flexibility if we change it than if we don't. That's my view; it's anybody's judgment, I guess.",182
-fomc-corpus,1982,"Also, by not changing it now, we may be working in a direction of creating the flexibility to be able to change one of these targets sometime later.",31
-fomc-corpus,1982,"Well, wait Jerry, we're just building up a precedent that we never change the ranges.",18
-fomc-corpus,1982,"No, I think this time it works the other way.",12
-fomc-corpus,1982,"The Chairman is going to say that this is even more provisional than usual, that we're just leaving it where it is until we have a clear fix on it. It implies that it's not in a certain sense the usual target.",45
-fomc-corpus,1982,"Yes, but then it seems to me we should go back, say, in August or September and change the range.",24
-fomc-corpus,1982,"Well, for the '83 numbers I was thinking more in terms of when we have to review them again next February. If we state now that in effect we're going to leave them where they are because we don't know where to put them, that works in the direction of giving us the flexibility then to change them in February. At least that's the way I would envision the logic of this.",78
-fomc-corpus,1982,"Yes, but we're still going to run into the end-of-the-year problem with everybody expecting us to try to reduce monetary growth.",26
-fomc-corpus,1982,This year?,3
-fomc-corpus,1982,"Yes. Nobody knows where our range is for this year, so they're going to try to figure out where it is and we have given them no indication what we're going to do.",36
-fomc-corpus,1982,Except for the tolerance.,5
-fomc-corpus,1982,"Yes, but we're not telling them what the tolerance is.",12
-fomc-corpus,1982,I think what Nancy is saying is that she wants to put a number on the tolerance.,18
-fomc-corpus,1982,"If we tell them what the tolerance is, we have a quasi bracket.",15
-fomc-corpus,1982,"But we're really going against the whole thrust of the Humphrey-Hawkins Act, which was in effect ""Tell us what it is you're going to do so we can begin to know how to react to it."" You know, we may even want to add back in the old phrase ""the feel and tone of the market.""",66
-fomc-corpus,1982,That's what Governor Partee wants to do.,9
-fomc-corpus,1982,"Well, have we concluded our discussion? Okay. I'm sorry, we skipped right over the Managers' reports. Do you want to have some rapid reports by the Managers? We have to ratify the transactions.",42
-fomc-corpus,1982,They want to change everything!,6
-fomc-corpus,1982,Why don't we have somewhat abridged Managers' reports?,12
-fomc-corpus,1982,Very abridged.,5
-fomc-corpus,1982,We've had them implicitly.,5
-fomc-corpus,1982,[Secretary's note: Mr. Meek summarized the statement shown in the Appendix.],17
-fomc-corpus,1982,"Why don't you go ahead, Ms. Greene, and then we'll ask questions on and discuss all markets.",21
-fomc-corpus,1982,"I, too, will try to abridge my report. [Secretary's note: Ms. Greene summarized the statement shown in the Appendix.]",28
-fomc-corpus,1982,Could I ask a question? How did we happen to hit on the figure of $21 million on the day of intervention?,25
-fomc-corpus,1982,"We didn't hit on it. We responded to market conditions; we operated in relatively small size discreetly and it so happened that the rates around which we were operating tended to be resistance points in the markets and no further operations were necessary. The market felt the resistance there, accepted it, thought it was an appropriate place for the rise to peter out, and we contributed to that sense of resistance and did not have to do more.",86
-fomc-corpus,1982,"In other words, it wouldn't have been noticed if the [Under] Secretary of the Treasury hadn't announced it? Is that correct?",26
-fomc-corpus,1982,"No, I think the feeling was that the resistance point was confirmed and was noticed in the market. But it was a technical reaction rather than a policy reaction at the time.",35
-fomc-corpus,1982,But they wouldn't necessarily have known that we were intervening with our own resources.,16
-fomc-corpus,1982,They would not necessarily have identified it as our operations. They would have identified the fact that somehow the dollar didn't seem to go above that [resistance] level.,33
-fomc-corpus,1982,"And after the Under Secretary and the Secretary proudly pointed out that day that they had authorized this intervention to counter a disorderly market, the comment around Wall Street was: What was more disorderly about Monday than a lot of other days that we've had before and since?",53
-fomc-corpus,1982,It was the death of a sovereign ruler.,9
-fomc-corpus,1982,"Oh, I see. That's a good point. Particularly one with money.",15
-fomc-corpus,1982,Was the $21 million all one operation or did you do it in steps of smaller amounts?,19
-fomc-corpus,1982,We took steps in smaller amounts because we were operating in amounts that are trading amounts in the markets.,20
-fomc-corpus,1982,"Typically, we don't operate with a particular amount or number objective in mind. We wanted to keep it modest if we could, but we operated when the market was moving in whatever small amounts seemed to be helpful in terms of stabilizing the market. It just happened that by the time the Desk got to $21 million the market went the other way.",70
-fomc-corpus,1982,"To follow up Mr. Solomon's point, in your judgment how often were there cases of disorder in the market?",23
-fomc-corpus,1982,"I think anybody participating in the market--and it would probably be true of those of us in the foreign exchange department at the New York Bank--would have a different number. It's a matter of judgment. Certainly the markets have been subject to abrupt movements of rates during this period but it's not clear that the problems originated in the exchange market. Therefore, the question of whether intervention would be appropriate or not didn't come up.",84
-fomc-corpus,1982,"I assume, Gretchen, in answer to Governor Wallich's question, that all of these people would have a number that is larger than one.",30
-fomc-corpus,1982,That's a fair assumption.,5
-fomc-corpus,1982,"Paul, I lost track of the Comark situation. Did I understand you to say that the firm has now been liquidated?",26
-fomc-corpus,1982,It's in the process of an orderly liquidation.,9
-fomc-corpus,1982,No market bad news coming from that yet? Nothing?,11
-fomc-corpus,1982,"I should say there remains an uncertainty around that firm. Whether it's a call on capital through its limited partners will be answered by the partners [if they] put up capital. It appears at the present time that there was a shortage of securities. They owe customers on the order of $15 to $19 million dollars. So, it's possible that some losses could come.",74
-fomc-corpus,1982,I see.,3
-fomc-corpus,1982,[There are amounts] due to some customers from them. But I don't think it's anything of a magnitude that would be particularly disturbing to the market as a whole.,33
-fomc-corpus,1982,They're expecting to get more capital out of technically limited partners?,12
-fomc-corpus,1982,"The basic partnership agreement, which we've looked at, calls for the partners to put up the money. On the other hand, there are a lot of reasons why they might delay and delay in the courts. When the management and the general partners have been guilty of very sloppy management practice, if they have been--and there's some presumption that they have been--I wonder to what extent limited partners, as distinct from the general partners, are still bound to put up the money. If some of the thrifts who had their securities lent out end up with a shortage, I assume there will be lawsuits. So, it's unclear. But what is true is that we averted the initial bad psychological impact and the seizing up of the market by getting Marine Midland to resume the clearings. The market is taking that whole thing very well and if at the end of the day there are some shortages, I don't think that is going to come in a way that will be disruptive.",196
-fomc-corpus,1982,But there could be a loss to some more key lenders?,12
-fomc-corpus,1982,There could be a loss to those people who have had their securities used.,15
-fomc-corpus,1982,"With respect to the French devaluation, is there some feeling that this and some other actions that were taken are largely stop-gap actions on a deteriorating path or that the deterioration is being arrested? What is the sense about the French franc?",48
-fomc-corpus,1982,"Well, following the devaluation, the government did announce an austerity program that included wage and price guidelines. That has generated a fair amount of criticism domestically by both employers and trade unions and is giving rise to a test and debate about economic policy in France. I think the people outside of France feel that how this gets resolved is important in their assessment.",72
-fomc-corpus,1982,"The only real austerity, though, is this wage/price freeze for a few months.",19
-fomc-corpus,1982,It hasn't passed their parliament yet.,7
-fomc-corpus,1982,"Right, but there has been no announcement of a change in the overall fiscal/monetary approach.",21
-fomc-corpus,1982,"Well, as they reinforce the notion that they would stick to this guideline of a budget deficit of no more than [3] percent of GNP--. They had said that before and [appear] to take it a little more seriously now, but the jury is still out on whether the government--I'm speaking of the government as a whole--will be able to or want to stick to that guideline. There is the question as well of whether, in a country like France which has been running for a few years a budget deficit of 1 percent of GNP, that number is really viable in terms of--",123
-fomc-corpus,1982,"But isn't it true that the very position that the Mitterand government is now taking is a substantial change from the first period of their operation? At least at the verbal level it's a reversal, isn't it?",42
-fomc-corpus,1982,"It certainly is a necessary step, but whether it's enough to--",13
-fomc-corpus,1982,"But considering the rhetoric in the political campaign, it's quite a step.",14
-fomc-corpus,1982,They're coming into the real world.,7
-fomc-corpus,1982,"I don't agree with that. It is simply that they have put some limits on the amount by which they're going to inflate the economy or increase the budgetary deficit. It's not interpreted--certainly not in the international business community in France or outside--as a reversal of policy. It's just putting some constraints on what the left wing of the Mitterand party might have hoped they would ultimately go to. I would say that there is a fairly widespread expectation that more devaluations will be necessary from time to time. And if they come too frequently, that's the end of the EMS. I think the word reversal is much too strong.",128
-fomc-corpus,1982,"I think also that the action has to be seen against a background in which they have been fairly aggressive in letting interest rates decline. And that undercuts in another way the commitment to austerity. Even though as a tool of monetary policy they have relied very much on credit guidelines, the fact that interest rates are coming down--and they are the only major country where interest rates are coming down--supports Mr. Solomon's point that there is a credibility problem in the financial markets.",96
-fomc-corpus,1982,"Well, I certainly wouldn't use the term austerity with regard to any of this. Three percent of the GNP is hardly austerity, but still it's an admission to constraints on the left wing and that's--",42
-fomc-corpus,1982,It's the same percent of GNP as our budget deficit.,12
-fomc-corpus,1982,Ours is higher.,5
-fomc-corpus,1982,Prospectively much higher.,6
-fomc-corpus,1982,And a lower saving rate.,6
-fomc-corpus,1982,"Any other questions? Comments? Elucidation? We need to ratify. We'll have a joint vote, if that's conceivable. We don't have any controversy on ratifying both operations in the same sweeping action.",42
-fomc-corpus,1982,"I move it, Mr. Chairman.",8
-fomc-corpus,1982,Do the majority join Mr. Black? We have a motion.,13
-fomc-corpus,1982,"If we don't ratify them, the staff personally out of their own pockets have to--",18
-fomc-corpus,1982,"No, you do!",5
-fomc-corpus,1982,You're the captain of the ship.,7
-fomc-corpus,1982,"Hearing no objection, they will be ratified. I will get some language to tell you what you just voted on if you don't object.",29
-fomc-corpus,1982,That's a dangerous gamble!,5
-fomc-corpus,1982,"We have a sentence that starts out with the ranges that we discussed. This would be inserted: ""Somewhat more rapid growth would be acceptable depending on evidence that economic and financial uncertainties are leading to exceptional liquidity demands and changes in financial asset holdings. It was also noted that seasonal uncertainties, together with increased social security payments and the initial impact of the tax cut on cash balances, might lead to a temporary bulge in the monetary aggregates, particularly Ml."" Well?",92
-fomc-corpus,1982,"I think that's great, sir.",7
-fomc-corpus,1982,"You agree. Do [the rest of] you agree that that is what you voted for? I would note, just in the interest of completeness, that we will make a technical change in the boilerplate part of the directive. In referring to the long-run objectives, which we did not change at this time, we insert ""At its meeting in early February, the Committee agreed"" to all these things and then we add at the end ""These ranges were under review at this meeting."" And when we agree on them, we will insert an amendment. Is there any further action that we need to take?",122
-fomc-corpus,1982,No word at all about the possible overshoot on the long term?,14
-fomc-corpus,1982,"Well, I think we can--",7
-fomc-corpus,1982,This will hold until the next action.,8
-fomc-corpus,1982,This will all appear in the discussion but it doesn't say we reiterated the ranges. It says this is what we adopted in February.,26
-fomc-corpus,1982,Pending the vote later.,5
-fomc-corpus,1982,"It says we are in the midst of a review. When the directive comes out, it will have the other language. Well, with that understanding, I guess we have completed [our agenda]. [Lunch recess]",43
-fomc-corpus,1982,"We are resuming the meeting of the Federal Open Market Committee. Would you read us that resolution exactly, if you have it, Mr. Winn? You were there.",34
-fomc-corpus,1982,"I have it: ""It is the sense of the Congress that if Congress acts to restore fiscal responsibility and reduces projected budget deficits in a substantial and permanent way, then the Federal Reserve's Open Market Committee shall reevaluate its monetary targets in order to assure that they are fully complementary to a new and more restrained fiscal policy.""",64
-fomc-corpus,1982,Couldn't we take the position that they haven't completed action yet?,12
-fomc-corpus,1982,"Well, they've completed action on this resolution. I think this is a substantive--",16
-fomc-corpus,1982,[Unintelligible] meaningful reduction.,9
-fomc-corpus,1982,"Obviously, there are several points in our discussion. [We had] an analysis of the budgetary situation and some budgetary projections presented to us that were not the same bottom line as in the budgetary resolutions. But I think we might just indicate that we were aware the resolution existed and that we had some discussion of this at the meeting but didn't fully address the issue perhaps. I just think we should be a little more self-conscious. And maybe we need do nothing more than confirm what I think was implicit or even explicit in our discussion earlier. Whatever comment people want to make about the budget situation and its relevance to the monetary targets is appropriate. Of course, we have not yet adopted the targets that are at issue here.",146
-fomc-corpus,1982,"Well, in addition to the good staff analysis, there is the difference between the $104 billion in the first resolution and the $160 billion or so that our staff comes out with based on a different economic forecast. I'm not sure how to handle it politically to make it seem non-antagonistic, but if we could find a diplomatic way to do so, I'd point to the difference between the first resolution and the actual deficit in the last three fiscal years. There has been a difference of about $52 billion, if one projects the deficit at $98 to $100 billion. With two-thirds of [the fiscal year] behind us, we come out this fiscal year--and have in the last two fiscal years--with about a $52 billion difference between the first budget resolution and the actual deficit. I don't know what you might attribute that to but I attribute it to the fact that the reasoning our staff does makes sense--not just prospectively but in fact, looking back, it makes sense.",201
-fomc-corpus,1982,What are you aiming for? Do you feel under an obligation to respond?,15
-fomc-corpus,1982,"Oh, I don't know if we have an obligation to volunteer a response. We obviously face a question as to what we thought about this and I want to be sure about what we thought about it. Let me just say that I think what we were saying implicitly earlier-- explicitly but implicitly tying into the resolution--was that there was great skepticism. We can say we welcome any restraint that that resolution signifies or will result in and we encourage the action in that respect, but we have a good deal of skepticism or questioning at this point. It could be put more strongly. Or put more politely there was no assurance, if I may put it that way, that the budgetary figure was going to come in at $104 billion or thereabouts next year. Part of that to be sure was a reflection of different economic assumptions; part of it was not. But certainly there was some concern over the net result of the resolution. It is constructive in the right direction but a concern was expressed by a number of people about the budgetary outlook. Now, anybody else can say anything they want to say. But explicitly we haven't adopted any ranges as a matter of fact. This is further background discussion for the final [decision]. We will take into account the budgetary resolution itself but, obviously, the evaluation of its practical effect and the practical budgetary situation apart from the resolution is a factor in our thinking. Different people weigh it differently, I suppose, but that's what I can say so far. I [don't] think we're subject to any further--",310
-fomc-corpus,1982,"The implication of the resolution is that the Federal Reserve is currently following a tighter monetary policy regime because of the very large deficits and, therefore, if the deficits are reduced, we should follow an easier monetary posture. But that in fact has not been the case historically. When we set this year's guidelines a year ago they were not set in anticipation of the kind of budget deficits that we're looking at now.",80
-fomc-corpus,1982,It's very embarrassing to say that we ignore the state of fiscal policy in making our decision on monetary policy.,21
-fomc-corpus,1982,"But I don't think we have to say it that way, Tony. If you look back at the thrust of policy since late 1979, it began with the notion that fiscal policy would be reasonably restrained, and we continue to hold to that expectation. And the continuation of targeting along these lines has been made with an eye to the expectation that fiscal policy will begin to provide the assistance that we want in bringing down inflation. We're not talking about a highly restrictive fiscal policy being put into effect. We're talking about going back [from] what is potentially a horrendously stimulative fiscal policy to where we thought we were on fiscal policy at the beginning of 1981. And we need to think about our monetary targeting and our monetary policy generally in that context.",153
-fomc-corpus,1982,"Let me ask you this question: If we knew that the Congress and the Administration were going to continue to run huge budgetary deficits over the next two or three years, how would you change monetary policy? Incidently, I might say that we calculate that and we've been on the mark exactly the last two years up in New York on the budgetary deficit. We calculate, on the Board's economic assumptions, that the deficit in fiscal '83 will be $180 billion. On our economic assumptions it's only about $166 billion, but there's a lot in there aside from that--it's Bill Ford I'm talking to. The difference between the $104 billion and the $166 billion is not simply the difference in economic forecasts. For example, when we go to the specifics of these things, there's a judgment that the management savings are just nonsense; they won't materialize for various reasons. And there's some overestimation of certain revenues. But even if we assume the $20 billion, we still end up in the $166 billion range with a similar set of economic assumptions. But coming back [to my question]: If you were to assume that the deficit is going to be $166 or $180 billion in fiscal '83 and that it's going to be somewhere in the neighborhood of $200 billion in fiscal '84, how would you change monetary policy?",270
-fomc-corpus,1982,"I was asked by the Economic Advisory Council of the American Bankers Association whether the Federal Reserve would change its monetary targets, if in fact we had the kind of explosion of budget deficits implied by current law. And I said we might, but I'm not sure which way.",54
-fomc-corpus,1982,That's what I'm asking you.,6
-fomc-corpus,1982,"We talked about the possibility of adding a highly stimulative monetary policy to a highly stimulative fiscal policy. I have no doubt that that's where we would end up. The alternative of continuing on the course of a monetary restraint discipline in the face of these kinds of budget deficits has catastrophic implications for the capital markets, for business investment, for the thrift industry, for small businesses, and for farmers. It is a nightmare.",84
-fomc-corpus,1982,It might require an easier policy simply to keep the structure from collapsing.,14
-fomc-corpus,1982,"Yes, I understand the argument. But I'm not sure how the majority of the FOMC would come out on that.",25
-fomc-corpus,1982,I think it's obvious that there is no way we can continue to reduce the rate of growth in the money supply in the face of escalating budget deficits of that size. We will run into an absolute financial wall.,42
-fomc-corpus,1982,Except there is the opposite argument that this is the one way of bringing home to the Congress that they really do have to change that.,27
-fomc-corpus,1982,"Do you think the Congress is serious? If they knew that we were talking this seriously and not recognizing it as a political byplay, I think that would make their whole Fourth of July weekend! They didn't really expect us to do more than put together some verbiage that would be respectful and dismiss it, did they?",65
-fomc-corpus,1982,"Oh, yes.",4
-fomc-corpus,1982,"Well, I'm not really prepared to work on that assumption. I will not psychoanalyze them. But they did pass a resolution and for that reason I think we have to take it seriously.",39
-fomc-corpus,1982,"Don't we have a bit of an apples and oranges problem here? They are looking at our December targets, which are for 1982, and [asking whether] those are appropriate to a fiscal policy that is already established for '82. They are really working on the '83 budget and we haven't yet come down finally on what the '83 targets are going to be. I think this needs to be straightened out. And, again, we need to emphasize the inappropriateness of trying to put '83 targets into place in July of '82. They don't know what we have in mind yet for '83.",126
-fomc-corpus,1982,And we don't know what they have in mind.,10
-fomc-corpus,1982,I know. That's right. That's why February is a much more appropriate time than July.,18
-fomc-corpus,1982,"The Congress has passed a budgetary resolution that says [in effect]: ""Since we are tightening fiscal policy, you fellows ought to reevaluate and, by implication, ease."" Therefore, if we conclude that the Congress actually is not tightening fiscal policy, then presumably by the same logic the Congress would not want us to ease because they haven't succeeded in taking the tighter fiscal action.",75
-fomc-corpus,1982,"But easing under this framework can only mean a constant monetary policy with interest rates falling because of smaller government borrowing. Looking to the distant future, any increase in money growth that isn't for a very short period can only lead to higher interest rates via higher inflation.",51
-fomc-corpus,1982,"Well, let me put the other side of this forward. I'm not talking about the substance of what they've done which, with obvious skepticism, is clear. I'm just looking at it in terms of the analytics. There is a respectable body of economic opinion that says there is some degree of tradeoff between fiscal policy and monetary policy. I'm not thinking of the structural business, but that theory is that the tighter fiscal policy is, the more room there is for increasing the money supply without any net inflationary impact. Now, individual members of the Committee may not believe that theory, but it's not a totally unrespectable body of economic doctrine. One answer to them would be that nobody in the Committee believes that particular theory. But I don't know whether you want to go that far.",156
-fomc-corpus,1982,"In the long run there's very little support for that view because even the people who would argue this for the short run believe in the long-run neutrality of money and that more money therefore just means higher prices, not higher output. Now, if we are told to do this for a year and then everything changes and we go back to the old targets, that is at least intellectually defensible.",78
-fomc-corpus,1982,"Well, definitely you have to key into your thinking the fact that we're so much below an optimal utilization rate. It might well be that a perfectly respectable economist who is a Nobel prize winner might take the view that there could be room for more expansive monetary policy [as] we are reestablishing a basis for a higher level of operations. And once we have established those operations in the market and are getting that kind of effect, then I think people would say we do have to pull back. But we might be talking about a period of several years duration to bring us back. Nancy has pointed out how low the utilization rates are and how high the unemployment rate is. Those things are not necessary. When people talk about monetary neutrality they are talking about a steady state economy also, which we don't have.",162
-fomc-corpus,1982,"But if you're talking about the monetary/fiscal mix, you would have to conclude that fiscal policy is going to get more expansionary from this point on. The question is: How much more expansionary?",41
-fomc-corpus,1982,"We don't really know, Frank, until we see what actions they actually are going to take this summer.",21
-fomc-corpus,1982,Just on the basis of any set of projections we now have--,13
-fomc-corpus,1982,"But there is no final action. We don't know what they're going to come out with so we're left literally in limbo as to what next year's fiscal policy is going to be. We suspect it's going to be very expansionary; I share that expectation. But we don't have anything from Congress at this point on any side: on taxes, on appropriations, or anything.",75
-fomc-corpus,1982,"What we should say to them on this is not to worry too much about this mix question just yet. My inclination would be just to state that there is no evidence to speak of that the underlying structural problem of the deficit has been dealt with. And as long as we're faced with prospects for deficits [of the magnitude] that Mr. Kichline has for 1983, there's simply not room for the economy to behave in a reasonable way. This analysis-- with those flow of funds numbers, as imperfect as they are--to me is just overwhelming. We can't have the government soaking up 50 percent of the credit in the whole economy and expect that the economy is going to work well. It's an intolerable situation. That just can't work. And there is nothing we can do in terms of wiggling the money supply by a couple of percentage points that is going to make a big difference as long as we have that situation.",189
-fomc-corpus,1982,The real problem is not so much the size of the deficit for fiscal '83; it is the continuing expansion of the deficit even in the face of a well-functioning economy.,36
-fomc-corpus,1982,That's what I mean by the statement that the underlying structural problem simply has not been dealt with.,19
-fomc-corpus,1982,And there is no way we could cure that situation by accelerating the money supply.,16
-fomc-corpus,1982,"One could argue as to whether or not there is a crowding out going on at the moment, at least in terms of the level of short-term interest rates. But there is simply no question whatever that in a well functioning economy, if the deficit rises to 5-1/4 percent of GNP, there is no way to avoid extensive crowding out.",74
-fomc-corpus,1982,"Again, those GNP comparisons are interesting; but the one that just hits me dead between the eyes is that 50 percent of the total credit flows in the economy [will be taken by government].",40
-fomc-corpus,1982,"Even better yet is to take the ratio of the net private savings. Net private savings is between 7 and 8 percent of GNP, as a rough estimate, so you're talking about 3/4 of the total being taken by the deficit.",51
-fomc-corpus,1982,"There has to be a current crowding out, Lyle. After all, I think anyone would agree that there would be more housing demand if interest rates were significantly lower and that, therefore, interest rates are crowding out some housing demand.",49
-fomc-corpus,1982,"Well, I have no doubt that interest rates are high. What I'm questioning is why. My theory is that I have a hard time explaining the level of short-term interest rates as a phenomenon associated with the deficit. Now, the long-term rates clearly are, and there is some crowding out from that standpoint because of the expected future interest rate impact of this deficit impinging on current investors.",79
-fomc-corpus,1982,Our problem is not the current amount that is going to the federal government. It's the fact that it's going to stay that large as we move back into [higher rates of] capacity utilization.,38
-fomc-corpus,1982,"That's correct. It's going to grow. We can debate whether we have a crowding out problem today. But if we get into '83 and have any kind of growth in the economy and any kind of private credit demand building up because of healthy developments in the economy, boom, there's no place to go.",62
-fomc-corpus,1982,"But, Lyle, you're aware that the high rates in the bond market are forcing companies to go much more heavily into short-term credit.",28
-fomc-corpus,1982,"I don't find that argument at all convincing. The reason why long-term interest rates are high is because investors are reluctant to buy long, so they buy short. And we're transferring the credit demand as well as the supply into the short-term markets. So, I don't see why that should have an effect on short-term rates except to the extent that the fear of deficits is generating increased demand for the aggregates that the Federal Reserve controls. And to that extent, yes, one can explain high short-term interest rates that way except that a central bank which recognizes what is going on presumably has the option to increase the growth rate of those aggregates to take that into account. So, on net, I end up saying the fear of the future deficit causes high long-term rates now but I'm not sure at all that it should affect short-term interest rates.",168
-fomc-corpus,1982,"Of course, the budget resolution gives as a condition, as I understand it, obtaining substantially lower or permanently smaller deficits. We don't have the crowding out problem, Jerry, if that part of the resolution comes about.",44
-fomc-corpus,1982,They haven't got--,4
-fomc-corpus,1982,"Suppose one assumes that spending or revenue [measures] of some cyclically adjusted level were going to be substantially approved by something like what is implied by the budget resolution. Would that cause people to think differently about these targets, which we haven't decided upon yet? MR. CORRIGAN(?). Not I.",64
-fomc-corpus,1982,I would--,3
-fomc-corpus,1982,"I certainly might. I would want to keep my options open. I think that could have a major effect on expected inflation rates and, therefore, on current interest rates. It could have a major effect on demands for the monetary aggregates because of what happens to the level of interest rates and expected inflation rates. I would want to keep an open mind to the possibility that complete and thorough resolution of the budget problem would give us an opportunity to follow a more expansive monetary policy. I grant Henry's point that in the long run what determines prices is the stock of money, providing one makes sufficient assumptions about the competitive character of the markets and so on. But I'm afraid that long-run period exceeds my term as a Governor; so, during the period when I'm here, I'd like to think about adjustments.",159
-fomc-corpus,1982,You can write your Congressman!,6
-fomc-corpus,1982,It seems to me that we could risk trying to get a fuller utilization if there wasn't so much fear and concern and crowding out and everything that comes from very large budget deficits. That would be another way of putting it.,45
-fomc-corpus,1982,"We could say that, if we had a credible outlook for smaller deficits, interest rates would come down in the normal course and that the Open Market Committee would certainly be supportive of those drops.",38
-fomc-corpus,1982,Not unless we widen the band!,7
-fomc-corpus,1982,"Let's go back to the Chairman's discussion. That decline in interest rates, together with reduced expectations of inflation, might have an important bearing on the trend increase in the velocity of money. We would need to take that into account. I think Chuck has a good point. We are a long ways from full employment of our resources. We do need to be concerned about the speed with which we get back to a higher level of resource utilization, and one of the factors we clearly need to take into account is what fiscal policy is doing in this respect.",110
-fomc-corpus,1982,"The chart we had yesterday shows us not getting back at all in the forecast period. As a matter of fact, it looked to me as if utilization rates were drifting off a little.",37
-fomc-corpus,1982,What is the purpose of our response? Is it really to offer an intelligent guide to these fellows on Capitol Hill or just to get a response done? I think they are not asking for economic analysis; they're playing politics.,44
-fomc-corpus,1982,"Yes, but when Paul appears to testify he may be asked what the reaction of the FOMC was.",22
-fomc-corpus,1982,I think I may have to volunteer.,8
-fomc-corpus,1982,Then do you want to summarize this acid discussion?,10
-fomc-corpus,1982,I reserve the right to handle that in the way I think appropriate but I think I may have to volunteer something.,23
-fomc-corpus,1982,"You may get a technically oriented question along these lines: If stimulus is withdrawn through a lower deficit, is the reduction in interest rates that follows from that sufficient to counter that withdrawn stimulus? And you'd have to stretch a point considerably in order to say yes. You really have to assume that investment is enormously responsive to a decline in interest rates for that to happen. So, on a temporary basis, one cannot deny that a reduction in the deficit generates some reduction in expansion. But the difficulty of getting back on track with monetary policy is always the primary thing. And the fine-tuning that we can do for a half-year or a year seems to lead us back to where we used to be.",139
-fomc-corpus,1982,"If the Chairman has to say that if Congress reduces the deficit we'll certainly have a less good economy than otherwise, he might as well stop making the comment because that's a kiss of death in terms of trying to bring about more discipline on the fiscal side. So, at the very least, we would want to have a monetary effect from the combination of interest rates and targets that would equal the loss of stimulus that would come from a reduction in the deficit.",90
-fomc-corpus,1982,There's another way of approaching this. If we say that--,12
-fomc-corpus,1982,"That's what I was suggesting earlier--that there is a respectable body of economic doctrine that suggests that. And everybody said no, that's not true. I'm not sure it's altogether not true.",37
-fomc-corpus,1982,"No, I think--",5
-fomc-corpus,1982,It's not true in the long run.,8
-fomc-corpus,1982,I'll agree with it.,5
-fomc-corpus,1982,"I'm not even sure about that, but I--",10
-fomc-corpus,1982,"There's another way of approaching it, which is to say that we have to base monetary policy on the assumption of a reasonable fiscal deficit, which does not involve excessive crowding out and which is, therefore, in the neighborhood of, say, 2 to 2-1/2 percent of GNP. Accordingly, that's the fiscal policy assumption that our monetary policy is based on. Now, automatically, if the Congress doesn't hit that kind of reasonable fiscal policy, then monetary policy bites harder. And that reminds Congress of where its responsibilities are. I'm only saying that half seriously.",116
-fomc-corpus,1982,"I wouldn't put the last phrase quite that way, but the idea--",14
-fomc-corpus,1982,"Is Congressman Fauntroy going to put you through this kind of exercise, too, at his hearing?",21
-fomc-corpus,1982,"Look, I think any Congressman would. I don't think it's entirely a political maneuver. Obviously, that is in some people's minds and some of their political coloration. But I suspect that if you ask a typical Congressman whether he thinks this is a real issue, he is going to say yes.",58
-fomc-corpus,1982,Because he wants to pass the buck.,8
-fomc-corpus,1982,Who's passing the buck? He says he wants to be responsible and he asks straightforwardly: How much easing of monetary policy can we get when I commit political suicide by tightening the budget? I want to do the right thing for the country. But I'm not going to go through all this agony if I don't think it's going to make any difference in monetary policy. It's a very--,76
-fomc-corpus,1982,"Yes, but when the politicians--",7
-fomc-corpus,1982,Most of the economists in the United States are telling them that is right--that it's a relevant question.,21
-fomc-corpus,1982,"But the issue for the Congress is not the rate of growth of the money supply; it's interest rates. It seems to me we can tell them unequivocally that if they get the budget deficit down, interest rates will be lower than they otherwise would be. And that clearly is--",57
-fomc-corpus,1982,"Well, we've told them that any number of times. They go on to say: Can you help it with increasing the growth of the money supply?",30
-fomc-corpus,1982,We help by not absorbing that by a faster reduction of the money supply.,15
-fomc-corpus,1982,"Thank you, Governor Wallich.",7
-fomc-corpus,1982,Can't you make the point that if we have this brave new world where all these nice things would--,20
-fomc-corpus,1982,"This is a view that is very widely held, I would say, in the market as well as in the halls of Congress.",26
-fomc-corpus,1982,"Yes, it's in the official Democratic party approach: If you tighten fiscal policy, then there would be an easing of monetary policy.",26
-fomc-corpus,1982,Some distinguished members of the business community as recently as last week [suggested] this approach.,19
-fomc-corpus,1982,But they're not--,4
-fomc-corpus,1982,"I think they are subject to it. Well, some people have hinted at the point or approached it in a different direction. In terms of all the psychological signals we're sending, I would feel more comfortable about taking chances when we make all these tactical decisions on monetary policy against a background of a strong budget than I do when the budget is not strong. And there's something real in it too. If they suddenly cut $100 billion out of the budget, I think we would have a lot more psychological freedom, if I may put it that way.",109
-fomc-corpus,1982,Perhaps we could offer not to cut the aggregates the following year.,13
-fomc-corpus,1982,"Oh, we could discuss different tactics, Henry, but I would say what I feel.",18
-fomc-corpus,1982,"Henry, you're getting to the point of exceeding Larry Roos in the rigidity of your position!",19
-fomc-corpus,1982,"Well, I listen a great deal to the accord of [1951], which is--",18
-fomc-corpus,1982,"That's a profane remark, Henry!",8
-fomc-corpus,1982,"This tradeoff of fiscal versus monetary policy exists, of course, in the old framework where monetary policy is interest rates and fiscal policy is fiscal policy. But when monetary policy is money supply, there's only one thing that influences interest rates, and that's fiscal policy.",52
-fomc-corpus,1982,Real?,2
-fomc-corpus,1982,"Real [interest rates], that's right. Yes.",10
-fomc-corpus,1982,"Can you make the analytical point, to give ourselves a little more movement and maneuvering room, that if this problem were dealt with, it would leave open the possibility at least that the public's demand for money--the thing we call money--might be higher at any level of interest rates? So, in those circumstances, quite apart from Henry's arguments, we might conclude that a higher money growth rate would be entirely appropriate and not in any way associated with higher inflation.",95
-fomc-corpus,1982,"""Might"" be appropriate?",6
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,That's awfully vague.,5
-fomc-corpus,1982,"It would certainly be my sense that it would be appropriate for us to follow a course of policy, whatever that meant in terms of monetary aggregates, that would not only let interest rates decline in the context of reduced deficits for the future but decline enough to do what Chuck says--to improve the performance of the economy. And I certainly would stand ready to follow an aggregates policy consistent with that because I do think it would take away the fears of inflation. It would give us an opportunity to shade on the up side, without nearly as much worry that we would lose credibility and lose control of the inflation problem.",121
-fomc-corpus,1982,"Are there any other comments that people would like to make? I assume that when we vote on these [long-run ranges] you will all have the Congressional considerations in mind, however you may dispose of them. I heard a variety of views. I don't think I can report a conclusive opinion on the part of the Federal Open Market Committee as to precisely what it would do if it were convinced that the budget was going to be substantially better. But I certainly hear a certain amount of opinion that it's something to be taken into account.",107
-fomc-corpus,1982,"And you also can report that there's unanimity that as yet we don't see any evidence, nor do the markets, of a credible tightening [of fiscal policy].",32
-fomc-corpus,1982,"Do we endorse the first step that they've taken separately? At least there is a resolution, however dubious. We have to put some positive--",28
-fomc-corpus,1982,I'm not so sure that a phony resolution like this helps or is a useful first step.,19
-fomc-corpus,1982,Would you rather have a phony resolution or no resolution?,12
-fomc-corpus,1982,"Yes, I think that's unfair. I don't think it's a phony resolution. They probably will pass the tax measure in the next few days in the Senate, but they wouldn't pass it without going through--",41
-fomc-corpus,1982,"Yes, that's probably around $15 or $18 billion. Okay, we get that.",18
-fomc-corpus,1982,And [there likely will be] some spending cuts that they would not have done otherwise. These are not easy decisions for them.,26
-fomc-corpus,1982,"But there are some things in there that just can't possibly be achieved, such as the management objectives that they've built in and a few other things.",29
-fomc-corpus,1982,"I don't think there is any question that we can legitimately express some question about the whole thing. But that's not the same as saying: ""You didn't do anything and it's a phony resolution."" I don't think it is.",45
-fomc-corpus,1982,"Well, they might have faced up to the problem more if they had a more realistic assessment of what went into that $103.9 billion.",29
-fomc-corpus,1982,"Well, it's a political question. There wasn't a very big margin in getting this one passed; and the alternative, I suppose, would have been to be left with nothing. They did what they could do.",42
-fomc-corpus,1982,"The estimates OMB is going to release on or about the 15th of July don't come to $103.9 billion, I assume. Their estimates are closer to ours.",36
-fomc-corpus,1982,"No, but I heard a lower figure recently.",10
-fomc-corpus,1982,"They are closer to ours, you say?",9
-fomc-corpus,1982,They may be reducing their projected deficit. I think maybe they are nearer the Administration's estimates now. How much they believe it--,26
-fomc-corpus,1982,"So, we're not going to be the only voice in the wilderness that says $103.9 billion is a fake--or is optimistic, excuse me.",31
-fomc-corpus,1982,"Obviously, we're not alone in terms of the market and all the rest. But I tell you, the Administration faces a substantive problem, obviously, in terms of what they really think. I'm sure they will then [unintelligible] to think about what they want to say as opposed to what they think. I don't know where they're going to come out precisely on those grounds. But I think we have considered this about as much as is fruitful at this point, unless somebody wants to put anything else forward. And while we are meeting we can confirm the date of the next meeting.",118
-fomc-corpus,1982,August 24th.,5
-fomc-corpus,1982,August 24th is the date of the next meeting and we will now conclude the Open Market Committee meeting.,22
-fomc-corpus,1982,"Well, it is a long time between meetings.",10
-fomc-corpus,1982,"Yes, it is a long time. Well, we can always meet on the 22nd of July if we all have to come back to testify.",31
-fomc-corpus,1982,We will have to have a telephone meeting in the next two weeks.  How many people are going to be on vacation in the first half of July? [Secretary's note:   The transcript ended at this point.],44
-fomc-corpus,1982,Would someone like to propose approval of the minutes?,10
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,"Without objection. Foreign currency operations, Mr. Cross.",11
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,Let's ratify the exchange market transactions first and then we will discuss Mexico.,15
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,"That's ratified. I didn't mean to shut off any questions, but let's discuss Mexico. Who is going to present a proposal here--Mr. Cross or Mr. Truman or me?",37
-fomc-corpus,1982,"We defer to you on the assumption that you would want to make a proposal, Mr. Chairman.",20
-fomc-corpus,1982,"Well, we discussed this late last week. What has happened since then is first of all the bank rollover and the bank discussions about putting up additional money, which I'm sure will be continuing [for] some time. The calculations are a little slippery at this point, but the presumption is that our present swap [loan to Mexico] of $700 million has a priority claim on any Fund drawing, assuming there is a Fund drawing in the next couple of months. And, therefore, Mexico would get no net money--or very little, depending upon how that worked out--from the Fund during this period. And without any net money from the Fund, even with some additional official assistance during the course of the next two or three months, they're going to need more money. That proposition--that the banks would have to put up some additional net new money in addition to the rollover--was put to the banks and they have studied it. That was presented to a degree as a--well, ""requirement"" may be too strong a word--but an expectation of what would lie behind official assistance, so that to some degree these things work in parallel. In fact, I don't think the banks will make up their minds about this for some days or maybe a week or two, and some additional official assistance will be needed before then. I might mention that at a meeting in New York where there were maybe 200 people and about 90 banks or whatever represented--",294
-fomc-corpus,1982,115 banks.,3
-fomc-corpus,1982,"It got up to 115 banks? Mr. Solomon made a little introductory statement describing the nature of the official program and indicating that there was some expectation of some private bank new money as part of this. I don't remember anything else that was of particular significance, Tony, but my memory may fail me and you might want to comment.",67
-fomc-corpus,1982,"I just outlined the package, which you're probably all familiar with from the press. And basically the Mexican presentation boiled down to their saying that the Fed would be repaid first on the $700 million swap; they told the banks that the only net new money between August and December would be approximately $1.4 to $1.5 billion--basically the extent of the BIS package to complete an extra additional [unintelligible]. They said they had need of $1.9 billion, assuming everybody rolled over [their existing loans] and they had to build some reserves. Therefore, this justified something close to a billion dollars in new money as being essential. About 25 bankers spoke up. Quite a few of them said they would cooperate, implying they'd cooperate on the rollover; some implied they would cooperate as well in sharing in the new money. Nobody got up and said no. Based on that, the Mexicans felt justified, and I think correctly so--though they put it a little more strongly than I think we would have said it--in stating that there was an agreement in principle on the rollover. We might have said instead that there was a consensus in principle on the rollover; they said there was ""agreement."" But then they followed that up with telexes on Friday night and Saturday morning to the individual banks to get a legal, formal agreement on the 90-day rollover. The advisory group said they had put together fourteen banks. The two co-chairmen, from the Bank of America and Citibank, are working on the question of new money and whether they can get part of that from the other banks, not just from the fourteen. As Paul said earlier, one of their conditions on the new money is basically to see the Fund program. That doesn't mean they would want to wait until it is written up and every ""i"" is dotted and every ""t"" is crossed, but they have to have a basic understanding of the Fund program before they will come up with any money. I think that's it.",411
-fomc-corpus,1982,"Just to clarify, we're looking at this in several stages. When we talk about the Fund program, that in itself will be in two stages, hopefully. There was talk that sometime in early September--how soon it actually will take place, I don't know, but I suspect it will be later than they were indicating a couple of weeks ago--agreement in principle on a Fund program could be reported to the public and the outline of the program would be known, but it would take another month beyond that to go through the process of actually getting the Fund agreement locked up, executive board approval [obtained], and the money ready to be disbursed. So, we're talking about Fund money not being disbursed before the middle of October at the earliest. But the hope is that there would be an understanding on the terms as early in September as possible. And this bank money that is being talked about presumably would wait for that first phase of the Fund program, not the second phase. But that's temporary money; I don't know what the terms would be. It's clear that Mexico is going to need more money next year--not just the Fund money, which will largely go to repay the short-term official assistance, but money on which to survive for a period of time next year. And that will take another negotiation after this initial $1 billion that is being mentioned here or whatever it is. That presumably would be a negotiation that would proceed during October and November and maybe December.",296
-fomc-corpus,1982,The $1 billion assumes all the banks hold still? No small banks have to be paid off?,20
-fomc-corpus,1982,"Well, you say no small banks. I think that's an obscurity. The banks don't want many [current bank lenders] to be paid off, that's for sure. When there are a thousand plus banks out there, the problem is: How do you control them all? But if very many of them wanted to get out, the whole [deal] might blow up. That brings me back to the swap line. I forget just where we were when we talked on the telephone but there was an agreement in principle in Basle early last week for [official loans totalling] $1.5 billion, meaning $750 million from the United States and $750 million from the other countries. Those countries are insistent upon a basically equal sharing that does not take account of the $700 million of new money we already have in there. The $750 million consisted of amounts as high as million for Canada and Japan, million for the United Kingdom and million for Germany. Then the amount pretty quickly drops down to million for essentially all the rest of the G-10 countries. I think they're all in, aren't they? Well, with an exception of one or so, that was tentatively agreed on. The reason it was $1.5 billion was that that was all the Mexicans asked for, even though they think they need more. Mr. Silva Herzog, the Finance Minister, sort of clinched that by saying in his television address in Mexico that he was discussing $1.5 billion because he wanted to put a figure in his speech and he didn't want to ask for more than he knew he could get. That was the explanation, I guess. But once the Europeans heard that, they said no more than $1.5 billion but with some understanding, at least among some of them that I've talked to, that the Mexicans might have to come back for more. Now, subsequent to that and subsequent to our conversation, the Bank of Spain, or the Spanish authorities anyway, who did not attend this meeting in Basle have volunteered million as a gesture of good will to their Spanish-speaking brethren in the New World. That is the biggest single amount that any country has come up with. They have had a swap agreement with Mexico, and apparently that swap is more meaningful than I might have thought, or so they have interpreted it. So that would bring the European amount up to $925 million and they want us to match it. I have, of course, discussed this with the Treasury and they have agreed to put up $600 million. That leaves us with $325 million if we fully match [the other countries]. The idea here is that we will all go in together. The European side will be done through the BIS, and the BIS is technically putting up the money with various kinds of support from the central banks or the governments. We will not be in that technical arrangement, but the understanding is that we will provide the money in parallel to their providing the money. They don't have the same degree of flexibility that we do in timing because they have to raise the money in the market, and they like to go by a schedule and have some warning as to when they're going to put up the money. They just can't sit there and say ""How much do you need this morning?"" and put it up the way we can. But the understanding at this stage is that they will put it up in three tranches, and this is deliberate so that at no time are we providing much more money than the Mexicans need. And we will put it up with a mutual understanding, which will be written into our swap agreement and into the Treasury's swap agreement and reflected in some way in their agreement, that this money will be provided over the coming weeks as they need it but with an option on our part to evaluate the wisdom of putting up any amount of money in the light of progress on negotiations with the Fund, with language about looking toward an agreement with the Fund by the middle of September. You may have some exact language there that you can provide, Ted, but that's the general concept. We may not put up our money dollar for dollar with theirs, because theirs will come in lumps. We will put it up as it is needed from day to day and the Europeans won't come in with a second tranche until we catch up with them on the first tranche or maybe exceed them by a few million dollars. And then they will come in with a second tranche and we'll catch up with that and proceed in that manner so that Mexico at no time will have any very great amount of money in the bank while we are observing progress with the Fund. What is that language you have or the nearest approximation you've arrived at now, anyway, Ted?",954
-fomc-corpus,1982,"It says: ""It is understood that the Government of Mexico is seeking to reach agreement on the program from the IMF by September 15 and it is further understood that it is the mutual expectation of the Bank of Mexico and the System that the last one-third of the funds available on the swap arrangement would not be drawn until the Bank and the management of the Fund have reached agreement on Mexico's economic stabilization program."" So, the last one-third of the whole package and the timing of the BIS third tranche is linked to their essentially having reached agreement in principle with the Fund.",114
-fomc-corpus,1982,"And the date mentioned is September 15. Also, we do look forward to some private money here but, in my judgment, that's probably not going to be before the middle of September. It likely will be triggered by the same agreement with the Fund. That's probably desirable at this stage because it's nice to get private money in there in one sense; on the other hand, I think they need all the encouragement they can get to reach agreement expeditiously with the Fund, and that is one way of putting more pressure in that direction. Any questions or comments?",113
-fomc-corpus,1982,"Paul, I just want to raise a difficult issue and that is the question of quality of credit. The Federal Reserve is traditionally concerned about the quality of the credit that it extends. At the discount window we require collateral and we take haircuts on bonds and that kind of thing to be sure that we have collateral. We have sometimes said that we would not lend to an institution that was no longer solvent, although that's a very iffy matter and I'm not sure that that has much point. But I do make the point that we have been very careful in the administration of the discount window as a traditional matter to see that we were well secured. In cases where we were approached for lending in special circumstances, such as in the case of Lockheed or New York City, we've been reluctant and we have said that it had to be bridge financing. In the case of New York City in particular, I recall that we said we couldn't see the other end of the bridge, but it was bridge financing without much, really, in the way of meaningful collateral that New York City could ever put up. In the case of the other swaps in which we were engaging, I guess we have always felt--although we never really tested it--that the countries were solvent. In the case of Mexico, one of the things that disturbed the Committee when it considered [establishing] the Mexican swap was the question of whether at some time or other Mexico would get to be in financial difficulty and there would be some question about the quality of the swap. We seem to be in exactly the same--",317
-fomc-corpus,1982,We are precisely there. They're in financial difficulty; there's no question about that.,16
-fomc-corpus,1982,"That's right. We are precisely in the situation the Committee was somewhat concerned we might be in when that swap was first approved some 15 years ago. So, from my point of view in trying to sort through all this, the parallel becomes the bridge. I would feel as strongly as a private banker that I'd want to be convinced that something would be worked out to make the country okay.",78
-fomc-corpus,1982,"Well, I forgot to describe the collateral side. I think the fundamental point is the one you just made: None of this is going to work unless there is a good [economic] adjustment program. And it's going to have to be a very draconian adjustment program. I think we have to recognize the full extent of the limitations on that program, which I'm not in a position to judge, certainly at this stage. I'm not sure that anybody can judge how much the country can take. A country can have a fine-looking draconian adjustment program but if the country goes up in revolution, it will be unsuccessful. And I'm not sure the Mexican citizenry is fully aware yet of what has hit them, to say the least. But that has to be the fundamental backstop of any credit. We have labored long over the collateral issue and there aren't any terribly satisfactory answers because Mexico doesn't have that much collateral. But there are answers, satisfactory or not. The idea of this is that our present swap will remain secured, if that's the word, by a Fund agreement that doesn't exist yet. But if it does come into existence, our swap will have first claim on it. This second loan--and the proposal is that this would be a separate swap--will be secured along side the BIS arrangement with the remainder of the Fund drawings as they are available over time. I guess we have the gold [collateral] by implication. They are willing to pledge $250 million in gold, which doesn't go very far, but there it is. And by some assignment yet to be worked out, oil revenues are an ultimate backstop if nothing else works. Ted, maybe you're more up-to-date on that negotiation than I am. The BIS people are in Mexico City discussing that now.",359
-fomc-corpus,1982,Mike was just on the phone with them.,9
-fomc-corpus,1982,"The arrangement that has now been worked out between the Bank of Mexico and the BIS as far as a direct assignment by debtors, that is to say oil companies, is that Exxon and other oil companies in the G-10 countries [will assign] to the BIS an amount in excess of what would now be $1825 million of the total amount of the credit extended. The assignment would be substantially in excess of that amount, somewhere around $2.5 billion in total.",96
-fomc-corpus,1982,This is on future oil deliveries?,7
-fomc-corpus,1982,"These are future oil deliveries. The assignments would be made now and would begin to flow into the BIS sometime, maturing one year from now.",29
-fomc-corpus,1982,Does this reflect the oil that was previously in hock to the private banks?,16
-fomc-corpus,1982,"No, the arrangements will clearly provide that they would have to assign oil that has not been previously assigned. It would be oil revenues under contracts that exist now and that would be free from other encumbrances.",42
-fomc-corpus,1982,It's assigned to the BIS but we get a share of that to the extent that our--,18
-fomc-corpus,1982,The BIS is our agent for the collection of these revenues.,12
-fomc-corpus,1982,We are fully covered?,5
-fomc-corpus,1982,"If their picture became more dismal and there were a political reaction down there, obviously these types of agreements would be rather meaningless, wouldn't they? There is no way--unless we build oil tanks in all of our new Fed buildings--",47
-fomc-corpus,1982,"I don't think there's any way of getting absolute protection against that kind of eventuality. Let me also recognize another bit of reality. Whatever arrangements we make for collateral, including our own swap, we may get to the point where Mexico has no money to pay, in effect. They may have some oil revenues, let's say, but whether we demand the oil revenues under those circumstances is going to have to be a decision made at the time. If we're going to bankrupt them by demanding the oil revenues, we may want to roll over the swap and make a new oil revenue deal later. That's not the intention, but I think that's inherent in the situation. When a country or a borrower doesn't have any money, he doesn't have any money no matter what kind of--",153
-fomc-corpus,1982,"I would agree with the Chairman that the latter problem is the more serious one. There are problems with the technical aspects of the assignment, but I would like you to understand that the assignment is an assignment of revenues by companies that operate outside of Mexico. So, there would be no way that those companies could get out of the assignment, theoretically.",69
-fomc-corpus,1982,If the oil showed up.,6
-fomc-corpus,1982,If the oil was delivered.,6
-fomc-corpus,1982,But I assume that Mexico has to deliver the oil; they have to sell oil.,17
-fomc-corpus,1982,"There's a lot of oil that is already assigned. I don't know if you have the numbers, Michael, on what is already assigned to private banks.",30
-fomc-corpus,1982,I'm not sure anybody does.,6
-fomc-corpus,1982,"We are trying. Mr. Patrikis [of the New York Federal Reserve Bank] is in Mexico City, and one of the things we have asked him to do is to collect all of the appendices and agreements for assignment.",46
-fomc-corpus,1982,"They have done a lot of these deals--increasingly in recent months--but they told us that a relatively small fraction has been placed. Now, whether that's true or not, I don't know; but that's the story they gave.",48
-fomc-corpus,1982,What is the annual or monthly flow?,8
-fomc-corpus,1982,"They get $15 billion dollars a year, roughly, from oil at current levels of production and current prices. So there's quite a lot of flow there. The monthly flow is--",36
-fomc-corpus,1982,A billion and a quarter dollars.,7
-fomc-corpus,1982,Is that total production or exports?,7
-fomc-corpus,1982,That's exports.,3
-fomc-corpus,1982,We want to bear in mind that Mexico a few years ago was a reasonably viable country without oil. At the same time there is a basic economy that can function; the oil is an addition.,39
-fomc-corpus,1982,"Mr. Chairman, I'm not clear on one thing. Is it anticipated that we would use the funds from the IMF to settle that $700 million drawing?",31
-fomc-corpus,1982,"It's anticipated now, but I can also anticipate a problem. If that money comes through on November 1 or October 15, say, and they have no other source of money and don't have the money to pay us, we may be faced with a decision on a rollover.",56
-fomc-corpus,1982,"But in setting our share, they made that assumption I gather, didn't they?",16
-fomc-corpus,1982,"Everybody understands that we have a prior claim on IMF money from the earlier swap. Whether we can cash in on that claim or not remains to be seen. But legally that's the position. I also want to mention the rate. I don't know whether we finally settled on this, but ordinarily we lend essentially at the Treasury bill rate on these things; the BIS is going to lend at LIBOR plus which raises the question of whether they should be getting more than we would be getting; right in today's market it's several percentage points. More normally it would be a significant margin but not quite as big as it is at the moment. So, we have discussed a possibility--this is the BIS agreement and I presume ours would be parallel--that the second swap would have a 3-month maturity and could be rolled over 3 times, which makes it a 1-year loan potentially. And thus there might be some logic in using the one-year bill rate and marking it up point or something, which comes much closer on average to where LIBOR has been in the past. Nobody knows what it will be in the future. But it is natural to do the same thing as the Treasury: I don't know whether we've resolved this with the Treasury yet or not.",251
-fomc-corpus,1982,They accepted that proposition--using the one-year Treasury bill rate on the yield basis off the constant maturity series that we publish.,25
-fomc-corpus,1982,Plus,1
-fomc-corpus,1982,Plus,1
-fomc-corpus,1982,"It probably will come out cheaper than LIBOR, but that depends upon the shape of the yield curve. If we had a steeply rising yield curve, it would not; if we had a relatively flat yield curve, it would be less than LIBOR. But it's someplace in the ballpark. So, that's the interest rate that we are talking about. Let me ask whether there are any other questions or comments about this in general. If there aren't, we're only left with the decision of whether to do $300 million, which makes [the total] a nice round billion dollars, which is what I was thinking of when I talked with you before. I guess the Europeans will live with that. So, the U.S. share would be $900 million and the European share would be $925 million. Or we may want to make a grand gesture and throw in another $25 million and make our share equal.",185
-fomc-corpus,1982,Would this be classified just as an addition to the swap or is it a special--?,18
-fomc-corpus,1982,"No, it's a new swap.",7
-fomc-corpus,1982,It's a special thing.,5
-fomc-corpus,1982,This is a different swap as we have it structured now so that it can be parallel with the BIS lending and the [original] $700 million swap will be held where it is.,37
-fomc-corpus,1982,"I'm not so much worried about the Mexicans, but the Europeans will not really understand why we were so chintzy if we come in $25 million short of the 50-50 match. I personally would put in for it.",48
-fomc-corpus,1982,"Are we going to offend the French, Tony?",10
-fomc-corpus,1982,"The only consideration I can see on the other side is that we will be discussing this with the Europeans in Toronto, I'm sure, and I can see how things go. If they have really shut off the principal payments on their loans, this should be enough, particularly if we want private banks to come in. But there's always a possibility that there will be a need for a few hundred million more along the line here someplace, so I want to warn you about that. But this should be enough as I now see it. Well, I'll put it conservatively: The calculations now assume that they get a pretty full rollover from the private banks; assuming that the private banks do come in once there is a Fund agreement, this should last them through the Fund agreement if that's successful. And after the Fund agreement in principle, at that point if the banks come in for some more, I do not see that we're going to have to put up any more. That's my judgment at the moment, but I would not promise you that the Mexicans are not going to run out [of dollars] during the next two to three months.",226
-fomc-corpus,1982,Are there other problem situations in that part of the world that conceivably are likely to follow or fall into the same [difficulties]?,29
-fomc-corpus,1982,"Argentina, Brazil, and Venezuela for example?",9
-fomc-corpus,1982,"Argentina is the most imminent of those, I think. It's a different situation in many respects, but just in terms of our own posture--and it's worth discussing briefly--we have no swap agreement with Argentina. We have always refused to extend [the swap network]; this [swap line] with Mexico is somewhat of a special deal with a neighbor. The Mexican currency was convertible. That is not true generally of Latin America in the same sense. I think we have reason to hold the line as the Federal Reserve. What the U.S. government would want to do in the case of Argentina is something else again. I imagine that if Argentina gets into this kind of jam, the question is going to be raised. But we do have a distinction in what we have done in the past and in our general attitude between Mexico and Argentina, just to take the next most imminent [problem economy]. Brazil, Venezuela, and others could be involved, too, but I think Argentina is the most imminent. Now, their debt is a lot smaller, of course. It's very sizable, but it is less than half the size of Mexico's. It's not all that much less than half, I guess. What is it--about $30-odd billion?",250
-fomc-corpus,1982,$35 billion.,4
-fomc-corpus,1982,"$35 billion; it has gotten big, too.",11
-fomc-corpus,1982,[Unintelligible.],6
-fomc-corpus,1982,"Our banks are heavily involved, but not as heavily as in the case of Mexico; I presume about half as much. The $325 million proposition is on the table; it may even have been seconded. To make it a little more formal than was expressed, it makes some sense to me, so long as we have these understandings, that we don't appear to be chintzy for $25 million.",83
-fomc-corpus,1982,Is the $600 million from the Treasury solid?,10
-fomc-corpus,1982,"What do you mean by solid? They've agreed to it right now. I don't know if the paper is signed yet, but I--",27
-fomc-corpus,1982,It just occurs to me that they have not done this; they have not had the benefit of a Congressional appropriation and they must be trying to get the money in some other place.,37
-fomc-corpus,1982,They don't do it. It's the ESF. MR. PARTEE and,15
-fomc-corpus,1982,They have some money?,5
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,I didn't think they had any money left.,9
-fomc-corpus,1982,"They have put up $1 billion for this for a week or so to bridge the Department of Energy's payment. So, they have a billion dollar swap right today. Now, that will be repaid today or tomorrow. Did they reach agreement on that oil thing?",54
-fomc-corpus,1982,"No, not yet.",5
-fomc-corpus,1982,They are still negotiating the details of this oil thing. But presumably that will be settled in a day or two. Their billion dollar swap will be repaid and then they will come back in proportionately.,41
-fomc-corpus,1982,That August 24 date that Sam mentioned--I believe that's today.,14
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,"August 24 is today, isn't it?",9
-fomc-corpus,1982,Yes. We just confirmed that [date].,9
-fomc-corpus,1982,"It was supposed to be agreed to yesterday, but I know it was put over until today. It sounds as if it's being put over until tomorrow.",30
-fomc-corpus,1982,It matured today but it may be extended a day or two if they don't work out that problem.,20
-fomc-corpus,1982,The ESF is in a much healthier condition than when I was there.,15
-fomc-corpus,1982,"Are they really? I just have not kept track of it, Tony.",15
-fomc-corpus,1982,"It's the combination of all those drawings that we did from the IMF when we did the November 1 package, which we don't have to repay, so it only appears on the asset side of the ESF. But all these high interest rates that the Federal Reserve is giving these countries has put the ESF in a very healthy condition.",67
-fomc-corpus,1982,"Now, under the law under which the ESF currently operates, if [the loan] is outstanding for more than six months, they have to get a Presidential determination that this is a special situation that justifies lending for more than six months. I think they intend to get that Presidential determination right now.",61
-fomc-corpus,1982,"Yes, they do intend to do that. As a matter of fact we saw the draft last night. They would have it as part of the package.",31
-fomc-corpus,1982,"I would say that there would be very strong support from the Congress. The thought of economic chaos in Mexico, with all those millions of people trying to pour in over the border, is just so upsetting to members of the Congress that I think there would be widespread support.",54
-fomc-corpus,1982,The month after they pass the first big change in the immigration statute in 30 years or whatever it is!,22
-fomc-corpus,1982,"Well, of course, there's likely to be enough economic hardship in Mexico that there will be flight across the border anyhow.",24
-fomc-corpus,1982,"Yes, we're going to get it anyway.",9
-fomc-corpus,1982,But there is a perceptible difference between austerity programs and actual collapse.,15
-fomc-corpus,1982,"For 70 million people, you know!",9
-fomc-corpus,1982,"Well, we have a motion for $325 million. The exact [terms] I'm going to say are available to you; I'm not sure the language is all worked out to the last comma. The main elements have been touched upon: the rate, the collateral, the term of 3 months, and the rollovers for a year. The implication is that we would be repaid during the course of the year, as the Fund money becomes available, but that's not promised.",96
-fomc-corpus,1982,Do we get paid back equally with the BIS? Is that the idea?,15
-fomc-corpus,1982,"Yes, out of the same pool equally.",9
-fomc-corpus,1982,"I don't think we can all get out in a year because they can only draw a maximum of about $1-1/4 billion from the Fund in the first year, or maybe $1-1/2 billion if they front load. So, if you take--",55
-fomc-corpus,1982,It would be a little more than that if they front load.,13
-fomc-corpus,1982,We have our $700 million and we will get a part of the BIS--,16
-fomc-corpus,1982,"Well, we don't know; it depends upon whether they get a compensatory financing facility [drawing from the IMF] and how much is front loaded. But with $1.8 billion and $700 million you have $2.5 billion. That is more than front loading alone would provide out of the Fund agreement.",64
-fomc-corpus,1982,"And their own circumstances could improve. There could be an increase in oil prices, for example.",19
-fomc-corpus,1982,"Well, if it really worked out well, we would get paid out of private financing. The banks would put up more loans and Mexico would repay us; but we may be dreaming, too.",39
-fomc-corpus,1982,"Of course, if oil prices decline--",8
-fomc-corpus,1982,"We have gotten 9 different stories in the course of this negotiation about whether they can, among other things, increase their oil production or not. Two weeks ago they were going to increase it way up; this week, no. It's going to be a difficult negotiation. Do I take silence as assent?",61
-fomc-corpus,1982,Do you want a formal vote?,7
-fomc-corpus,1982,"Well, we'll have a formal vote if anybody wants to object. Not hearing any objections I think the Secretary can record it as unanimous.",27
-fomc-corpus,1982,"Yes, we do want it recorded.",8
-fomc-corpus,1982,"Yes, I think we need it recorded. Okay, we will turn to domestic open market operations.",20
-fomc-corpus,1982,You might just want to confirm that the payout doesn't require a formal vote; the payout would be under this schedule and over a period of time in parallel with the others. You don't want to have to act every time.,44
-fomc-corpus,1982,"I'm assuming we won't have any other action and that it's understood that this will be paid out over the next few weeks if all goes well--if, in the combined judgment of the BIS, the Treasury, and ourselves there is suitable good faith in the Fund negotiations. Now, if we reach the point of mid-September and those things have not been completed, then we will have a real decision to make; we'll have a decision before that but a more certain--",93
-fomc-corpus,1982,We'll have a decision with no options.,8
-fomc-corpus,1982,A more precise checkpoint--that's all one can say. Okay. Mr. Sternlight.,18
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,I don't think you mentioned the tax bill. How did you think that--?,16
-fomc-corpus,1982,"I did [refer to it] as a plus factor, although I said that when it finally came it was somewhat overshadowed by other events.",29
-fomc-corpus,1982,"Peter, what is the borrowing level so far this week through Tuesday in relation to our target?",19
-fomc-corpus,1982,"Well, it has been undergoing some day-to-day changes. Through the end of the week, just taking Thursday and Friday, it was running on the low side and averaging about $175 million. Yesterday there was a considerable increase because of one large bank borrowing a sizable amount, and that brought the weekly average to $350 million. And it's fairly possible that that bank will be in again today; we don't know if they are or for how much. I was just gauging that if they were in for a similar amount today and then not in on Wednesday, and the other banks stayed in to the extent they had been in the early part of the week, we could wind up with borrowing averaging around $400 to $420 million or something on that order for this week.",155
-fomc-corpus,1982,"But the pattern has been continuing, hasn't it, Peter, of very low borrowing until Wednesday and then a very large increase on Wednesday?",27
-fomc-corpus,1982,"That had been the pattern for a number of weeks, although there could be a change this week because of an effort by some banks particularly to avoid a Wednesday borrowing. If they sensed a need to be in, they tried to get in before Wednesday.",50
-fomc-corpus,1982,Are all the borrowings coming from banks that are having trouble borrowing in the funds market?,18
-fomc-corpus,1982,"I wouldn't say all, Governor Rice. Some of it has been the seasonal borrowing, of course, and that is partly rate sensitive. But even with the seasonal borrowers there is apparently some desire to stay within the line and not disrupt that even though 10-1/2 percent is above the funds rate of 9 percent. There was a conference call of the discount officers yesterday and it looked as though in some areas some of the borrowings were being done by banks that, while not in the severe problem category, did apparently have some limitations on their access to the funds market. And that seemed to be a factor in their turning to the discount window rather than to the funds market.",138
-fomc-corpus,1982,"Peter, where does the market think the funds rate should be? Or does it have any idea?",20
-fomc-corpus,1982,"Well, I think there has been some surprise, just as we have been surprised, at funds trading below the discount rate. Also in the market thinking, I believe they have factored in an expectation of a further discount rate cut of 1/2 point anyway in the near term. And with that factored in, they tend to think of funds probably settling in around the 9 or 9-1/2 percent area.",88
-fomc-corpus,1982,Assuming a further--?,6
-fomc-corpus,1982,"Assuming a further discount rate cut, frankly.",10
-fomc-corpus,1982,"Peter, the classification of borrowings gets a little tricky when it's a large bank.",17
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,The way we do it by convention is that we consider it borrowings if it's adjustment and we consider it the equivalent of nonborrowed reserves if it's extended. I presume borrowing by a big bank would be adjustment borrowing for a long time even if it were borrowing a billion dollars or two. [Total] borrowings would shoot up. Would [the large bank portion in that total] be classified as adjustment borrowings?,84
-fomc-corpus,1982,"If it were there for a day or two, that would be the tendency. I think if it were there in some size for even as long as a week, that would probably call for some revamping of how we looked at that level of borrowing.",51
-fomc-corpus,1982,"Yes, that's the question I was raising, because I inferred that while there was a [large] bank that was borrowing--I don't know whether it was strictly technical overnight financing problems--it was something that could be of longer duration.",47
-fomc-corpus,1982,"Well, Governor Partee, when Continental borrowed a couple of weeks ago on Wednesday, that was well within the average that we were expecting.",28
-fomc-corpus,1982,"Yes, that's right; it was only for one day.",12
-fomc-corpus,1982,"And as Peter was mentioning, if they borrow today as well as yesterday, it might raise the average for the week some. But it would be in the context of having to borrow; they were at the tail of the queue and got caught. It isn't as if they have rushed in to borrow because they didn't have real access. They have access but they are at the tail of the cue.",79
-fomc-corpus,1982,I guess I was asking the question of how you would regard your path for nonborrowed reserves if you were to have a significantly higher average borrowing level than you expected because of identified problem cases.,39
-fomc-corpus,1982,"If it were significantly higher, I think we'd have to make allowance for it. If it's for just a couple of days in this week, I think it will--",33
-fomc-corpus,1982,"Significant is, say, several hundred million dollars on a weekly average basis?",16
-fomc-corpus,1982,"Correct me if I'm wrong, but if you made allowance for it, then wouldn't you have to categorize that borrowing by that big bank formally as emergency borrowing because the market would see a discrepancy between adjustment borrowing--",41
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,I don't know. There is nothing published about our reserve paths that would call for necessarily classifying it as emergency borrowings.,25
-fomc-corpus,1982,"Well, but we publish the borrowings, right?",11
-fomc-corpus,1982,"Oh, yes.",4
-fomc-corpus,1982,But market people looking at this rise in borrowings--,11
-fomc-corpus,1982,It's seen as adjustment borrowing in the public figures; but I think we could still regard it more like nonborrowed reserves if that looked appropriate to us.,31
-fomc-corpus,1982,"Well, Peter, your handling of the $61 million that you transferred over [to extended credit and hence treated like nonborrowed reserves and] took out of [adjustment] borrowing is a situation like the one Chuck is describing.",47
-fomc-corpus,1982,"Yes. Well, that was a smaller scale situation where the adjustment borrowing had built up and then after a merger situation that borrowing was considered extended credit and was formally moved out into the nonborrowed category.",41
-fomc-corpus,1982,The Chicago Fed publishes its weekly borrowings.,9
-fomc-corpus,1982,Wednesday [levels] only.,6
-fomc-corpus,1982,Only what takes place on Wednesdays?,7
-fomc-corpus,1982,"Yes, [the level] at the end of that day.",13
-fomc-corpus,1982,You don't publish what takes place during the rest of the week?,13
-fomc-corpus,1982,"So, if they are [not borrowing] on Wednesday, there will be no way in which one could--",22
-fomc-corpus,1982,They won't catch on so quickly?,7
-fomc-corpus,1982,"But the average would be up, of course, for the System. Well, there is some ambiguity.",21
-fomc-corpus,1982,The question is whether we would want to tell the market why there was a big bulge in such borrowings.,23
-fomc-corpus,1982,We'd get a bigger bulge!,8
-fomc-corpus,1982,This will have to be handled with a certain degree of flexibility.,13
-fomc-corpus,1982,Long live ambiguity!,4
-fomc-corpus,1982,We have to ratify the transactions if there are no further questions. Do I hear a motion?,20
-fomc-corpus,1982,Moved.,2
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,Without objection. We'll have the staff report on the economic situation.,13
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,"Jim, this follows the gist of your comments on [output]. I noticed that in the Greenbook you have reduced your estimate for real output growth in the third quarter from about 2-1/2 percent to 1 percent. In your analysis, was the slow rate of M1 growth over the past months--I think this has an effect on the decision we make later--a factor that led to your conclusion?",85
-fomc-corpus,1982,"Not directly. Indirectly, yes, in the sense that we think it has been a factor in the interest rate outlook. Obviously, rates of growth of money, interest rate levels, and GNP are all related. I think in the short run, though, in terms of looking at what we had forecast for the last meeting of the Committee on June 30th-July 1st and the information available in the six or seven weeks since then, the forecast for the third quarter really reflects two major things. One is a different look at the inventory side; inventories just have not been declining as rapidly as we had expected. And, frankly, the key element is that final sales have been weaker. We reduced expected personal consumption expenditures in the third quarter by more than a percentage point, and that's a key element. So, in the very short run, I wouldn't associate [the change in our forecast] with M1 behavior. I would do that over a longer-run context. But in the very short run it's really that consumer spending has turned out weaker than we had anticipated.",219
-fomc-corpus,1982,"We wouldn't have any difficulty with the direction of your analysis, but we are assuming an essentially flat third quarter, not as strong as 1 percent. We also are assuming a lower average federal funds rate in the fourth quarter. You're assuming 10-1/2 percent; we're assuming 8-1/2 to 9 percent. If we don't get something in that 8-1/2 to 9 percent region--if there is a significant back-up in rates in the fourth quarter--then we think the fourth quarter, instead of showing 2 to 3 percent real growth, may very well be negative. So, I think the difference is possibly in the assumptions. With your assumption [of the funds rate] at 10-1/2 percent, you still assume roughly 2 percent real growth in the fourth quarter, whereas our analysis would be that if rates back up to 10-1/2 percent, that is likely to result in a negative fourth quarter.",200
-fomc-corpus,1982,"The only comment I would make is that I would agree implicitly with the view you've expressed in that the underlying determinants of economic activity in the short run, and rate behavior in particular, suggest that the economy is on the edge of a weaker performance than implied in the staff forecast. I would not bicker at all with a forecast that puts down a zero for the third quarter or minus 1 or plus 1 percent. The important point is that the way things are shaping up now, it is a small number around zero or a slight positive. It isn't a 4 or 5 percent rate of real growth; it's a weaker situation.",128
-fomc-corpus,1982,"Jim, did you really factor in the sharp drop in rates that has occurred in the last six weeks?.",21
-fomc-corpus,1982,"Well, we tried to and we have put down our assumptions. The interest rate assumptions appear in the Bluebook and, as you know, they are trending up later this year and into 1983. One of the questions one has to ask is: To what extent does part of the rate behavior reflect concerns that wouldn't track into spending in the economy but rather a flight-to-quality, looking at bill yields, for example. That seems to me almost a sign of weakness, not something that says those low rates are going to translate into significant gains in spending later on. The one area where it is rather important--and it's an open question--is in the mortgage area. That FHA rate, as of today, is down to the 14 percent level. I think that's encouraging. But in our forecast we don't have private mortgage rates coming down that low; in fact we have them stuck in the 14-1/2 to 15 percent area, which we think is still an area that would not generate substantial levels of housing activity. So, the outcome in the staff forecast is one in which we don't believe the current levels of rates would likely be sustained, given our assumptions on monetary policy and our outlook for the economy.",247
-fomc-corpus,1982,"Could I just ask, Tony, if your forecast wouldn't expect an increase in consumption expenditures in the fourth quarter even in the face of a higher funds rate in the range of 10 to 10-1/2 percent?",45
-fomc-corpus,1982,"Well, I think it's likely to be offset. First of all, we have seen that we didn't get the increase in consumer spending that we all expected.",31
-fomc-corpus,1982,That's right. It might be lagged.,9
-fomc-corpus,1982,"That was partially because there was a higher increase in savings than we expected and partially because it was offset by greater weakness in the rest of the economy than we expected. I personally feel that the more pessimistic scenario--in other words, continued weakness--is quite likely if there's a back-up in rates. And even though there will be some modest increase in consumer spending, I don't think it will be enough. Whereas if the average federal funds rate stays in the 8-1/2 to 9 percent area, I think we're likely to get the kind of real growth of 2 or 3 percent that we're talking about.",127
-fomc-corpus,1982,"One terribly important question is how weak is capital spending. The staff has reduced its estimates quite a bit, but the forecast is for equipment spending still to be rising by the middle of next year I believe and for the decline in nonresidential construction to be moderating by the second half of next year. The question is, if there's a major cycle there, whether it will go deeper or whether it will turn around that rapidly. And the Redbook seems very pessimistic on capital spending to me. I don't know if that represents your views or not. In Atlanta you are looking at one set of exceptions; you saw a little strength recently.",129
-fomc-corpus,1982,"Yes, just in a few industries. But in real terms, taking out price changes, our regional economy is flat, which is better than in the rest of the nation.",35
-fomc-corpus,1982,"Anecdotally, what I hear in New York is very pessimistic on capital spending. Just last week a few businessmen told me they had made further cutbacks in their planned capital spending, and those plans had already been quite low.",49
-fomc-corpus,1982,"In the Fourth District, where we have a lot of capital goods industries, the outlook for capital spending has gotten worse in the last couple of months, I would say. A couple of months ago when you asked inventory questions of these people, they would say that they had really reduced inventories to bare bones and were not sure how they could continue operating with these inventory levels. Now they are evaluating those same inventory levels differently, saying that they can do business for the foreseeable future with those inventories.",98
-fomc-corpus,1982,"I wonder if a lot of the difference we see isn't that the businessmen we're talking to are not assuming as low a rate of inflation as Jim and his associates have assumed here. If they were assuming that, I think we'd see a much stronger capital picture. And if we do obtain that, I would think long-term rates would have to come down some, and that ought to have a salutary effect on capital spending. My guess would be that next year might be a little stronger, but heaven knows it could be a lot weaker.",107
-fomc-corpus,1982,"Chuck, in the Midwest, most of the companies are operating at such a low level of capacity that there is just very little enthusiasm for any capital expenditures. Until that begins to pick up in some material way, we will not see an improvement on the capital expenditure side.",54
-fomc-corpus,1982,I get the impression that orders are falling in Chicago. I don't know.,15
-fomc-corpus,1982,"Yes. Many of the industries are continuing to experience a decline. I think, certainly, the rate of decline has slowed but there is still for some industries a perceptible continuing decline.",37
-fomc-corpus,1982,"Mr. Axilrod, why don't you give us your blessing and we'll go not to lunch but to a donut break.",25
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,I think we'll go for a little recess.,9
-fomc-corpus,1982,"Well, I don't know what I can add to Mr. Axilrod's astute dancing around the issues. We're in a very sensitive period, not just economically, but in terms of the markets and interpretations and in fact concern--and I'm afraid to some degree justified concern--about the stability of the banking system. I am sure that this is a time to be delicate and sensitive. How we express that and how we approach it is what is at issue. Very technically, as Steve mentioned, we're in one of these phases when it's hard to set a reserve path with great certainty because we're on the margin of losing touch with rates in the market. This problem occurs if we get extraordinary borrowing from some particular banks that have their own problems, and that can't be considered borrowing in the ordinary way we usually consider it. Just how it should be considered is a little hard to tell in advance, I think, before we see it and before we see the timing and the amounts. But it's another complication in [the way of our] being mechanical in this process at the moment. I don't think we can afford to be overly mechanical. I would just make one further comment with regard to the growth in the money supply in particular. Considering that we're in the middle-of-the-quarter meeting, my own bias, which I've expressed before, is not to change these numbers unless there's a strong reason for changing them. If there's a clear-cut reason for changing them, we should change them, but fiddling around with a half percent or so on the growth rates is hardly worthwhile. With that much introduction, who would like to make some astute comments as opposed to ordinary comments?",334
-fomc-corpus,1982,That's going to create total silence!,7
-fomc-corpus,1982,"I'd like to make a straightforward comment; it's not very astute. I think we ought to go for alternative A, with maybe a $300 million initial borrowing assumption instead of the $250 million. And we ought to be quite sensitive to the fed funds rate in the next few months. I don't think I have to go into my reasons why. We're in a very delicate stage not simply because of financial fragility, but with regard to the question of whether there will be some recovery at all. I think we ought to take advantage of your Humphrey-Hawkins testimony where you said we want to M1 growth to come in around the 5-1/2 percent [upper end of the range] and will even tolerate something over that under certain conditions. Alternative A still puts M1 around the top of the range. And even though I realize that, obviously, if the money supply bulges in the fourth quarter, we will then have less room than if we adopted alternative B now, I still think the next couple of months are quite critical. And maybe we'll be lucky on the money supply in the fourth quarter.",227
-fomc-corpus,1982,"Let me just make a couple of technical comments, so we don't have to keep repeating it or raising questions about it. The present [short-run] targets are about 5 percent [for M1] and about 9 percent [for M2]. Steve, under alternative A, had put in 10 percent for M2. At this moment in time [M1] is running below the 5 percent, but that target is for the quarter as a whole and it's not clear it is going to run below 5 percent for the quarter as a whole. That depends upon what we think is going to happen. If September continued more or less the way August is going so far, I suspect growth would be up to 5 percent. But we are clearly above the 9 percent so far on M2. It's a matter of choice here. We have a directive now that says immediately in the next sentence that somewhat more rapid growth would be acceptable [depending upon certain developments]. So, I think one could interpret this M2 running a bit high as basically being in line with the existing directive given that second sentence.",226
-fomc-corpus,1982,"I think M2 is being distorted by the fact that when interest rates go down, it pays the wealthy investor to move out of market instruments into money market funds.",33
-fomc-corpus,1982,"It might be, to some extent; and nobody knows just how much. But that may just be some special case of a more general interest in liquidity and for locking in some of these rates while they last. All I'm saying is that I'm not sure we have to raise the 9 percent to 10 percent in the light of that next sentence that is already in the directive. I'm just making a technical point.",83
-fomc-corpus,1982,"Well, I agree with Frank that there probably is some money moving from the market into M2 forms, although it may cease because, after all, these stocks that have been bought recently have to be paid for. But in addition, of course, the staff makes the point that consumption is weak relative to income. And that is going to show up somewhere. Is it more likely to show up in M2 forms than anywhere else, given the fact that we're talking about a broad base of the consuming public and so forth? I agree with Tony that the fact that we hold to 5 percent as the M1 target doesn't mean we are going to get it. Indeed, we really thought last time that it would be hard to keep M1 growth down to 5 percent. Now we think it might be hard to have it up to 5 percent. We don't know what is going to happen. Let's face it. But it would seem very strange, given the economic circumstances in the past six or seven weeks since the last meeting, to cut our target growth rate for the third quarter because the economy appears weaker than it was perceived as having been seven weeks ago. I think that was said by everyone who spoke and certainly was the thrust of the Redbook and also the Greenbook and your comment, Tony, on the New York projection. Why in the world would we cut the growth rate in those circumstances? So, I agree with you. I think it's best to hold [to our current targets].",302
-fomc-corpus,1982,"The additional point I'd like to make, which I've touched on briefly, is that I'm really concerned about a lot of movement in the fed funds rate. We don't want to see too much, if any, back-up. Also, on the other side, it would be quite damaging psychologically if we let the rate go too low and then had to be forced to see some back-up in the fourth quarter. I don't know how to handle that. All I'm saying is that we ought to be very sensitive this time.",103
-fomc-corpus,1982,"Well, there is a way of handling it, and I think Steve mentioned it. And that is to keep our eye on the excess reserves. If excess reserves begin to pile up, we could deviate from the path even though [that would mean] not putting all the reserves that we intended into [the banking system]. We would operate fairly flexibly to keep the rate either from backing up or from dropping precipitously. That's really the key to this, Tony.",94
-fomc-corpus,1982,You're not proposing that we narrow this [fed funds rate] band?,14
-fomc-corpus,1982,I don't know what I'm proposing. I'm just saying that--,12
-fomc-corpus,1982,"No, he's just saying these [unintelligible] words.",14
-fomc-corpus,1982,"We used the whole 5 point range last time, by the way.",15
-fomc-corpus,1982,"I'd like to suggest that we have a consultation if it appears that in following this directive the Manager would have to move the funds rate above 10 percent. I'd preserve the form and keep [a fed funds band], but as we have done in the past when we planned to utilize the band or if there was such a possibility, we would have a consultation. I think to move the rate above 10 percent in the near term could be very destabilizing.",92
-fomc-corpus,1982,But we don't want it to drop out of bed either.,12
-fomc-corpus,1982,"No, that's right.",5
-fomc-corpus,1982,Mr. Chairman.,4
-fomc-corpus,1982,Mr. Roos.,5
-fomc-corpus,1982,"I find myself in the pleasant posture of agreeing with Tony and the others in terms of the ultimate objective. I think we should avoid a continuation of slow money growth. But I'm a little concerned about the thought of our attempting to lean against a further drop in interest rates because I think that would imply a further slowing of money growth. Money has grown exceptionally slowly over the last five months and, at the risk of analyzing something in a little different manner than some of you do, our experience prior to every recession that we've had since World War II is that when money has grown below its trend rate for two or more quarters it inevitably leads to a softening in the economy and to a recession. Even a rather unsophisticated set of eyes such as mine can see that this has been the experience. And although none of us knows what the future holds, I have a great fear that if money is permitted to grow slowly for several more months, we could have a serious weakening in the economy at the end of this year and into the early part of next year. If that were to happen, we could have a revitalization of the criticism that we have been too tight. So, I would certainly favor alternative A, but I would not be quite as concerned as one or two others have indicated about acting to prevent a further drop in the fed funds rate. I think doing so would exacerbate the undershoot of growth in the narrow aggregate.",288
-fomc-corpus,1982,Governor Rice.,3
-fomc-corpus,1982,"Mr. Chairman, I don't want to risk disagreeing with anything that has been said up to now. I certainly want to see interest rates low, and for that reason I'm inclined toward alternative A. But at the same time I want interest rates to stay low. And I worry that if we follow alternative A in the face of the GNP forecast that we have, the implication is that interest rates are probably going to go back up in the very near future. There are going to be upward pressures. In order to keep interest rates down, we're really going to have to increase money growth substantially above the target range. Now, I wonder if we want to do that. If we increase money growth for the year to above, say, 6 percent, I just wonder if we are willing to accept such an outcome. If we are, then fine, alternative A is a good way to go. If not, then it seems to me that we're going to have a fairly strong back-up in rates. And the effect of this I do not welcome. Since the difference between ""A"" and ""B"" seems to me to be unusually narrow this time, I could go just as easily for alternative B. But I am prepared to go along with alternative A. It's rare that I'm in such a happy position as to choices. But, I really want--",273
-fomc-corpus,1982,"Emmett, alternative B gives you the back-up immediately.",12
-fomc-corpus,1982,"Well, I'm not so sure about that at all.",11
-fomc-corpus,1982,"Well, it depends upon how we play it. Mr. Balles.",15
-fomc-corpus,1982,"Well, on this interest rate matter, I guess it's time for a little school of contrary thinking. I don't look on it as trying to explain why interest rates have come down so precipitously and dramatically since early July. I think the mystery is why they didn't come down a heck of a lot earlier. If one looks back over decades at the relationship in this country between the inflation rate and interest rates, particularly short-term rates, there has always been a close correlation with only a short lag up until this recent episode. So, I look on this recent decline as being a long overdue decline because we have had dramatic success in getting the inflation rate down and interest rates, particularly short rates, just didn't come down along with it. The relief that we are now getting on the interest rate front is desperately needed from the standpoint of all kinds of businesses and depository institutions. I guess I would worry later on if, as, and when interest rates begin to go up again. And I would certainly want to take advantage of opportunities to nudge them down and to keep them down right now because of what I consider to be the growing cumulative damage being done to all kinds of businesses and depository institutions by this high level of rates. But I'm not at all convinced personally that interest rates are necessarily going to go up just because business may strengthen a bit. That would be a normal cyclical pattern. But we've had such an unusual relationship between the depressed level of economic activity on one hand and a very high level of real rates on the other that I don't think a rise in interest rates is foreordained by any means. That may be wrong, but that's the way I feel about it right now. We do have in the short run a perplexing problem of monetary control with the discount rate clearly out of touch with open market rates. Often in the past when that has happened, we've had somewhat of a loss of monetary control; it can lead either to overshoots or undershoots, depending on which historic episode one looks at. If we tried arbitrarily to peg the federal funds rate in some narrow band, there would be a couple of alternatives for dealing with this. One would be just to lower the discount rate dramatically, but that has announcement effects that might be quite unfortunate if the public felt that was a signal that the Fed was caving in and that we were going to start monetizing these big government deficits and have a sustained period of monetary acceleration. Another alternative, instead of bringing the discount rate down too sharply, is to bring it down in a series of gentle 1/2 point moves; I'd be inclined to do it that way myself. But I would also accompany that by a widening of the federal funds band. This is where I guess I'm going to be rather radical now: As long as we have the problem that we have right now, I would like to see the funds range widened from the present 5 points to about 8 points. Specifically, in this current situation, while I'm in favor of the monetary specs of alternative A, I would like to propose that we consider widening the funds rate band to 4 to 12 percent instead of the 7 to 12 percent proposed in the Bluebook. That would admittedly get us into a situation where the funds rate moves over a much wider area than the market is used to. We'd have to try to educate the market and explain to them why we're letting that happen. But by bringing down the discount rate gradually as well as widening the funds rate band, we can keep money under control and prevent either sustained overshoots or sustained undershoots.",729
-fomc-corpus,1982,Governor Martin.,3
-fomc-corpus,1982,"I think the arguments for alternative A are compelling. I note that the staff in its discussion of its projections, particularly for the third quarter, indicated that there is some uneasiness attached to the 7-1/2 percent nominal GNP number. We have question marks on the domestic investment projection, on the residential structures projection, and on auto sales on the down side. That has implications as to which of the two alternatives [to choose]. I would agree that the two alternatives are rather narrow in their band. The weaknesses that we have been noting both in the Redbook and in our own discussions here today affect expectations and, therefore, I believe the actions taken by us and noted in the markets will have a different interpretation from what they would have had a short time ago. I think market participants are, as we are, much more aware of the illiquidity of major corporations and of the question marks over the banking system, as well as the general weakness structurally of the world economy for that matter. Therefore, I believe we have a little more action space, perhaps, than we've had before. Plus, I will reiterate the comment I made at the last FOMC meeting. It is that we have a responsibility for the stability of the banking system, which we are meeting. Admittedly, there has been a comment or two from the political side with regard to the way to do that. But given this narrow set of alternatives, I would go toward ""A"" rather than ""B,"" in part to preserve the climate in the markets that has provided a little more action space. Therefore, for the borrowings I would lean toward a $350 million number, a rather larger number with a pretty large standard deviation around that. We need flexibility in this particular six-week or eight-week period as we seldom need it. And I think it's important to have the ability to alter many of these variables in our targeting over this period. So, I would strongly urge ""A"" with a $350 million borrowing number, plus or minus.",412
-fomc-corpus,1982,Governor Wallich.,4
-fomc-corpus,1982,"Well, I certainly agree that we need to do all we can to help the economy and to help the markets. At the same time, we have to look ahead. What we do now will affect the economy with a lag anyway. I don't think we've seen the end of the effects of the tax cut. I don't see any reason to change the basic projection even though things are coming in more slowly than one would have thought. I think we are in some danger of doing what we have done very often at the depth of a recession, at the trough, which is to stimulate more strongly than turns out in the course of time to have been wise. Now, we ought to avoid a rise in short-term rates or reversing the present low level. To me that suggests not pushing for a lower level at this time. I'm not too concerned about lowering the M1 path for the three-month period that we're in from 5 percent to 4 percent because even that still leaves us almost exactly at the upper end of the 5-1/2 percent M1 range [for the year]. And M2 and M3 are very high [in their ranges] anyway, although they have particular reasons for being that way. I also want to remind you that, historically, a period of relatively low interest rates leads to an increase in money growth some months later, which is the last thing we need to have happen at the end of this year or early next year. I am troubled by the gap between the funds rate and the discount rate. A funds rate below the discount rate is always taken as a signal that there ought to be a cut in the discount rate. But all that happens is that the funds rate falls some more and the signal remains in existence. I would, therefore, prefer a higher borrowing level to reduce that gap or eliminate it. One could offset the consequences of that, in order not to get tightening effects, by lowering the discount rate. There must be some drop in the discount rate that would offset a moderately higher borrowing level. I'm not thinking of anything sensational, say, $400 million perhaps. Finally, as to the longer-term rate of money growth, I would like to point out that if you look at the projections in the Greenbook throughout 1983 there is hardly a quarter over 8 percent for nominal GNP; it runs from 6 to about 8 percent. In other words, with [growth] at the upper end of our existing targets and really very moderate increases in velocity, we'll be able to accommodate that rate of [GNP] growth. Now, this may be optimistic with regard to the inflation forecast implicit in these very low nominal GNP growth projections, but that seems to be at least a possibility. So, I would vote for something like ""B"" and particularly a $400 million borrowing level. But I would predicate that on the possibility of reducing the discount rate.",588
-fomc-corpus,1982,Mr. Corrigan.,5
-fomc-corpus,1982,"I'd start off with the point that if we find that some of these financial things we're worrying about begin to come a little more unglued, obviously, a lot of this somewhat technical discussion about borrowing levels and all the rest will have to go by the boards. But abstracting from that, it seems to me that one of the key questions implicit in what has been said already is whether or not interest rates are at sustainable levels for, say, a few months or quarters. I have some concern that they may not be. And it seems to me, in view of all the financial strains and concerns, that one of the things we have to be particularly sensitive to is the possibility of another whipsaw effect in the markets where, despite our actions, we find interest rates rising again. I'm not sure how to do that. My own view on the economy, which I think is relevant, is that with the general range of rates that we're talking about I would still look to a modest recovery in the fourth quarter out into 1983, and maybe even a recovery that is a bit stronger than what the staff has in the Greenbook. But, certainly, I'm a little more cautious in that statement than I would have been even a month ago. As to the money supply numbers. I must say, like Governor Rice, I don't have a strong preference one way or another between ""A"" and ""B."" And, Steve, if I'm reading that table on page 13 in the Bluebook right, I think it suggests that building off either alternative we're looking at a growth rate of, say, 5 or 6 percent in the fourth quarter, which still would get us to around the top of the range for this year. Is that correct?",354
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,"Well, that just reinforces my view. I don't have a strong view; I could go with ""A"" just as easily as ""B."" I do think that a critical question in the short run is where the funds rate is and where the borrowings are. Again, just because I am perhaps a little more sensitive to the sustainability of the current general pattern of interest rates, I would probably lean toward a borrowings level in the $350 million area. I don't want to sound too precise here, but I'd probably be more comfortable with the funds rate in the 9-1/2 percent area right now than I would seeing it below 9 percent. But, unless we're very lucky and the money supply behaves exactly the way the Bluebook suggests so that the nonborrowed reserve path behaves exactly the way it suggests--neither of which will happen--we have a Catch-22. If money is stronger, interest rate pressures will build; and if it's weaker, the tendency will be for us to adjust the nonborrowed path at some point, and that would aggravate the problem that Governor Wallich spoke about in terms of the discount rate and the funds rate. The only way I can see out of that is to lower the discount rate and try to nudge up the federal funds rate at the same time. I'm not sure how to produce that result, but it seems to me that that's the result we want.",288
-fomc-corpus,1982,"Well, then, would you go to $400 million on the initial borrowing?",16
-fomc-corpus,1982,I might shade it up.,6
-fomc-corpus,1982,But then what happens if you get a bulge in the money supply in the next couple of weeks and the Board feels inhibited about doing a discount rate cut?,32
-fomc-corpus,1982,"That's my Catch-22. At the moment, I am suggesting that I think the probabilities are that we are going to be on the other side of the Catch-22.",35
-fomc-corpus,1982,Mrs. Teeters.,5
-fomc-corpus,1982,"Well, I would go for alternative A. I'm really very reluctant to see rates go back up because I think people need the relief all of us have been talking about. I'm basically more concerned about the technical operation of the Desk. It seems to me, as I mentioned earlier, that we have to be extremely flexible and look at all of our indicators to make sure that we don't bounce the funds rate down to zero or accidentally bounce it back up to 15 percent. So, I would pay much more attention to where the rate is rather than mechanically supplying nonborrowed reserves or trying to hit a target of money supply growth. That doesn't mean that I would suggest either increasing or decreasing the band on the federal funds range, but it seems to me our focus should be on that rate. Obviously, I would like to have a somewhat lower rate, but I don't want to see rates drop as precipitously as they have in the past six weeks. So, a little change in our focus from reserve provision and money supply growth [to a] smooth constant rate on federal funds seems to me more important at the present time.",225
-fomc-corpus,1982,Mr. Black.,4
-fomc-corpus,1982,"Well, Mr. Chairman, now that we're back inside the target range for M1, I think we ought to concentrate a little on trying to keep it there. I recognize, as everyone does around the table, that there are severe risks inherent in the situation and that we need to reverse the declines that we have had in the money supply in May, June, and July. You can go back even further than that in fact to February when we had pretty weak performance. But we also ought to take account of the possibility that this very rapid decline that we have had in the federal funds rate in recent weeks could well give us more growth in M1 than we would like to see. Alternatives A and B don't differ a lot numerically, as several have pointed out, but I would much prefer ""B"" simply because it states that we have in mind staying within the target range, and I would hate for the record to show that we were aiming at something above the range. I'd much rather go above the range than for us to say that we are trying to do that. I'm as anxious as anyone here to see a permanent decline in interest rates, but I have to confess that the sharp drop in the federal funds rate in the last six weeks does cause me some concern. If you look back at the post-October '79 period, there have been three distinct periods where we had a pretty rapid drop. One was in connection with the credit control program and is probably an invalid [comparison]. But in the other cases we had a pretty rapid acceleration in money growth after that. So, I think it's possible that we have set in motion forces that may be adequate to give us ""B."" or for that matter ""A,"" and maybe even something more than that. So, on these grounds, I'd feel a little better if the federal funds rate held or maybe even backed up a bit until we get a better idea of how the impact of what we have done will show itself. So, like Emmett Rice and Steve Axilrod, I would say that a small back-up now probably would be preferable to risking the possibility of a larger back-up later on. I think $350 to $400 million might be the proper borrowing range on the assumption that the discount rate remains unchanged. But if there is a strong likelihood that the discount rate will be reduced in the immediate future, then I think we ought to have a little higher borrowed reserve target.",493
-fomc-corpus,1982,"Governor Partee, you already have had one bite at the apple.",14
-fomc-corpus,1982,"Well, I didn't say anything much about rates and I do think this rate question is very fundamental and important. Certainly, one could be sympathetic with the view that Bob just expressed, or Tony, in light of the fact that the staff projection is that rates are going to be quite high over the next year. Therefore, if one really believes that the funds rate is going to be well above 10 percent throughout 1983, the farther it drops now, the more it is going to have to snap back later. But the question is: Is that right? I don't know if it is or not. The fact of the matter is that long rates are still plenty high in terms of having a restraint on the economy and, indeed, if they dropped another point or two, they would still be high relative to projected rates of inflation. And short rates are behaving very unusually because liquidity preference is so strong. Now, if we try to keep those short rates from declining by holding the funds rate up and liquidity preference is there, we can only do it by destroying reserves and having a larger reduction in the money supply than would otherwise occur. And it seems to me that that's the wrong policy to follow. I also don't know about the similarities with past experiences, Bob. I sense right now that there has been one really big change in the behavioral characteristics of the economy, namely, that banks aren't lending. They are very reluctant to lend at any rate to a great many customers. And if that's so, I'm not so sure that we'll get a surge in loans and the reliquification that would occur with the surge in loans, given bankers' attitudes and concern about their own balance sheet positions. So, I wouldn't go--",345
-fomc-corpus,1982,I'm not so sure about that observation. I'm not sure about that change.,15
-fomc-corpus,1982,I feel that way. I feel that the banks are pretty scared.,14
-fomc-corpus,1982,"I think they're scared, but whether that is translated into not making loans, I'm not so sure.",20
-fomc-corpus,1982,"I've heard that too, Chuck, from businessmen in our area.",13
-fomc-corpus,1982,"I wouldn't go as far as John Balles has suggested to a really major shift. I have some sympathy with his view, but I wouldn't go that far. I do believe that we ought to be prepared to see rates go lower because we can't see what the future is going to hold. And we ought to see to it that we continue to have some money supply growth; in that respect I agree totally with Larry Roos. To have very weak money supply growth or a decline at this time would risk a second decline in the economy and we wouldn't survive that as an institution.",116
-fomc-corpus,1982,"I'm very much opposed to that happening, Chuck. I just was suggesting to Paul [that we wait] to see what was going to happen. If what you think will happen [does occur], I think we ought to let rates come down.",49
-fomc-corpus,1982,"So, I think we ought to have a range and we ought to be sensitive to changes, but we ought to use the range if we need it.",31
-fomc-corpus,1982,"Well, I don't really disagree with that. I just think we ought to wait a while to see what is really coming.",25
-fomc-corpus,1982,Are you talking about the interest rate range?,9
-fomc-corpus,1982,"Yes, the 7 to 12 percent.",10
-fomc-corpus,1982,Mr. Keehn.,5
-fomc-corpus,1982,"Between the two alternatives, I certainly am emotionally pushed toward alternative A because, given the circumstances in the Midwest, I think we want to do everything possible to encourage and sustain lower interest rates and to try to improve the outlook for the recovery. I have to admit that I am far gloomier than the staff forecast with regard to the outlook for both this year and on into next year. Having said that, I find the shift in the implied growth rate for M1 between now and the end of September under alternative A just a little abrupt. And if we run into a period during which M1 begins to grow, I wonder whether we won't have to react in a way that would cause rates to back up. So, though [the difference between] the two alternatives is fairly narrow, I might come down about in the middle between the two, just to split a fine hair even finer. I'd suggest that M1 growth of maybe 6-1/2 to 6-3/4 percent would be appropriate so that we can see how it goes between now and the end of September. With that a fed funds range of 7 to 12 percent and a borrowing range of $300 to $350 million would be appropriate.",247
-fomc-corpus,1982,Mrs. Horn.,4
-fomc-corpus,1982,"I come out somewhere toward alternative B myself. It seems to me that the basic underlying economic problems of inflation and the budget and crowding out and so forth are still with us, though some of them perhaps have moderated a bit. We do face a weak economy--and those of us from the Midwest face a particularly weak one--for which lower interest rates are necessary. But we have to have low interest rates for the right reason if we're going to stay in the range and stay in it for the length of time that would be helpful to our economy. I am also concerned that we as an institution need to have a steady measured response to the weak economic growth, and I am concerned about leaving ourselves enough room that we don't have to take extreme actions in the future in response to a surprise or an unpredictable increase in the money supply. So, I would come down on the side of those who are for alternative B or something more toward it, although at this moment the difference between ""A"" and ""B,"" as a number of people have said, is not so significant that I would have to go as far as alternative B.",227
-fomc-corpus,1982,Is there anybody else who wants to say anything? Mr. Ford.,14
-fomc-corpus,1982,"Yes, I come out leaning toward ""B,"" too. While I sympathize with the notion that we have had three months of weak M1 growth and that we certainly don't want to let it fall out of bed for another whole quarter, the trend seems to be toward its moving back up. And just for the pure cosmetics of it, as one other speaker mentioned, since there is so little difference between the two alternatives why not let the market know when they get the news on this--whenever that is--that we're shooting to come in within our [monetary growth] target at the end of the year? There is so little difference between these that I think our credibility is worth going for the ""B"" alternative because it does show us allowing money to grow by a reasonably respectable rate over the rest of the year should we maintain this policy, which is a point Larry and others have expressed concern about. It would still leave room for interest rates to moderate, I think; I certainly wouldn't expect voting for ""B"" to result in a huge jump in rates from their present levels because in my mind, as John Balles mentioned, this great decline is long overdue. And I'm always for widening the [fed funds rate] band so that we do focus on trying to steady our performance and make ourselves more believable and predictable. So, I come out for ""B"" with a borrowing range around $350 to $400 million. I'd like to see the fed funds range widened and I'd like to see the [Board of] Governors vote to lower the discount rate before we leave the room.",321
-fomc-corpus,1982,That's unlikely.,3
-fomc-corpus,1982,I was going to ask you how you reconcile this--,11
-fomc-corpus,1982,Anybody else want to say anything? It's up to me?,12
-fomc-corpus,1982,Some people haven't--,4
-fomc-corpus,1982,"I think we have a problem that is not very amenable to a Committee decision that lasts for six weeks. I'll say that first of all. On these monetary growth targets, in substance, I don't care. I think either of these two sets of numbers will make no difference, virtually, in what we actually do. On balance I'd just prefer to leave the directive as it is, which I guess is a compromise between ""A"" and ""B,"" with the next sentence which allows us to go above [the target] on M2. If we were publishing this tomorrow, I would be a little hard pressed to explain why we put in a lower money supply target this month than we had last month. We are not publishing it tomorrow, so maybe that's not totally persuasive, but we are within the limits of the growth targets anyway. I don't think this argument depends upon how much we're in, but a 5 percent M1 leaves us within the target in this quarter, doesn't it, Steve?",201
-fomc-corpus,1982,"Well, by September M1 growth would be maybe a tenth above, at 5.6 percent.",21
-fomc-corpus,1982,The chart shows it a little above.,8
-fomc-corpus,1982,I didn't even look at the chart. I just thought we set it last time so that we would be within by September. It's 0.1 over?,32
-fomc-corpus,1982,"No, it has always been--",7
-fomc-corpus,1982,It's 0.1 above. What's wrong with that?,12
-fomc-corpus,1982,"And we said, of course, the top of the range in the testimony.",16
-fomc-corpus,1982,"Boy, that's pretty close figuring!",7
-fomc-corpus,1982,That's what we are doing.,6
-fomc-corpus,1982,"But I don't care a lot about that. I think how we manage ourselves is quite important in these coming weeks. Let me state my position very simply. I would be totally unable to defend a policy on our part that brought the federal funds rate up to 11 or 12 percent in the coming period. I would be very hard pressed to justify in my mind a pronounced downward shift in the federal funds rate in the near term from where it is. I think we'd have the gold price rising--it's already rising--and an awful lot of commentary about what the heck the Federal Reserve was doing in terms of doing a real somersault. We already get that commentary. I think it's unavoidable and it would damage us. What we are saying in substance, I hope, is that if we don't get a continuing growth in the money supply in coming weeks, interest rates probably should go down some. I should take out the ""probably."" If we literally didn't get any growth in the money supply in coming weeks, we'd presumably continue to take some combination of measures on reserve paths and discount rates that would produce somewhat lower interest rates. If the money supply came up rapidly enough to reach 5 percent so that we get a pretty big increase in September, which raises some of these problems that people have been talking about as to where we go then, I don't think we would get any further decline in interest rates and we might get a little increase in market rates from their present level. I think basically that's the way we ought to play it. If money growth came in distinctly weak, we would ease up by some combination of measures, which would produce a little lower interest rates. If it came in as strong or stronger than 5 percent, I would suggest that we probably would get some backing up of short-term rates through some combination of higher borrowing figures and not reducing the discount rate, or maybe just reducing it once instead of twice as we might do in other circumstances. I think that is what the decision ought to be in substance; we can look at it again in a few weeks. I, frankly, cannot live in these circumstances, given what is going on in the money markets, with violent moves in short-term rates in either direction. It would just be so disturbing in terms of expectations, market psychology, and fragility that it's just the wrong policy, period, during this particular period. Again, that is not inconsistent with more moderate movements in either direction depending upon what happens to the aggregates. But I just think we'd end up in sheer confusion--more than confusion; we'd end up with an atmosphere in markets that deteriorates rather than improves things. I don't know how to word all this, frankly, but what I would be inclined to do--let me experiment here a bit--is to take out that last sentence entirely and replace it with something like this: ""The Chairman may call for Committee consultation if it appears that pursuit of the monetary objectives and related reserve paths during the period before the next meeting is likely to be associated with unusually volatile conditions in credit markets."" That covers a multitude of sins. The reason I'm reluctant to put a federal funds rate range in there is that I don't think it's realistic--I just speak for myself--on either end of the range, particularly the upper end.",662
-fomc-corpus,1982,The realistic range would be 7 to 10.,11
-fomc-corpus,1982,"Yes, that's right.",5
-fomc-corpus,1982,And if we don't want to show that narrow a range--,12
-fomc-corpus,1982,"We could put a narrow range in there, but I'm not sure that people want to do that. But, in substance, I think for the weeks immediately ahead that is about where we are.",39
-fomc-corpus,1982,"What you're really saying is that on the old procedures you would favor a money market directive. I think that's essentially what I said, really.",28
-fomc-corpus,1982,"That is correct. But how we lean would be guided by the money supply, assuming that something drastic isn't going on in the rest of the market.",30
-fomc-corpus,1982,"The sort of wording we had in the directive in this previous period would have meant much more active reaction to what has happened. In other words, what happened in the last week involved rather volatile interest rates, even though they were volatile in a pretty good direction.",52
-fomc-corpus,1982,"Well, I'm not very happy about the speed with which they went down, frankly, because I think it raised some questions. But it was at least in the direction that was acceptable. I'd be more disturbed if they suddenly went bouncing up again. Now, when I say suddenly bouncing up again, I'm not talking about the federal funds rate going up [a little]. Where is it now? It is below 9 percent now. If it went up 1/2 or even 1 point, particularly if the money supply were rising, that wouldn't bother me.",113
-fomc-corpus,1982,Would the changed wording cause eyebrows to rise within the--?,12
-fomc-corpus,1982,"Yes, how is it going to be read when this--?",13
-fomc-corpus,1982,"That's what bothers me, whether it would be read as a signal of a return to stabilizing interest rates.",22
-fomc-corpus,1982,I think it's going to be read--,8
-fomc-corpus,1982,"It's giving the Chairman all the authority; that is what it amounts to. It gives the Chairman all the authority; I think the Committee renounces its responsibility if it accepts such a thing. Given the two choices, I would much prefer 7 to 10 percent [on the funds rate range].",60
-fomc-corpus,1982,"Yes, I don't see anything wrong with setting a 7 to 10 percent range specifically. It's still 300 basis points. It's not cast in stone that we have to have a 400 or 500 basis point spread, and it seems to me foolish to have one that we don't plan to use.",62
-fomc-corpus,1982,"Well, what would you have done if we had set a 3 percentage point range six weeks ago when it actually moved more than that?",28
-fomc-corpus,1982,We would have gone through it.,7
-fomc-corpus,1982,"We would have gone through it, which we did. We went through the range.",17
-fomc-corpus,1982,We would have had a consultation.,7
-fomc-corpus,1982,We would have had a consultation and gone through it. That's right.,14
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,I think we're giving altogether too much emphasis to the range. It's the intention that lies behind the range that matters. I understand perfectly well what the intention is and I think it's the right intention at this time. Maybe Chuck's problem could be met by the Chairman declaring his intention to call on the Committee if these conditions arise.,65
-fomc-corpus,1982,"Well, the wording you have there, Paul, just suggests that we have in mind these monetary aggregates but that what we will do is run the market according to what you think credit conditions ought to be like. That's what it says, I think, or it's very close to it.",57
-fomc-corpus,1982,I don't.,3
-fomc-corpus,1982,I just don't think the Committee ought to do that.,11
-fomc-corpus,1982,"Well, I don't understand your point, but I'm in a somewhat different position than you are in understanding perhaps. What it is meant to say is that we're going to conduct operations so that there isn't undue volatility in the federal funds rate but that the direction in which the funds rate will go in the first instance is determined by developments in the aggregates. I think in substance it means something like 7 to 10 percent probably.",85
-fomc-corpus,1982,I think we have three choices: We can say 7 to 10 percent; we can say 7 to 12 percent with an understanding that when the rate is outside 7 or 10 percent the Chairman will call a consultation; or we can take his language about unusual volatility.,58
-fomc-corpus,1982,"Or we could take both because I think some of the volatility is going to come, say, from extra borrowing by Continental Illinois or Chase or something of that sort. And it would signal to the market that we're going to be there as the lender of last resort.",53
-fomc-corpus,1982,"That, I think, is a little different question. That goes to how we establish the borrowing level more immediately than the federal funds rate. On the borrowing level, I'd be a little reluctant to move it up very much unless and until we reduce the discount rate. Then I think we might do it and try a very modest snugging to offset the downward impact of a discount rate change. I would not want to do it tomorrow, have the rates go up, and then reduce the discount rate--",100
-fomc-corpus,1982,"Isn't it desirable, with things at least presently going our way, in effect, to word this directive much like previous directives? In other words, isn't it desirable to avoid anything that might imply any [move away from such a directive]? I think the world today thinks that you have done a great job since '79 in getting us where we are right now and I just--",76
-fomc-corpus,1982,A small part of the world?,7
-fomc-corpus,1982,My side of the world.,6
-fomc-corpus,1982,People in St. Louis!,6
-fomc-corpus,1982,If not 100 percent of the businesses.,9
-fomc-corpus,1982,"Not the Democrats, that's right.",7
-fomc-corpus,1982,Did you see Lindsey Clark's article in The Wall Street Journal this morning?,15
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,That should really make you worry!,7
-fomc-corpus,1982,It leaves the Fed alone.,6
-fomc-corpus,1982,What did it say?,5
-fomc-corpus,1982,"It says, in effect, ""Leave the Fed alone and don't mess around with them. They're doing a great job.""",24
-fomc-corpus,1982,Clark said that?,4
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"Specifically, what I would do is to leave the first two sentences in the present directive as they are. In fact. I'd put a few words in there like ""continues to seek"" and ""as indicated"" or something.",47
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"And I'd leave out the next sentence, which is crossed out in the draft. Then my proposal was to replace the last sentence with something like what I had suggested. Now, the nearest equivalent to that, I think, is just leaving the same sentence but putting in 7 to 10 percent, which conveys the same flavor. I think either way of doing that--",74
-fomc-corpus,1982,"Wouldn't narrowing the range give some stability to the markets, indicating that we weren't just going to let the rate fluctuate all over the place? I think there's a distinct advantage to doing that.",38
-fomc-corpus,1982,They will only know that [in October].,9
-fomc-corpus,1982,"Yes, in October. That's true.",8
-fomc-corpus,1982,"Of course, they will say we have starting watching interest rates again.",14
-fomc-corpus,1982,That's all right.,4
-fomc-corpus,1982,"Mr. Chairman, there has been some speculation, incorrectly, in the papers that we have moved away from aggregate targets to interest rate targets. So, I would feel a bit like Chuck does on that, although I agree with what you want to do. So, maybe 7 to 12 percent with consultation at 10 percent or something like that [is the way to go].",77
-fomc-corpus,1982,"I don't like this idea of 7 to 12 percent, which gives a public impression that is different than the private one. I'd have a little difficulty defending it. I don't know as it has become a big issue of why we said 12 percent in the first place on the credit conditions.",60
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"This says consultation. These [ranges provide] test points for consultation, as indicated in the very first part [of the sentence]: ""The Chairman may call for Committee consultation....""",36
-fomc-corpus,1982,"Well, that [implies] 10 percent, not 12 percent.",16
-fomc-corpus,1982,"Yes. So, I don't see quite how we can say 7 to 12 percent except that if it's over 10 percent there should be extra consultation.",32
-fomc-corpus,1982,"That does present a problem. In view of these articles that have been appearing--I'm just picking up on Larry's point, I guess--I'd rather hate to change the wording right now.",38
-fomc-corpus,1982,"Well, I think we'd get a lot of comment on it.",13
-fomc-corpus,1982,"I know. That's my feeling, although I agree with what Paul suggested we do.",17
-fomc-corpus,1982,"Well, I think the market would read more into the narrowing of the range than most of us would want read into it. And I think we'd be going the wrong way in any event.",38
-fomc-corpus,1982,Yes. I always favor no range--no limits really.,12
-fomc-corpus,1982,"Yes. I'm in favor of a broader, not a narrower, range.",15
-fomc-corpus,1982,"Well, if we choose [the wording] ""unusual volatility,"" we haven't any range. Some of you are--",24
-fomc-corpus,1982,"It's just a question of the definition of ""unusual volatility.""",13
-fomc-corpus,1982,We have a very [unintelligible] word in here.,14
-fomc-corpus,1982,"Yes, all volatility is unusual but some is more unusual than others.",14
-fomc-corpus,1982,It has to be pretty darn unusual to be unusual compared to what we've had!,16
-fomc-corpus,1982,"Well, they probably will think when they read this seven weeks from now that we thought the banking system was even more delicate than it had appeared to the market. I'm not sure that that is a good signal to give them ex post.",47
-fomc-corpus,1982,It might be a self-fulfilling forecast.,11
-fomc-corpus,1982,"Well, they already think that. I've looked at this from that point of view. I'm not sure that that will aggravate what they already think.",30
-fomc-corpus,1982,"What they think is that we provide reserves. They are not focusing on the interest rate movements, are they? Because this rate says something else.",29
-fomc-corpus,1982,"I think it sounds more exceptional the way I suggested, in a temporary sense, than narrowing the range. Both ways substantively are pretty much the same thing. I think what the market is going to say is that we had had a sharp decrease in rates and we were a little concerned about the volatility in rates. That's given against the background of the markets and everything else. I think that's a correct reading.",82
-fomc-corpus,1982,"I suppose it's conceivable that they could think this ""unusual volatility"" wording was a widening of the range or an elimination of the range if we haven't specified any range. They could come out that way. I don't know.",45
-fomc-corpus,1982,"Could you clarify please, Paul, how you phrased that? It was ""unusual volatility"" in what?",23
-fomc-corpus,1982,"""In credit markets"" is what I have.",9
-fomc-corpus,1982,"Could you read that again please, Paul, so we can study it a bit?",17
-fomc-corpus,1982,"""The Chairman may call for consultation if it appears that pursuit of the monetary objectives and related reserves paths during the period before the next meeting is likely to be associated with unusually volatile conditions in credit markets.""",39
-fomc-corpus,1982,So you're leaving out the Manager for Domestic Operations?,10
-fomc-corpus,1982,"Well, I'm leaving that out, yes.",9
-fomc-corpus,1982,"In other words, the judgment is the Chairman's without any advice.",14
-fomc-corpus,1982,"It's ""is likely to be associated"" too, not ""because of unusually volatile conditions.""",18
-fomc-corpus,1982,"Well, is there anyone in the markets who doesn't think that if there were an unexpectedly volatile occurrence in credit markets that we would not consult? They assume that, don't they? In other words, do we have to tell them that exactly? Obviously, we'll accept your phone call, Mr. Chairman, any time. But do we have to say it? I just don't like to rock the boat.",80
-fomc-corpus,1982,If the phone system works!,6
-fomc-corpus,1982,"Yes, if we had better technical apparatus, I assume.",12
-fomc-corpus,1982,"We may not be able to reach you, but--",11
-fomc-corpus,1982,"Well, the most important thing is agreeing on the substance. My sense is that there is a considerable area of agreement on the substance anyway. I'm not sure it's unanimous, but is that a correct reading? Are we reducing our focus to how to word this?",52
-fomc-corpus,1982,I don't know that there is. I think we have a sizable minority who are concerned about sending out a signal that we're going back to managing interest rates.,31
-fomc-corpus,1982,"You meant the substance of what you thought the policy ought to be rather than what is stated here, right?",22
-fomc-corpus,1982,"Yes, I'm now talking about the substance, before we get to how we state it.",18
-fomc-corpus,1982,"If we have a shortfall in money growth, interest rates go down.",15
-fomc-corpus,1982,Or maybe Bill Ford is talking about the substance also.,11
-fomc-corpus,1982,If we don't [have a shortfall in money growth]. maybe they won't.,16
-fomc-corpus,1982,"If he thinks that the substance of 7 to 10 percent, roughly, is going to be a constraint, maybe he's concerned about the substance too. I don't know.",35
-fomc-corpus,1982,"Well, let me resolve the substantive issue. As I say, I'm not all that concerned about the precise numbers we put down here. But just for lack of anything better, I'm assuming we will keep them the same as before with the modifying sentence that comes afterwards, which says that at the moment we're not too concerned about M2 at the very least running high. And if the aggregates appear to be running low, we will lean on the somewhat easier side, which presumably would be accompanied in the first instance by some continuation of the decline in money market rates, some easing pressure in reserve positions, a decline in the discount rate or some combination thereof. If money growth seems to be exceeding those numbers and getting a certain amount of momentum, we would snug up a bit. But we are not going to react very drastically one way or the other in these coming weeks. That's the substance of it.",179
-fomc-corpus,1982,"Yes, except--",4
-fomc-corpus,1982,"And we keep an eye toward the market. Now, you may or may not accept that. I wonder how many people find that substance generally acceptable.",30
-fomc-corpus,1982,I certainly do.,4
-fomc-corpus,1982,What I'd like to know is this. Right now the fed funds rate is 9 percent and we're talking about a period of six weeks between August 24th and October 5th. Are you really saying that you would define market conditions as volatile if in six weeks the fed funds rate went up by 2 percentage points from 9 to 11 percent?,73
-fomc-corpus,1982,"No, I might not if--",7
-fomc-corpus,1982,"How can that be volatile? If you look at a hundred years of history of short-term money rates, that has happened lots of times.",28
-fomc-corpus,1982,"Well, I can't define every possible hypothesis that one can put forward. This is operational. I would not necessarily find it volatile if it happened at the end of six weeks; I'd find it pretty volatile if it happened in the next two weeks.",49
-fomc-corpus,1982,"Well, obviously, the shorter the time horizon the more [it might be considered volatile]. I think if it happened in two minutes we'd all agree it's volatile. But we're talking about three to six weeks. And it really does bother me to think that every time we walk out of here we are setting--or it could be conceived that we are setting--a cap on the fed funds rate for six or eight weeks from now at either right where the rate is or a point above.",97
-fomc-corpus,1982,Or four.,3
-fomc-corpus,1982,But that's why we have the ability to consult.,10
-fomc-corpus,1982,"Yes, but then we're managing interest rates; that is the image given. I'm very worried as to how the market would take this.",27
-fomc-corpus,1982,"Bill, I think you're still talking about the wording in that suggested alternative. The trouble with ""volatile"" is that it means different things to different people.",31
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"But the substance of the idea is that rates probably will go on down if we have weakness in money supply growth but they probably wouldn't go down, and they might even go up some, if M1 growth is at or right close to the 5 percent growth rate for the quarter. That's the substance, as I understand it. And I don't really see what we disagree about. But ""volatile"" is a funny word.",85
-fomc-corpus,1982,"Much as it may surprise some of you, I also feel it would be a little disturbing to put in the phraseology ""unusual volatility."" We will get more stories, anyway, about our putting monetary policy on the back burner because of our concern about fragility. And even though we are doing that, in a certain sense we are not; we are luckily enough consistent with our monetary policy [targets] at the moment. It seems to me that it's more straightforward to say 7 to 10 percent with consultation. The fact that we narrowed the fed funds range to 3 points during a particularly difficult period doesn't mean we're going to continue it at 3 points. The following meeting we may go up to a 5-point range again.",150
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,And 300 basis points is not managing interest rates. When we managed interest rates we had a 50 basis point range.,25
-fomc-corpus,1982,"As for the wording, why couldn't we say both? Why couldn't we have your language and then after ""credit markets"" say ""or consistently outside a range of 7 to 10 percent."" Either way the Chairman calls a consultation.",47
-fomc-corpus,1982,Use both?,3
-fomc-corpus,1982,"Yes, he would call a consultation when markets are, in his judgment, volatile. But he also would call a consultation if the rate falls below 7 percent or goes over 10 percent.",39
-fomc-corpus,1982,"Express your view, Mr. Axilrod. Mr. Axilrod has a concern; I'm not sure if he will share it or not. I'm not sure I do, but--",38
-fomc-corpus,1982,"Well, I was just thinking of the image, since the Committee was discussing images. The image of a narrow range for the fed funds rate strikes me more as an effort to manage interest rates in this sensitive period as we go toward the elections than does worrying about the volatility of credit markets. The latter does not imply to me volatility in the funds rate, as it did to President Ford, but volatility in bond markets and other markets; a little funds rate increase might have very severe repercussions on those markets. So, that's the context in which I would have thought about volatility, not just the funds rate movement per se.",124
-fomc-corpus,1982,"Well, Mr. Chairman, what about using both?",11
-fomc-corpus,1982,How do we use both?,6
-fomc-corpus,1982,"Just put ""or outside a range of 7 to 10 percent"" after ""credit markets.""",20
-fomc-corpus,1982,I don't know about that.,6
-fomc-corpus,1982,"A kind of footnote, which means a certain--",11
-fomc-corpus,1982,"No, it's not over [unintelligible]. These are two different circumstances. One is a matter of the Chairman's judgment as to volatility and the second is objective--if the market produces rates at a certain level, that automatically triggers a consultation. And that takes care of everybody's concerns.",60
-fomc-corpus,1982,"If we're going to do that, I would rather have the funds rate limitation and then add another proviso saying that this is for consultation. Remember, Emmett, what we are talking about is consulting with the Committee. If unusual instability develops in the credit markets, which is an obvious reference to bank problems--I prefer ""instability"" to ""volatility,"" I think--",76
-fomc-corpus,1982,That's fine.,3
-fomc-corpus,1982,"I'm getting more and more nervous about this [wording]. Again, I have no problems with any of this, but this language or prospective language about unusual volatility or instability or whatever we put in there runs at least some risk, it seems to me, of a self-fulfilling prophecy down the road.",63
-fomc-corpus,1982,The market will wonder why [we said that].,10
-fomc-corpus,1982,"I started out liking it, but I'm getting more and more gun-shy about it. I'm not sure it's the right way to go.",28
-fomc-corpus,1982,I'm not sure I understand the point.,8
-fomc-corpus,1982,Why is it self-fulfilling?,9
-fomc-corpus,1982,"What I'm suggesting is that when that language is published, even though it will be some time from now, it entails some risk--and I didn't think it was much until I listened to this discussion--that we are telling the world that things are a lot worse than the world thinks they are.",59
-fomc-corpus,1982,I think they're pretty bad.,6
-fomc-corpus,1982,"Oh, boy.",4
-fomc-corpus,1982,"That's precisely what worries me. As I listen to the discussion, I'm beginning to think it's a bit too much of a red flag.",27
-fomc-corpus,1982,Haven't we had a 500 basis point fed funds range for a long time?,18
-fomc-corpus,1982,Four or five [months].,6
-fomc-corpus,1982,"Four or five. We're leaving the aggregate targets about where they are. Why don't we set a broader range and, certainly, if something unforeseen happens, the Chairman will call a consultation. Why do we have to spell it all out? I think the important thing is not to deviate from what we've done, because we don't want to cause anyone to misconstrue that we've made a major change in our policy prescription.",84
-fomc-corpus,1982,"I think there's a lot to be said for that. We have lived with this 5-point range now for some time. Has it been a problem in the last six weeks? If it was, it has not been notable to me. I still wonder why you want to narrow it.",58
-fomc-corpus,1982,"If our concern is mainly on the upper side and we want to maintain the 5-point range, then it ought to be 5 to 10 percent. That signals very clearly that we don't want to go above 10 percent on the funds rate. I don't particularly want to go down to 5 percent at this point, but our overwhelming concerns are upward, not downward.",76
-fomc-corpus,1982,"Well, if I heard correctly Paul's response to what I asked, he said that if the funds rate were 11 percent six weeks from now it would worry him a lot less than if it were 11 percent tomorrow.",44
-fomc-corpus,1982,It depends upon what else is happening during that period.,11
-fomc-corpus,1982,"Depending on what else is happening. When I look at what has been happening at the Desk in New York in terms of the Manager making adjustments in the reserve paths for various reasons at various times, it seems to me that we still have the latitude to take into account what is happening, how fast it is happening, and so on, without giving this overt signal in the directive. That's why I say stick with a range of 5 points. If we don't want to center it on where the funds rate is, center it a little below where it is if our bias is in favor of seeing rates come down, and certainly mine is. Then use discretion at the Desk to see that it doesn't happen in two days rather than two months. Then we'd have a much stronger consensus on the Committee and the market would be less likely to misread the strong change in language.",174
-fomc-corpus,1982,"Well, I'm not very impressed by putting down language we don't believe.",14
-fomc-corpus,1982,"Why don't we put some language in there that doesn't have those sensational sounding adjectives. Use a range of 7 to 10 percent, say, but add a phrase such as ""giving due regard to evolving financial and credit market conditions."" That gives some greater flexibility without--",54
-fomc-corpus,1982,"Isn't that implied, Jerry? We have always given regard to these things.",16
-fomc-corpus,1982,"Well, no. I think what Paul is looking for is something a little more than that.",19
-fomc-corpus,1982,"For a change we are going to look at credit conditions. ""Giving due regard to unusual credit conditions"" or something like that.",26
-fomc-corpus,1982,"The trouble is ""credit conditions"" is an undefined term. The market will want to know what we mean. I'm not even sure we can agree around the table what we mean.",36
-fomc-corpus,1982,"Isn't that less information? The market is supposed to have good information from us, not something more vague.",22
-fomc-corpus,1982,"Well, we could make it more neutral and have ""or if such consultation is indicated by credit market conditions."" That's very neutral. But, then, why would we put it in?",37
-fomc-corpus,1982,"Yes, I think that's worse from that standpoint.",10
-fomc-corpus,1982,"I think what does the least damage in terms of market perception, if we're going to be honest about it, Mr. Chairman, is the narrower range of 7 to 10 percent. Otherwise, there will be a lot of speculation as to what ""unusual volatility in credit markets"" means and some further stimulation to the belief that we are putting monetary policy on the back burner. Whereas if we say 7 to 10 percent, they will know that we just don't want too much movement in the period ahead.",104
-fomc-corpus,1982,"We can use this phrase about a distinction between monetary policy and something else. I know what you mean, but I don't think the distinction exists in reality. It's all monetary policy.",36
-fomc-corpus,1982,"Yes, I know, but it's a way of putting it.",13
-fomc-corpus,1982,[The distinction is] monetary targeting.,8
-fomc-corpus,1982,"The alternative, basically, would be Bill Ford's suggestion of 7 to 12 percent with a private understanding that it's really 7 to 10 percent. And that has disadvantages, too.",39
-fomc-corpus,1982,"The rate is around 9 percent now, isn't it? How about 7 to 11 percent? It's neutral.",24
-fomc-corpus,1982,At least that's within the range of ranges we have been using.,13
-fomc-corpus,1982,And we had a 400 basis point range not too long [ago].,15
-fomc-corpus,1982,That's a Las Vegas range!,6
-fomc-corpus,1982,It may be a good compromise.,7
-fomc-corpus,1982,And at least that's as narrow as we've had it in the last year.,15
-fomc-corpus,1982,"For a couple of years we had a 400 basis point range, as I recall. Do you remember, Normand? Do you have a record? We had 400 basis points quite a lot.",41
-fomc-corpus,1982,"Oh, we've had it many times.",8
-fomc-corpus,1982,That wouldn't be as unusual as the other stuff.,10
-fomc-corpus,1982,It's not unusual at all. We've had it as much as not.,14
-fomc-corpus,1982,I'd rather go along with that 7 to 11 percent idea than what we've had.,18
-fomc-corpus,1982,6-1/2 to 11 percent?,10
-fomc-corpus,1982,We've had 10 to 14 percent and we've had 11 to 15 percent; we've been as narrow as 4 points.,27
-fomc-corpus,1982,"Well, what do you want to do?",9
-fomc-corpus,1982,Let's make it 4 points.,7
-fomc-corpus,1982,7 to 11 percent.,6
-fomc-corpus,1982,"Well, I don't like it much, but if that's what you want to do, let's do it. Let's have a vote.",26
-fomc-corpus,1982,Borrowing is what--$300 million?,9
-fomc-corpus,1982,$300 million or a little above.,8
-fomc-corpus,1982,Why don't you have a show of hands on--,10
-fomc-corpus,1982,$300 to $350 million. Vote.,9
-fomc-corpus,1982,"Excuse me, what are the Ms we are voting on?",13
-fomc-corpus,1982,"The same as it was, 5 and 9 percent [for M1 and M2 respectively]. The second sentence has ""continuing;"" the third sentence is out; we put in 7 to 11 percent down at the bottom; and initial borrowing is $300 to $350 million with appropriate adjustments for exceptional borrowing.",66
-fomc-corpus,1982,Okay.,2
-fomc-corpus,1982,Chairman Volcker Yes Vice Chairman Solomon Yes President Balles Yes President Black Yes President Ford Yes President Horn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Teeters Yes Governor Wallich No The vote is 10 to 1.,49
-fomc-corpus,1982,"Okay. I guess we will eat in here, right? Do we have anything else?",18
-fomc-corpus,1982,The next meeting is October 5.,8
-fomc-corpus,1982,We need to approve the minutes.,7
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Without objection. Next is the report on foreign currency operations.,12
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,Questions or comments?,4
-fomc-corpus,1982,We hear rumors through the paper about other problems in South America. How much of that can you [verify]?,22
-fomc-corpus,1982,"Well, there certainly have been some other problem situations.",11
-fomc-corpus,1982,"That's the understatement of the day, if I must say so.",13
-fomc-corpus,1982,"The Argentines have been mentioned a great deal, and currently they have an IMF [team] down there looking toward the possibility of a Fund program for Argentina. They also are seeking some assistance from the BIS and from commercial banks. The Brazilians feel that they are being [adversely] affected largely by the spillover effects of the Mexican and the Argentine problems. For a period they found it very, very difficult to roll over their maturing debt, but more recently they sounded a bit more encouraged [so] that situation looks a little better. But you're quite right that there are a number of these very difficult situations, with monetary troubles in the period [ahead] for a lot of countries down there.",143
-fomc-corpus,1982,"I think the [Brazilian] problem is particularly sensitive with regard to their foreign exchange deposits [and whether their] backing by foreign banks will be resumed [as was the case for] the Argentine agencies. In New York we have 17 Brazilian agencies and they have been having difficulty getting new deposits or getting people to leave in the foreign deposits. We have a liquidity problem here because, like the Mexican agencies, most of that money was used to finance Brazilian borrowers, either public or private.",98
-fomc-corpus,1982,"Did you say you have 17 Brazilian agencies, Tony? Is that right?",16
-fomc-corpus,1982,Two of them are much larger than the others. But this is part of the whole credit contraction going on in the foreign member bank markets between--,29
-fomc-corpus,1982,"Well, I want to come back to some of these questions later. I think it's better to take them up later in the context of the whole policy problem. But immediately, we intervened yesterday, as Sam said, and we may intervene today. The market is still high. Technically we have to approve yesterday's transactions anyway. So, do I have a motion to that effect?",78
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,"Without objection, it is approved. As for the Mexican swap [drawing], whatever our ""druthers,"" the situation is that I don't think they have any money to pay it off. So, I don't think we have much alternative to rolling it over. As I understand it, that doesn't take a Committee action but I think you should be informed. If somebody wants to object, he or she can object, but the intention would be to roll that [drawing] over as it matures, noting that we still have first claim in effect on any Fund drawing that the Mexicans make, assuming they come to some conclusion with the Fund. We'll consider that at the time. But as to the immediate rollover, we can roll that over cooperatively since otherwise.... With that understanding, I think we can return to some of these other problems later in the midst of a more general discussion, as I said. Mr. Sternlight.",187
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,Comments or questions?,4
-fomc-corpus,1982,"[If] we can't get the new legislation and this ruling gains weight in the marketplace, what restructuring would you anticipate in the market with regard to day-to-day operations? How would the market accomplish that?",41
-fomc-corpus,1982,"Well, they will be looking at different things. I think there will be some effort to see whether there's a way to restructure the basic repurchase agreements to do pretty much the same thing but in a more acceptable manner in that it would stand up better than [now]. To some extent there may just be a lessened willingness by a number of ""lenders"" in the market who provide funds, particularly to smaller, less well-capitalized firms. When the issue is settled--and I get a little sense of this already and that could spread with [unintelligible]--I don't think it would affect the Desk's technical ability to [make] repurchase agreements. But it could thin out the market in which we do those agreements or we could have somewhat less [access] to instruments or operations [of this kind].",168
-fomc-corpus,1982,"Peter, do the nonbank dealers let your surveillance group come in?",14
-fomc-corpus,1982,"Oh, yes.",4
-fomc-corpus,1982,On what general basis? That it's the only way--,11
-fomc-corpus,1982,"Well, they've been cooperative right along in doing that and are particularly keen to cooperate now. They prefer the--",22
-fomc-corpus,1982,"Peter, is the surveillance limited to the recognized dealers?",11
-fomc-corpus,1982,"In an [unintelligible] way, yes. We are exploring whether we would want to extend it beyond that. Certainly if we hear of any problem situations that go beyond the regular reporting dealer group, we would want to take a look quickly at those situations.",54
-fomc-corpus,1982,Because that is where the problem has arisen thus far?,11
-fomc-corpus,1982,"Thus far, yes.",5
-fomc-corpus,1982,"Peter, you said that you had the feeling that the market would be much more tolerant of increases in the money supply from the target ranges today than it would have been, say, two or three months ago?",42
-fomc-corpus,1982,That is my impression.,5
-fomc-corpus,1982,What's the evidence of that? How does this manifest itself? By discussion on the part of some of the dealers at the Desk or by--,28
-fomc-corpus,1982,[Unintelligible] from the market who have written commentaries and from discussions with market participants.,21
-fomc-corpus,1982,Any other comments or questions? I might say that I think this surveillance business involves a moving target [if that] is the right term; we are feeling our way. We have to ratify the transactions.,42
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,"Without objection, they are approved. Mr. Kichline.",13
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,I'm inclined to suggest short comments or questions and we can return again to the general problem a little later.,21
-fomc-corpus,1982,"I have a question. Your forecast and almost all the forecasts have a phrase in them that says something like: ""The consumer is going to lead us out of this recession,"" and economic logic would suggest that there's something to that. However, when I talk to people who are in the consumer business--retailers, for example, and bankers who are in the consumer loan area--they hear that statement with almost disbelief. The attitudes both on the part of the sellers, and it seems the buyers, are pretty sour. At least in the northern part of the country, one hears a lot about selling blankets and heaters and worries about oil bills and gas bills for what is supposed to be an unusually cold winter. My real question is: How do you weight these attitudinal factors versus the real factors. such as the tax cuts and personal income increases and so on. I think how one comes down on that says a lot about what one's forecast is.",192
-fomc-corpus,1982,"Well, I think that's right. I would say to begin with that heaters and blankets count as consumer spending as does natural gas use, so that may be a plus in terms of the forecast. Secondly, I would say that for some time the views that have come out in the Redbook and elsewhere from retailers are fairly gloomy; in fact, one might be led to the view that personal consumption expenditures were declining dramatically, just looking at that. That is really not the case. In the first half of the year, personal consumption expenditures were up at an annual rate of 2-1/2 percent. Our estimate for the third quarter is a rise at a rate of 1-3/4 percent and we have 3-1/2 percent for the fourth quarter. So consumption will be up, in our view. But I would say that one would have to be cautious interpreting what retailers anticipate and what their results were. They have been disappointed, very clearly. [Your comment about] the consumption-led forecast is quite correct in that if two-thirds of the GNP doesn't respond in the way we have forecast, we're in a great deal of difficulty in part because of the rather poor prospects in the investment sector and the export sector. So, overall, [the consumer sector] is a source of concern. I would only remark that in our forecast we have what is a very mild cyclical upturn. It's a bit weaker than many of the other forecasts and the attitude issue, I think, is important. It's probably very important in the short run where the economic news is likely to be very negative.",325
-fomc-corpus,1982,Mr. Balles.,5
-fomc-corpus,1982,"Well, coming at this confidence factor from a little different direction, since as we all know both consumer confidence and business confidence do play a key part in what really happens, and both I'm afraid are quite weak today: I was wondering, Jim, if you have given any thought--and I'm sure you have--to the likelihood that we may see a triple-dip recession. What probability would you assign to that, if you really had a chance to think it through?",94
-fomc-corpus,1982,"Well, I certainly wouldn't make it the most probable outcome. Our forecast represents our highest probability [outcome]. But for the near term, and let's view that as over the next quarter or two, there are clear downside risks in that there is quite likely to be a negative [GNP] number in the third quarter or a negative number in the fourth quarter, and one might classify that as a triple-dip. I wouldn't say the same if I were to take a bit longer horizon, particularly over 1983. I'd just like to say that in the first year of recovery in the postwar period we've had rates of increase of real GNP on the order of 7 to 8 percent. The staff forecast is for 3 percent. It is 3 percent for good reason. But lowering that number, I think, begins to get a bit risky on the down side. It's very difficult when the economy, hopefully, is near the bottom of a recession to spot the potential sources of strength, but for now it seems to me that there are clear risks on the consumer side. On the business investment side, while we have had a major downturn in this cycle, it could very easily go weaker. So, I think the short-run risks are on the down side.",258
-fomc-corpus,1982,"Jim, one other question, if I can follow up on that: As we look back to, say, last spring--I haven't really checked the record so this is strictly my recollection but it is reasonably clear--your forecast, our forecast, and most private forecasts were confidently expecting an upturn in the third quarter. Month after month has gone by and we haven't seen it; I still don't see it. It's still a forecast and not a fact. Do you have any insight into what has delayed that widely expected and anticipated upturn?",109
-fomc-corpus,1982,"Well, in our own forecast, one of the major things that we have done is to write down business fixed investment; there has been a greater deterioration there. And in the third quarter, while we had the tax cut, it came along a bit smaller than we had anticipated earlier; nevertheless, it was there. In fact, other income didn't come along, so that we didn't have as large a growth in disposable income in the third quarter principally because of the sharp cutbacks in business fixed investment and the lingering inventory problems. So it's in these other sectors that we underestimated the weakness or overestimated the performance. I don't know of any other major area. I guess net exports is another area, as Jerry is telling me; that indeed is one of the reasons why we're much weaker than the Commerce Department in the third quarter. The expected performance of net exports is much below Commerce's estimate and the August data that have come in are even weaker than that. So, exports and business fixed investment have been quite weak relative to our expectations and actual experience.",210
-fomc-corpus,1982,"I wonder, in the final shot at this: To what extent, in your opinion, do the still unprecedentedly high levels of real interest rates explain some of this weakness or failure to recover?",39
-fomc-corpus,1982,I intend to get into this in my briefing.,10
-fomc-corpus,1982,I'll wait for your words of wisdom.,8
-fomc-corpus,1982,Governor Wallich.,4
-fomc-corpus,1982,"You have an impressively low inflation prediction. In evaluating the impact of interest rates on investment, business, and housing, does that mean that you're also looking at a higher real rate and consequently a greater restraint on investment than other observers?",47
-fomc-corpus,1982,"I have a lot of trouble with real rates--well, a lot of difficulty in terms of knowing what inflation expectations are. It seems to me that real rates are high; if inflation rates are going down and expectations of inflation allow for that, then we indeed do have higher real rates. That's one of the elements, I would say, in that some of the major commercial forecasters have assumed higher rates of growth of M1 for next year--a percent or a percent and a half faster--so they indeed have lower nominal interest rates than the staff. So, interest rates are one of the drags here, and they have been for some time, in terms of monetary constraint standing in the way of recovery.",144
-fomc-corpus,1982,"Let me ask a question with regard to consumer attitudes and the [role] of the consumer balance sheet, if you will, in that. Which way, if any, does the substantial improvement in the consumer's liquidity position cut vis-a-vis attitudes toward residential [property] on the asset side? That is: Is the consumer likely to consider his wealth as a plus or a minus factor?",78
-fomc-corpus,1982,"Well, that differs with individual consumers. I think you are quite right in pointing out that short-term borrowing has been rather moderate; in fact, repayments relative to income have come off from their peak in late 1978. But at the same time one of the major sources of wealth in the household sector, namely housing, has clearly become less liquid for many.",73
-fomc-corpus,1982,And less valuable perhaps.,5
-fomc-corpus,1982,"And the price may well have gone down. Those are offsetting factors and I don't know how one would come out, but it certainly--",28
-fomc-corpus,1982,That was my question. How does one come out? You're not coming out?,16
-fomc-corpus,1982,The answer is he doesn't know.,7
-fomc-corpus,1982,One simply has to put those two things together. One can't look at the improvement in short-term liquidity alone.,22
-fomc-corpus,1982,"I heard a commentary on the radio when I got up this morning indicating that fuel is in ample supply for this winter season. I don't know the survey, but what surprised me is that they said prices are going to be--I forget precisely what number they used--6 to 12 percent above last year. That surprised me a little because I thought that oil prices had leveled off during this period.",81
-fomc-corpus,1982,Gas has gone down.,5
-fomc-corpus,1982,This was oil.,4
-fomc-corpus,1982,Did they say that?,5
-fomc-corpus,1982,"Yes, it was about oil supplies.",8
-fomc-corpus,1982,I think the reports have been on private home heating fuel.,12
-fomc-corpus,1982,This was home heating fuel that they were talking about.,11
-fomc-corpus,1982,Supplies of home heating fuel I think are rather low relative to the stock of petroleum generally.,19
-fomc-corpus,1982,This was a two sentence comment in the news. They said they had done a little survey and stocks were ample. People were going to have plenty of fuel this winter but the price was going to be 6 to 12 percent higher.,48
-fomc-corpus,1982,"Being a consumer, Paul, [I recall that] the price rose as the last heating seasonal went off and it hasn't declined except by two or three cents. So, this season will start out with prices materially higher than at the beginning of last season.",51
-fomc-corpus,1982,"Well, we don't have that in our forecast.",10
-fomc-corpus,1982,I thought it had been level for a long while but it may be that it got back to where it was a year ago. It surprised me that they were up that much in a year.,39
-fomc-corpus,1982,"I have one quick question about your forecast. Looking at your forecast compared to others we track yours against--Townsend-Greenspan, DRI, Citibank, and Chase--you are uniformly the most bearish for the next three quarters, and by a substantial margin. You have far and away the lowest GNP growth rates, the lowest inflation forecast, and the highest unemployment forecast, which are all consistent in a very bearish pattern. I just want to understand if what you said in answer to a question--from John, I think--was that your next-best forecast was even more bearish.",121
-fomc-corpus,1982,May I point out one other factor in this respect? The staff forecast has been uniformly the most pessimistic for the past year-and-a-half and it has overestimated the performance of the economy.,39
-fomc-corpus,1982,You are saying they are right.,7
-fomc-corpus,1982,"We're looking at a situation in which I think Jim is quite right that all the risks at this point are on the down side, both from the domestic demand side and from export demand.",37
-fomc-corpus,1982,"One thing that worries me is what none of us expects. We are all very bearish and you are very bearish. Do you give zero probability, then, to the possibility of a surge in the economy? The consumer's car is getting older and older; more and more consumers are looking for a place to live as all these baby boomers get married or whatever [and create households]. With household liquidity getting stronger and stronger and with savings up, you don't see any possibility of a surge in the economy?",101
-fomc-corpus,1982,"Not in the very short run. We have indeed built in a bit of an increase in auto sales. In that market, all of the news I've run across has to be viewed as rather negative. I wouldn't perceive any of these areas as bursting out on the up side in the very near term, but I wouldn't extend that forecast through 1983, as I said. We have in our forecast some pluses in these areas. It's a matter of how much. I don't know of anything at the moment that would suggest to me that we are likely to see major growth in the very short term. But these issues are debatable and I certainly wouldn't want to argue the consumer case very strongly [even] in the short term.",147
-fomc-corpus,1982,Governor Partee.,4
-fomc-corpus,1982,"Well, I was one who believed that there would be a recovery in the second half. But I must say that over the years the two indicators that I have watched and thought most consistently indicated the future were new orders for durable goods and initial claims for [unemployment] insurance. And they both have [tended] to vary significantly. We had a 4 percent decline in durable goods orders in the latest month and we had a very substantial increase in initial claims for insurance. So I see no reason that we shouldn't predict a decline in activity in the period to come.",115
-fomc-corpus,1982,Mr. Chairman.,4
-fomc-corpus,1982,"Yes, sir.",4
-fomc-corpus,1982,"Just to avoid total desperation, we have a little more positive view of [the outlook]. First of all, we weren't surprised at the fairly slow growth in output in the third quarter because we feel that it was to a great extent a reflection of the monetary contraction that occurred earlier in the year. However,-",61
-fomc-corpus,1982,I never figured out where that expansion [went] from the monetary expansion still earlier in the year.,20
-fomc-corpus,1982,"We think--and again it's a matter of relative value--that the contraction in output would have been even worse had there not been that expansion. However, we feel that if money is allowed to grow at, say, 5 to 5-1/2 percent or slightly above that, we will see a much more positive effect on output certainly starting next year. We observe in the record that the economy always tends to move toward about a 3-1/2 percent trend growth of output. We think, inasmuch as we've had about 3 years of very slow growth--and we blame it on monetary contractions--and price increases have finally slowed and real interest rates are approaching normal levels, that much of the adjustment that was caused by that and by foreign competition being a factor in heavy industry has been completed. We think that quite conceivably we could have a bit faster rebound next year, based on 5-1/2 percent money growth, than some others have forecast. If I'm wrong, I won't be here, Mr. Chairman; if I'm right, you'll hear from me!",223
-fomc-corpus,1982,Mr. Black.,4
-fomc-corpus,1982,"Mr. Chairman, Larry rescued us from the straits of desperation and said some of the things I had in mind. There are two things that might be helpful to remember here. One is that it always looks very, very bleak right at the bottom and we all get very pessimistic, and I'm much more pessimistic than any of my associates in Richmond. The second point is that there's a very low pickup in velocity projected over the next four quarters. And traditionally most forecasters at this stage of the business cycle--maybe I should say at this apparent stage--have underestimated the pickup in velocity. We ought to bear those things in mind as we move through the meeting.",135
-fomc-corpus,1982,"If no one else has an immediate comment, we'll turn to Mr. Axilrod.",18
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,"Steve, I think the answer to all your questions is ""yes.""",14
-fomc-corpus,1982,We don't want to prejudge these things too hastily.,12
-fomc-corpus,1982,"Well, isn't this similar to the NOW account situation? Didn't we adjust for NOW accounts? Can't we do the same thing and avoid the possibility that people would misconstrue this as a major change in policy?",42
-fomc-corpus,1982,"We could make efforts to make shift adjustments in somewhat the same way, probably with the same degree of credibility.",22
-fomc-corpus,1982,"Well, I might feel differently if I thought they had the same degree of credibility. I don't think the staff is capable of making them with the same degree of credibility, however great that was, as last time.",43
-fomc-corpus,1982,I thought it was small.,6
-fomc-corpus,1982,"Steve, how would you actually operate? How would you draw your reserves paths [with a] wider specification?",22
-fomc-corpus,1982,Run on the funds rate!,6
-fomc-corpus,1982,"If there were not a specification for M1 and there were for M2 or M3, we would draw them on the basis of the M2 or M3 specifications and we would draw an M1 path, unless told otherwise, that we thought was generally consistent with that.",56
-fomc-corpus,1982,I think we may be getting a little ahead of ourselves in this.,14
-fomc-corpus,1982,"I have a question on the instrument the DIDC [plans to authorize]. As I understand it, it seems that at a minimum what we're going to get out of the DIDC is an instrument that goes into M2. But it depends on how they word it. If they put out two instruments, one of which is reserveable, then the one that is reserveable would be in M1. Is that correct?",85
-fomc-corpus,1982,"Well, the one that is reserveable certainly would be in M1. Where the other one would be is a question one would have to consider carefully, I think. It will [allow] at least six transfers. Our present boundary line, other than for money market funds, is about three transfers.",61
-fomc-corpus,1982,It doesn't make any difference where we put it.,10
-fomc-corpus,1982,"But, Tony, a ceiling-free reserveable deposit has a lot of different implications for M1 than one on which the maximum [rate] paid is 5-1/4 percent.",38
-fomc-corpus,1982,"Right; I understand that. But if the DIDC words it fairly broadly, and we insist that because of the number of transactions exceeding the six--I gather it's three drafts or checks and three other forms of authorized transfers--then we could put a reserve requirement on it so that in both cases on anything over, let's say, $5,000, they would be paying market rates, except that one would be marginally lower than the other because of the reserve requirement. It seems inevitable to me that the reserveable one would be in M1, in which case we might get a major bulge. It's unpredictable as always. But the other one, which we're sure to get even if they word it narrowly, must be in M2. I don't see--",154
-fomc-corpus,1982,"Yes, but I'm not sure it makes any difference analytically. It makes a difference in the number, obviously. But in either case we won't know what the heck the number means.",37
-fomc-corpus,1982,"If it were in M2, it could lead to a very sharp contraction in M1, if NOW accounts shifted into [that instrument].",28
-fomc-corpus,1982,We would get two unknowns with enormous swings.,10
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,I don't think you touched upon the problem that may begin in October.,14
-fomc-corpus,1982,"No, I didn't mention in this briefing the all savers certificates, Mr. Chairman. We mentioned in the Bluebook that this week $22 billion of originally issued all savers certificates mature, with a maturity value of $25 billion including interest. Our limited preliminary estimate of the likely effect on M1, which is nothing more than a very informed guess--",72
-fomc-corpus,1982,"What's informed about it? Steve did a survey of four people all of whom are going to put it into M1, including himself!",27
-fomc-corpus,1982,"We are at the moment guessing that there will be about a $7 billion increase in M1 in the current week from that. But it could, depending on how long it lasts--though we think it would be temporary generally--have a very sizable effect. And there are a total of $33 billion or so maturing in the course of this month.",72
-fomc-corpus,1982,"People could roll it over into another all savers certificate, couldn't they?",15
-fomc-corpus,1982,"Yes, if they haven't used up their $2,000 in tax-free interest. But to the degree one is going to invest in something else, it could go into a NOW account or demand account temporarily as one waits to invest it.",48
-fomc-corpus,1982,And then the all savers certificate disappears completely on December 31st? You can't go into it afterwards?,22
-fomc-corpus,1982,That I'm not sure about.,6
-fomc-corpus,1982,"You can't go into it, but of course there could be a lot of outstandings for quite a while.",23
-fomc-corpus,1982,Where is that now--in M2?,9
-fomc-corpus,1982,"Yes, they are all in M2.",9
-fomc-corpus,1982,"Do you think the country would rally patriotically, if we made a public call that maturing all savers certificates should be reinvested in M2?",32
-fomc-corpus,1982,"It's a little late, I'm afraid.",8
-fomc-corpus,1982,On the theory that only the lost causes are worth fighting for?,13
-fomc-corpus,1982,You ought to get your moat up and keep them out!,12
-fomc-corpus,1982,"Mr. Black, please.",6
-fomc-corpus,1982,"Mr. Chairman, Tony touched on my question. I was just going to ask Steve if he would elaborate a bit more on conditions under which this might increase M1 as opposed to decreasing it.",39
-fomc-corpus,1982,Do you mean partly the all savers certificates?,10
-fomc-corpus,1982,I'm talking about the money market account.,8
-fomc-corpus,1982,"Well, if an account were offered, let's say a Super NOW account, where you could write all the checks you wanted and that was already in M1 and it was [ceiling] free on funds over a certain amount, I would see sizable transfers out of money market funds as well as other savings deposits right into M1 from that. That would occur almost instantaneously.",76
-fomc-corpus,1982,If we counted it in M1.,8
-fomc-corpus,1982,"Yes, and it would--",6
-fomc-corpus,1982,"Theoretically we could get an increase in M1, I guess, without counting it in M1 if it was so attractive that everybody went into NOW accounts for their basic account and got an automatic sweep arrangement into these new accounts. We would get more increase in the below $5,000 portion of NOW accounts as a kind of tail on the dog of this new account.",76
-fomc-corpus,1982,It's quite conceivable.,4
-fomc-corpus,1982,I don't know how we'd ever measure it.,9
-fomc-corpus,1982,"We could. It's like suddenly permitting a market rate of interest on demand deposits. And to the degree the account is like that, it's in M1, which ought to increase.",36
-fomc-corpus,1982,I have been assuming that the instrument would not have that much in the way of check-writing privileges and it would probably depress M1.,27
-fomc-corpus,1982,It may very well. I was answering your question on the conditions under which it would increase M1.,21
-fomc-corpus,1982,"Mr. Chairman, would you comment on the likelihood in your judgment that it would have that much check-writing ability?",23
-fomc-corpus,1982,Yes. The law says so. There's very little left to decide on this. I think the size of the check is the only thing that will be--,31
-fomc-corpus,1982,"That's what I had in mind. That might limit its use to no more activity than present money market mutual funds, which have a very low rate of turnover relative to the NOW accounts and other kinds of transaction balances as currently defined. That's what I was thinking was the most likely outcome.",57
-fomc-corpus,1982,"[The DIDC] clearly can't circumvent the intent of the Congress by putting a minimum value of $5,000 for checks.",26
-fomc-corpus,1982,"Even $500, Tony, might give it characteristics more like M2 than M1. But one could certainly debate that.",25
-fomc-corpus,1982,"Even then, we still could get a very sizable buildup in M1 balances in connection with the account. It's very simple to conceive of that situation even with a $1,000 limit.",38
-fomc-corpus,1982,Is there any work being done by the staff in anticipation of the time when we will have to decide what to do with monetary policy when we finally admit that M1 is no longer a sensible target?,40
-fomc-corpus,1982,You're prejudging our conclusions!,6
-fomc-corpus,1982,I'm talking about contingency planning.,6
-fomc-corpus,1982,"Mr. Chairman, I would agree with Frank, strange as it may seem, that before we bury my old friend M1 at this meeting--this [new instrument] won't take effect for a couple of months--there ought to be some work done by the various economic staffs to try to project the effect. There are a lot of people who don't like my old friend M1, and whenever anything changes they say this is a good time to bury M1.",93
-fomc-corpus,1982,We love it. We just can't find it!,10
-fomc-corpus,1982,"But couldn't some study be done prior to changing our basic approach to policymaking? I'm a little paranoid--I guess I have been for most of my life with the Federal Reserve--that every time something comes up that casts some suspicion on M1, there's an awful lot of readiness to bury it. Does our policy action today require that we do something that's a significant departure from the way we've been doing things? Couldn't this matter be studied and couldn't we have a summit meeting if necessary, a la Jerry's [suggestion], prior to our next meeting of the FOMC to see what the best brains in the System think will be the result of the DIDC action and everything else?",138
-fomc-corpus,1982,"Well, yes and no is the answer, I think. Obviously, we can study the matter. I see no prospect that any amount of study is going to tell us what the behavior of M1 is going to be in the short run. It is unknowable, in my opinion, to all the best brains in the world. It's going to be an empirical question; we will discover what happens when it happens. And we have to look at it over a period of time. But I don't see that any amount of rumination--is that the right word?--is going to produce an answer to a knowable question but an unknowable answer. The wish for a study is fine; but the sense that it's going to give us an answer in a month before we get the new instrument I think is totally unwarranted just by the nature of the problem that we face.",178
-fomc-corpus,1982,"If I understand what we're discussing, you are really talking about M1. The impact on M2 would be considerably less; it is a more reliable guide.",32
-fomc-corpus,1982,"A little more subtle, I think.",8
-fomc-corpus,1982,More subtle perhaps but nonetheless--. And M3-type deposits--,13
-fomc-corpus,1982,"Other things equal, it ought to increase the value of M2-type instruments compared with market instruments. Therefore, M2 ought to be larger relative to total credit flows than before. And by the way, I think the real world effect will be fantastic shifts of funds.",54
-fomc-corpus,1982,"I don't think there's any question, however, that Roger is right. The impact is going to be much less on M2 and M3 than on M1. The only place it can come out of basically is Treasury bills.",46
-fomc-corpus,1982,"President Roos, I wasn't suggesting burying M1; I was suggesting that there is a problem over the next two or three months.",28
-fomc-corpus,1982,"Well, you didn't suggest we praise it!",9
-fomc-corpus,1982,This is sounding more and more like Pericles' oration on Caesar's burial!,17
-fomc-corpus,1982,It was Mark Antony's.,6
-fomc-corpus,1982,"We will get to the issue of what to do with M1 a little later, but I--",20
-fomc-corpus,1982,"Just one last question on the DIDC instrument: Based on your information, what kind of rate do you think the depository institutions will pay as the so-called market rate? Will they simply be competitive and vary it with the average money market fund rate or will they pay a Treasury bill-type rate? What do you think they will pay?",68
-fomc-corpus,1982,"I think there will be a tendency among some to pay a money market funds rate plus; the question is whether the market gets driven there. I'm just guessing. Among other things, we approved what I think of as the ""bucket shop relief regulation"" at the last DIDC meeting, where an institution can broker all of this money. So, we'll have people advertising all over the country. These will be insured deposits and people will keep it with the guy paying the highest rate. And that will tend to force the rates higher. I would think there would be two tendencies initially: To pay a money market funds rate plus, or to pay something related to the Treasury bill rate. My guess would be that the bill rate fellows might get forced higher. In a tight money situation, I would feel rather confident of that result. With rates going down, if they are going down, I think banks would be cautious. But I think those will be the two polarities. The question is where it will end up.",203
-fomc-corpus,1982,"If there is any erosion of the banks' core deposits moving into these Super NOWs or whatever we call this new instrument, it's going to put a terrible squeeze on their profits.",36
-fomc-corpus,1982,"If this had been done three months ago, I think it would have been an utter disaster. It may just be a disaster now. You know, I joke with the banks at times. I tried it out with the banks this morning and they said fine; they haven't thought this out. But I said that the simple way to do this and be perfectly consistent with the law is to say [to a depositor] ""If you have a NOW account or a savings account [with a balance] above $5,000, it no longer has a ceiling rate and it's checkable."" If a financial institution thinks of it in those terms, immediately that puts its cost of funds up by a significant amount. I'm sure when they think about it, they won't want it that way. It will take time for the savings depositors to pull out their money and go to the bank and say instead of my savings deposit, I want this new account. Some of them will never get to the bank, so the banks will retain some of their savings deposits and NOW accounts by a kind of ""discrimination by ignorance"" approach. And who knows how long that transition period will take!",236
-fomc-corpus,1982,They don't have to pay a market rate or tie it to a market rate; they could pay the CPI plus 4 percent.,26
-fomc-corpus,1982,"The European bankers look at this deregulation process going on in the United States and they react with horror. In their view, this whole deregulation is such a disaster both for monetary policy and for the stability of the banking system that I think we are once and for all--through our experiment, if you want to call it that--making sure that no deregulation process is going to be copied in foreign countries.",83
-fomc-corpus,1982,"I will mention one other aspect of this and then I want to go back to somewhat broader subjects. If there is a big drain on money market funds, there probably will be a big drain on bank CDs. Money market funds have become the major source of bank CDs for a group of major money market banks who are already in difficulty in the CD market. And since I'm almost certain that bank CDs would be the favorite instrument for money market funds to cut back on now, there is going to be a squeeze [on] banks and possibly commercial paper; there will be a squeeze in the other direction, too, on banks that are not anticipating or have not thought through that particular consequence of re-intermediation. In any event, as a setting for reaching a policy decision or a broader discussion first, let me try what I might term from my international experience a tour d'horizon because I think we have a rather wider setting that has to be brought to bear [on our decision] A large part of that, of course, is the domestic business situation, which we've just gone over to some extent. We can discuss it further but I don't have anything particular to add there. We have been disappointed at least on the timing of the recovery. The inflation picture is going well but the business picture certainly is not. Everybody looks to the consumer. I don't see any place else to look. Whether he will appear or not is necessarily in some doubt. We have obvious pressures on the investment sector and the commercial building sector and the agricultural sector. It's hard to see any of those pressures going away in any short period of time, and I have to agree with the conclusion stated earlier that the risks here, just looking at the domestic economy, are quite asymmetrical. But let me look around the world and say what somebody did mention--I guess, Sam Cross--right at the beginning: We are in a worldwide recession. I don't think there's any doubt about that. Mr. Truman's imagination may be larger than mine, but I don't know of any country of any consequence in the world that has an expansion going on. And I can think of lots of them that have a real downturn going on. Obviously, unemployment is at record levels. It is rising virtually everyplace. In fact, I can't think of a major country that is an exception to that. There are particular sore spots in the developed world. France is a leading example where they have tried to expand over the past year or more and they have been forced to reverse that. They are in increasing trouble internationally, although it hasn't been the focus of the same attention that it has in some of the countries I will get to shortly. But they have a rather massive current account deficit and heavy external borrowing needs. They have come through a couple of devaluations with the question [remaining] of whether they can hold the franc at the current level. The German situation is rather sour looking, with political uncertainties affecting that country and its prospects. The British have had momentary signs of advance off and on for the last year but the latest signs are negative there as well. Japan has caught a kind of sour despondency as well. I mention all this because it does affect the prospects for our own outlook as well as the world outlook; there is obviously a feedback among all the world markets. World trade is doing poorly and our exports are doing poorly. It also contributes to a feeling of nervous uncertainty throughout the world. And I think it all has had an influence on the exchange rate, the next subject I will get to. One can have different opinions about the exchange rate but I think it is an obvious fact that we have had a considerable narrowing of interest rate differentials in recent months and the dollar has gone up instead of down. I saw a comment yesterday on the ticker from Jacques Delors, the French Finance Minister, who said that something has to be done because whatever news comes out of the United States the dollar goes up. If it's good news, the dollar goes up; if it's bad news, the dollar goes up. And that's about right these days. It is very hard to argue that the dollar is not out of line, with very serious repercussions for our export industries. I can't think of any advantage, really, to the rest of the world of our present situation, partly because it is obviously a factor inhibiting their own monetary policy flexibility. The only explanation that one can see of the dollar's behavior in a very nervous and uncertain world where everything looks bad is that the dollar looks less bad for political and economic reasons and may even look good. Maybe I ought to put a positive cast on that, but it is a situation that itself is an important distortion in world markets. When I look at developing countries, there are well known problems in Poland that have not been of largely political origin in the sense that Poland has very serious economic problems but they are terribly complicated and sui generis in terms of the political problem. There are other problems in Eastern Europe in that the Polish situation is to some degree infectious there. The problems in Eastern Europe should be manageable in magnitude, but initially the throw-off from the Polish situation affected them and they are now being affected by the more general world situation. More acutely, we have the situation in Latin America, which is an interesting panorama. We have gone over the Mexican problem as nearly as I can see on the basis of inadequate information. It may not be at dead center, but it seems to be at dead center for the moment. That's the best guess that I have in a period of very difficult political transition, strong differences of opinion within Mexico about what to do and, in the best of circumstances, an extremely difficult adjustment problem within Mexico with important social and economic consequences. Whether an orderly or halfway orderly solution to the Mexican problem, with its $80 billion--or probably realistically $100 billion--of external debt, can be foreseen in the next weeks or months is problematical. I hope so, but I don't think anybody can bank a lot of money on that particular situation. When one looks elsewhere in Latin America, at the other end of the continent we have Argentina, which is basically unable to finance its needs in the markets and is in substantial arrears on its indebtedness. The financial officials there are willing to go to the International Monetary Fund. Fund negotiations are starting with rather an unknown situation as to whether Argentina has a government of sufficient strength to sign a reasonable Fund agreement even if they want to, or to carry out a Fund agreement if they do. That is a situation that in some sense doesn't look unmanageable economically, but there is a question as to how manageable it is politically. When one goes up in that continent, there is Ecuador, which may be facing an inability to service its debt in a matter of weeks. We have Chile, which as nearly as I can see is unable to finance itself at the moment and is rapidly depleting its reserves; and at the rate of depletion of reserves one can perhaps measure their debt difficulties in a matter of months, if not weeks. We have Bolivia, which has had chronic problems for years and is no better; it is basically in default. Costa Rica is in the same position. Peru is not much different. And then we come to the strong countries in the continent like Brazil! That is another $80 billion debtor, which in my eyes has undertaken a strong adjustment program for the past 18 months, has had a recession, has had monetary restraint, and has attempted to get its budget in shape. Their balance of payments deficit is as big today as it was when they started the program, reflecting in considerable part the sourness of the world economy. Then of course we have Venezuela, the premier country in terms of financial strength of the continent. It is a relatively small country with big oil reserves, but it also is apparently unable to finance itself freely in the market currently [despite] more substantial reserves; it is not an imminent problem in the same sense that the other countries are, but it is affected by the total situation. Those countries have a collection of debt of what, Ted--about $300 billion more or less?--of which a sizable fraction is owed American banks. But every big bank around the world is more or less equally committed. All of these countries are dependent upon sustained borrowing to maintain a semblance of equilibrium during this period; indeed, all of them are dependent upon sustained borrowing simply to keep the loans that are now on the books in a semblance of good order. All of which brings me to the banking system. We have had some rather well-known problems with respect to individual institutions, stemming largely from domestic concerns in the United States. Those particular institutions have had financing difficulties in the market for some time. They are basically unable or unwilling to sell any substantial amount of domestic CDs and are having their lines from other banks cut back in the day-to-day market. There is concern, obviously, more generally about banks with large external exposure. And when we talk about banks with large external exposures there are no exceptions among the major American banks or among a good many of the regional banks. There has been a tendency quite clearly in this circumstance not to test the domestic CD market and a feeling that everybody could run to London for the money. That [approach] is a little more anonymous; it isn't [unintelligible] futures markets, and what premium which bank is paying above the prevailing rate isn't gossiped about to quite the same extent as in the American market. But it is quite apparent that the Eurodollar market is in a state of some confusion and concern. One can see that specifically in the fact that the Eurodollar rates have a margin over domestic rates that is not explicable by normal arbitrage calculations between the two rates. And we have a situation in the Euromarket, according to my understanding, that normal trading procedures--somewhat like in the U.S. CD market--have now broken down. Trading that used to be done more or less anonymously or indifferently among banks is now done on a personalized basis with each bank rated on its own and differential rates among particular participants, and there is a sense of a contracting market. Whether it is really contracting ex post seems to be problematical. The volume is probably going up because that is where the demand is going, but there is a sense of a contraction in credit. I might say that it is complicated by the fact that some American banks that have liquidity problems have chosen to do placements in the Eurodollar market as obviously their only source of liquidity, so they're running them down. I think we have, as I mentioned, an unwillingness to put pressure on the CD market domestically not only by the particular banks that have been in everybody's mind but much more generally in recent weeks as the international problems have gotten more severe. Tony mentioned earlier the particular problem that is beginning to stick out like a sore thumb with what I think of as motherless banks, by which I mean banks whose home country either doesn't exist in any real way or doesn't have any dollars or doesn't have any means of putting its hands on any dollars. These banks are funded in dollars or other foreign currencies but largely in dollars. Their assets are nominally in dollars but often are in effect in frozen form because they are backing a country--Mexico, Brazil, Argentina, Chile, Korea--that hasn't the money to make those debts liquid if they had to. We have had further attention to this kind of problem from the Banco Ambrosiano affair where subsidiaries of a good--at least ""good"" in quotation marks--G-10 country were in the position of not having a mother, so to speak, because they operated through a subsidiary. And when liquidity pressures began in that case, or when the bad loan became evident, there was no obvious recourse to provide liquidity to them. In these circumstances, I think it's fair to say that the rates of interest on government securities that we tend to look at very frequently are not a reflection of what the rates of interest are in the market because the spreads are substantially wider even in the quoted rates both on government rates and private rates, reflecting a tiering of successive risks or precautionary premia. There is the situation, for instance, in financing developing countries now where the CD rate is high relative to the bill rate by a considerable margin. The Euro-rate is high relative to the CD rate. These countries are financed at LIBOR plus a margin; those margins are increasing. So by the time you go from the bill rate to what a foreign developing country actually is paying, there hasn't been a decline in interest rates; the decline observed in our market has only a pale reflection in the actual interest rates paid by those countries. There is a sense, repeated to me again this morning by an ABA group that I had breakfast with--it's put quite openly on the table by some of the banks--that they are attempting to withdraw from international markets. They say ""We are doing our best to do so. We realize everybody can't do that, but we have our boards of directors and that's what we are doing.""",2662
-fomc-corpus,1982,"Excuse me, who is this group?",9
-fomc-corpus,1982,"It was a group of ABA bankers, but that's incidental. It is going on. That is why all these South American countries together suddenly can't find financing or financing in anywhere near the volume that they were anticipating. And to the extent that that financing demand is going on, that presses more and more on a relative handful of major money market banks that are already, of course, very heavily extended. The extent to which this is going on in domestic markets is less clear, but I would sense that some of this atmosphere is developing in domestic markets. In a sense that means that market rate quotations don't mean quite the same thing as they meant some months ago, because there's a question of who can get those rates and with what degree of aggressiveness. All of this in a way, it seems to me, is explained in the velocity numbers. There is a little liquidity preference or desire, or however you want to put it, which is why the relationships that we look at all the time between liquid asset totals and money narrowly or broadly [defined] do not seem to bear the same relationship to economic activity that we might have anticipated. I find it difficult or impossible to explain that except, in part, because of a change in liquidity preference. People want to be liquid; they want to hold as many liquid balances as they are permitted to hold and the constraining factor is how many of those are made available to them. I'd say all of this leads to a considerable feeling in financial markets and elsewhere of developing disarray, a certain floundering. And that in itself contributes to uncertainty, which feeds upon itself. And it is dangerous in and of itself. I don't mean to suggest going back to point number one about the domestic outlook and saying that the prospects as a matter of probability aren't along the lines that Mr. Kichline suggested. Hopefully, as attitudes change, it could turn out to be significantly better than that. But I do think we are in an extremely tricky period of transition that is complicated enormously by the factors not just of a period of potential transition for us, but for the world economy as a whole. There is not a single source of real strength or certainty out there. So far as the international situation is concerned, let me just suggest that we sorely need a victory, or a series of victories, in terms of stability in some key countries. We would like to have that in Mexico. Whether that's possible or not I already expressed my uncertainty about. If it's not going to be in Mexico, there had better be dikes built pretty promptly around some of these other countries so that there is not a feeling of absolute inevitability, which is developing rapidly in the market, that all of these countries are going to go down like a bunch of tenpins. If we cannot deal with that prospect, we are going to be in sorry trouble indeed. There are obvious cases in point; Yugoslavia and Argentina are both now in negotiation with the Fund. Neither of those countries has [irreparable] economic conditions by any means, as nearly as I can understand it. The amounts of money involved are relatively small but not exactly trivial in either case. Right behind them is a country like Chile, and not very far behind that, of course, is the big one, Brazil. I don't see how any of those situations, with the possible exception of Brazil and conceivably Chile--if the dikes are strong enough around Argentina and Yugoslavia--is going to be handled without Fund assistance and without further official assistance outside the Fund. I think this is logically the Treasury's job. Whether the logic is going to prevail in the end here is something that at some point we're going to have to consider, given the stakes involved. Domestically, I would simply say that I don't think this is any time for taking any great chances. There is a substantive need for a relaxation of pressures in the private markets in the United States. How best to achieve that seems to me is the question before the house. I will cease and desist at this point. I note that coffee is ready and maybe this is as good a time as any to have it.",838
-fomc-corpus,1982,"We can now have a general discussion. At some point I will give you some directive language that is somewhat different [than shown in the draft provided by the staff]. But before that, we can have a general discussion of the business scene, the international scene, or whatever. I would like not to neglect the international situation with respect to some of these countries. This is not a time, as I undoubtedly implied--that's a mild word--for business as usual, certainly, in the international area. I don't think it's time for business as usual in the domestic area either. Extraordinary things may have to be done. We haven't had a parallel to this situation historically except to the extent 1929 was a parallel.",143
-fomc-corpus,1982,And 1931.,5
-fomc-corpus,1982,1931.,3
-fomc-corpus,1982,"And I might say that I commend you all: I detected no leaks after the last meeting. We are discussing obviously highly sensitive subjects in this particular meeting and I can't impress that too strongly upon you. I'm talking about some of these international financial problems, especially their domestic ones. Any one of these things can be blown by inadvertent comments. There is discussion going on, particularly with respect to Argentina and Yugoslavia, of central banking monetary authority packages. The question is whether those packages are big enough for the situation in both cases. As I said, they are in negotiation with the Fund. Yugoslavia has been operating under a Fund program, but it's a rolling one-year [credit]. The third year of it is under discussion at the moment. These are in theory governmental matters and in our institutional structure more appropriate for the Exchange Stabilization Fund than for the Federal Reserve. I think the Treasury would say that, too. But they have concerns and limited amounts of money, and at some point I think it's possible that we will have to make a decision within the confines of this room as to whether we contribute to them too, simply in order to get the money big enough. And that raises issues that we have not had to face before--except perhaps marginally in the case of Mexico. I don't know if it's going to come up; I hope it doesn't. My position is that it should not come up. On the other hand, I cannot exclude it, given the nature of the problem.",302
-fomc-corpus,1982,"How should we respond, if we are on the speaking circuit and are asked what our impression is of the international situation? How do you respond to that?",31
-fomc-corpus,1982,"Well, with difficulty.",5
-fomc-corpus,1982,Very carefully.,3
-fomc-corpus,1982,"Obviously, you give some sense of confidence as best you can.",13
-fomc-corpus,1982,"Say ""I have another appointment.""",7
-fomc-corpus,1982,"Let me say in that connection--and I should have said it more clearly before--that I think this situation is manageable. In a very big sense, I think we are on the verge of victory in what we've been trying to do. It's a delicate situation, but it's also a very risky situation.",61
-fomc-corpus,1982,"What kind of victory, a Pyrrhic victory?",11
-fomc-corpus,1982,"No, though it could turn into a Pyrrhic victory.",13
-fomc-corpus,1982,We're going to get prices going down.,8
-fomc-corpus,1982,"But, in my opinion, it's only going to be manageable with unusual exertions. And in the end I'm afraid this institution may be called upon for unusual exertion simply because there is no other in a comparable position. It's the only possibility in terms of having the leadership and the resources necessary to deal with some of these problems. I don't know whether we can [unintelligible] that issue. But I think that is the nature of the problem.",92
-fomc-corpus,1982,Is it possible to assume that this international problem is not a consequence of our anti-inflationary efforts and that if our [anti-inflationary] program had never been undertaken this same sort of international situation could exist in a highly inflationary [environment]?,53
-fomc-corpus,1982,"I think all of these problems in a considerable degree emerge out the inflationary situation most broadly --a decade or more of loose practices, if that's the right term. Sooner or later Mexico was going to get in trouble. They borrowed $20 billion last year. And they borrowed heaven knows how many billions of dollars net this year when they still could borrow--before they got in trouble. The timing of it is affected by recession, high interest rates, and all the rest. But I think it's patently obvious that Mexico was going to borrow all it could borrow and all the banks were going to give them and at some point that was going to come to an end. And it was going to be a crisis situation. I think one can say that about most of these other countries. So we may be talking about the timing, but we are not talking about the essence of the matter in that many of these countries, as are companies at home and banking practices at home, are on an unsustainable course. We can't have a banking system that's totally loaned up to Mexico, Brazil, Venezuela, Argentina and Yugoslavia, but that's the direction they were going in. And some day that had to stop.",244
-fomc-corpus,1982,Will these containment efforts be done in cooperation with the BIS the way Mexico was?,16
-fomc-corpus,1982,"Yes, the current ones are under discussion with the BIS but there is the inherent management difficulty of these problems. There are very substantive economic problems and, underneath that, social problems and political problems. But from the management standpoint, the difficulty is that there are so many actors. Mexico is the extreme case, but it's only a more extreme example of reality. In Mexico, we are dealing with 1,100 banks or something like that. When you're dealing with that many banks around the world, not just all over the United States but all over the world --and I mean banks you've never heard the name of in [Saudi] Arabia or the Far East or wherever--getting all those banks to sit in the canoe together is a little difficult. The same problem exists when dealing with the BIS or in any cooperative international effort. There are a lot of actors. They don't all understand the problem in the same degree and they all see a little different self-interest in the situation. I think almost all the central banks recognize some common interest in seeing an overall solution to the problem, but they have a lot of individual interests, too, and getting them all to negotiate together is difficult. Everybody wants all the countries in; that's the tradition. And we get into this ridiculous situation where a country that is putting in $12-1/2 million has the same voice as the United States does. That's a bit of an exaggeration, but there is that kind of problem. They are all dealing with their own institutional structure. No central bank wants to touch these situations in the sense of a traditional central banking operation. They all would take the same attitude that we probably would take: It's a governmental problem. And some of them have institutions to do it and some don't. In virtually every case the central bank has more flexibility in the short run than the government; some governments have none. Some central banks may not have any. We have this kind of problem, of course. The U.S. government itself is like dealing with four different countries! But you multiply that and the difficulty becomes geometric, I guess, even when we're only dealing with 10 or 12 countries. It's obviously important to get not just a facade but the reality of some international cooperation in these things--not just because of the money, which is significant, but because of the general feeling of solidarity, a common problem, a common approach, and all the rest. And the banks, of course, are distributed among all these countries, too, including some countries that are not involved, and we need the support of the central banks in dealing with their own banks.",527
-fomc-corpus,1982,"I think a fairly persuasive way of answering a question about how all those countries are going to pay back all the money is to say that basically these countries--and I'm speaking not of the East bloc--are viable. They can produce enough to take care of their needs. They may go through a difficult time, but it's a question of the policies that they pursue and, therefore, how they can be influenced by the IMF rather than whether they can. It is possible for them to meet their obligations.",100
-fomc-corpus,1982,"I agree with that; that's another way of saying the situation is manageable. But they all do have very heavy debt burdens. And it gets into political questions as well as economic questions at some point. The country may say ""Is it worthwhile to meet them?"" whether they can or cannot theoretically. [The problem] is exponential for some of them; they have gotten so deeply into debt. But, of course, in that sense, there is no question that lower interest rates, to the extent that is reflected in their borrowing, are very important. For a country like Mexico or Brazil their debt service--not their total debt service but their external interest payments for a year--are $10 billion plus.",141
-fomc-corpus,1982,$12 billion.,4
-fomc-corpus,1982,$12 billion.,4
-fomc-corpus,1982,And their exports are $20 billion.,8
-fomc-corpus,1982,"I have a question. You made the point earlier that even with the drop in interest rates we've seen that very little has trickled down to the real problem cases because of the tiering on quality considerations. Just suppose that it were the view of the Committee that an effort ought to be made to have a significant drop in rates. In your judgment, how much can we realistically expect that it would trickle down to some of these countries who really need this kind of relief, in light of the experience we've had in recent months?",106
-fomc-corpus,1982,I would not propose reducing interest rates simply as a method of getting their interest burden down. It's a by-product there.,24
-fomc-corpus,1982,I understand that. I was just asking--using that as a vehicle.,15
-fomc-corpus,1982,"Well, I don't know that I can give you an adequate answer. I suppose the answer must be that it's going to be that much less than it would otherwise be.",34
-fomc-corpus,1982,"I think the indirect effect on other industrialized countries' exchange rates and their ability to lower their interest rates, and the reversing if possible of the decline in the real volume of world trade that is going on, would probably have a bigger impact on the exports of, say, Mexico and Argentina and Brazil than the direct reduction in the interest rate burden unless that lower interest rate prevails over six months or a year.",83
-fomc-corpus,1982,"I think the more important thing would certainly be a sense that there is at least enough money to lend here, given the bank liquidity incentive that they don't have now.",33
-fomc-corpus,1982,"Isn't the more basic problem that, in order for all of these countries around the world who have severe difficulty servicing their debts to find a way out, we simply can't rely on internal adjustments within those countries to do it. We have to have some world economic expansion. That's really a necessary condition for finding a way out of this whole problem.",69
-fomc-corpus,1982,"Well, I'm not disagreeing with the thrust of what you're saying. That is very important in setting the climate of the whole thing. But I don't think one can honestly say that some of these countries [around which] you could build a dike, are totally dependent on world economic conditions. I think of Yugoslavia or Argentina in particular, where the balance of payments is not in that bad shape to start with. Wheat is a big export in Argentina; that's not, I think, terribly sensitive to world economic conditions. I don't mean to detract from your point about a climate of expansion; particularly for a country like Brazil, it's critically important. But I don't think one can argue that we can't deal with a lot of these individual situations without an absolute necessity of having strong world economic expansion, although it obviously may [help].",168
-fomc-corpus,1982,"No, I wasn't talking about strong [world expansion], and I would agree with your point on individual countries. But it's no longer a question of just one individual country and what it does to get its problem solved. It is how all of them together are going to get out that I think requires some degree of economic expansion.",65
-fomc-corpus,1982,I don't disagree with your basic comment.,8
-fomc-corpus,1982,One might say the same thing domestically.,9
-fomc-corpus,1982,Indeed. I think growth of the U.S. economy and of the world economy is a necessary but not sufficient condition to get us out of this severe difficulty we find ourselves in.,36
-fomc-corpus,1982,On a global basis I don't disagree with you.,10
-fomc-corpus,1982,I'm sorry. I feel like turning it around and saying it is a sufficient but not absolutely necessary condition. We can find equilibrium at the level of some degree of recession.,34
-fomc-corpus,1982,"Well, you're also assuming that we can have a stable level of recession in the world.",18
-fomc-corpus,1982,That is true. [The world economy] doesn't have to keep going down all the time.,19
-fomc-corpus,1982,"The political implications of that, Henry, in some of these other countries may be much more severe than they are here. Put a country into a situation of restraint in order to correct its external debts and I think there is the potential for political upheaval.",51
-fomc-corpus,1982,"Just a related question: Has our governmental posture with respect to intervention in foreign exchange markets changed at all? I noticed we did some purchases yesterday, as Sam reported.",33
-fomc-corpus,1982,"It's a nice semantic question, I guess, of whether the attitude has changed or whether the circumstances have changed. We are certainly intervening.",28
-fomc-corpus,1982,Any pressures?,3
-fomc-corpus,1982,Not in any size [unintelligible].,10
-fomc-corpus,1982,"Not aggressively, no. We have this not terribly aggressive [unintelligible]. But I think the attitude to begin with is that there is a concern about this repetitive appreciation of the dollar and the dollar reaching levels that seem--",46
-fomc-corpus,1982,Overdone.,3
-fomc-corpus,1982,"--unusual, overdone, or whatever the right word is. So, there is a more sympathetic climate. There is no great feeling, which I share, that this [intervention] is going to revolutionize the world in and of itself, by any means. But that--",58
-fomc-corpus,1982,That together with some lower interest rates may help.,10
-fomc-corpus,1982,And at the very minimum that at least reduces the [tensions] in international relations at a time when we don't need any more.,27
-fomc-corpus,1982,"The loss of U.S. exports due to an uncompetitive exchange rate, as best as one can make rough estimates, has been estimated in work I've seen as the equivalent of 2 percent of our GNP in real terms. I don't know what the staff here has.",55
-fomc-corpus,1982,"Well, my question is whether or not there is a recognition by this government of that fact. And I assume the answer is, to a greater extent, yes.",33
-fomc-corpus,1982,"Yes, but I don't want to suggest that there is great eagerness to intervene. It is a reluctant willingness.",24
-fomc-corpus,1982,"There was a major surge in the dollar yesterday. To answer your question: I don't think there's any willingness in this government to try to get the exchange rate value down in terms of levels. Given Paul's talks with the Secretary [of the Treasury], there may be a tad greater willingness to be in the market on days when there are surges but not a [willingness to] sustain the effort, I don't think, to get the level down.",91
-fomc-corpus,1982,Not yet.,3
-fomc-corpus,1982,"Well, it's very doubtful that we can change the [exchange rate] level substantially unless there are policies that support it.",24
-fomc-corpus,1982,"I'm afraid that this [discussion] is getting a little ahead of us in some sense. I don't know whether there are any policies that support it now. There's something to Delors' statement that whatever happens, people want to go into dollars. In the long run obviously one can change that, but whether or how changeable it is in the short run [involves] some fairly basic premises. Germany may not be able to have a stable government because it is going to get polarized politically or the French may not be able to manage their internal situation or whatever other concerns there are in the exchange markets may change rapidly but are not amenable to obvious kinds of policy measures.",136
-fomc-corpus,1982,One would think that the market would observe the outlook for [some period] to come and tumble to the implications of that after a while.,28
-fomc-corpus,1982,"I just came back from Europe. I am struck by the degree of malaise and of nervousness there--fears of all kind--and the willingness of players to move enormous sums of money to Switzerland and the United States on gut instinct that things are just going wrong in Europe and that the future just doesn't look good for Europe. And, of course, this was happening even in Japan where the statistics look better. There is a lot of money going out of Japan. And the exchange rate now is ridiculous; it's 270 yen for the dollar.",111
-fomc-corpus,1982,"Well, I find the same kind of attitude among U.S. businessmen.",15
-fomc-corpus,1982,"Yes, that is pushing the money out [unintelligible] the world.",17
-fomc-corpus,1982,"No, no.",4
-fomc-corpus,1982,All right.,3
-fomc-corpus,1982,"I am seeing an attitude that I have never seen before, not even in the depths of the 1974-75 recession. There is a feeling of apprehension, a vague apprehension that maybe things are going to get out of hand. And it's leading businessmen to take a very defensive posture. I talked to the head of a quite successful company that is being cushioned by a big increase in defense contracts. But the firm's domestic business is off, and he said--and I thought this was a rather striking statement--that the objective of his company was to generate cash. If that kind of thinking is very widespread--",125
-fomc-corpus,1982,"There's no question that that thinking is widespread. Somebody was telling me the other day, a member of an investment banking firm, that he had visited a number of companies and was struck by one fact. These companies were in various businesses. Obviously, everybody is affected by the business [situation] to a greater or lesser degree; these happened to be profitable companies. And at company after company, they were all building up cash liquidity. He was just amazed at the size of their cash balances.",99
-fomc-corpus,1982,So we shouldn't be surprised if liquid assets have grown relative to nominal GNP at a rate that is out of line with past experience.,27
-fomc-corpus,1982,My mental image of the business world is that those that are profitable are sitting on cash. Those that are not profitable are being squeezed.,27
-fomc-corpus,1982,"But even with the profitable ones, the level of malaise is rising very dramatically. So, I sense that with the passage of time--",28
-fomc-corpus,1982,This isn't a comment that they are not experiencing malaise; their sitting on cash is an indication of a malaise.,24
-fomc-corpus,1982,"There is a sense of pull-backs, though. Do you, Si and Frank, get the sense that they are pulling back on their spending plans in order to generate this cash?",37
-fomc-corpus,1982,Absolutely.,2
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,Universally.,3
-fomc-corpus,1982,"At Caterpillar, for example, they are not [unintelligible], but they are being particularly hard hit. Their sales [in the third quarter] and their estimated sales in the fourth quarter of this year will be 50 percent under the sales for the third quarter of last year. That's a massive decrease. They went back through their records and the last time that they had a decrease was in '29 and in '30. And then they had their first loss year-end '32. They're going to have another loss year this year, and they are at the end of their string.",120
-fomc-corpus,1982,"Of course, the discouraging thing is that their workers are out on strike. I don't know what they're asking for, but--",26
-fomc-corpus,1982,"Yes, but they are not posturing for negotiations. Their comments are based on their--",18
-fomc-corpus,1982,The point is the militancy in the unions despite these realities.,13
-fomc-corpus,1982,"Yes, the union is basing its position on '81 results, which were pretty good comparatively, and they are not being--",26
-fomc-corpus,1982,That strike might run a long time.,8
-fomc-corpus,1982,"Also, Caterpillar is being killed by the yen-dollar rate. [A Japanese company] has just taken their ears off.",25
-fomc-corpus,1982,"We're seeing in New England highly successful, very rapidly growing companies such as Digital Equipment being hit. They have had traditionally a ""no layoff"" policy; so they announced that in order to substitute for the cash flow improvement of a layoff they were going to have a wage freeze for 3 months. This really hit Boston. If Digital Equipment is in trouble, then the issue is: Who is doing well?",83
-fomc-corpus,1982,"I ran into a fellow the other day at dinner--unfortunately I think this is an atypical experience of a major multi-national company with a foreign base with a big U.S. operation--and asked him how things were going and what his inflationary expectations were and what else was happening. This guy is obviously quite conservative, but he said he had just come from a meeting of his American managers and the purpose of the meeting at least in part was to decide upon what he called ""merit increases"" next year. It sounds like the Federal Reserve! He went around to the managers and asked them what they thought was appropriate for merit increases this year. They all gave him figures of 10 to 12 percent, and according to him he started off by saying: ""Are you laying off workers?"" And all the managers said ""yes,"" they were laying employees off. He suggested to them that merit increases this year should average 3 percent so long as they were laying off workers. I said to him: ""Managers don't like to do that because it may affect their own salary scales. What did you do about that?"" He said: ""Oh, I forgot to tell you! I told them they were getting zero."" Unfortunately he is a Frenchman, not an American. I don't know how typical that is.",266
-fomc-corpus,1982,He didn't want to [unintelligible]. I was shocked the other day when the head of one of the big insurance companies was in for lunch and said his company is giving wage increases that average about 10 percent.,45
-fomc-corpus,1982,Did you give him a lecture?,7
-fomc-corpus,1982,I did. I gave him a much stronger lecture than probably was politic. He apologized but gave me the argument that it's a catch-up because their workers' wages had fallen behind. I don't know how true that is.,44
-fomc-corpus,1982,Catch-up for the executives right now.,8
-fomc-corpus,1982,"Well, if they're not doing it in Boston, the insurance business will shift to Boston from New York.",21
-fomc-corpus,1982,"Maybe the new form of a viable incomes policy. Chuck, is to try to put constraints only on the [pay of] top executives.",28
-fomc-corpus,1982,I think that's right.,5
-fomc-corpus,1982,"If you do that, they'll see that nobody else--",11
-fomc-corpus,1982,Like the Federal Reserve.,5
-fomc-corpus,1982,I think there's something to that. Maybe we'll add that to our directive today. [Unintelligible] salary surveys.,25
-fomc-corpus,1982,I had a similar group in to our Bank--people from Philadelphia or nearby--and their figure wasn't 10 percent but 8 percent.,28
-fomc-corpus,1982,"I'm surprised it's so common in the financial world; they give the same kind of argument. Well, what other general comments are there?",27
-fomc-corpus,1982,"With all this understandable talk about Mexico and all the rest, you didn't say a word about small banks at the other end of the spectrum. But I think it's relevant to this general conversation. We started about four or five months ago carefully monitoring the small banks in the Ninth District. The monitoring takes several forms, including literally getting an instant picture of an examination the minute it is completed, and we are compiling lists of one-bank holding companies [in difficulty]. The criteria that we used was that if a one-bank holding company will consume at least 75 percent of the bank's 1981 earnings to meet its debt service requirements in 1982, it is on the list. It's really striking, to put it mildly, to see the number of institutions that fall into that category in the case of the one-bank holding companies. The number is substantial, and that of course assumes that they have the equivalent of 1981 earnings to work with in the future to meet these debt service requirements at the holding company level. With the problem loans and the loan losses and this new instrument and all the rest, one could at least question the proposition that they're going to be able to retain those earnings. Similarly, in the case of small banks, at least the ones that seem to be scattered around the Ninth District, it's not uncommon to see that the classified loans in the recent examination versus the last one are up anywhere from 200 to 500 percent. As of yet most of that increase is in the commercial sector and the Main Street retailers. There is not yet a major increase in the problem loans reflecting the agricultural sector itself. But one has to wonder how long that can last, given what is going on right now. The other thing that I would observe in terms of these small and medium size banks that I think is directly relevant to what was said earlier is that it is rather astonishing to me to see the extent to which these regional and small institutions have money placed in the London market. There are very logical and natural reasons why they should do that, and certainly we don't want to chase that money out of there right now. Nevertheless, it is a form of exposure even in these banking organizations that ties in with this international situation and goes in many cases well beyond our general perceptions.",457
-fomc-corpus,1982,"This situation is exposing, in my view, the structural weaknesses in the banking world of which these motherless banks are one example. But this kind of thing is another that gets these small banks in that kind of a market. The problems in the Eurodollar market to which I alluded are not confined to American banks by any means. North of the border, they have had problems in spades domestically and that has not gone unnoticed in international markets, and one can make the same comments about some banks in other areas. If we are ready, I think we ought to return to the policy discussion. The staff can distribute this draft text that I have for discussion purposes anyway. I have not read [the directive] probably literally for years; I don't know whether I've read it since I've been here. But for some reason I got this boilerplate part in front of me, which goes in front of the [operative part of the] directive, and it seems to me singularly inappropriate. It probably always is, but it is more so now. I think this could use a judicious sentence or two, making some allusion to the strains or pressures or whatever in the banking sector these days and to the problems of foreign lending in particular--it needs to be expressed very judiciously--just to indicate that we are someplace in the real world. And I would suggest that it might possibly be left to the Chairman to figure out a sentence or two to stick in there at an appropriate point.",302
-fomc-corpus,1982,I beg your pardon? I don't understand where you're going to add a sentence or two.,18
-fomc-corpus,1982,"Well, I'm not quite sure where I would put it.",12
-fomc-corpus,1982,What are you looking at?,6
-fomc-corpus,1982,He's talking about the first several paragraphs in the directive.,11
-fomc-corpus,1982,I'm talking about something called the general paragraphs.,9
-fomc-corpus,1982,It's probably on the calm side; it's bland.,10
-fomc-corpus,1982,It's the first paragraph he's talking about.,8
-fomc-corpus,1982,"Well, I'm talking about the first two paragraphs. I think [the additional sentences] would go appropriately either at the bottom of the first page or in the top paragraph on the second page. I'd add just a sentence or two saying that the markets were influenced during this period by concern over international lending--something expressed very calmly, but not ignored entirely.",70
-fomc-corpus,1982,This would mean that we would set no targets for M1? [Secretary's note: The draft directive wording circulated at Chairman Volcker's request did not include a target for M1.],38
-fomc-corpus,1982,"You are ahead of us. I'm just referring to this general boilerplate now, which I will cease talking about with the understanding that you may see a new sentence or two in there, if that's acceptable.",41
-fomc-corpus,1982,I think it's necessary.,5
-fomc-corpus,1982,"Well, even in terms of the facts, there is no reference here to the deterioration in employment, to the rise in insurance claims, or to any of the indicators of weakness. It is covered by ""The unemployment rate was unchanged at 9.8 percent.""",53
-fomc-corpus,1982,"Yes, I think-",5
-fomc-corpus,1982,Nonfarm payroll employment dropped a couple hundred thousand.,10
-fomc-corpus,1982,We don't get the new [unemployment] number until Friday.,13
-fomc-corpus,1982,And it's not going to be 9.8 percent.,12
-fomc-corpus,1982,"No, but we can put in something like: ""The unemployment rate in August was unchanged at 9.8 percent but there were some indications of a deteriorating labor market situation.""",37
-fomc-corpus,1982,"Yes, something like that.",6
-fomc-corpus,1982,We have the initial claims.,6
-fomc-corpus,1982,We know that employment went down in the nonfarm series.,12
-fomc-corpus,1982,"We can do a little editing of the whole thing. Everybody has a copy of this now, except for me I guess. I will open this for a general discussion when you're ready.",37
-fomc-corpus,1982,"I'd like to start with a technical question. If we put in this 8-1/2 to 9-1/2 percent [range for M2 and M3], where does that put the broader aggregates by the end of the year? I didn't see that projected.",57
-fomc-corpus,1982,"If M2 were 9-1/2 percent, for the year growth would be about 9-3/4 percent; if it were 8-1/2 percent, growth for the year would be about 9-1/2 percent. M3 looks as if it's going to be around--",64
-fomc-corpus,1982,That's for the fourth quarter to the fourth quarter?,10
-fomc-corpus,1982,"Yes, that's for the fourth quarter to the fourth quarter. I don't have the year-over-year figure.",21
-fomc-corpus,1982,Does the Humphrey-Hawkins Act require any notification to congressional committees on such a change or do you simply have to explain it when you testify in February?,32
-fomc-corpus,1982,"I don't know what the Act particularly requires, but if we change the annual target rather specifically, then I think we would report it. I would not interpret this that way. We said we would run around the top or were willing to run above for a while, and this is willing to run above for a while.",64
-fomc-corpus,1982,"It does, however, involve the question of market interpretation of numbers that are going to be running quite high.",22
-fomc-corpus,1982,"Well, aside from whether this is a good idea or a bad idea, when this directive is made public I think it is going to be viewed as a substantial change in the way monetary policy is being directed.",42
-fomc-corpus,1982,A substantial temporary change or a substantial change?,9
-fomc-corpus,1982,A change to reverse.,5
-fomc-corpus,1982,"No, I wouldn't say it's a reverse, but it is a substantial change. And the time horizon on the financial markets is such that whether it's a change for three months or two or three years at this point--",43
-fomc-corpus,1982,It won't be until Christmas time when it is revealed to the public.,14
-fomc-corpus,1982,"No, it will be revealed at the end of November.",12
-fomc-corpus,1982,"I assume there will be some occasion, probably fairly soon, for describing in general terms what we are doing.",22
-fomc-corpus,1982,Before it's published?,4
-fomc-corpus,1982,Certainly before it's published.,5
-fomc-corpus,1982,The market will start to see the results of this.,11
-fomc-corpus,1982,Long before it's published.,5
-fomc-corpus,1982,"Mr. Chairman, why would this be preferable to continuing to specify the target for M1 but putting in a disclaimer or at least the warning that M1 might behave in an unusual manner and if that occurs, we would reserve the privilege of adjusting it accordingly? I'd prefer that for the sake of continuity. If we ignore M1 totally, despite the explanations that are given, I think people could read sinister purposes in it; it would make base drift pale in comparison to dropping one of our important targets totally. I'd rather see us say that we're doing this but it is somewhat tentative due to what might happen on these new instruments. To ignore M1 would really run the flag up that in some people's perception we are making a basic change. There is still a significant amount of debate between Frank and me and others; some of us think that M1 is not as unreliable as others do. I just think to drop it would look as though we've really retreated in that regard.",196
-fomc-corpus,1982,"Oh, I don't think there should be any implication here of more than a one-quarter problem. It may be more than that, but this isn't meant to carry any implication of that. But I would like to separate the substance from the presentation. In substance what I feel very strongly about is that it would be a mistake to have any kind of directive that would drive us deliberately or otherwise to higher interest rates. I think it was a mistake to have that kind of directive last time. I think it would be more than a mistake this time, and it's not going to be acceptable to me. Beyond that it is desirable to get some easing in this situation.",132
-fomc-corpus,1982,"Well, doesn't alternative B for M1 as shown in the Bluebook imply roughly that the fed funds rate would remain in the 8 to 12 percent range? In other words, how would this avoid--",42
-fomc-corpus,1982,Let me clarify my comment. A 12 percent federal funds rate currently is totally unacceptable to me.,20
-fomc-corpus,1982,"That's the top of the range for ""B.""",10
-fomc-corpus,1982,I thought you were going to say 11.,10
-fomc-corpus,1982,Eleven percent is also unacceptable to me.,9
-fomc-corpus,1982,"But even so, I think you have to recognize, Larry, that the staff hasn't factored in the possibility--",23
-fomc-corpus,1982,"The central point is that whatever the [monetary variable] is that we are operating on, it is a staff guess, which may or may not be right. I'm saying that I am not willing to stake my life, so to speak, on that guess being right. The risks are too great.",62
-fomc-corpus,1982,"How would this give you greater assurance, Mr. Chairman, that rates could not [rise]? For example, if some people felt through some complicated thinking that ignoring M1 was an expansionary or inflationary act, how would this wording assure that the fed funds rate would not increase just as substantially as setting a ""B"" target for M1, for example, and saying it might be right or wrong depending on how people respond to--",88
-fomc-corpus,1982,"I don't want to respond to the particular wording at this point. Obviously, we have to get into that. But what this is meant to convey is an operational approach that modestly moves the federal funds rate down. Whether it involves a discount rate change or not is something the Board is going to have to decide. But that is the tenor meant to be given here, rather straightforwardly, I might say.",82
-fomc-corpus,1982,"Mr. Chairman, this indicates your dissatisfaction with the way we handled it last time--that is, to have a target that was sensitive to--",29
-fomc-corpus,1982,"Yes, I am totally dissatisfied. What we did last time was unacceptable to me. I just want to make that plain. I think we made a mistake last time. I think we would not have so difficult a problem psychologically this time if we had not done what we did last time. It wasn't that big a mistake in some sense. But it's unfortunate that we ended up at this meeting with the federal funds rate and private rates about 1 percentage point higher than they were at the time of the last meeting because we had a high M1 figure in September. That was the only reason it happened.",121
-fomc-corpus,1982,There was still some hope then that we could get within the target ranges for the year. This time it looks very doubtful that without a self-defeating effort we would get M1 within its target range.,42
-fomc-corpus,1982,"I'm not going to cry over last month's decision. All I'm saying is, looking ahead, that I don't want to end up a month from now with a 12 percent federal funds rate. I don't even want to end up with an 11 percent federal funds rate, based upon everything I know about the market situation, the national situation, and the world situation.",73
-fomc-corpus,1982,"What you are saying quite plainly, if I hear you correctly, is that you think rates are too high now and you don't want even a tiny increase from the present rate of 10-1/4 percent on the fed funds rate. You don't want it averaging 11 percent.",57
-fomc-corpus,1982,I surely do not.,5
-fomc-corpus,1982,"You want literally to cap interest rates where they are now, or better yet, to drive them down.",21
-fomc-corpus,1982,To a 10 percent top?,7
-fomc-corpus,1982,"Drive them down? I'd like to see them a little easier, yes, if we can get by with that.",23
-fomc-corpus,1982,"I want to say, respectfully, that I'm flatly opposed to this. If we were to do this, especially now, I think it will consolidate any adverse opinions against us that are already out there about our motives for doing this at this particular time. At a breakfast meeting with the leading bankers in Atlanta 72 hours or so ago, at which Mayor Young was the guest of honor speaking to us, he volunteered in front of all the bankers in the room a comment--we were discussing the city's problems--that he was instructing his staff to issue some municipal bonds immediately in order to do a certain project in the city of Atlanta. I said: ""What's the rush about this, Andy?"" And he said: ""You guys are going to change policy right after election day and now is the time to do it."" This was Andrew Young. I've heard from more people than I care to describe to you comments questioning our integrity and our motives in the context of an election campaign.",197
-fomc-corpus,1982,"Yes, but Bill, we've got to do what we think is best for the economy and let those comments go.",23
-fomc-corpus,1982,"First of all, I'm not convinced that pegging interest rates at today's level or trying to push them down is best for the economy. Secondly, changing policy now in this context and saying overtly, as you said it, that we should hold interest rates where they are and try to push them down is going to make us extremely vulnerable to charges--unfounded I feel, because I don't question the motives of the people here who would vote for this. I think the repercussions of this are going to be terrible.",104
-fomc-corpus,1982,That's an enormous concession.,5
-fomc-corpus,1982,People are going to come down all over us.,10
-fomc-corpus,1982,"You know, Bill, I would put the emphasis a little differently here. Maybe the wording needs to be changed some; I wouldn't put it in terms of moving interest rates down. I think the problem is that M1 could do almost anything in the period to come. In fact, it already has done almost anything. In August and September we had a 35 percent rate of increase in NOW accounts. And that's not associated with the--",88
-fomc-corpus,1982,I'm not trying to defend M1.,8
-fomc-corpus,1982,"Our problem, though, is not just that the number might be 1/2 percent too high; it might be way too high.",28
-fomc-corpus,1982,We may have a $10 billion increase in M1 in the first week in October.,18
-fomc-corpus,1982,"So, I support the idea of getting off M1 at this particular time. Perhaps there is more emphasis on it than there ought to be here. It really doesn't come through as strongly when one reads this [draft directive language] that we're trying to move interest rates down as when the Chairman talks.",60
-fomc-corpus,1982,"I'm reacting to what the Chairman is telling us, which is I think commendably honest, in that he is saying he really doesn't want to see interest rates raised. That's what I'm reacting to regardless of what it says here. And I think that will be apparent in the marketplace well before this is published and our integrity will be brought into question if we proceed along that line.",75
-fomc-corpus,1982,Your vision of our integrity.,6
-fomc-corpus,1982,"My vision, yes.",5
-fomc-corpus,1982,"Even if this were done, people will still measure M1 in their closets and under their beds and so forth in order to--",26
-fomc-corpus,1982,"We haven't suggested that we won't publish the number, Larry.",12
-fomc-corpus,1982,"If, in order to keep interest rates artificially down or otherwise down, we have to inflate M1, the minute that becomes apparent we've lost the ballgame and we will have just as high--",39
-fomc-corpus,1982,"We're not inflating it. I think you misunderstand. These are structural shifts that are occurring that possibly are going to produce a much higher M1 for a time. And the question is: Should we resist it, which inevitably would mean higher rates, or should we recognize that there has been a structural shift? Would we be better off not looking at it so much for a little while?",78
-fomc-corpus,1982,"Well, how does this differ, Chuck, from our experience with NOW accounts? I remember when everybody got all jumpy about NOW accounts.",28
-fomc-corpus,1982,"Well, I think NOW accounts are causing us an awful lot of trouble.",15
-fomc-corpus,1982,"That's right. I think we probably have not adjusted for NOW accounts correctly. The total growth in M1, almost, has been in NOW accounts this year. To what extent does that reflect real money? Who knows?",44
-fomc-corpus,1982,"I think we have to detach temporarily from M1 because it has become so uncertain both because of the all savers certificates bulge and the new instrument coming along. Even if that bulge were not to occur, we would have the new instrument and we simply don't know [its likely effect]; all we know is that it could be very major. We can put more stress on the evidence of rising liquidity preference, and that gives us the opportunity to target on M2 with a proviso that if it exceeds [our expectations], we'll take this as evidence of an increase in liquidity preference and not follow up with interest rates. That seems to me perfectly defensible substantively and still within the formal framework of our policy.",144
-fomc-corpus,1982,"I'd like to turn the integrity argument around and argue for the second thoughts of the commentators and the analysts of our policy. If we move in this direction of minimizing or eliminating M1 temporarily--and I'm not ready to throw it overboard--and we pursue a policy that deliberately brings down interest rates, the first thoughts will be that we caved in, the election is coming, and here they go again. The second thoughts, I think, will be different. The second thoughts--which may be based on some analysis rather than on a knee-jerk reaction to what we do--would be that the integrity of the Federal Reserve is that they pursued policies with an eye to the growth of the economy, to the liquidity of the domestic and international system, and indeed, they did this despite the political consequences that occurred in the short run. They maintained their integrity as a central bank. I think that's a very different conclusion from the second thoughts on the other side which might be that the Federal Reserve should have brought interest rates down but the politics of the situation were such that they couldn't.",218
-fomc-corpus,1982,"Well, who has been able to demonstrate any reliable relationship between the growth of the broader aggregates and economic activity? M2 was growing way above its range last year, I think, or the year before and the economy was sick.",46
-fomc-corpus,1982,Milton Friedman wrote a big book on the subject.,11
-fomc-corpus,1982,"I can't read, but--",6
-fomc-corpus,1982,It is certainly true that velocity has been increasing for M2 but not as much as for M1.,21
-fomc-corpus,1982,Do you think the evidence shows that M2 is as good a predictor as Ml?,17
-fomc-corpus,1982,"No, as M1 used to be.",9
-fomc-corpus,1982,But this is short run.,6
-fomc-corpus,1982,It depends upon which analyst looks at it.,9
-fomc-corpus,1982,"We have made that switch, though not quite as explicitly; nevertheless, we've made it from time to time. We have placed more weight on M2 at times.",33
-fomc-corpus,1982,"It seems to me that the [appropriate] timing might be the next meeting. In terms of setting quarterly targets, we might look at an M1 target and tolerate above target performance [now], with all saver certificates and so forth coming due. And then at the next meeting if we are looking at an instrument that is very unpredictable in terms of what it's going to do to M1--having set the quarterly targets at this meeting--we could say that for some weeks during this part of the quarter we're going to have to look more heavily at M2.",112
-fomc-corpus,1982,Mr. Guffey.,6
-fomc-corpus,1982,"Let me first of all say that I agree with the proposal that rates shouldn't go higher, that they should be in some way capped from this point forward for some period of time. Indeed, they should be urged to come down, not precipitously but in a modest way, over the quarter. But having said that, I look at the language that you have put before us and am trying to equate that with what the staff has in the Bluebook. It seems to me that the 8-1/2 to 9-1/2 percent range for M2--or at least the ""A"" proposal [of 9-1/2 percent] --and then the caveat in the last sentence would suggest that we will tolerate growth above that given some perception of liquidity needs or otherwise. I'm suggesting that in my view at least--and I will ask a question of Steve in a moment--that probably will result in rates coming down immediately following this meeting, depending upon how we build the path. And I would hesitate to associate myself with those who would want a fast drop in rates. If that's not a correct assessment, I would like to ask Steve: How would you build your path for the reserve objective based upon this kind of language? And what would you expect to happen within the next two weeks? That is rather a critical period for us.",276
-fomc-corpus,1982,"Well, with this kind of language, I would take M2 growth at somewhere around 9 or 9-1/2 percent or whatever the Committee sets and project the M1 that is roughly consistent with that, which by the Bluebook [estimates] would be on the order of 5 percent, forgetting these special circumstances. So, if we assume substantial increases in the first week of October and take the borrowing that the Committee says to take--",92
-fomc-corpus,1982,"Well, it is important where we're going to set the initial borrowing level; that is critical to what happens to interest rates in the next two weeks.",30
-fomc-corpus,1982,"Well, that would be the Committee's decision. But consistent with some easing, one would assume that the initial borrowing assumption would be down [to] about $200 million, moving back toward where it was at the last meeting and probably a little lower because that initial borrowing assumption is really pushing to move the funds rate back above the discount rate. So, in part depending on the sense of what the Committee wants, it may be below that level.",90
-fomc-corpus,1982,"I guess that sort of makes my point. I'm interested in the rates coming down and not going up, but I would object to seeing a precipitous drop built upon this kind of path. It occurs to me that we may have fed funds trading in the 8-1/2 to 9 percent range rather quickly if we're going to set that kind of initial borrowing level and these kinds of targets.",81
-fomc-corpus,1982,"Well, at the 10 percent discount rate, if you had a borrowing of $200 million, just to take an example--I'm not saying it should be at that level--I would not expect the funds rate to get as low as that. It would be more like 10 percent or a shade under. Peter may have another view.",69
-fomc-corpus,1982,I would agree with that.,6
-fomc-corpus,1982,I might remind you of the probable setting in the next few days. Indications are that we will have a very sharp decline in the money supply for the last figure that means anything. And we probably will have an unemployment rate well over 10 percent published this week.,54
-fomc-corpus,1982,You said a decline in the money supply?,9
-fomc-corpus,1982,In the week.,4
-fomc-corpus,1982,Those money numbers are not going to last except for the one week?,14
-fomc-corpus,1982,"No, but that is the last number that will have no distortion from all savers certificates in it.",21
-fomc-corpus,1982,"Steve, in setting the path now, wouldn't you regard a change or a shift in the relationship between M1 and M2 that you could identify as coming in a week or two or three sort of as a multiplier adjustment?",45
-fomc-corpus,1982,"Yes, if the Committee were adopting this sort of directive, those variations in M1 would all tend to be allowed for as multiplier adjustments.",28
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,That would be the logic.,6
-fomc-corpus,1982,"So, it would depend on the setting of the initial borrowing level, but it might not in fact result in a big decline in borrowing. It would depend on their relationship as to how many nonborrowed reserves you provide.",45
-fomc-corpus,1982,But we are at a borrowing level of about $500 or $600 million.,16
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,And if you're going to build the path on $200 million--,13
-fomc-corpus,1982,"No, I was using that as an example.",10
-fomc-corpus,1982,We have to decide what to build the path on. Mr. Black.,15
-fomc-corpus,1982,"Mr. Chairman, we are all in agreement on only one thing, I think: that we would like to see interest rates come down. I would like to raise the question of whether it might not be reasonable to suppose that a little resistance now to the strength we've had in the aggregates might not save us from a bigger move later on. We have engineered a pretty sharp reduction, almost 400 basis points, in the federal funds rate from its level back in July. Historically when we've had that [kind of decline], we've had an explosion of the aggregates. And if that does happen--though, of course, all of us hope it doesn't--we may find ourselves in a position where we are going to have to move against that. We have just finished a discussion of countries that have delayed taking wise steps and they have gotten to the point where they have to take very drastic steps. I have a whole collection of quotations from members of the Board of Governors who have stated very eloquently that this is the point at which we've lost it, usually, in the past.",215
-fomc-corpus,1982,"You won't find that quotation from me. There was a quotation to that effect cited at this meeting before, which I must correct for the record. I have said upon a number of occasions that the way we have lost this game is by staying with an expansionary policy too long during a recovery period. That statement also says the mistakes were not made at the bottom of a recession.",76
-fomc-corpus,1982,"Okay. Well, it may be a delay of timing, but I'm not going to quarrel with you.",22
-fomc-corpus,1982,It's rather significant.,4
-fomc-corpus,1982,"My feeling is that we can't pay too much attention to the aggregates right now but that we ought to nudge the federal funds rate [up] a little as a way of showing that we're concerned about that. I don't expect that to have much effect. But I think it could keep us from having to move [rates] a whole lot later on, which really would worry me a great deal. But maybe I am dead wrong on this. It may be that the aggregates will come into line very beautifully and we will have no worries. That would be the best of all possible worlds. But that's not what I think is the most likely case. So, I'm opposed to what you have suggested here, although I understand full well how a reasonable person could be expected to--",155
-fomc-corpus,1982,Do I understand that you want to nudge the funds rate up?,14
-fomc-corpus,1982,A little. I wanted to do that between the last meeting and this meeting.,16
-fomc-corpus,1982,Governor Gramley.,4
-fomc-corpus,1982,"Well, I think the period ahead is one in which we have ample reasons not to target on M1. My own judgment, however, is that the problem we face is much more fundamental than whether we target on M1 now because of all savers certificates and the new DIDC regulations that will come out as mandated by legislation. I think the world economy is literally starved for liquidity. And I'd liken this [situation] to the dietary analogy that suggests. Fat people have good reasons to go on diets. Diets are very good things unless they get out of hand. They sometimes do. And when they get out of hand, the patient becomes anorexic and that's often a fatal disease. If it's not fatal, it's often a life-long disease. I am worried that we have gone on long enough starving the world economy for liquidity and that we may be at a point of impending anorexia. Larry Roos mentioned earlier that he thought real interest rates were getting down toward normal levels. I must say I don't know how he reaches that conclusion. The three-month commercial paper rate is 10 percent, and my perception is that the three-month expected inflation rate would be somewhere in the neighborhood of 4 to 5 percent. So that makes the cost of issuing commercial paper 4 to 6 percent in real terms. Private corporate bond rates for AAA issues are 13-1/2 percent and are much higher for lower-graded issues. I understand that most businesses now have a 5-to-10 year inflation expectation of something like 6 to 7 percent . So that makes 6 to 7 percent the long-term real interest rate. That simply isn't normal. It is not even close to being normal. There are all kinds of reasons for that, and I think fiscal policy is one of them. But if you look at what has been happening to the real money stock recently, I think you will find the answer largely in a very, very tight monetary policy. And it started before October 1979; it started earlier. In 1979, we had an increase in the nominal money stock of 7-1/2 percent; prices went up above 12 percent. In 1980, nominal money went up 7-1/2 percent; prices again went up around 11 to 12 percent. In 1981, money growth was 5 percent against a price increase of 10 percent. This year it will be a little closer probably. But we've had a very, very substantial drop in the real money stock in this country. It has forced the kinds of policies other countries are following. So, I think we have to do what is necessary to provide the liquidity that will permit this economy to grow and will permit the world economy to grow. I think we're right in going in the direction we are at this particular meeting of unhinging [policy] from what is likely to happen to M1 in the months ahead. I am wondering as I look at this directive if the last two sentences are necessary. This leaves the directive focused on expanding bank reserves as necessary for an orderly and sustained flow of money and credit and that leads to an expectation about M2 and M3, without these last two sentences about somewhat slower and somewhat [more rapid]--I'm sorry, I think I'm losing my voice.",677
-fomc-corpus,1982,I think the last sentence particularly raises questions.,9
-fomc-corpus,1982,Mr. Corrigan.,5
-fomc-corpus,1982,"Mr. Chairman, I clearly would fall on the side of the argument that says we don't want an increase in interest rates, even by accident. An increase in interest rates in the current setting, even if it came about by accident, would border almost on being irresponsible at this point. On the other side, I'd like to think that maybe we could orchestrate a moderate and temperate and further gradual reduction in market interest rates. In the current circumstances that inevitably calls into question relationships about the discount rate and our view about what frictional levels of borrowing really are, much as they did back in July when the last reduction of the discount rate took place. But having said that, I would be somewhat uneasy to find ourselves in a situation where we are dealing with an unbridled attempt to force down interest rates as opposed to trying to nudge or orchestrate them in that direction. So, in general, I have no great problem with what is being suggested here. I would just throw out the idea, and I'm not sure how to do it, that one way we might dissipate some of the concern about the longer-run implications of this--or stated the other way, reinforce the view that it is a temporary thing--would be to put a sentence in the directive someplace that makes at least oblique reference to a continuing longer-run commitment to achieve moderate and declining monetary growth, perhaps in the context of the '83 targets or something like that. It's not easy to do. But it might help deal with this perception problem.",307
-fomc-corpus,1982,Governor Teeters.,4
-fomc-corpus,1982,"My views are well known, so I can be very [brief]. I don't think we can get a recovery with interest rates where they are, and I am very disappointed that they went back up since the last meeting. I had hoped that they would go through the 9 to 9-1/2 percent level and maybe go down again. Therefore, I would support anything that is going to bring us a generally lower rate structure and bring mortgage rates and other long-term rates down and gin up the economy not only here but worldwide. So, I'm in favor of this. I don't object to those two last sentences. I think they give the directive a very good flavor by saying that we're going to operate in the interest of liquidity in the economy.",151
-fomc-corpus,1982,Governor Martin.,3
-fomc-corpus,1982,"I would join with Governors Partee and Teeters in the view that the impending recovery is probably not as projected, given today's interest rates. I would call your attention to the rather heroic assumption, in current dollars, of the recovery in residential structures quarter-by-quarter running between plus 24 percent and plus almost 40 percent. Given today's interest rates and today's lack of liquidity in the financial system, I simply don't feel that those are obtainable growth numbers. If that's part of the consumer leading the recovery, it is not likely to occur. Much more important is the weakness in business fixed investment; it is too strong as projected. The first thing corporations have to do is to reliquify themselves; they're going to have to raise $20 billion or $40 billion or $60 billion in a very short period of time. And they're not likely to be able to do that in an economy with the degree of liquidity it has today. It appears that there are not uncertainties anymore but fear out there in the capital markets. Part of it is derived from the international situation but a good deal of it is the awareness of the precarious nature of our own private corporate sector in this country. And I think the need for reliquification extends very obviously to the thrift industry and to the small banking industry as they face the changes that need to be made there. But to get back to business investment, which I think is going to decline more than our projections show, corporations face very low returns on investment after taxes despite the efforts of the Congress to change the depreciation and the cost recovery situation. As we know, the recently enacted tax revenue measure has taken back half of the benefits, plus or minus, in that area. So, we face an extended period of weakness in business investment. I think the best thing we can do is to bring rates down and help reliquify so that sometime out in 1983 or even 1984 we will have a recovery in the private sector. I would support a temporary moving away from an M1 target. I believe that is consonant with maintaining our integrity as a central bank. We would be making a real mistake if we become too mechanical in the application of a policy in a multi-trillion dollar economy. So, I would like to see this directive, perhaps with the Corrigan codicil adding language pointing toward the reduction in the growth of the money supply over time. I would also like to see a borrowing level of $200 to $300 million with a verbal directive, if you will, that interest rates be brought down, but in a gradual way, echoing a previous comment here. [Unintelligible] that we temporarily target interest rates and that we be overt and candid in our specifications.",552
-fomc-corpus,1982,"During that temporary period, may I just inquire whether we would continue to publish weekly M1 figures.",20
-fomc-corpus,1982,Of course.,3
-fomc-corpus,1982,"Yes, indeed, unless we can get the four-week numbers published one of these days in addition.",20
-fomc-corpus,1982,"Pres, what if those weekly figures over this temporary period showed a rather unusual and alarming increase in M1? They would be out there for everyone to see. Do you anticipate that if that were to happen we would be able to move interest rates down? In other words, if the consequence of what we were doing [unintelligible]. The traditional means of bringing short-term interest rates down was to pump money into the economy, and if that was reflected in the weekly figures and they showed a bulge, assuming that everyone around this table wants to see lower interest rates--",116
-fomc-corpus,1982,"Larry, this is not the problem here.",9
-fomc-corpus,1982,"This isn't the problem, I'm afraid. Those figures may show a bulge and it may have nothing to do with pumping money into the economy. It may show a bulge because $22 billion of all savers certificates are maturing, some of which are temporarily being lodged in M1. Now, what do you do with that figure?",69
-fomc-corpus,1982,We go out with an announcement telling the public what happened.,12
-fomc-corpus,1982,We would explain it.,5
-fomc-corpus,1982,"Well, I would suspect, and I'd be prepared to place a small wager on it, that the all savers phenomenon will wash itself out within 60 days at the most.",36
-fomc-corpus,1982,"Oh, I agree with that.",7
-fomc-corpus,1982,Then in 60 days we will have a new instrument.,12
-fomc-corpus,1982,"In the meantime, John Deere fails.",8
-fomc-corpus,1982,Of course it will wash itself out. That particular phenomenon will wash itself out in less than 60 days.,22
-fomc-corpus,1982,Less than 60 days?,6
-fomc-corpus,1982,But I don't know that for sure.,8
-fomc-corpus,1982,"Mr. Chairman, since we're on this subject, if I can jump in here for a minute, one proviso I would make in my general support of your proposal is that we breach a second tradition here, if we are going to drop the M1 target temporarily. Normally, is it not true, Murray, that the minutes of this meeting would not be publicly released until the December FOMC meeting?",82
-fomc-corpus,1982,"No, November 19th, three days after the November meeting.",14
-fomc-corpus,1982,After the November meeting. I don't think we can wait that long.,14
-fomc-corpus,1982,"No, I agree with that.",7
-fomc-corpus,1982,I think we need to get out this information PDQ.,12
-fomc-corpus,1982,We have to say something if we get a big figure in the first week of October. We have to say that so far as we know that figure is an all savers phenomenon and we're not going to pay any attention to it or to the M1 figures in the immediate future.,57
-fomc-corpus,1982,"Okay, I agree completely. I'm glad to hear that because to do otherwise I think would be very, very risky.",24
-fomc-corpus,1982,Governor Wallich.,4
-fomc-corpus,1982,"Well, I feel very much that we would be better off if interest rates were lower. The question is: How do we get from here to there? The wisest thing, if we wanted to get there, would be that we shouldn't start from here. That option isn't open to us. We have to get there without sacrificing all that we've created in the last year in terms of credibility and a framework for giving people confidence. So, I think we should still have a money supply directive not, as this looks to me, a money market or interest rate directive. I think we should give up temporarily on M1, which is beset by all the uncertainties of the all savers certificates and the new instrument. That doesn't mean we wouldn't go back to it. Logically, M1 is the best of the aggregates. We should stress liquidity preference more than the alternative directive does by putting a reference to it at the beginning of the last sentence, indicating that there is mounting evidence that exceptional liquidity demands are upon us.",205
-fomc-corpus,1982,At the beginning of what sentence?,7
-fomc-corpus,1982,"The last sentence. Instead of starting with ""Somewhat more rapid,"" I would say ""In the light of mounting evidence that economic and financial uncertainties are continuing to lead to exceptional liquidity demands, somewhat more rapid growth in the broader aggregates would be tolerated."" So, we allow for an overshoot of M2, which is the one thing I would suggest that we target.",74
-fomc-corpus,1982,"Do we have evidence of that, Henry?",9
-fomc-corpus,1982,"Well, I think there is.",7
-fomc-corpus,1982,It could be up.,5
-fomc-corpus,1982,Liquidity preference?,3
-fomc-corpus,1982,"It seems clear that velocity, instead of rising as had been expected, is--",16
-fomc-corpus,1982,"I thought the staff said that the increase in the quantity of M1 recently is pretty much in line with a movement down the demand function, given the current interest rates, and not a shift in the demand function.",43
-fomc-corpus,1982,"As you look at the behavior of velocity over the year, it does not--",16
-fomc-corpus,1982,"That was a good argument last April, but I'm not sure it is now.",16
-fomc-corpus,1982,Well--,2
-fomc-corpus,1982,"Well, I think it is a defensible argument. I would suggest that we drop the reference in the first sentence of the second paragraph to the expansion of bank reserves and reduced pressures but shape the M2 path in such a way that we would have a gradual decline in interest rates. We would have to formulate the borrowing assumption to make that feasible. I can't do it off the top of my head; I don't know just what that would be. I would make the funds range narrow to reflect the fact that we are backing away from money supply targets. And we could cap it at 10 percent, if that were really necessary. All it would mean is that we would consult, and at times like this we ought to consult more frequently anyway. That's how I would structure the directive.",158
-fomc-corpus,1982,Mr. Boehne.,6
-fomc-corpus,1982,"Well, I think how one comes out on this depends on whether one wants to take the risks on rules or on the side of discretion. It does seem to me that we have pushed the domestic economy and the financial system and the world economy about as far as we can push them. And this is not business as usual. I think we have to take our chances on the side of discretion, which tells me that at a minimum we cannot have higher rates in these circumstances; and if we can get lower rates, that's fine. I must say, however, that whenever one bets on discretion versus rules, it depends a good bit on who is making the discretionary decisions. I believe this kind of directive puts much more than the usual amount of authority in the hands of the Chairman. And with this particular Chairman, I don't have any problems, given the circumstances. So, because of the situation and because of the person who is going to have to use a good bit of this discretion, I'm supportive of the general approach as proposed in the alternative directive language.",211
-fomc-corpus,1982,"Mr. Balles, I have you on the list, but you have already commented. Or do you have something more?",25
-fomc-corpus,1982,"I have one other question, Paul: Did you intend that this be the entire part of the operational paragraph--that is to say that we would have no mention of a federal funds rate range?",39
-fomc-corpus,1982,I have an open mind about that. I didn't mean to infer one thing or the other; I don't know whether it's necessary but I have no problem with it. I do think it has to be a bit lower than we had before if we put it in.,53
-fomc-corpus,1982,"Right. When you are ready to discuss that, I think we ought to get that settled because if we create too many revolutions in one directive, we're surely going to shake up the marketplace.",39
-fomc-corpus,1982,I don't have any problem with the traditional sentence.,10
-fomc-corpus,1982,"I'm not sure what the better part of wisdom is; but if we stay silent on the federal funds range, that would really be a major break in tradition.",32
-fomc-corpus,1982,Then the issue is whether we're symmetrical around [the current level].,13
-fomc-corpus,1982,Mr. Keehn.,5
-fomc-corpus,1982,"Given my sense of the general economic scenery, I certainly am in the camp that thinks that we simply must bring rates down. I think we are at a point where we cannot go much longer in the way the economy is currently performing or we're going to see some very serious results emerging. Therefore, I think it's exceptionally important that we move toward bringing rates down. I certainly would understand and agree that there is a risk to this in that the markets, as we know, could see it adversely. But I would agree with Governor Martin that mature and careful thinking is likely to [bring the market] to the view that this seems to be a realistic change, given the circumstances we're dealing with. And I think the result could be positive as opposed to being negative. So, I support the directive as it has been laid out. It seems to me that the last sentence is a very important conclusion; [I'd leave it] rather than delete it. It is our view that this is a major change that we're making but one that is appropriate and very important.",211
-fomc-corpus,1982,Governor Rice.,3
-fomc-corpus,1982,"Well, Mr. Chairman, I have very little to add to your tour d'horizon. I think it covers admirably the situation that we find ourselves in. I would simply want to emphasize one thing and that is the timing of the recovery; the recovery is very late indeed. We've been expecting recovery for at least six months, possibly longer. And the longer the economy stays in the doldrums, the greater the risk and the greater the dangers. In your words, the developing disarray feeds upon itself, and until we see some evidence of a turnaround, I think we're in a very vulnerable situation. So, in this environment, we should not do anything that risks rising interest rates; on the contrary, we should do what we reasonably can to get interest rates moving down. Therefore, I support this directive language. I also agree with those who would shift emphasis away from M1 temporarily at this time. I also would retain the last two sentences of the directive; they give the sense that we have not totally abandoned targeting of the aggregates and I think it's important to maintain that impression at this time. I don't know if this is the time to discuss borrowing, but if it is, I would be prepared to see borrowing in the range of $200 million or less.",257
-fomc-corpus,1982,That doesn't include those special liquidity needs of particular banks?,11
-fomc-corpus,1982,"No, it doesn't.",5
-fomc-corpus,1982,Governor Partee.,4
-fomc-corpus,1982,"I also would support a change in the directive language this time. I'm perhaps a little less enthusiastic than some of you about specifying a desire for interest rates to move in a particular way because I don't really think we know that much. Every indication that we have does seem to suggest that interest rates are too high, but we just don't know that much about what determines interest rates and what they need to be to equilibrate markets. I would remind you all that we are in a situation with a deficit running at $160 billion or thereabouts. And that really substitutes a cash flow financed by the government for a cash flow financed by the private sector. And since the government is interest-insensitive, one has to presume that higher interest rates will be needed in the private sector than would otherwise occur. That's just one of many, many analytic comments made. But I am convinced that M1 for several months looking ahead is going to be a very poor and implausible indicator of what is going on in terms of monetary expansion. As I've said, we did have a 38 or 39 percent rate of increase in NOW accounts in July and August and we certainly are going to have an all savers certificate bulge in NOW accounts in the period right ahead. If I could think of some way to keep the M1 range, I would; but it's so implausible that we would have any idea what the number will be that I just don't know how to keep it and retain our credibility. It may well be that when the new instrument comes out we will get a low M1, depending on how we classify the new instrument, as M1 or M2. For the moment, though, we're just in total disarray and we need to recognize that fact. And I would say that we need to recognize it publicly and soon because otherwise the market will react in the way Larry says. They will see a high number and will say that the Federal Reserve is going to have to screw down on their number and therefore rates will go higher, and they will work them higher in anticipation of that event. So, there has to be some kind of communication, if we go ahead with this, soon. I'm not a great supporter of M2, as you all know, because I think it does have very important problems of interpretation in the longer run. But for this immediate period ahead I'm not so disturbed about an M2 number of the kind suggested, 8-1/2 to 9-1/2 percent. I really can't imagine a liquidity change that is going to get us very far off that as an upper limit of what is likely to occur. The early indications are that [M2 in] October is going to be pretty low, so I think it's a fairly safe thing to go on. And mainly because we're contemplating so many things that will make our critics suspicious--and I agree that they will be very suspicious--I would drop the last sentence of the proposed directive. I understand that something could happen that would lead us off [track], but if we say here [that M2 is] expected to be in a range of around 8-1/4 to 9-1/2 percent for the September-to-December period, with the expectation that October is going to be fairly low, I think it gives us enough room without raising this additional question in people's minds. As I think about what is bothering a lot of you, in particular this rate setting issue--and I think Bill Ford spoke out most strongly on that--it may be this phrase at the beginning of the second paragraph, ""taking account of the desirability of somewhat reduced pressures in private credit markets in the light of current economic conditions."" That would seem to me to be a signal that the Federal Reserve is following rates rather than a more objective measure. So, I think it may be desirable to drop that phrase and substitute instead something like ""consistent with the early resumption of economic growth,"" which doesn't necessarily imply lower rates and easier conditions but does imply the need for an orderly and sustained flow of money and credit. That might help a little with that problem. On the suggestion that Jerry Corrigan made that we again repeat our insistence that we're going to be conservative over a long period of time, I don't know. Jerry, there's a whole paragraph that would be picked up from the past directive that talks about the long-run plans of the Committee and so forth; to force it into this paragraph seems to me so apologetic that it would backfire on us.",916
-fomc-corpus,1982,"I don't think anybody reads the boilerplate. The kind of thing I'm talking about, since I gather the Chairman intends to say something, could be dealt with in that way as well.",37
-fomc-corpus,1982,I think the way to handle it is that it would be quite easy for the Chairman to say that we expect the rate of inflation to continue to decline next year and that over the long run we will be following an anti-inflationary policy. I wouldn't say anything about the monetary aggregates next year but I'd say we expect the rate of inflation to decline even with a--,75
-fomc-corpus,1982,"It's difficult to handle here just in a phrase without sounding apologetic. The notion that we want to be constraining and that we are going to continue to run monetary policy pretty carefully is good, but the yardsticks have changed. We are having trouble measuring in this period using the conventional yardsticks.",60
-fomc-corpus,1982,"The existing phrase I would remind you says: ""The Committee also indicated it was tentatively planning""--this is enshrined in our decision--""to continue the current ranges for 1983 but it will review the decision carefully in the light of developments over the remainder of 1982."" That's not exactly the most ringing [endorsement].",69
-fomc-corpus,1982,"Not really, no.",5
-fomc-corpus,1982,I agree.,3
-fomc-corpus,1982,"On the other hand, I'm not sure I would be prepared to support much more than that for the year to come. One last comment. You spoke a little about the level of borrowings. I don't see any reason to reduce the initial borrowings so much from where they have been. If I understand it, what we have done is to allow almost all of the expansion that occurred in the monetary aggregates to show through in larger nonborrowed reserves. So, borrowings really are where they are in good part because of the need to deal with these special situation borrowings. We might reduce it to $400 to $500 million, but I wouldn't take it way down to the kinds of numbers that people have mentioned, $200 million or less, as a starting position. That's all.",159
-fomc-corpus,1982,Mr. Boykin.,5
-fomc-corpus,1982,"Well, Mr. Chairman, when I came to the meeting this morning I was pretty much of the view that Bob Black and to some extent Bill Ford expressed. I must say that your review of the world situation prior to the coffee break woke me up.",51
-fomc-corpus,1982,I demand equal time!,5
-fomc-corpus,1982,"I agree in that I don't believe rates should go up. As far as the shift in emphasis on M2, that seems to me a fairly logical extension of what we did with the NOW account situation. It is a little bigger and maybe not quite as subtle, but I don't think it would be that hard to explain, really, what we are doing. There is some precedent for that aspect of it. In terms of understandability of what we are likely to be doing, [I was comforted by] the comment you made that you would have an opportunity in the not too distant future [to explain this]. That would be extremely important in terms of how this is actually perceived, certainly in the short run, before people have an opportunity to analyze the record in some detail. So, I would come out with those who certainly don't want rates to go up and who want even some decline. As far as the wording of the directive, I don't think I could make very much of a contribution to that. There are a number of subtleties being expressed and I'm not sure I appreciate all of them. I couldn't improve on any of them.",231
-fomc-corpus,1982,Mr. Guffey.,6
-fomc-corpus,1982,"Thank you, Mr. Chairman. I have just a couple of observations. One is that, clearly, all the discussion around the table has been [consistent with] a money market conditions or interest rate directive. Secondly, I agree with the comments that Ed Boehne expressed with respect to the discretion that is vested in the Chairman in the intermeeting period with this kind of a directive. As a result, I'd like to ask the Chairman if he's prepared to make some statement as to the appropriate interest rate level and the pattern of getting there. Clearly, it is in the down [direction]. But in order to understand how the Chairman may exercise that discretion, it would help me to understand what you're thinking.",142
-fomc-corpus,1982,"I will respond to that shortly, after Mr. Roos and Mr. Morris get finished with their comments.",22
-fomc-corpus,1982,In that order?,4
-fomc-corpus,1982,Either order; I have Mr. Roos first on my list.,14
-fomc-corpus,1982,"All right, I'd be pleased to.",8
-fomc-corpus,1982,There's a certain appropriateness to these two guys being last!,12
-fomc-corpus,1982,"Let me say, Mr. Chairman, that I was both impressed and depressed with your review of the world situation, and I don't minimize that in any way. Let me also say that no one at this table would prefer lower interest rates more than I. I do take exception to any implication that recent Federal Reserve policy has wrung out the economy of this country or has been detrimental to the international economy. I think what has occurred is more a result of ten or fifteen years of irresponsible monetary policies throughout the world--as well as a well-meant effort on the part of the Federal Open Market Committee as long as I've been on it and until October 1979--to try to do just what we're doing today, and that is to lean against interest rate movements. I think that contributed in a major way to inflation, which really led to this high interest rate pattern that we have. I believe that what we're about to do today will unquestionably be viewed by those who watch what we do as a major change. I don't think it will be possible to explain away the fact that, albeit temporarily, we are moving away from [targeting] a narrow aggregate that has predicted prices and output better than other variables. It will be apparent, in spite of any disclaimers we may or may not make, that we are moving toward placing greater emphasis on controlling the fed funds rate. And I think it will be misconstrued by the markets. It will be associated with the forthcoming election; I think it will give comfort to those who, rightly or wrongly, have sat on the sidelines and implied that somewhere along the line we would cave in on our present policy posture. Mr. Chairman, there's no question that under your leadership we have made enormous strides toward wringing out the inflationary problem and restoring the economy to at least a semblance of stability. I think our credibility and your credibility are unbelievably and deservably affirmed at present. If we fail to specify in this directive at least some M1 range, with all the disclaimers that these things that are going to happen could distort it and cause us to change, I think there will be a gross misinterpretation and misconception of what we are doing. And it could conceivably destroy much of the progress that we've made. So, although I don't have a vote, I feel it's a gross mistake to do what apparently we're about to do.",482
-fomc-corpus,1982,Mr. Morris.,4
-fomc-corpus,1982,"Mr. Chairman, it just so happens that we have opposite extremes finishing up this discussion. I look upon it as a great step forward that we have gotten M1 out of the directive. And I don't view it as a temporary phenomenon because I think our ability to interpret M1 is going to continue to be highly questionable for some time to come. This is not a two- or three-month phenomenon as far as I can see. But that remains to be seen. Nonetheless, I support the move at this point in time and I would hope that borrowing is set at a level that would get the funds rate down to the 9 to 9-1/2 percent area as a start.",140
-fomc-corpus,1982,"I have a late starter, Mr. Solomon.",10
-fomc-corpus,1982,He hasn't said a word!,6
-fomc-corpus,1982,I think this is a rather momentous FOMC meeting. I had thought that we had until maybe 1986 before the pace of deregulation and innovation would bring us to this point. But the Garn Bill and legislation that was [unintelligible] today--what's the name of that act?,63
-fomc-corpus,1982,The Garn-St Germain--,6
-fomc-corpus,1982,I can think of several names!,7
-fomc-corpus,1982,Depository surprise.,4
-fomc-corpus,1982,The destruction of M1 bill.,7
-fomc-corpus,1982,"It has moved us very quickly most of the way to the deregulation that we expected by 1986. I think we have a real dilemma here today. On substance, I feel that we absolutely have to have some modest decline in rates. I believe there is a real danger of a major cracking and then we would have to go even farther; whereas with a modest decline now that stays in place for a while there is a better chance of working ourselves out of this both internationally and at home. I recognize that there will be a good deal of questioning, not only in monetarist circles but more generally. I don't think there will be an avalanche of criticism, given our credibility, but there will be major questioning as to what this means in terms of longer-run anti-inflationary policy. And it seems to me that there ought to be some words [to convey] our longer-run commitment and our expectations that inflation will continue to come down--and possibly they should be just in the Chairman's statements and other statements, not in the directive. I don't know how to do it in the directive without sounding defensive, but there ought to be some words about that. So, I would support this. I do feel that if one reads this carefully, we are really not targeting M2. We are targeting basically money market conditions and we are saying that we expect this will involve growth of M2 in the range of 8-1/2 to 9-1/2 percent. Therefore, I'm not sure that we really need the last sentence. The last sentence simply makes more explicit what is there quite carefully [unintelligible]. I don't see that the way this is written, with the expectation of M2 growth of 8-1/2 to 9-1/2 percent, is a constraint on doing what is necessary to get the operative sentence. And if I am correct in my interpretation, I don't see why we need that last sentence. In that sense, I would agree with Chuck.",408
-fomc-corpus,1982,But I also would drop the operative sentence.,9
-fomc-corpus,1982,"Well, I wouldn't drop the operative sentence because then people don't know where we are.",17
-fomc-corpus,1982,We're targeting on 8-1/2 to 9-1/2 percent on M2.,21
-fomc-corpus,1982,"The presentation is critical. And judging from past history, the presentation is probably going to be more dependent on the Chairman's statements than it will be on the directive, particularly given the [publication] lag and the fact that we are expecting such a large bulge in the first week of October and something has to be said. Now, since the Chairman has a mind of his own, I would assume that if he gets a majority vote on the substance of this directive that it may not be worth spending a lot of time interpreting and arguing about the more marginal sentences. We are making a major substantive decision here. And the presentation of that in a way that does not undermine our credibility is absolutely essential. But we do have a lot going for us in terms of credibility on the longer-run anti-inflationary policy. Turning to the specifics, even with an initial borrowing assumption of $200 million, I don't think the funds rate would get down even to 9 percent unless this action is followed by a discount rate cut. And I urge that, in the Board's infinite wisdom, that be confined to 1/2 point rather than a point. It is my reading--and I could be wrong--that if the discount rate is cut 1/2 point, the markets will expect another half point later on, almost immediately. If we do a full point, many people in the market may say that after the election there will be another full point. This election thing is a damn shame because we are not being influenced by the election. But the timing is very awkward for us. Anyway, that's another area. I would recommend that the initial borrowing be $200 million.",337
-fomc-corpus,1982,"Well, let me make a few not so random comments. Tony Solomon and others have referred to the role of the Chairman. Let me just say in that connection that the Chairman is unable to explain and defend a policy he doesn't understand or agree with. Larry Roos referred to the concern about the interpretation of recent policy and made a short but impassioned statement that we are seeing the results of ten to fifteen years of irresponsible monetary policies around the world. I think there's a lot of substance to that. I wouldn't narrow it to monetary policies. I don't want to be associated particularly with that part, but I think what we are seeing is the culmination of ten or fifteen years or more of a set of attitudes and behavior that had to be changed. And that is difficult, but we've seen some progress. I think we're also in a very critical period right now for all the reasons I suggested. I don't myself perceive that the risks of misinterpretation are as great as some people think. Obviously, they are there. But I don't think many people, if you take this out of the election atmosphere, are going to interpret this as a cave-in, in and of itself. Most people in the financial markets at least, to put it bluntly, think we've overstayed the course now. It gets into this great question of credibility that I suppose we're taking rather personally. At the risk of being misunderstood, following a mechanical operation because we think that's vital to credibility and driving the economy into the ground isn't exactly my version of how to maintain credibility over time. Credibility in some sense is there to be spent when we think it's necessary to spend it and we can carry through a change in approach. I don't think this is all as extreme as some have painted it. But I don't think we're just dealing with the theory here. We are dealing with a real world and assessing where the risks are. It's quite clear in my mind where the risks are. I think I made it quite clear in terms of economic developments around the world. But if one wants to put it in terms of risk to the institution: If we get this one wrong, we are going to have legislation next year without a doubt. We may get it anyway. It's a matter of judgment as to how that might come out and where the risks are, but I think I know where the risks are. I'm not sure how it looks just in strict electoral terms, since that question has been raised, to sit here in some sense artificially doing nothing and then have to make a big move right after the election. I'm not sure that would wash very well in terms of anybody's opinion of our professional competence as an institution, if one were convinced that this [change was appropriate]. Obviously, that depends upon the substance and how strong the case is for making a change at the moment. I'd prefer that this problem didn't arise now. If business conditions looked a little better and interest rates were a little lower--and I wouldn't care where the interest rates were if the economic situation looked a little better--and if we weren't going to have to deal with a succession of sick foreign countries in this time period, if the dollar were not rising into the wild blue yonder right now, and if I thought that all these accumulating problems that we face could wait for a while, we'd have a much easier decision. Under present conditions, four weeks looks like one hell of a long time to me. I don't know what is going to happen in a number of directions over the next four weeks. In terms of what specifically this means operationally, all I can give you is an opinion of what I had in mind in looking at this kind of language and putting a gloss on it. The first paragraph is meant to say nothing more than that we don't know what M1 means over the next quarter for two reasons, period. Therefore, since we don't know what it means, it seems a little fatuous to put down a number pretending we know what it means when we don't. It is no special prejudice against M1. If we had some experience to measure what it meant during this kind of period, we would, but we don't. The first sentence in the second paragraph is basically meant to be the operational sentence. I think that is fair. It is meant to convey the impression that we seek some expansion, however measured, in the monetary aggregates and in reserves and it is meant to reflect and note some concern about what is going on in the private credit markets and that that will have a bearing on what we do. I think that is understood or assumed by sophisticated people in the market, at the present time anyway. They have assumed that we moved as alertly--if that's the right word--as we did during the summer because we were operating against the background of Penn Square and Drysdale and accumulating international problems. This is in a sense a confession, good for the soul, in making that a little more explicit. And it has some connotation without saying it directly that we certainly are concerned, among other indicators, about the pressures in those markets and what is going on in interest rates. The next sentence is meant to be a straightforward estimate of what we think and is put in there to show continuity with the present approach. This is consistent with what we have been saying, anyway, about the measures that we think are the most reliable, not in any theoretical or long-term sense but during this particular quarter. That is where we get the sense of continuity with the past and that is meant to illustrate or to make that point. I might point out in that connection what somebody has already mentioned: That in the near term, in fact, my guess is that M2 growth is going to be very low and that of M3 might be low, too. My interest in that phenomenon is that I don't know what is causing it. We had a very high rate of growth for a couple of months and it may just be a statistical thing. It went up rapidly for a couple of months and now it is leveling off for a couple of months. To the extent that it reflects some sense of tightness that we don't know we have--incomes going down or banks can't finance themselves so readily--it's an indication that we are tighter than we think we are. Now, I'm not adopting that theory. But I just point out that in the very short run, before we meet next time, my guess would be that M2 and M3 are going to be low rather than high relative to these numbers. And I don't think the numbers we put in there are terribly sensitive for that reason. As for the last two sentences, I'm inclined to think they're optional. The flavor is this: If they're helpful, put them in; if they're not helpful, take them out. And I think it is somewhat optional whether we put in a range for the federal funds rate. If we do, I'd make it, say, 7 to 10 percent. As for what we would do operationally, and of course we'd have to discuss this a little more, I would propose that we drop the borrowing level. To precisely what level, I'm not sure; $200 million seems to me the lower limit of what we would do; $300 million may be an appropriate number; one could argue for something slightly higher than that. The borrowing figures are confused to the extent there is so-called special borrowing in any event. And I don't know quite how to assess that. It's like M1; there is no right answer on how to assess it precisely. We can't escape that problem. I don't have any particular interest rate in mind in setting forth this kind of directive. I've expressed the opinion that I don't think we should create an atmosphere or the reality of rising interest rates, insofar as we can reasonably avoid that. I'm not talking about every conceivable contingency that may arise in the real world. But based upon what I know now, the implication of the borrowing level is that we would get a somewhat easier tendency in the federal funds rate in any event. Where it really is would rest upon a discount rate decision and not this decision, I suspect, except within a very narrow range. I do not mean to imply any feeling as to where interest rates should be a month from now. Beyond what is implicit in what I've already said, if things look the way they do now, I wouldn't like to see an increase and I would feel more comfortable with some decrease. But I haven't any particular target in mind. The implication is that we would keep the borrowing level more or less the same until something happened to throw us off--in economic activity, in financial markets, or in the actual growth of M2 and M3. We would have to reconsider that in the light of all these factors, and consultation from time to time would probably be appropriate in those circumstances. What else can I say to be more specific?",1797
-fomc-corpus,1982,"In terms of the pattern that you might expect to occur: If I understood your most recent statement, you suggested interest rates would be at or near their present levels for some period of time.",38
-fomc-corpus,1982,"I think we would tend to have an easier funds rate than we had just recently if [the Board] did nothing on the discount rate. If the discount rate were reduced, I think rates would go down. Again, we have a setting here where these numbers, even when we have them on a preliminary basis, are about as reliable as I don't know what. But over the course of the period that we're talking about here--in the next couple of weeks up until the Friday when the figure is published that will include a presumed distortion from all savers certificates--we may have an M1 figure that is on target in the latest weekly figure. We probably will have an unemployment rate that is up significantly and an industrial production figure shortly--I don't know when that comes out--that is down and, hopefully, a good price figure in there someplace, too. I don't know what other critical numbers are coming out in the next ten days.",189
-fomc-corpus,1982,"Mr. Chairman, what does the unemployment rate look like now?",13
-fomc-corpus,1982,"Well, I don't know. I don't have any particular guess. We can turn to the staff. We know that the unemployment claims figures have shot up enormously. I think the general assumption is that it's going to be 10 percent plus, and I'm not sure that anybody can be much more specific than that.",62
-fomc-corpus,1982,"Mr. Chairman, you did say you were planning to make some kind of public statement about this rather than just waiting a month [or so] until after the next meeting. When, roughly, were you planning to say something about this?",48
-fomc-corpus,1982,"Well, I have a tentative date with the Business Council at the end of this week where I have to appear at a little press conference after I talk at any event. So, that's the easiest occasion just because it's already scheduled and comes in the normal course of events and we don't have to make any big deal about it. What I might suggest, since it's 1:20 p.m., is that people go out and get some sandwiches. There may be some desire to discuss this further in substance. And if there is going to be some effort to fool around with the language or drop sentences or whatever, it gives us fifteen minutes or so to think about it. [Lunch recess]",138
-fomc-corpus,1982,"This need not be taken as strikingly as some people either fear or hope, depending upon which side of the spectrum they are on. I don't consider anything in here very inconsistent with what we've been doing. We have said we are going to interpret the aggregates somewhat loosely in effect--I'm now interpolating--in the light of our judgment as to whether there are unusual precautionary demands for money and liquidity. The market has assumed we are operating that way quite comfortably and this is an extension of that idea. What it does is to take out M1 for a very particular reason. I raise the question because there is this talk about how to say it publicly. If we write a letter to the Congress, for instance, and say we've changed the targets or we have some new operating approach or some such thing, I think that makes it much more grandiose than is intended in my mind. I am reluctant to have a specially called press conference or a speech or something for the same reason. It just makes it sound as if we're off on some entirely new course. I think we have to get the message over publicly that, indeed, we're not going to be worried about the M1 figure in the short run, if we're not. We have in effect said--and we are repeating and amplifying what we said--that we would tolerate for some period of time growth somewhat above the target range should unusual precautionary demands for money and liquidity be evident. Going back to my testimony [in July], I know I had a lot of criteria--the performance of the economy, interest rates I deliberately put in, the availability of bank credit--all of which I said bear upon that judgment. That's what I said in the testimony. We think, yes, all those things are operative now and we are willing to tolerate a bulge in the targeted growth if that is necessary in this time period. It is precisely the circumstances that we foresaw as a possibility. I don't think it's that big a deal. Other people put other interpretations on it. I just tell you that I don't think it has to be read as too big a deal. In any event, assuming that we are in this general neighborhood, let us pin down the operations more specifically, which comes down pretty much to the initial borrowing level, I think. We've had proposals from $200 [to $300] million and now we have proposals above $300 million, too.",488
-fomc-corpus,1982,"$400 million, I thought. What has it been running?",13
-fomc-corpus,1982,$500 million is what we've been using in the path; it is actually $560 million.,19
-fomc-corpus,1982,I don't think it's going to be $500 to 600 million. What was it yesterday?,19
-fomc-corpus,1982,$300 million.,4
-fomc-corpus,1982,"I may not be up-to-date on it. We have more reserves in there than we should and deliberately haven't taken them out, given the market conditions so far this week. We just leave them, I guess; I don't know what borrowings will be. They can't be much below that, but the excess reserves may be very high.",68
-fomc-corpus,1982,We allowed for about $500 million and so far they are a little over $1 billion; that could come out on its own if our projections are wrong.,32
-fomc-corpus,1982,But in drawing the path you allowed for about $500 million?,13
-fomc-corpus,1982,We allowed for $500 million because the week with the quarter-end statement date normally has well above normal excess reserves.,23
-fomc-corpus,1982,And that was after having made the adjustment to provide the nonborrowed reserves consistent with the observed overshoot in M1?,25
-fomc-corpus,1982,"That's right, and then to allow for the [unintelligible] week statement date excess reserve averaging.",22
-fomc-corpus,1982,"Did the $500 million have any special borrowings built into it, Steve?",16
-fomc-corpus,1982,There is some. The Midland Bank in Dallas still is in for some; I've forgotten the exact number.,21
-fomc-corpus,1982,That's down to about $75 million now.,9
-fomc-corpus,1982,"Yes, they haven't been in for a while--about a month.",14
-fomc-corpus,1982,"I don't think there is any mechanical relationship with these special borrowings. I must say that is difficult to handle; the bank in the weakest position gets hit and the markets are a little tight. If that bank didn't borrow, others would have to borrow, in part.",54
-fomc-corpus,1982,"When the staff made out the alternatives in the Bluebook, the difference in borrowing levels between ""A"" and ""B"" was rather substantial, $150 million versus $450 million. The $450 million was associated with essentially no change in market interest rates and ""A"" was associated with some easing, but I didn't get the impression that it was that significant an amount of easing. If we were to go, say, to a number like $400 million, it would imply hardly any change in market interest rates.",104
-fomc-corpus,1982,"At the present level of the discount rate, I think that's right.",14
-fomc-corpus,1982,"Well, I think $400 million is too high myself.",12
-fomc-corpus,1982,"In terms of the range of proposals around the table, I can easily live with borrowings of $300 or maybe $350 million; I would have a small preference for putting a 7 to 10 percent federal funds range in the directive for no other reason than a desire to reinforce continuity at the margin.",62
-fomc-corpus,1982,Let me get to the directive later.,8
-fomc-corpus,1982,7 to 10 percent is worse than nothing.,10
-fomc-corpus,1982,I would prefer a lower--,6
-fomc-corpus,1982,"Well, how many like $200 million? How many like $300 million? How many like higher than $300 million?",25
-fomc-corpus,1982,"Well, obviously, take $300 million with--",10
-fomc-corpus,1982,From among the others.,5
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,I have determined that $300 million is the arithmetic average of--,13
-fomc-corpus,1982,"If he took a weighted average, it would be $293 million!",14
-fomc-corpus,1982,"Assuming somebody is going to vote for the directive, let's take that poll again.",17
-fomc-corpus,1982,"Yes, it really should only be the people who are going to vote yes [on the directive] who are allowed to vote [on this]. We've run into that problem with contemporaneous reserve accounting.",40
-fomc-corpus,1982,We certainly have.,4
-fomc-corpus,1982,That ought to--,4
-fomc-corpus,1982,Are there other operational questions?,6
-fomc-corpus,1982,"Would we take Midland Bank out of that $300 million, Steve, or would we leave it in there as we did on the $500 million?",30
-fomc-corpus,1982,They ought to be out by the end of the week.,12
-fomc-corpus,1982,"Well, that will solve the issue then.",9
-fomc-corpus,1982,"But on occasion we'll get another borrower, either them or somebody else, and that will raise the question of whether borrowing is going to [include or exclude that bank].",33
-fomc-corpus,1982,"Well, as nearly as possible it ought to be there if it's interest-sensitive, it seems to me, if it's to give us any guidance on federal funds rates. That's all I was hoping we would do.",42
-fomc-corpus,1982,"When you say other operational questions, are you talking about the question of the federal funds range specified?",20
-fomc-corpus,1982,"No, let's get to that as part of the directive.",12
-fomc-corpus,1982,"Oh, I see. But other operating considerations?",10
-fomc-corpus,1982,"Yes. In effect, we're in an area of judgment depending upon that happens to the aggregates and the economy and interest rates and so forth.",28
-fomc-corpus,1982,"I have an operational question, Paul. For those of us who are skeptical that M2 is going to grow as fast as 8-1/2 or 9-1/2 percent, given the way that the money market funds are slowing down and so on: How is the Desk going to operate under the directive as it stands here? Are they going to be targeting on 8-1/2 to 9-1/2 percent M2 growth? I just want to make sure it's a workable directive from the standpoint of Desk implementation.",112
-fomc-corpus,1982,"Well, it's an interesting question if in fact [the M2 figures] run low for a month. There are two possibilities, I suppose. Let's assume they are running low but the evidence that we have currently is that it is a temporary phenomenon and [the rate of growth] doesn't look unreasonable for the quarter. It is stated as a [rate for the] quarter. Then, I would think we probably would not do too much. If they are running low and we thought they were actually running below these figures, the implication is that interest rates will come down. We would ease the position; that's what it says.",125
-fomc-corpus,1982,Which drops interest rates and worsens that very situation.,11
-fomc-corpus,1982,"What do you mean by ""worsens""--that we would get really slower growth?",18
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"Sure, when interest rates--",6
-fomc-corpus,1982,"Well, I don't think the staff thinks so, but I would raise a very interesting question as to whether we haven't been too tight because higher interest rates bloomed--",33
-fomc-corpus,1982,That next to last sentence I think has some meaning.,11
-fomc-corpus,1982,Right.,2
-fomc-corpus,1982,"It not only says would be ""acceptable"" but would be ""desirable"" in the context of declining interest rates.",24
-fomc-corpus,1982,"I presume that was put in, Paul, because we are over the target ranges rather--",18
-fomc-corpus,1982,"Yes, but we don't have to say it. Whether that is in or out, my interpretation would be that if [monetary growth] is running low, we are not going to be pushing terribly to get it up within a limited time but would go in the direction of easing.",58
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,But hopefully we wouldn't go so far that then we would turn it around three weeks later and rates would start back up.,24
-fomc-corpus,1982,"Well, as I say, we judge this in the light of what we think is going to happen in the future too.",25
-fomc-corpus,1982,"But, Steve, haven't money market funds actually been shrinking in the last few weeks?",17
-fomc-corpus,1982,"Yes. They are up on average in the month, but the weekly data are--",17
-fomc-corpus,1982,That's the phenomenon I had in mind. What happens if that trend continues?,15
-fomc-corpus,1982,"Well, market rates have been rising and the rates on the [money market] funds have been dropping with a lag, so they've come back together. If market rates began going down and if [money market] funds rates tended to lag the drop in market rates, [flows into money] funds would tend to go up. We have only a modest expansion projected at the moment.",76
-fomc-corpus,1982,"Because of all the uncertainties, I would just suggest a possibility--I'm not sure it will solve anything--of an even wider range than the 8-1/2 to 9-1/2 percent shown here [for M2]. But if we did that, it would make it tougher for the Desk to construct a reserve path, I would think.",73
-fomc-corpus,1982,"This is a matter of judgment. I don't think we would ignore M1 either if we thought it was giving us some evidence. A lot of things could happen with the all savers certificates. Suppose, after all this talk about all savers blowing M1 up, that there's a relatively modest increase. We have a big decrease this week; suppose we get a relatively modest--say, an offsetting--increase the following week and then it falls down again the week after that. I would say that's a pretty weak M1 and it would influence my judgment as to what to do, even though we're not following it in a mechanical way.",129
-fomc-corpus,1982,I think its composition matters. Suppose we have very strong NOW accounts and very weak demand deposits?,19
-fomc-corpus,1982,"Well, I think we would try to get some evidence from that as well as we can.",19
-fomc-corpus,1982,"If that happens, Mr. Chairman, I would think you all were doing the right thing.",19
-fomc-corpus,1982,"Well, I don't know whether we can clarify that any further. Let me just look at the first paragraph as a whole, which is meant just to be a straightforward--",34
-fomc-corpus,1982,"Would you tolerate a little nit-picking--editorial, not substantive--on your first paragraph?",20
-fomc-corpus,1982,Sure. It's not my paragraph.,7
-fomc-corpus,1982,"Following the dash in the first sentence, ""in the very near term by investment of funds in maturing all savers certificates,"" one doesn't ""invest in""--",32
-fomc-corpus,1982,"Well, no.",4
-fomc-corpus,1982,"The word ""in"" is out of place there. Maybe it should be ""reinvestment of funds now in"" or ""from"" [all savers certificates].",33
-fomc-corpus,1982,"""Reinvestment of funds from.""",7
-fomc-corpus,1982,"I have one other suggestion, which is just a matter of reversing emphasis, I guess. In the next full sentence beginning ""The probable difficulties...suggest that substantial weight not be placed on,"" I'd rather say ""suggest little weight be placed on."" Or we could say ""little, if any."" I don't know how strong we want to be on that since we have ended up not specifying anything for [M] .",83
-fomc-corpus,1982,I don't know what the best phrase is there.,10
-fomc-corpus,1982,"We might say, ""suggest that no substantial weight be placed.""",13
-fomc-corpus,1982,"I might drop ""substantial."" In effect, what we're doing is placing no weight, if we don't have [a target].",26
-fomc-corpus,1982,"No, I don't think we're quite doing that.",10
-fomc-corpus,1982,We don't have a target. I'm just trying to make the words for the first paragraph consistent with the absence of an M1 target.,27
-fomc-corpus,1982,I just gave you my interpretation. I would want to look at M1 for what information we can get from it. What we are really saying here is that we don't want to pin a mechanical target on it or have a mechanical path for it. I don't want to say much more than that really.,61
-fomc-corpus,1982,"If I may pick a nit in the second paragraph, I would say ""In these circumstances...""",19
-fomc-corpus,1982,I'm just starting the first paragraph.,7
-fomc-corpus,1982,"I think that ""no substantial weight"" is probably better than ""substantial weight not.""",18
-fomc-corpus,1982,"Yes, ""no substantial.""",6
-fomc-corpus,1982,"It sounds to my ear like less, but I--",11
-fomc-corpus,1982,"That would be good: ""less weight.""",9
-fomc-corpus,1982,"It must be ""much less,"" though.",9
-fomc-corpus,1982,"""Less"" would be a good word in the sense of clearly implying less than we usually do.",20
-fomc-corpus,1982,"""Much less than usual weight"" is all right with me.",13
-fomc-corpus,1982,"""Less than usual.""",5
-fomc-corpus,1982,That leaves it in as a factor to look at.,11
-fomc-corpus,1982,"Now you have a problem with the last sentence, which says ""much lesser.""",16
-fomc-corpus,1982,"""Much less"" and ""much lesser""!",9
-fomc-corpus,1982,You mean just an English problem.,7
-fomc-corpus,1982,"The subject should not be ""these uncertainties"" but ""these developments.""",14
-fomc-corpus,1982,"Say ""to a small extent;"" take out ""much lesser"" then.",15
-fomc-corpus,1982,"""Much smaller extent.""",5
-fomc-corpus,1982,"It has to be small enough to justify not having a target for it, which is really very small.",21
-fomc-corpus,1982,"I think Lyle is right; it should be ""these developments"" instead of ""these uncertainties.""",20
-fomc-corpus,1982,"""These developments.""",4
-fomc-corpus,1982,"Well, the last sentence of this paragraph leads into M2 and what one expects in the following paragraph then is an M2 target. Now, if that's not what we're going to do, it seems to me we ought to modify the last sentence of the first paragraph. But I really would urge you, if it isn't tampering too much, to put the 8-1/2 to 9-1/2 percent M2 range early in the next sentence and then after that to say ""taking account of the desirability of somewhat reduced pressures...""",112
-fomc-corpus,1982,"""In these circumstances, therefore...""",6
-fomc-corpus,1982,"First of all, there's an interpretation of them--of what all the circumstances means. In my mind that means the previous paragraph but more than that. I assume that this mental image includes the discussion of all the economic problems, the international problems, and all of it. This refers to everything. But it's obviously not clear when it just sits there, and that raises the question of whether it should be more explicit or not.",85
-fomc-corpus,1982,"Why don't we be explicit and say, ""In light of domestic and international developments, the Committee seeks to maintain...""?",24
-fomc-corpus,1982,"Well, it seems to me if we're worried about changing gears radically as opposed to small degrees, in terms of public perception, we ought to leave it a little vaguer than that.",37
-fomc-corpus,1982,Just leave something like this.,6
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"We have sometimes used a phrase like that, but it goes back some years.",16
-fomc-corpus,1982,That's the problem; it goes back some years.,10
-fomc-corpus,1982,This wouldn't be put in as any echo of what happened earlier.,13
-fomc-corpus,1982,"In that second paragraph the first sentence ends with a phrase ""in the light of current economic conditions."" Wouldn't there be some other part of the old directive that stresses how poorly the economy is doing now?",41
-fomc-corpus,1982,"Where are you going back to? I'm sorry, I just don't know where you are.",18
-fomc-corpus,1982,"It's the second paragraph at the end of the first sentence. The last phrase is ""in the light of current economic conditions.""",25
-fomc-corpus,1982,"Well, remember, Paul said that he was going to expand what we call the boilerplate to make the worsening economic situation clearer and the--",28
-fomc-corpus,1982,"My point, Tony, is that the phrase ""in the light of current economic conditions"" as it stands there is a very neutral one and, in my mind, too weak. I would like to see something like ""in light of the currently weak economy"" or whatever, unless that is going to be made clear somewhere else.",66
-fomc-corpus,1982,"Well, that's what I thought was going to be made clear earlier.",14
-fomc-corpus,1982,"Well, there would be a little more emphasis earlier. Obviously, that phrase is a term of art. What it is meant to refer to is the fact we have some pressures in private markets that aren't necessarily apparent on the surface because of all this disturbance in the financial system and we are aware of it and concerned about it. And we take that into account in the--",74
-fomc-corpus,1982,"Then ""in the light of"" is not quite right, is it? We mean ""resulting from"" or ""flowing from"" or something like that. I thought ""in the light of"" meant we were doing this because of the poor economy.",52
-fomc-corpus,1982,That's what I thought.,5
-fomc-corpus,1982,But you are saying credit conditions are affected by--,10
-fomc-corpus,1982,"Well, I think one can interpret it either way. The reason we're concerned about this is because of the economy. But it also works in reverse. The economy, and the international economy in particular, is giving rise to the pressures. But we're concerned about the pressures because of economic conditions. So, I think it works both ways.",67
-fomc-corpus,1982,"We could say ""taking account of the desirability of somewhat reduced pressures in private credit markets and current economic conditions...""",23
-fomc-corpus,1982,It's both.,3
-fomc-corpus,1982,But we always want an orderly and sustained flow of money and credit.,14
-fomc-corpus,1982,Now we have more doubt about it.,8
-fomc-corpus,1982,"I'm not sure I like it terribly, but at the risk of making the whole thing more cumbersome we can put ""In all the circumstances the Committee seeks to maintain expansion in bank reserves needed for an orderly and sustained flow of money and credit...consistent with growth of M2 and M3 in a range...and taking account...."" If we want to blur it a bit, we could say ""taking account of the evidence of pressures in private credit markets in the light of current economic conditions. It combines the sentences.",103
-fomc-corpus,1982,I think that's a great improvement. That mitigates the appearance of a shift in policy priorities.,19
-fomc-corpus,1982,"I don't mind if we combine the sentences, but I need the ""expects that this would involve the growth of M2 and M3"" down to 8-1/2 percent.",38
-fomc-corpus,1982,"Well, he likes the term ""consistent with.""",10
-fomc-corpus,1982,"Well, I agree with Henry. I think it's less clearly a move to a money market conditions target.",21
-fomc-corpus,1982,"Yes, I think there is something to be said for it in that it becomes a kind of quasi-target rather than simply expectations. I don't think it puts any substance in here.",36
-fomc-corpus,1982,What if M2 went above a 9-1/2 percent growth rate? Does that mean we expect the staff to pull it down?,29
-fomc-corpus,1982,Well--,2
-fomc-corpus,1982,With the sentences at the end it can run over or it can run under; nothing makes any difference.,21
-fomc-corpus,1982,But there is some sentiment for eliminating those sentences.,10
-fomc-corpus,1982,How would we get a great big increase in M2?,12
-fomc-corpus,1982,When we get the new DIDC instrument.,9
-fomc-corpus,1982,We'd define it so that--,7
-fomc-corpus,1982,That's not going to affect the [fourth] quarter that much.,14
-fomc-corpus,1982,"Well, if a portion of the money market funds currently in M3 were to shift into M2--",21
-fomc-corpus,1982,"Yes, but those are institutional accounts.",8
-fomc-corpus,1982,Who says they won't like some of these new instruments the DIDC is going to invent?,18
-fomc-corpus,1982,They could.,3
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,That's a possibility.,4
-fomc-corpus,1982,"Yes, there could be some transfer out of Treasury bills or other highly liquid instruments, particularly if they pay a higher rate than Treasury bills.",28
-fomc-corpus,1982,We could have a sudden drop in consumption relative to income.,12
-fomc-corpus,1982,That's possible.,3
-fomc-corpus,1982,It would seem about as low as it can be.,11
-fomc-corpus,1982,Demand is a lot lower.,6
-fomc-corpus,1982,"Relatively, yes. [Unintelligible] without destroying income [unintelligible].",20
-fomc-corpus,1982,"Well, one way to do it is just to say ""in all the uncertainty"" and leave the other wording as it is.",26
-fomc-corpus,1982,"Save that ""maintain the expansion of bank reserves"" and leave the rest of the phrase as it is.",22
-fomc-corpus,1982,"Yes. Just leave the first phrase as it is through money and credit comma, then ""consistent with growth of M2 and M3 in a range of around 8-1/2 to 9-1/2 percent at an annual rate from September to December and taking account of the desirability of somewhat reduced pressures in private credit markets in the light of current economic conditions.""",77
-fomc-corpus,1982,"Then we need to change something else in the sentence; maybe we don't. The reference to those aggregates is pretty far back. To then say ""Somewhat slower growth...""",34
-fomc-corpus,1982,"You're in the next sentence. Well, tentatively that first sentence is all right. Then there are all sorts of suggestions about these last two sentences and whether to leave them in or take them out. I don't think it's too critical one way or the other if we understand the thrust of what it's all about.",62
-fomc-corpus,1982,I would prefer to leave them in. They balance each other and they justify an overrun or an underrun.,23
-fomc-corpus,1982,I agree with that.,5
-fomc-corpus,1982,I do too.,4
-fomc-corpus,1982,I agree with Henry.,5
-fomc-corpus,1982,You had a suggested rewording in that last sentence which I didn't think changed it much substantively but made it read better.,26
-fomc-corpus,1982,Just switch one of the clauses.,7
-fomc-corpus,1982,"I would have put the second part of the last sentence first so that the sentence would read, beginning with the middle of the second line, ""In the light of evidence that economic and financial uncertainties are continuing to lead to exceptional liquidity demands.""",48
-fomc-corpus,1982,If there should be evidence of something.,8
-fomc-corpus,1982,"Yes, that's what I was looking for.",9
-fomc-corpus,1982,"Well, I meant to say that there is evidence and that is--",14
-fomc-corpus,1982,"That, I think, is questionable, Henry; I really do.",14
-fomc-corpus,1982,"Well, if there is, we should have taken that into account in setting our M2 target.",20
-fomc-corpus,1982,"Yes. I think it's all right the way it is, if I understand this correctly. ""In the light of evidence that economic and financial uncertainties are continuing..."" We leave that open as to whether it is continuing. That does say they have happened in the past, which I have said.",58
-fomc-corpus,1982,"M2 is again very, very low. [Relative to] the targeted M2 now, the last number we have is very low. And it's just awfully hard to see why--",38
-fomc-corpus,1982,The last month's number?,5
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,But not the previous two months.,7
-fomc-corpus,1982,"I know, but the previous two months presumably were affected by the fact that interest rates came down. We have to ask ourselves whether we're talking about a movement along the demand function or a shift in the demand function. And as far as I know, the recent evidence does not strongly point toward an upward shift in demand for money. And that's the way I interpret the staff's comments in the briefing.",80
-fomc-corpus,1982,"Well, I'm not sure that's right. Their velocity is rising.",13
-fomc-corpus,1982,"Well, the NOW accounts are--",7
-fomc-corpus,1982,"Falling, I'm sorry. Changing, anyway!",10
-fomc-corpus,1982,"Well, velocity of M2 does have some cyclical movements to it. We sort of expect that when interest rates fall, velocity is going to go down some; now, whether it's off the function, I don't know. But I thought the staff said yesterday that the evidence of recent money behavior is consistent with movement along the function and not a shift.",71
-fomc-corpus,1982,"Well, I wasn't there but if they said anything, the M1 behavior might suggest that. I don't think we can say very much about M2. On M1, if you look at the models--depending upon which quarter you start with--you can interpret M1 as being roughly on the quarterly money demand model. If you start in the first quarter, it might be an upward shift instead of a downward shift; if you start in the third quarter, it's about on.",97
-fomc-corpus,1982,"Well, I'm not so sure this is any big deal, I'm not quite sure what you had, Henry, but let's change it. ""In the light of evidence that economic and financial uncertainties are leading to..."" That puts it in the future.",49
-fomc-corpus,1982,"I don't want to press this very hard. There is a parallelism between the two sentences. The first says ""somewhat slower growth"" and the other says ""somewhat more rapid growth."" And that makes it look more understandable. I would like to see something about rising liquidity demands. Granted, there are some questions about that. But that seems to me to give us a better argument for being flexible about the targets.",85
-fomc-corpus,1982,"Even though both sentences have a parallelism, the bottom line of both sentences is lower interest rates. Right?",22
-fomc-corpus,1982,Not the second one. It doesn't say lower; it just says they wouldn't be as high as they otherwise would be.,24
-fomc-corpus,1982,"Well, okay. But [conditions are] easier in terms of interest rates.",16
-fomc-corpus,1982,Why?,2
-fomc-corpus,1982,"That's the thrust of both sentences, given the fact that we are making--",15
-fomc-corpus,1982,"No, no. I think that's unclear yet, [though they are] easier than they otherwise would be. The first sentence says interest rates would be going down and the second sentence presumably says they wouldn't be.",42
-fomc-corpus,1982,"The second sentence says we would tolerate more rapid growth, which means we would have lower interest rates than we would otherwise have.",25
-fomc-corpus,1982,"Than we would otherwise have, but higher than--",10
-fomc-corpus,1982,"Okay. The thrust of both sentences is for easier conditions in the markets, right?",17
-fomc-corpus,1982,"No, the thrust of the second sentence is not for easier conditions in the market.",17
-fomc-corpus,1982,"Well, you are interpreting--",6
-fomc-corpus,1982,We won't let it tighten the [market] up.,11
-fomc-corpus,1982,I'm talking relatively.,4
-fomc-corpus,1982,"No, there is nothing in the second sentence that says the more rapid the growth the lower the interest rate will be.",24
-fomc-corpus,1982,"Why don't you just take out the words ""are continuing to""?",13
-fomc-corpus,1982,"And put in instead ""are leading to."" MR. CORRIGAN and",16
-fomc-corpus,1982,"Yes, say ""lead to.""",7
-fomc-corpus,1982,"Well, I really think ""in the light of"" also is very ambiguous. It ought to be ""if, in the presence of evidence"" or that kind of thing. We used ""in the light of"" up above in a way that I didn't quite understand and we're using it again here.",60
-fomc-corpus,1982,"It [needs] something a little less awkward but ""in the presence of"" sounds like the presence of a--",23
-fomc-corpus,1982,"Take out that whole thing ""in light of the evidence that"" and just put ""if."" That would work.",23
-fomc-corpus,1982,"Or ""should economic and financial uncertainties lead to exceptional liquidity demands.""",13
-fomc-corpus,1982,"There's the language of the last directive--""are leading to...""",13
-fomc-corpus,1982,I guess nobody else shares my preference that this sentence be dropped. None of those who plan to vote for the directive shares my preference.,27
-fomc-corpus,1982,"Maybe everybody is going to vote for it! ""Should economic and financial uncertainties lead to exceptional liquidity demands, somewhat more rapid..."" Is that what we're saying?",31
-fomc-corpus,1982,"Yes, I think so.",6
-fomc-corpus,1982,I don't think it really matters whether it's somewhat more rapid.,12
-fomc-corpus,1982,"And that, of course, has to be interpreted.",11
-fomc-corpus,1982,"Actually, that previous sentence almost goes without saying and I don't know whether that's necessary.",17
-fomc-corpus,1982,"Well, it gives us a little [unintelligible]. It puzzles--",16
-fomc-corpus,1982,"Well, I think it says that if we could do it without a lot of effort, we'd prefer to meet our targets.",25
-fomc-corpus,1982,I think that second to the last sentence is very helpful.,12
-fomc-corpus,1982,"I think we have to leave in something more or less like the last two sentences since we have now said ""consistent with M2.""",27
-fomc-corpus,1982,"Yes, we have a target.",7
-fomc-corpus,1982,"Earlier, I didn't think it was necessary to leave in those sentences.",14
-fomc-corpus,1982,Okay. What about the federal funds rate sentence? In or out?,14
-fomc-corpus,1982,I'd prefer not to have it. It's enough of a change that it's difficult to know what the funds range should be. Our tradition on the funds range has been to make it above and below the present rate; apparently that's not acceptable. And the range that was suggested was a 3-point spread; we dropped it from 5 points to 4 points last time and to go on to 3 points seems to me would destroy more than it would accomplish.,92
-fomc-corpus,1982,"But it also gives us the trigger for a conference call, which I think is useful.",18
-fomc-corpus,1982,We don't need to have a trigger for a conference call. There could be another understanding.,18
-fomc-corpus,1982,The understanding could be when the federal funds rate is below 7 percent or above 10 percent. We may not have to put it in the directive.,31
-fomc-corpus,1982,"As we're meeting here, the federal funds rate is roughly 10-1/2 percent. I guess I don't have any problem with leaving in the sentence if you want to and saying 7 to 10-1/2 percent.",48
-fomc-corpus,1982,"Well, I'm against it.",6
-fomc-corpus,1982,It certainly seems a lot less important.,8
-fomc-corpus,1982,"If we drop it, that would convey less of an interest-rate-oriented directive. And I think it's desirable to avoid being very specific about our interest rate [objective] here.",35
-fomc-corpus,1982,Who knows how the market will interpret it? I think the other argument is just as likely: That the absence of it would lead to the view that we really have zeroed in on a specific number. I don't know.,45
-fomc-corpus,1982,"How about just saying that the fed funds rate will not rise above 10-1/2 percent? Isn't that what we mean? Why not say what we mean if that's what we mean. I don't mean to be facetious, but if we wanted to convey the true feeling of the group, I think that's what we mean, so why not say it? That would be conveying accurate information to the market as to what our objective is.",89
-fomc-corpus,1982,"Of course, if we say 7 to 10-1/2 percent, we're conveying a little more information, which is that we might really tolerate a low rate. That 7 percent might get their attention. MR. MORRIS and",49
-fomc-corpus,1982,It was in there last month.,7
-fomc-corpus,1982,"But of course, that's--",6
-fomc-corpus,1982,"They haven't seen it yet, though, Frank.",10
-fomc-corpus,1982,I would opt to have a funds rate range of 7 to 10 percent; I would hope that it will be at 10 percent tomorrow and that that would be the maximum we'd tolerate on the up side. I had a similar question.,49
-fomc-corpus,1982,Or lower.,3
-fomc-corpus,1982,"Well, that's all right. We'll be there tomorrow. But the point is that the 7 percent is also an important figure to me. I would hate to see interest rates drop quickly if, for example, we get very slow growth in M2--if that's what we are targeting on or trying to use as the target. But 7 percent is equally important.",74
-fomc-corpus,1982,"Following up on what Roger is implying, I think the chief advantage of having a sentence on the range is that if--and I say if--the market reacts to this with great uncertainty, this gives some sense of reassurance that we are not thinking of simply an all-out drop. I don't see that it's important otherwise; I don't think it's much of a guide. But there is some advantage of having it in, if we get an unfortunate interpretation. I don't think, though, that we'd want to have 7 to 10-1/2 percent; I think we'd want 7 to 10 percent. I don't see what the problem is.",131
-fomc-corpus,1982,"I still fail to follow the logic. In the past we've said to the Manager, in effect, if in following the reserve path consistent with these aggregates, the funds rate moves enough so that it gets to the ends of these bounds, then the Chairman will decide whether to have a conference. Now you are suggesting that we set everything so that it won't get beyond those bounds.",75
-fomc-corpus,1982,"That's right. It has no substantive function whatsoever now, under this [approach]. It's only a question of whether it reassures or limits somewhat the degree of uncertainty in some quarters.",37
-fomc-corpus,1982,"I think that might mislead the market. Following our past practice, we aimed at the middle of the range and, therefore, if we said 7 to 10-1/2 percent, we really meant 8-3/4 percent as the starting point.",55
-fomc-corpus,1982,"But the Chairman is going to be asked to release some of this when he meets with the Business Council, and I bet somebody asks him what the interest rate--",32
-fomc-corpus,1982,You wouldn't answer.,4
-fomc-corpus,1982,You won't tell them?,5
-fomc-corpus,1982,"No, I really--",5
-fomc-corpus,1982,"It says now ""somewhat reduced pressures in private markets."" It seems to me that ""somewhat reduced pressures"" could convey [our meaning] just as well as a range would. Indeed, 7 percent might seem surprisingly low.",47
-fomc-corpus,1982,"Well, I don't think we're going to fool anybody one way or another; when this press conference occurs, they are going to know what we did. They will just look at money market conditions and it will be abundantly evident by what happens in the interval between now and the time the directive is released.",61
-fomc-corpus,1982,There may be a confetti parade.,8
-fomc-corpus,1982,I don't know about confetti!,7
-fomc-corpus,1982,"Well, there are arguments on both sides. I don't feel strongly at all. Leave it out?",20
-fomc-corpus,1982,Put it in.,4
-fomc-corpus,1982,Leave it out.,4
-fomc-corpus,1982,Put it in.,4
-fomc-corpus,1982,Which is more useful to the Desk?,8
-fomc-corpus,1982,"Operationally, I don't see it as having a function during the period. When it is published and people look at it, seeing that there was a range would give them more of a sense of continuity with past procedures. If the Committee values that, I think there's an argument for keeping it in. Frankly, to leave it out I think gives more weight to the view that a change is being made.",82
-fomc-corpus,1982,We are at a time when we are softening the money supply aspect of the directive; it would be a fair balance if we also soften the interest rate aspect of it.,35
-fomc-corpus,1982,"But on the other hand, it seems to me that we don't want to upset the market totally. The main question would be why it isn't in.",30
-fomc-corpus,1982,I think the continuity argument has some real weight.,10
-fomc-corpus,1982,"There may be some people in the market who, if they see interest rates declining, would wonder if we are going to let them decline, or push them down even, by a very large [amount].",41
-fomc-corpus,1982,"They won't know. By the time this comes out, we may have the same level or a different level.",22
-fomc-corpus,1982,"They will look at the way the Manager operates, as they always have, and try to conclude where the limits are.",24
-fomc-corpus,1982,"Oh, why don't you take a show of hands? I don't think it's that important.",18
-fomc-corpus,1982,How many want it in? How many want it out? A lot of people are indifferent.,19
-fomc-corpus,1982,Ask how many are indifferent. You might get a majority!,12
-fomc-corpus,1982,How many are indifferent?,5
-fomc-corpus,1982,The indifferents have it.,7
-fomc-corpus,1982,Flip a coin.,4
-fomc-corpus,1982,"We've left it up to you, Mr. Chairman. Do what you want.",16
-fomc-corpus,1982,"I guess I'd prefer slightly to leave it in. No big deal. Okay, I guess that's it. Any other comments?",25
-fomc-corpus,1982,"Just out of curiosity, what are you leaving in--7 to 10-1/2 percent?",21
-fomc-corpus,1982,That's what I guess is in.,7
-fomc-corpus,1982,With the half on the 10?,8
-fomc-corpus,1982,I would go for 7 to 10. What does the half point do for us?,19
-fomc-corpus,1982,That's where the rate is.,6
-fomc-corpus,1982,It's where it is; that's all. We will have a consultation if it goes above where it is now. That is what we are saying.,29
-fomc-corpus,1982,It would mean that we would be on the phone tomorrow if we say 10 percent.,18
-fomc-corpus,1982,It just says that the Chairman may call for a consultation; it doesn't say he has to.,19
-fomc-corpus,1982,We have a month to get down to 10 percent.,12
-fomc-corpus,1982,"Well, I hope there's a strong presumption--",10
-fomc-corpus,1982,That's too long.,4
-fomc-corpus,1982,Okay. Let's vote.,5
-fomc-corpus,1982,Chairman Volcker Yes Vice Chairman Solomon Yes President Balles Yes President Black No President Ford No Governor Gramley Yes President Horn No Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Teeters Yes Governor Wallich Yes,44
-fomc-corpus,1982,"Okay, is that the end of our business?",10
-fomc-corpus,1982,"The date of the next meeting, which everyone knows, is November 16.",16
-fomc-corpus,1982,November 16 is the next meeting date.,9
-fomc-corpus,1982,"We have a number of things to deal with apart from policy today. I am distressed about what happened after the last meeting, as you well know, and I am distressed by the actions that had to be taken for this meeting. We will return to that subject after we complete the policy discussion. But I think the procedure [regarding limited attendance during the Committee's discussion of monetary policy at] this meeting has been outlined to you. Now we need to deal with the minutes.",96
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,"Without objection, we will approve the minutes. Next we have the report of examinations, which has been distributed to you. Do I hear any questions?",30
-fomc-corpus,1982,It looked like a clean [bill of health].,10
-fomc-corpus,1982,"If there are no questions, we can have a motion to accept it.",15
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,It has been moved and seconded and without objection [it is approved]. We will go to Mr. Cross.,23
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,Questions or discussion?,4
-fomc-corpus,1982,"Well, as for the recommendation [regarding the Mexican swap drawings], we don't have any alternative.",20
-fomc-corpus,1982,"Well, we could put them in default. Do we have a motion on the recommendations [for renewal of all the swap lines for one year and renewal of the drawings by the Bank of Mexico for three months]?",42
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,"It has been moved. Without objection, we will approve that. No other commentary? We will go to domestic open market operations.",26
-fomc-corpus,1982,Are you going to ratify the operations?,9
-fomc-corpus,1982,"Oh, we have to ratify the [foreign currency] operations.",14
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,"I think it's worth making one comment. Our current account deficit is beginning to mount up; by almost any estimate it probably will be at least $30 billion next year, but it might be as high as $50 billion. At what point this will change market sentiment toward the dollar is unclear; that may require some other things happening as well. But I would assume that we are beginning to see a little strengthening in the yen, and the Germans are beginning to see some strengthening [in the mark] against other currencies except the dollar. So, there may be a change in this situation, although I don't expect it imminently.",126
-fomc-corpus,1982,"Well, the nature of this deficit is that it is the result of a high dollar, and the high dollar is the result of people wanting to get into the dollar, forcing, as it were, the financing of the deficit on us for the time being instead of wondering whether they ought to finance it. That is what I think keeps the dollar up in the face of this prospect of a huge deficit.",81
-fomc-corpus,1982,Another way of putting it is that the capital flows are swamping the equilibrium trade effect of an exchange rate. There's nothing we can do about that.,30
-fomc-corpus,1982,Probably it will all reverse itself very suddenly and give us another problem. Mr. Sternlight.,19
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,Questions? Discussion?,4
-fomc-corpus,1982,"Mr. Chairman, would it be in order to ask Steve a procedural question somewhere along here? He might not want to do it at this point.",30
-fomc-corpus,1982,I don't know what you have in mind.,9
-fomc-corpus,1982,"Well, with our new targeting on M2 and M3, I think there are some interesting questions about whether these procedures work the way they did when we were targeting on M1. I don't know whether you would like that issue raised here or at some other point.",54
-fomc-corpus,1982,It might as well be raised here.,8
-fomc-corpus,1982,The steering mechanism?,4
-fomc-corpus,1982,"Yes, the steering mechanism. I've been on the market call and I've been intrigued as I watched this develop. It has been a very interesting period to be there. We are following the same sort of reserve targeting procedures from all outward appearances. We still set a nonborrowed reserve path and we have a borrowed reserves target; and we've made some adjustments to the borrowed reserves target. As this period unfolded, I began to ask myself whether this really makes a lot of sense when we are using M2 and M3 as our targets. They include a pretty broad confluence of assets. Some are subject to reserve requirements and some aren't; some have interest rate ceilings and some don't; and some seem to move in the same direction as the federal funds rate moves and some seem to move in the opposite direction. So, I'd like to ask Peter if he really thinks it makes a lot of sense to use this kind of reserve targeting procedure while we are using M2 and M3 as our primary targets, or even for that matter if he really thinks there is any effective way we can control M2 or M3. The bottom line on this is that I am asking whether the federal funds rate under current procedures is an effective operating instrument or whether it tends to become a target in itself.",257
-fomc-corpus,1982,"Well, there are a lot of parts to your question, President Black. Just as a technical matter, I think in using and revising the reserve path there are some [specific] procedures called for. We had to do some of this adjustment for different factors even when we were targeting M1. But there are further adjustments of this kind to allow, as you say, for the fact that many components of M2 don't generate reserve requirements. Steve may want to comment on this, but what we have done as we've gone along is to revise the path as though there were reserve requirements against M2 in general, in a sense making up for the fact that some important components of it didn't have reserve requirements. When you ask if it is effective to control M2 via this means, I would have to say I have some real doubts as to how good our control mechanism is on M2. But I think that would be true almost whatever rules we live by at the Desk. I do think what we're following, though, is an effective response mechanism to growth in M2 that is either on track or below or above track. It is something whereby the performance of M2 can generate a greater or lesser provision of reserves that then impacts on the money market, on the economy, and so on, and eventually on M2. I think that this is a sensible procedure.",275
-fomc-corpus,1982,"But the ratio between total reserves and M2 or M3 is so low or, to look at the other side, those so-called multipliers are so high. Therefore, if we miss our target--say we overrun the target--and we adjust by making the banks borrow that portion by which we have overrun the target, that's a pretty weak increase in the borrowed reserve target. Even if we do it on a one-for-one basis and even if that were the right way, I would wonder whether necessarily driving up the federal funds rate at a time like this would slow down a good part of M2. I think we would count on it affecting the M1 portion and probably the part of M2 that is subject to rate ceilings or reserve requirements. But some of these components are really money market instruments and they seem to move in the same direction. This is the kind of thing that has concerned me about it. I felt as we went through the period that the old apparatus was rather out of date when we were using this particular kind of target and that maybe we ought to go directly to [targeting] the federal funds rate, which probably sounds like heresy to a lot of people who have listened to me in the past, but--",252
-fomc-corpus,1982,How would you slow down M2?,8
-fomc-corpus,1982,I don't think we can slow it down except through affecting M1 and those few assets in M2 that are subject to either reserve requirements or interest rate ceilings.,32
-fomc-corpus,1982,"Well, one way of putting what you said is that the funds rate is now an endogenous variable. Is it the result of trying to restrain M2 with reserves, or is it the other way--that we move the funds rate and try to restrain M2 and that more or less gives us the reserve level that is needed?",68
-fomc-corpus,1982,I think that's a good way of putting it. The whole thing just bothered me and I was hoping for some--,23
-fomc-corpus,1982,"Do you want to make any comment, Mr. Axilrod?",14
-fomc-corpus,1982,"Mr. Chairman, the comments I'd be tempted to make would be in a fairly broad range. There is a dilemma between the short run and the long run. It is probably true that because most of M2 doesn't have any reserve requirements this 2 percent average reserve requirement on M2 relative to total reserves is giving us a very weak response in the short run to overruns in M2. That assumes, if we just go to the 2 percent, that the response is somewhat proportional and that M1 together with the nontransactions component would be roughly [as variable as M1]. But as President Black pointed out, in the short run they clearly won't be; as interest rates go up, the market will raise rates on the nontransactions components and they will respond. So, in the short run probably we ought to react, [in effect,] by moving the reserve requirement on demand deposits. That is, if M2 is strong, the really practical option is to lower demand deposits substantially; so we'd have to use a demand deposit ratio in the multiplier--for the purpose of the [technical] adjustment [to the nonborrowed reserve path]--rather than the M2 ratio. In that case we would get a very powerful interest rate response. To reduce demand deposits sufficiently to offset an expansion in the nontransactions component would require a very substantial rise in interest rates. That's just another way of saying in technical jargon that the interest elasticity of M2 is low relative to the interest elasticity of M1. So, to try to control M2 over a very short-run period risks very substantial interest rate movements. In the end, we would have to have enough [of an increase in interest rates] to bring income down and reduce the amount of money available to put into M2. That's the reason that we started using the 2 percent ratio--to moderate this particular impact, consistent with the Committee's decision. Also, it has a certain reality. When you think of the market response, the control horizon for M2 is [necessarily] somewhat longer than the control horizon for M1. Whether the Committee would then want to go directly to the control of the funds rate and make a deliberate decision about that instead of leaving it implied from a reserve path--knowing the control horizon for M2 might be a little longer, but implied M1 movements would still be substantial--strikes me as an issue that has more than economics in it. My personal preference, of course, would be to stay with a reserve path because I think it makes it a little easier in practice to get the movements of interest rates that the Committee probably would find tolerable and desirable under the circumstances.",540
-fomc-corpus,1982,"Well, that's very helpful. I did not mean in any sense to be critical of what was done. I think Peter and Steve did a fine job in implementing exactly what the Committee had in mind, which really was a sort of money market directive. I was just getting at the kind of problems we would have if we continued this for some period of time. I think Steve and Peter both elucidated those very well. That was very helpful. Thank you.",92
-fomc-corpus,1982,"Let me just make a couple of comments. I don't think there's any question that the mechanism creeps when it is adapted to this purpose. I would not overestimate the precision of our control technique on M1 either, but there is no doubt that it looks more strained when we are doing it this way. I was going to mention later, but I will just mention it now, that we will have a paper prepared for the Committee looking toward the targets for next year. It will not be primarily on the control mechanism, although it may get into that. It seems to me almost certain now that [as a result of DIDC actions] we shortly will have a full transactions account with a market rate of interest. We are very close to that now anyway, and we'll have another account. We may have very close to transactions accounts without any reserve requirements on them. We virtually have that now. It raises all kinds of questions both about the impact this will have on differential growth among the aggregates and even total growth of the aggregates during some perhaps lengthy transitional period. And it also has a bearing on the control mechanism. I don't think we can solve those problems today; I'm sure we can't. But we can get this paper prepared well before the meeting at which we have to set targets for next year. We will get it distributed before the meeting and have a discussion then; I don't think we will resolve it then but we ought to be in a better position for resolving it at the following meeting.",300
-fomc-corpus,1982,"Paul, I found the [DIDC] announcement in this morning's paper fascinating. Would it be premature to ask you whether in your opinion we will end up classifying these new accounts as M1 or M2?",44
-fomc-corpus,1982,"I've been assuming we will put them in M2 and it probably is premature to say that. It's a very ambiguous account. Beyond that, I don't know when it will be introduced. But there is a meeting of the DIDC not very far off--in three weeks or something like that. I don't know whether the DIDC will approve what in effect will be a lifting of the interest rate ceiling on NOW accounts, but I think it will go a long distance toward that. In two or three months prospectively, I think we will have that. This thing is so much like a transactions account now. If banks use it as a sweep account--it's not quite clear that they will--it's on the margin there. If it were any more liberal than it is, they would certainly use it as a sweep account and I don't know how one would distinguish it from a transactions account. I'm not sure we'd stop short of that margin.",188
-fomc-corpus,1982,"Excuse me, in that regard, was the newspaper article accurate that the DIDC has approved in addition to the six transfers--three checks and three preauthorized--telephone transfers without limit at least until the next time this is looked at?",48
-fomc-corpus,1982,"That may be reversed, but that's the way it is now--[unlimited] telephone transfers into one's own checking account.",25
-fomc-corpus,1982,Into one's own checking.,5
-fomc-corpus,1982,Or a personal visit.,5
-fomc-corpus,1982,"Well, a personal visit was always allowed.",9
-fomc-corpus,1982,On top of the other six transactions.,8
-fomc-corpus,1982,"That decision will [be reviewed]. One of the people who voted for it immediately wanted to change his mind after the meeting and he was not allowed to change his vote. So, it may be reversed in a subsequent meeting. But that bears upon how transaction-like it is, of course.",58
-fomc-corpus,1982,Was it a 3 to 2 vote?,10
-fomc-corpus,1982,"It must have been, because the one vote would have swung it. Now, we still have a decision to make on that, frankly. According to our present rules, an account of that sort will have a reserve requirement. I think that is correct. And if we just keep the reserve requirement on it, I presume that banks will not offer that service. I doubt it would be worth it, in terms of paying the 12 percent reserve requirement.",91
-fomc-corpus,1982,"Paul, I think we are going to have to look at the control mechanism definitely by the time we choose targets for monetary policy for next year. We probably will never be able to steer on M1 again. But M2 or any other aggregate we might choose, such as bank credit, has to have some concept for translating undesired behavior in an aggregate to action. And this 2 percent rule is a minimal response and couldn't be expected to have any effect in steering the aggregates if that is what we really want to do now. We might want to take as our aggregate nominal GNP, but even then we need a control mechanism. That is the vital part to be studied, because what we have now really doesn't have any tie to aggregate targeting or aggregate control--not with a 2 percent presumption on running above or below on the reserve effect of the aggregate.",175
-fomc-corpus,1982,One thing we could do is to make the change in the borrowing target some multiple of the overrun or underrun.,24
-fomc-corpus,1982,"Sure, we need an [amplification].",10
-fomc-corpus,1982,It doesn't have to be one-for-one; that's rather arbitrary.,13
-fomc-corpus,1982,"We don't look at M1, but of course we are going to affect M1 by what we do.",22
-fomc-corpus,1982,"Well, ""We don't look at M1"" is a little strong.",15
-fomc-corpus,1982,"I want to put it that way, though. Even if we never published the figure on M1 or looked at it or anything else, in trying to steer M2 we could have a process that would have big effects on actual M1 or the availability of Ml.",54
-fomc-corpus,1982,It would inevitably have to work that way.,9
-fomc-corpus,1982,"Would you think it would be helpful in making some of these very basic decisions, if some input were invited from whatever Reserve Banks might be interested in getting into the act on these studies, as far as just expressing themselves? There are some very fundamental changes in the wind and I would think that anyone within the System who had intelligent input to offer should be encouraged. I think we ought to hear the Reserve Bank points of view as well as those of the [Board] staff.",95
-fomc-corpus,1982,"We at one time had a Committee on the Directive which got together when there were changes of this kind. Conceivably, we could revive that.",30
-fomc-corpus,1982,"Well, that's right. But let's see where we want to go from the preliminary paper. I think we're going to get it done by the next meeting. We can't be too cumbersome at this point, but any Reserve Bank that wants to contribute should be in touch with Mr. Axilrod. He has already been in touch with some people at the Reserve Banks.",73
-fomc-corpus,1982,"Will it include something about your idea, Frank, of how to control total credit? What would the control mechanism be under your idea? Would that be in the paper?",34
-fomc-corpus,1982,We'll look at all the aggregates.,7
-fomc-corpus,1982,"The first focus is on which aggregates [to target] and how to interpret the aggregates. And that is partly--I suppose entirely in some sense--because M1 has problems at the moment that are looked at as a transitional thing. But it's very easy to get into a more general discussion, starting with a transitional problem, particularly when whatever else happens to M1, it looks as if there is going to be interest paid on it, which is going to change its behavior soon.",97
-fomc-corpus,1982,"We will end up with an adjusted M1A, which will be called the monetary base.",19
-fomc-corpus,1982,"We need to ratify the transactions, and Mr. Sternlight made a recommendation to you.",19
-fomc-corpus,1982,I move approval.,4
-fomc-corpus,1982,"Peter, did you have in mind longer coupons?",10
-fomc-corpus,1982,"Well, we would look at the whole range; we typically do when we buy bonds.",18
-fomc-corpus,1982,And you would do it in some volume today?,10
-fomc-corpus,1982,"Yes. It could be roughly $800 million to $1 billion. That would be a rather normal bite, I think.",25
-fomc-corpus,1982,Why are you buying? Are you buying for reserve purposes or inventory?,14
-fomc-corpus,1982,We have a reserve need running over the next few weeks. We already bought a large amount of bills at the beginning of this statement week and it would be a very normal pattern to follow up with a coupon purchase in the market.,46
-fomc-corpus,1982,Do you think the market would make anything of the fact that this sizable and unusual operation is occurring while we are meeting?,24
-fomc-corpus,1982,"I don't think so, Governor. There have been several occasions when there were coupon purchases on the Committee's meeting date.",24
-fomc-corpus,1982,They are looking apparently for some sign that we are going to move interest rates down. The only concern would be--,23
-fomc-corpus,1982,I would think the market would interpret this as a Federal Reserve concern about the backing up of interest rates.,21
-fomc-corpus,1982,It might draw some mild--,6
-fomc-corpus,1982,I think that would be very constructive.,8
-fomc-corpus,1982,We might get more leverage if we do it.,10
-fomc-corpus,1982,"Well, it's not really a neutral movement that is being proposed.",13
-fomc-corpus,1982,It is neutral so far as the money supply is concerned.,12
-fomc-corpus,1982,Do you think an amount of that magnitude would affect the yield structure?,14
-fomc-corpus,1982,"I don't think it would affect it very significantly. The market might draw some mild encouragement from it, but I wouldn't think they would make a big deal of it.",33
-fomc-corpus,1982,"I think some people will say: ""I hear the Treasury is issuing these bonds and the Fed buys them.""",22
-fomc-corpus,1982,"Are they in the market right now, Peter?",10
-fomc-corpus,1982,"The new issues were delivered yesterday. It's a real question, with those coming at a current market yield and some of the other recently offered issues because of their high coupons having more attractive yields, whether we should buy them on a yield basis. We are apt to buy very few of the new one that just came into the market.",66
-fomc-corpus,1982,How long has it been since you've made coupon purchases?,11
-fomc-corpus,1982,"Oh gosh, several months.",6
-fomc-corpus,1982,And of this size that must really--,8
-fomc-corpus,1982,I think it was early last summer. The size would be a normal size; we did $800 million about 3 or 4 months ago.,30
-fomc-corpus,1982,I am a little skeptical of this. What would happen if you postponed this?,16
-fomc-corpus,1982,"Well, we have a reserve need to meet for next week and, given its persistence, it ought to be met in sizable measure through outright purchases. So, if we don't buy coupons, we'd probably want to do another sizable purchase of Treasury bills. It would be somewhat of a surprise to the market for us to do that because they have come to expect that after doing some sizable bill buying for a while we would intermix that on occasion with coupon purchases. I think they would take it as a deliberate shunning of the coupon market if we didn't get in there. I don't think it absolutely has to be today; it seems like the most logical day to me from the standpoint of our reserve needs. If we did it tomorrow, then people could read that even more in the context of the Committee meeting than if it is being done on the day of the meeting.",174
-fomc-corpus,1982,I think you should do a mixed bag of short-medium- and long-term issues.,17
-fomc-corpus,1982,"Well, Governor, when we buy coupons it is just that. It's not all long-term bonds. We buy the whole range of coupon issues. To intermix bills and coupons I think would be a terribly cumbersome, totally novel, excursion in the market.",51
-fomc-corpus,1982,"Well, I don't think this is the most vital issue of the day. If there is a lot of discomfort about doing it today, it will be done presumably on Thursday or Friday.",37
-fomc-corpus,1982,I have no problems.,5
-fomc-corpus,1982,"If that makes people feel more comfortable, we can do that.",13
-fomc-corpus,1982,I have no problem going ahead today. I'd rather see us go ahead today than tomorrow given all this mumble-jumble misinterpretation we've been referring to.,32
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"If we're going to do it this week, it would be better to do it today.",18
-fomc-corpus,1982,Do we have a motion?,6
-fomc-corpus,1982,I move.,3
-fomc-corpus,1982,You have a motion that has been seconded.,10
-fomc-corpus,1982,I wasn't sure what that motion was.,8
-fomc-corpus,1982,The motion was to accept the recommendation.,8
-fomc-corpus,1982,"Well, we also have to ratify the transactions and I didn't ask anyone for--",17
-fomc-corpus,1982,The motion I think is to add a billion dollars to the [intermeeting] limit.,18
-fomc-corpus,1982,Raising it by $1 billion [to $4 billion].,13
-fomc-corpus,1982,Any objections?,3
-fomc-corpus,1982,"I think I'll vote against it if it's pure coupon purchases. If it's just to add a billion dollars [to the intermeeting limit], I can't be against that.",33
-fomc-corpus,1982,"I don't think we really want a vote appearing in the record that we voted on a particular operation and had an objection. If you want to persist in your objection, I think we ought to defer the whole thing.",43
-fomc-corpus,1982,"No, I'll withdraw my objection.",7
-fomc-corpus,1982,The action has nothing to do with coupons; it's just to increase the limit. SEVERAL. That's right.,23
-fomc-corpus,1982,We also need a motion to ratify the transactions.,11
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,[Approved.] Mr. Kichline.,9
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,That's finished goods. Jim?,6
-fomc-corpus,1982,That's right--total finished goods.,7
-fomc-corpus,1982,Why don't we just go on to Mr. Truman and get the complete picture.,16
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,"Well, I won't describe the picture domestically and internationally but open it to discussion.",17
-fomc-corpus,1982,"Mr. Chairman, looking back over the last six months, it's a little unnerving to witness the failure of prosperity, which was supposed to be right around the corner, to emerge. Laying aside political figures, as I recall, Jim, there have been respected people in the forecasting fraternity who were predicting that an upturn would begin as early as last May or last June. One month after another after another right down to the current one, as we know, that has failed to happen. Looking back, can you put your finger on any particular factor that has produced this outcome? I'm thinking that despite the tax cut for business last year and despite the October '81 and July '82 cuts in personal income taxes and all these wonderful things that were supposed to get us off onto a new road here, [recovery] keeps eluding us. Looking back, I wonder why.",177
-fomc-corpus,1982,"I think there are a number of factors. It's not really comforting to know that we have had a lot of company, but you are quite correct that the general expectation for the second half of the year has not been met. In part, from our side, I think we perhaps underestimated the interest rate impact on a variety of sectors, and in business fixed investment it was not just the interest rate impact but more broadly an erosion of confidence in that sector. That's the one area that we have written down substantially and it accounts for the major drop in activity late in this year. The export side is one that has been weakening as well in recent months, given the deterioration in international conditions. So, both of those sectors are now heading down with a vengeance. I would say there are obvious impacts on income and consumer spending flows from that. If you look around at what went wrong, it is a bit weaker virtually every place. I don't know any place in our forecast where we tended to revise [our estimates] up. Some revisions have been large on the down side and others small; but they all have tended to run in a negative direction. I think it's a whole host of factors. I would say also that the tax cut was a little weaker than we anticipated earlier, but it was so small that it pales by comparison with the other things going on and it just doesn't matter in the aggregate.",280
-fomc-corpus,1982,"We didn't have a rise in personal savings, particularly, as a result of the tax cut, which suggests that income growth was so much poorer that it used up the benefits of the tax cut.",39
-fomc-corpus,1982,"That's right. The monthly savings rate numbers are a little hazardous to look at, but September now is down to the 6-1/2 percent range. The temporary blip has been all but erased and a lot of income has been destroyed in effect or lost from the fact that these other sectors were deteriorating.",64
-fomc-corpus,1982,"I think we can trace most of [the economy's weakness], John, to very high interest rates. That stares us right in the face. We have extraordinarily high interest rates. If you look back at other recoveries, real rates have been a good bit less. I've noticed in my District, for example, that the drop in rates over the most recent months and its impact on the stock market has had a positive effect; there is less pessimism and some increase in hope. I think that will be quickly erased if rates reverse themselves to any significant degree. I believe the recovery eludes us because rates are too high, and we won't get a recovery until we have lower rates.",139
-fomc-corpus,1982,"I happen to agree with that, Ed. I didn't want to put words in Jim's mouth. I think that's the way it came out, though. The key factor, I think you said, Jim, was the interest rate impact particularly in the business fixed investment area and the export area. Is that correct?",63
-fomc-corpus,1982,"I think that's right. I would say that we had high interest rates in our forecast and we still had a recovery. So, looking back, I'd say either we misestimated the impact of those rates or attitudes changed. But it's very clear to me that one can't ignore the rate impact in terms of what is happening in the economy.",67
-fomc-corpus,1982,"The velocity numbers have been very unusual, haven't they? We've had pretty good monetary growth throughout but velocity has been negative instead of positive.",27
-fomc-corpus,1982,"Steve is going to be discussing that, I believe.",11
-fomc-corpus,1982,Who sees the recovery beginning?,6
-fomc-corpus,1982,Beginning?,2
-fomc-corpus,1982,Some flurries.,5
-fomc-corpus,1982,"I do get a little sense of it, at least in an anecdotal sense; there certainly are no hard statistics at this point. But I do have a very distinct sense of a bit of a change in business attitudes and so forth just in the timeframe of the past month or so. One place where it is very evident, as Jim mentioned, is in the housing sector. There clearly is a little action developing--I don't want to say a burst of activity--in the housing sector. who is in the wood products business even acknowledged that in a very forceful way last week. In terms of the number of plants making wafer board and that type of thing, all of a sudden they are back on 7-day workweeks. So, I think there is something there. More generally, I do perceive in a variety of places and contexts a sense that a bit of momentum is beginning to materialize.",183
-fomc-corpus,1982,"There is going to be a substantial decline in commercial construction next year, so even though lumber may be benefit, net, I'm not sure that the overall construction impact is going to be that significant.",39
-fomc-corpus,1982,"The commercial construction situation is really very, very bad. Indeed, not only do I suspect that that sector of the economy is going to remain very soft for a long time but I think that is going to show through in another clustering of real problem situations for the people who are financing these buildings that are just being finished.",64
-fomc-corpus,1982,What is the state of the farm economy?,9
-fomc-corpus,1982,"It's not good. Certainly, the price situation is terrible. These people, though, really do have remarkable staying power, in our District anyway. I sent my staff out to visit 6 or 8 major agricultural lenders to try to get a first-hand picture of what they thought was going on, and I was astonished. We are seeing a lot of problem situations and problem loans and all the rest, but it's still the Main Street [retailers] and the implement dealers [that are mainly affected]; the farmers themselves are hanging in there pretty well. The livestock people, again despite low prices for livestock, are benefitting obviously from lower grain, feed, and energy prices. So they actually are hanging in there in a reasonable fashion. But with regard to farm-sector purchases of any equipment, they are virtually non-existent.",167
-fomc-corpus,1982,Let me ask the question the other way in the interest of even-handedness. Who sees a continuing momentum of decline?,24
-fomc-corpus,1982,I'd like to speak to the housing sector.,9
-fomc-corpus,1982,We'll come back to you in a second.,9
-fomc-corpus,1982,"Let me just make one comment. I have always found it interesting and useful when I'm uncertain about whether my forecast is right or not to do what I call a ""National Bureau exercise"" in which I look at what I think are the better leading indicators of economic activity to see whether they confirm or deny my thinking. Of course, I play this game in my own way; I choose the ones I think are best. I don't look at the leading indicators, but I look at things like the average workweek in manufacturing, initial claims for unemployment insurance, orders for durable goods, and industrial raw materials prices. And they are all still going down. I'm quite convinced we will find that the recession not only has not ended in October but that it will not have ended in November either. And while I would make a forecast like Mr. Kichline's that recovery probably is right around the corner, I made that same forecast at midyear, as he did, and I was dead wrong. So, I think we have to reckon with a quite high probability that recession may well continue through the first quarter of 1983.",226
-fomc-corpus,1982,"There's a point that I think is lost here. We keep talking about the fact that interest rates have come down. I don't know what the real interest rate is, but if you look at the relationship between current nominal interest rates and current rates of inflation, the reduction in real interest rates, if it's there at all, certainly is not very significant.",70
-fomc-corpus,1982,"The other aspect of this interest rate movement that I think we need to take carefully into account is that this recession is quite unlike earlier ones in terms of the international component. A very large part of the decline in real GNP since the middle of 1981 can be explained by the drop in real merchandise exports. Now, that's a consequence partly of a worldwide recession but also of a very substantial increase in the value of the dollar in exchange markets. And the drop in nominal interest rates has not reversed that. That negative effect is still there in spades, as the International Finance Division has reminded us.",121
-fomc-corpus,1982,"Even though unemployment levels don't track real GNP that quickly, the view on Wall Street--I would say the consensus view--is that unemployment will continue to rise. I hear estimates of from 10.6 to close to 11 percent. Some people say it will peak by the end of this year but others say it will peak in the first quarter of '83. We could have some plus--a tiny little plus--in real GNP and still get rising unemployment.",96
-fomc-corpus,1982,"Oh, sure.",4
-fomc-corpus,1982,"But that wouldn't be perceived as recovery, I think.",11
-fomc-corpus,1982,"Well, we're not thinking in terms of interest rates very much. We should remember that when we used to do this we allowed for a lag of 6 to 9 months before [the economy] turned. I would think these lags have shortened, particularly in housing, and expectations tend to shorten them. But this fall in interest rates wasn't all that long ago that we could expect very great results by now.",83
-fomc-corpus,1982,Governor Martin.,3
-fomc-corpus,1982,"I've noted along with President Corrigan a few signs of housing recovery. Like Jerry, I've talked with both lenders and developers and found from them the first sparks or glimmerings or very preliminary indications of some recovery. But we have to put that into the changed institutional framework in which the lenders and the developers and the sellers of existing housing now operate. One of the positive indicators, of course, is the substantial upswing in FHA applications. That is a positive, but those FHA applications generally deal with housing, in submarket by submarket, that is at the lower percentiles of the housing market. It would be difficult to have a 1.3 or 1.4 million housing start number based only on that segment of the market. It would be difficult to have that kind of recovery in housing from the 800,000 to 900,000 level unless existing home sales revive and continue to support the month or two upswing in new home sales. The question is whether even that one or two month increase in new home sales will persist. The question is where the financing is going to come from to handle the need for the financing of the foreclosed properties--and they would be foreclosed if they didn't have to be shown in certain asset categories of the thrift institutions and the commercial banks. That kind of financing, of course, is taking and will continue to take first priority over adjustments and accommodations to the regular borrower. I note that there is a question about the thrift institutions with this marvelous new account, which is primarily a transaction account and will be looked on by their managers as a short-term source of funds. Do we really expect them to make 30-year fixed rate, fixed term loans with 5 or 10 percent down? That kind of contract is going to be what it takes to get to a 1.3 million level, supported by some multiple of existing home sales of 5 million or whatever it takes to support the 1.3 million. I don't see it that way.",406
-fomc-corpus,1982,You don't think the public will buy a variable rate mortgage?,12
-fomc-corpus,1982,"I think the public will buy a variable rate mortgage. That gets us to the complication of qualifying the buyer, particularly the young buyer, in what more often than not won't be a variable rate but a renegotiable rate mortgage. That gets us to the second problem of qualifying the young buyer particularly and other buyers where the lender demands a pledged account mortgage--where a savings account has to be put up in order to qualify the borrower because the income-to-debt-service requirement is such that they can't handle it without debiting a pledged account. In other words, the institutional context in this recovery period for housing is significantly different from any recovery period we've had before. So, if you foresee a consumer-led recovery with housing as the harbinger, I suggest you take another look.",156
-fomc-corpus,1982,Mr. Guffey.,6
-fomc-corpus,1982,"Thank you, Mr. Chairman. Jerry Corrigan captured the theme that I wanted to express. And that is that the discussions in October with businessmen and bond dealers in our area and at our board meeting involved probably the grimmest, gloomiest reports on the business outlook that I've experienced since I've been with the Federal Reserve. Interestingly, at the most recent board meeting and in meetings with businessmen in November, there was this glimmer of hope that things indeed were getting close to improving. There was some report, for example, that housing in the Oklahoma-Colorado area particularly, which has been a very vigorous economy, is continuing fairly strong. As far as the agricultural sector is concerned, while I do agree with Jerry that the agricultural sector has great resiliency, in talking to the farmers and [others] and also as a result of a quarterly agricultural farm survey that we conduct, we find that the foreclosures or the estimates of near foreclosures, which include substantial sales of assets in order to provide liquidity to the producer, are increasing or expected to increase rather dramatically in our area. One other thing we hear from farm credit people as well as bankers is that they are very conscious of [the desirability of] not putting very much foreclosed farm real estate onto the market because the market is already depressed in value by some 25 percent from a year ago. They are going to hold that farm real estate in some fashion rather than flood the market with it, which would push values and prices down [further], thus jeopardizing the collateral on outstanding agricultural loans. The bright spot in agriculture is the red meat area; hogs and cattle, for example, both are in the black as far as profits are concerned. So there is some hope.",352
-fomc-corpus,1982,How much of the glimmer of hope you are seeing stems from the drop in interest rates and the anticipation of their going down further?,27
-fomc-corpus,1982,"Nancy, I'm not sure I can identify all that goes into that glimmer of hope. But the fact that interest rates are lower certainly has to be an important factor. There is obviously some broad anticipation of a further drop in interest rates. I'd just suggest that without a further drop or with some backing up I think that glimmer of hope could vanish immediately. It would not only go away but that would worsen the potential outlook.",86
-fomc-corpus,1982,Mr. Balles.,5
-fomc-corpus,1982,"Just to reinforce what Governor Martin was saying on housing, the forest products industry, one from one of the biggest firms in the West, say that there indeed have been signs of a little pickup. Translating that into what it means for 1983 as a whole, they are still pretty bearish in the sense that 1.3 million would be about as much as they are looking for in new housing starts. And in a broader sense that industry is still in the doldrums because of what the foreign exchange business is doing to log exports; that is a very, very severe blow. And finally, the pulp and paper business, which is another important leg of that industry, is really in the doldrums. So, at least in our forest products firms, I don't find any great optimism these days. If I could finish with a question, Mr. Chairman, I'd like to ask a question of Ted Truman, at the risk of repeating what perhaps already has been said, which I didn't understand. In view of what has happened to interest rates in this country, with lower nominal interest rates at least, is there any good reason you can think of why that darn exchange rate is not only hanging up there but getting stronger?",248
-fomc-corpus,1982,"Well, as was noted earlier, it has moved down a little and may be coming [down more]. But the staff, at least at the Board, has pretty much run out of what I might call good reasons on that. And, not satisfied by the staff, I've noticed that several people we've had in here--the Board [staff] having been exhausted--were asked the same question. One clear factor seems to be the uncertainty and the safe-haven arguments. There is something there; how much one can't say. That kind of argument is very difficult to measure in terms of how important it is. Another factor is this recent phenomenon, as Sam mentioned, that there does seem to be a sense in the market that even though U.S. interest rates have moved down, foreign interest rates, even if they didn't move down in this period, are expected to move down further. We saw some of that phenomenon in the market yesterday when there were reports that British interest rates were going to drop very dramatically over the next six months; that knocked down the pound quite markedly against the dollar and other currencies at that time. So, there is a sense in which there is a decoupling of interest rate policy [whereby rates coming down in] other countries at the same time our interest rates are coming down has led to some marking up [of the dollar]. One thing that we do sometimes lose sight of is the fact that our inflation performance has been better than expected and better relatively than expected. All three together suggest that the dollar in a sense is not quite as high as we think it is.",321
-fomc-corpus,1982,Mr. Keehn.,5
-fomc-corpus,1982,"Well, I have [heard] the comments that would suggest that emotionally there is perhaps a better tone in the market, but I really think it's only because the previous period had been so very, very bad. In answer to Nancy's question, I think [the weakness] is entirely interest-rate driven. With rates having been so high, that created such a very bad attitude that a reduction, even a modest one, has been well received. But looking aside from the emotion into the basics, I think the situation is continuing to deteriorate. The basic industries, particularly those in the Midwest, are continuing to decline. That tone comes through in the Redbook; the Redbook made for pretty consistently gloomy reading this particular time. I think we are at a point where, if the rate structure doesn't stabilize or indeed doesn't continue to go down, this emotional improvement is going to deteriorate pretty rapidly.",180
-fomc-corpus,1982,Mr. Boykin.,5
-fomc-corpus,1982,"Well, I would pretty much be where Roger and Jerry are. My overall reading of the Eleventh District [based on] our own internal forecast that we've just gone through at our Bank is slightly more optimistic certainly than the Board staff's forecast. I don't know how much of this is hope. But I see things that I find very hard to understand. This is strictly anecdotal, but with regard to housing, Sunday afternoon out of curiosity I visited two housing developments in Dallas. At one, the builder apparently was pretty optimistic; he had just completed 10 specialty homes beginning at $375,000. And the crowds [were so big] you could hardly get in the houses. I was impressed with that, so I went across the road to another new development, and the lots began at $250,000.",164
-fomc-corpus,1982,The lots?,3
-fomc-corpus,1982,The lots.,3
-fomc-corpus,1982,That's low income housing in Texas!,7
-fomc-corpus,1982,There is a lovely countryside.,6
-fomc-corpus,1982,Each has its own golf course!,7
-fomc-corpus,1982,"Three homes had just been completed and were on show and we could not get in them because of the crowd. They begin at $1 million and they have ""for sale"" signs on them.",39
-fomc-corpus,1982,People aren't buying; they're looking.,7
-fomc-corpus,1982,But what builder has that kind of financing and that kind of optimism to build a million dollar [spec house]? And one that is about half completed is going to be priced at $1.8 million.,41
-fomc-corpus,1982,"Bob, there's an old maxim that builders use, which is: ""I'll build anything [the lenders] will finance.""",24
-fomc-corpus,1982,"But, Bob, isn't the number of rigs in use up?",13
-fomc-corpus,1982,"The rig count has improved. There is a question of whether it is a real improvement or seasonal for tax purposes and so forth. But the rig count is up slightly. On the other hand, the seismic surveys are not showing that much improvement, so it does raise the question of whether it will hold.",61
-fomc-corpus,1982,"Bob, doesn't your housing information support Pres' statement that the strength is going to be in the low income part of the market?",26
-fomc-corpus,1982,"In Texas, that's low income!",7
-fomc-corpus,1982,Mr. Ford.,4
-fomc-corpus,1982,"Well, I would say I get pretty much the same readings. I've been through three of my six locations in the last two weeks and there was a marked change from the last go-around. About half of my branch directors and Atlanta directors are now saying some positive things; it's pretty much concentrated, as others have reported, in housing and housing-related areas, which are sensitive to rates. One of was absolutely euphoric. He said he had an infinite improvement in building permits; in Montgomery, which is a city with a few hundred thousand residents, permits went from zero to thirty. Of course, that was [unintelligible]. Another reported that he'd seen trucks going out of the local lumber mill for the first time in a long time; that is housing-related and is supported by some statistical data that are coming out. We did a special survey of thrifts with regard to the questions that Governor Martin reported on and also the question of where the money is going. We looked at nineteen of the biggest thrift institutions in the Southeast and they account for $1 billion of the nationwide total of all savers certificates. Half of it disappeared. We compared September 20 to October 20 to see what happened to the money, and about $500 million ran off from the all savers certificates. The thrifts were pretty cheered by the fact that the biggest chunk of it--$150 some odd million--went into passbook accounts; they wish it were permanent, but they doubt it will be. Another big chunk--about $30 to $40 million--went into IRAs, which is long-term money. That might be the partial answer for why NOW accounts and IRAs and deferred comp accounts are starting to build up. Basically, I guess I have to go along with the general thrust of the reports here, which is that the only real optimism or rays of hope that we see are in housing and housing-related industries. There are a few minor exceptions; there's a bit of tourism and a little improvement here and there, but overall it is in the rate-sensitive sectors.",418
-fomc-corpus,1982,Mr. Solomon.,4
-fomc-corpus,1982,"Consumer credit interest rates are not coming down very much. I gather they are running 18 to 24 percent. Many department stores are keeping their rates at 24 percent. The argument is made that they had losses earlier when there were usury ceilings that they have to make up. Some of the banks say it is longer-term money that they have to borrow in order to finance automobiles, for example. Some of the upstate bankers in New York have said that their auto credit business has not picked up significantly. But one banker told me that he has offered a 12 percent rate on the condition that the customer open an account or had an account in his bank. And he said he is absolutely deluged with applications and that he did an enormous volume of financing of new auto sales at 12 percent. Now, Karl Otto Pohl in Germany made a public plea to the banks to pass on reduced interest rates in the consumer credit area, and a few of the banks followed with a one percentage point reduction. I don't know whether Chairman Volcker is thinking of making a comparable appeal.",219
-fomc-corpus,1982,Are you recommending it?,5
-fomc-corpus,1982,"Yes, I think it would be a good idea.",11
-fomc-corpus,1982,"I wasn't aware that consumer credit interest rates moved with the cycle. I thought that automobile and mortgage rates moved with the interest rate cycle, but that everything else was always at usury ceilings.",38
-fomc-corpus,1982,"Well, we have the impact of personal bankruptcy behavior patterns that lenders are taking into account a bit more than they did in the previous so-called recovery.",30
-fomc-corpus,1982,Mr. Roos.,5
-fomc-corpus,1982,"In looking ahead, I think it's important to keep in mind several fundamentals. I don't think any economist I have heard from or read about really equates this recovery with other recoveries from troughs in economic activity in recent times. People are almost unanimous in anticipating that the fourth quarter of this year, which is the time we're speaking of right now, will be essentially flat and that there might be, and hopefully will be, some pickup going into next year, with maybe 2 percent real GNP growth at best in the first half of next year. Some of us get exceptionally gloomy when we don't see the dramatic increase that has characterized previous recoveries. Just last week we had the chief financial officers of the largest companies in our area in for lunch. What many of you have reported was indicative of their points of view. They did recognize a rebound in home building and home-buying activity, but it was essentially in higher priced properties. The one significant hint of meaningful improvement came in the retail area where two large national retail firms, and another, said that they were sensing what they thought was an improvement that they hoped would carry over into Christmas as a significant improvement. But I think it's important when we get around to making policy that we not react in an inflationary manner to a gradually improving probability because I don't think there is any way that we will get the sort of dramatic upswing that has occurred in the past without fueling the [inflationary] engines to an extreme. But we saw glimmers of improvement among the contacts we had in the Eighth District.",315
-fomc-corpus,1982,Ms. Horn.,4
-fomc-corpus,1982,"I suppose if I were grasping at straws to say something optimistic from the Fourth Federal Reserve District point of view, I would say that the comments I've heard since the last meeting have [conveyed] in some sense more confidence. But if one goes below the tone of the comments and into the statistics business people have been basing them on, in fact, the statistics don't seem to show any improvement in the capital goods industries. We hear about continuing deterioration and backlogs, for example. And the farm sector is much as several people have reported, in terms of what farmers buy and extremely weak land prices. But, in fact, the comments do seem to have a little more confidence in them, perhaps really because people are now beginning to say that they are going to take market share away from somebody else and somehow be at a competitive advantage rather than that they are seeing an overall improvement in the economy. I see this as heavily reflected in the consumer sector in the Fourth Federal Reserve District as in any other [sector]. But I could put an optimistic face on what continues to be perhaps not a negative set of data but a stagnant to negative set of data in our District.",237
-fomc-corpus,1982,"One last comment I'd like to make is that I met with a group of about fifteen business leaders, and those among them who have been doing well in the last two years--three or four of the fifteen--continue to do well. Those who have been doing very poorly say they see the situation as absolutely flat; though it is not deteriorating further, they don't see any signs of recovery yet. And I found it interesting that when I asked about salary and wage increases, all of them, including those who were doing well, talked about increases in a range from zero to 6 percent, with the exception of the New York financial community.",129
-fomc-corpus,1982,I'd say that you weren't talking to the New York bankers.,12
-fomc-corpus,1982,"The wage increases that the New York bank community expects to pay within the next 12 months were running 8 to 10 percent, but the increases expected in the industrial community ranged from zero to 6 percent.",43
-fomc-corpus,1982,"I wonder whether the type of people you all talk to might not be considerably influenced by the 250 point increase in the DOW. It seems to me that that is one of those things that color attitudes. It may not add that much to consumer spending or anything, but most business leaders and most people who would buy a million dollar house have a considerable stake in the equity market one way or another, and they probably are feeling quite a bit better.",91
-fomc-corpus,1982,We can turn to Mr. Axilrod.,10
-fomc-corpus,1982,[Statement--see Appendix.] [Secretary's note: The meeting resumed at this point with more limited attendance.],22
-fomc-corpus,1982,"Well, we have to come down to making a decision. The assumption of the Bluebook is that we will keep the same general framework we had last time. I thought this [distortion in] M1 from the all savers certificates would sort itself out by this time. I'm not sure that it has; it appears that it has not. We still have that problem. A much more fundamental problem, implicit or explicit in the earlier conversation, is that the business situation doesn't look red hot. It has a lot of international complications. And, certainly, the relationships between the money figures and the economy have run way off the postwar track. We may be ending up with a tighter policy than we intended for that reason and not because we let [the aggregates] run above track. That's a judgment that has to be made. Without any question, they are off track; and whether they are going to return to track in the foreseeable future is a matter of faith. It doesn't surprise me, particularly, that they are off track now, but one can't judge the amount. I'm not so sure if we're really going to disinflate. We have all kinds of institutional problems with M1, but extracting from the institutional problems I think the basic trend in velocity might change. I've said that before, but I can't prove it. It certainly has changed in the short run and I'm not sure why. I would think that the basic trend in M2 and M3 ought to change. But that's really a problem for next year and not for next month. It's just a matter of judgment how much we allow for these liquidity pressures, and I suppose that gets mixed up in interest rate judgments. Who would like to approach the problem? Mr. Boehne.",352
-fomc-corpus,1982,"Paul, I would like to start. I have made a list of the key points that have been made. We clearly have a weak economy and the prospects for recovery are elusive at best. The point has been made about some glimmer of hope at the emotional level, but I think that is largely a result, directly or indirectly, of lower interest rates, and it can evaporate very quickly if rates reverse. The foreign situation, at least from my perspective, is just plain scary. And there is the point that you just made: That the money supply figures have to be viewed with increasing skepticism in terms of their economic meaning, at least at this point and maybe for a long time. I might add a point that has not been made. We have had a much improved inflationary situation. There is no room for an inflation scene [but] I think we have to be prudent about the inflation problem. As I add all these up, and admittedly it's a judgmental issue, they make a rather convincing case for a monetary policy that encourages some lowering of interest rates. As for the alternatives in the Bluebook, that pushes me in the direction of ""A."" It may be ""A"" to ""B,"" but I'm certainly closer to ""A"" than ""B."" If we did that, I would think that the funds rate would drop to 9 percent or a little under, and that also would open up a window for an appropriate drop in the discount rate, which I think has been discounted to some extent in the market. Unless we get some move there, we may give up some of the progress we've made on lower rates since the last meeting.",335
-fomc-corpus,1982,Mr. Morris.,4
-fomc-corpus,1982,"Mr. Chairman, I think we've gone a long way toward dealing with our long-term inflation objectives. That is not saying we won't have to deal with them in the future, but it seems to me that the immediate, imperative policy is to find the level of interest rates that is going to permit the economy to turn around. I think the evidence at the moment is that the current level of interest rates is too high and that the economy is still sliding downward. Quite clearly, the monetary aggregates are giving misleading signals. Their strength clearly does not reflect strength in the economy, but quite the opposite. It's a reflection of the weakness of the economy. In large part, I think the growth in the aggregates reflects the fact that the business community has not been able to fund their debt in the long-term bond market in the normal cyclical manner. And that has produced the unusual phenomenon of growing, indeed rapidly growing, business loans at banks all through a recession. I can't recall that ever happening before. Again, this sustained business loan demand, which has contributed toward the strength in the aggregates, as well as the liquidity preference factors are giving us very misleading numbers on the aggregates. It seems to me that at the moment we have to go for alternative A; it is the only alternative that makes any sense to me. We have to set aside the aggregates as our prime objective at the moment. But if we go for ""A,"" and I hope we do, that does mean we will have to inform the markets in some way that it is not necessarily our objective to bring M2 and M3 within their ranges because, if we get the markets anticipating that the Fed is determined to bring M2 and M3 within their ranges by the end of the year, we could very well not have the kind of response that we want. But that's a problem for you to figure out.",375
-fomc-corpus,1982,I will be making a little speech tonight. Mr. Roos.,14
-fomc-corpus,1982,"Well, I see this somewhat differently from Frank. First of all, I would ask Steve a question because I may be analyzing this incorrectly. One of the reasons for shifting our emphasis or attention away from M1 was to accommodate the distortions that the all savers certificates and other instruments might be causing as the all savers certificates [matured]. If we have the M1 growth that is implied in any one of these three alternatives and if we project that growth from the present time, aren't we in effect projecting 5 percent in the case of alternative C, or 6-1/2 or 8-1/2 percent from a base that includes the all savers certificates where they are now? In other words, don't we in effect validate that bulge that is a result of the all savers certificates termination? Don't we take off from that higher level and doesn't that give us for the year growth in that aggregate that is way above the--",194
-fomc-corpus,1982,Are you talking about 1983?,8
-fomc-corpus,1982,"I'm talking about 1983, yes. What I'm trying to say, and I guess I'm saying it in a very clumsy fashion, is that I would feel no discomfort with 6-1/2 or 5 percent growth from October to December if that growth were after the effects of the all savers certificates have washed out.",68
-fomc-corpus,1982,He's talking about the bulge.,7
-fomc-corpus,1982,"I think we're really moving from an inflated M1 because of its all savers component; if we put in a 5 or 6-1/2 percent growth rate above that, we're really getting a much higher rate of growth relative to our original targets than we had originally contemplated. I don't know that I'm asking quite--",66
-fomc-corpus,1982,One can see that; it's on the chart here.,11
-fomc-corpus,1982,"Well, the growth rates we have here are certainly higher than we assumed at the last Committee meeting would be consistent with your original M2 targets. The M2 target may be slightly higher, but not very much. A problem, as far as we can see from the casual information we get on bank deposits, is that the all savers certificate money that went into demand deposits has not come out yet. And we don't know when, in fact, it will come out. For all I know it may sit there and jump into this new money market instrument that the DIDC has authorized. So, in some sense, that temporary money is still in there and is raising these growth rates. I think that's what is causing these numbers--",147
-fomc-corpus,1982,"Well, I would see the effects of this on interest rates differently from the way Ed Boehne and Frank Morris perceive them to be. Regardless of what we know about the behavior of the aggregates, there are a lot of people out there doing a lot of figuring. And if money--whether it's M2 and M1 or a combination of these various Ms--continues to grow at anything like the rate it is growing presently, even though that money growth is authorized as a means of achieving lower short-term interest rates, I believe the opposite is going to occur, and I think it will occur very quickly. In other words, we will start to get articles and a reaction that will boost rates rather quickly in the belief that we will reinflate. Frank, I don't think we can turn this inflation [fight] off and on in any orderly way; people are still skeptical as the devil as to whether we are going to hang in there and keep our anti-inflationary posture. If we have three months or four months of really fast money growth, I think we will see these rates skyrocket instead of coming down.",227
-fomc-corpus,1982,Mr. Guffey.,6
-fomc-corpus,1982,"Thank you, Mr. Chairman. I agree with those who have already suggested that we must find an appropriate interest rate level that will further our economic recovery. I'm not sure that 9-1/2 percent isn't it, but it certainly hasn't given a good signal yet that it is the appropriate level. That implies to me that we ought to move interest rates to a modestly lower level, and that lower level is, I suppose, something this Committee should decide. All the talk about targeting reserves and looking at M2 for some informational content as to what policy should be I think is a bunch of baloney in the sense that we are targeting interest rates. And we ought to recognize that. In that context, I think there are a couple of ways to go. First of all, let me say that I am not suggesting that we do away with or abandon the regime of targeting reserves and money supply, at least for public consumption. But around this table it seems clear to me that [we are on] an interest rate regime and we ought to target on the interest rate we think is appropriate to get the economic recovery started again. Having said that--",233
-fomc-corpus,1982,"I don't think that's quite accurate, Roger, if I may interject. Speaking for myself, I would have lower interest rates if these aggregates weren't rising so darn [fast].",35
-fomc-corpus,1982,Would you?,3
-fomc-corpus,1982,I agree with that.,5
-fomc-corpus,1982,I agree that we have to be concerned about--,10
-fomc-corpus,1982,It's not exactly what I would target.,8
-fomc-corpus,1982,"Well, notwithstanding growth of the aggregates, I would propose that some lower interest rate is necessary to trigger the recovery. The way to get there is what this Committee has to deal with. Others have suggested alternative A and that has some attractiveness to me. But there are a couple of ways to engineer lower interest rates in the intermeeting period. And I would prefer doing it by adopting ""B"" and having an initial borrowing level below that suggested in the Bluebook, which was $350 million. I would make it $250 million or maybe $300 million, thus setting the reserve path in such a way that we would get a fairly immediate drop in interest rates; and coupled with a discount rate decrease, that would bring the funds rate to the 9 percent area. The reason I'm not terribly attracted to ""A"" is that, if I understand the Bluebook projections correctly, ""A"" [contemplates] about an 8-1/2 percent fed funds rate in the intermeeting period. That's a full percentage point decrease in a five-week period. That may be a little quicker than I'd like to see happen. I'd like to go down gingerly and see what happens so that we could continue a downward trend. And thus, I would opt for ""B"" with a lower initial borrowing level as the prescription.",266
-fomc-corpus,1982,Mrs. Teeters.,5
-fomc-corpus,1982,"Well, what I would recommend is not new. I think we have to get interest rates down to get the economy started. Therefore, I'd opt for alternative A. I did an interesting thing last week. I realized I had never actually looked at the numbers from the early 1930s, so I went back and took a look at them. There is no question but that we are not in a situation like the 1930s. [Then the economy] just went straight down; in the current situation, it has been going sideways for three years. But there is one thing that is very similar to the 1930s and that is the international crisis. What made the depression so extended was that all international credit flows essentially stopped. Our interest rates, the lack of recovery in this country, and the high international value of the dollar are creating a situation in the international field that could lead us into something very similar to the 1930s, and I'd be very careful. So, not only for domestic reasons but also for international reasons, I think it's imperative that we get our interest rates down and down to a level that will start a recovery. In addition, more and more people and more and more members of Congress are pointing the finger at us, saying that the lack of recovery is solely a result of either high nominal or real interest rates. If that continues and more blame is heaped on us, the possibility of major institutional changes is looming in the next year. I wouldn't change [policy] solely for that reason, but the economic and international outlook are such that we can't afford to stay at these rates. Therefore, I would strongly support ""A.""",337
-fomc-corpus,1982,"Let me just say a couple of words about the international situation. We have an IMF agreement--letters of intent anyway--with Mexico and Argentina. Their problems are far from being solved, but that's a very important step. Mexico still doesn't have much money and their economy is winding down for lack of imports and other things. There is going to have to be a big negotiation with the banks to get them to put up some credit. I don't anticipate that we will be asked to do anything more but it's not inconceivable [that we may be asked]. I just don't know how much [it might be] in the short run. The U.S. government is certainly going to be asked to do something on Argentina. I don't think it necessarily is going to involve the Federal Reserve. I have taken the opposite view. It's a very complicated situation. It depends upon what kind of security arrangements can be developed and it depends upon whether any foreign central banks will join in. It's in a state of being unresolved. As for the Brazilian situation, they had their election yesterday. I don't know what happened. It probably will take them a week to count their votes, but at least they have that behind them. They may have special vote-counting techniques for all I know.",254
-fomc-corpus,1982,Are they counting the way they do it in Illinois?,11
-fomc-corpus,1982,"That comment doesn't go in this report. My only point is that it may clear the way for a more open discussion of the Brazilian problem. There was an article in The New York Times a day or two ago, which you may have seen, that is fairly accurate. That is going to burst upon the world's consciousness a little more fully in the next few days. The Treasury has provided $500 million to Brazil already and probably will do another $200 to $300 million very shortly just to keep them afloat until the timing is right for them to go to the Fund and try to deal with the problem more openly, which is certainly going to have to be done. It is still a very uneasy situation. The IMF negotiations, on the other hand, are being speeded up, and that should be of some assistance. I think that will be resolved in the next month or so in terms of enlarging quotas in the special fund. I interject that because it arose in a couple of comments. Mr. Gramley.",205
-fomc-corpus,1982,"I am with the majority view that is beginning to develop. That view is that we have to do something to make sure that a recovery begins soon. Frank used the word ""imperative"" and I think that is quite right. It's a matter of urgency. Looking at the domestic economy, I have a feeling that the widespread expectation of the business community at midyear that the recession was over and that a recovery would begin led to actions that were deeply disappointed when the growth in final sales that was expected to come from the consumer sector didn't happen. We had a very serious worsening of expectations during the course of the summer and a drop in the demand for business fixed investment among other things. And I think there is more than a small risk that it might happen again. If I were forecasting, I suppose I would say it is probable that the recovery will begin sometime early in 1983. But there are no concrete signs as yet that the recession is over. I agree with Governor Teeters that the international considerations are pointing strongly in that direction, too, as well as considerations about what Congress might do. It's not just a question of potential anti-Federal Reserve legislation, but we badly need to have action that is going to reduce the prospect for growing deficits in the out years. And it's going to be extremely difficult, if not impossible, for the Congress to go in that direction if the economy is still falling. I look at the present level of interest rates and I have to acknowledge that I'm not sure the present level of interest rates is inconsistent with recovery. But if it's the wrong level, it certainly is not that interest rates are too low. On the contrary, they are more likely to be too high. I don't think there's any significant danger that what we do between now and the end of this year is likely to provoke a massive turnaround of inflationary expectations. I think we have established our credibility. I think we have to follow a course now that prevents any possibility that interest rates might go up. So, ""C"" and ""B"" are quite unacceptable to me. I wouldn't want to take such aggressive action that the markets would think we were throwing in the towel. I would be inclined, therefore, to go somewhere between ""A"" and ""B"" with an initial borrowing of maybe $250 million, as Roger Guffey suggested. I wouldn't be reluctant to stick with the growth rate of M2 in ""A"" and I certainly would want to keep in the directive the statement that we included last time about uncertainties leading to exceptional liquidity demands. We ought to err on the side of providing more growth rather than permitting less.",530
-fomc-corpus,1982,Mr. Keehn.,5
-fomc-corpus,1982,"Well, I don't know what I can add to what seems to be an emerging consensus for alternative A.",21
-fomc-corpus,1982,The consensus is mostly among non-voting members.,10
-fomc-corpus,1982,I noticed that.,4
-fomc-corpus,1982,"I think interest rates really do matter. And given the noise in the aggregate numbers, we really can't be in the business of slavishly following statistics that may or may not make sense whereas interest rates, as I say, really do have a significant impact. All the sectors I deal with in the Midwest are precariously positioned: The agricultural situation is serious; the industrial situation is serious also; and the consumer is at this point just plain scared. And I think consumers are not going to begin to move out until they get some confidence. Nothing will build confidence like a slightly lower rate structure and, therefore, I would be in favor of ""A."" I certainly hope that the fed funds rate would be under the 9-1/2 percent level--that it would tend to be around 8-3/4 or 9 percent and no higher than that. I think the borrowing level to accomplish that would be $150 to $200 million.",191
-fomc-corpus,1982,Mr. Solomon.,4
-fomc-corpus,1982,"I won't repeat the reasons that have been offered already on why I also share the view that interest rates should come down. Summing up, I think there is only a 50-50 chance that we will get a recovery. We need a little more margin there. We need some further relief on the international scene. So, the question is how to do it. It seems to me that even if we reduce the borrowing to $250 million--and I can't see it going safely below $200 million or probably $250 million--the most we are going to get is less than a half-point drop from open market operations. It is going to take a discount rate cut to move it a half point. If it doesn't offend anybody's integrity, I would prefer to put a figure of 9-1/2 percent for M2 but have a $250 million borrowing assumption and use the funds rate range of ""A."" The funds rate range doesn't have the same relevance it did earlier because if we have the same kind of language in the directive that we had last time, there is a considerable flexibility for the Chairman and the Manager. That's the combination I would prefer, but I could live with a straight ""A"" if others felt that it would be very inappropriate to have a 9-1/2 percent target for M2.",269
-fomc-corpus,1982,"Is that 9-1/2 percent you are talking about for M2 for September to December, Tony?",23
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,Could we achieve that with a 9-1/2 percent federal funds rate?,17
-fomc-corpus,1982,"What I'm assuming is that there would be a discount rate cut within a relatively short period of time. If that happens, then whether we have 9-1/2 or 10 percent doesn't make that much difference. Maybe it does by the end of the intermeeting period; I don't know. Steve might want to comment on this. Assuming we had a discount rate move in the next week or two, how significant would the difference be with an initial borrowing such as I talked about?",98
-fomc-corpus,1982,Why don't we defer that question until we get into an elaboration and just get the general views now. Governor Wallich.,25
-fomc-corpus,1982,"I, like everybody, would like to see lower interest rates. But what is the way to get them? The basic reason they are so high, I think, is indeed that the targets were too tight; they were calculated on the expectation of something like 3 percent velocity gains and we've had the opposite. So there is less money in the economy than there should be unless this turns out to be a temporary situation, as it quite conceivably may. We have suspended M1 temporarily; I think targeting on M2 is a good thing to state as a principle, but it's not a very easy thing to do operationally. The basic decisions we have to make are about the funds rate and the borrowing assumption. I think we have a certain degree of leeway as far as departing from the targets is concerned. The market has responded, I think, very well to our statement that we weren't going to adhere closely to M1. It hasn't had the effect of causing the long-term rate to go up, which would be the interpretation of a strict monetarist position; the long-term rate has come down. How long this condition will continue is a real question. Bob Eggert asked this question of his forty economists and got a response that no doubt ranges from 0 to infinity. But eliminating the [outliers], he arrived at seven months as the period of time over which perhaps a departure would be accepted by the market before people would begin to become uneasy and long-term [rate movements] would begin to become perverse. So, we have some leeway and we must make the optimum use of it. I'd be reluctant to spend it all right away and reluctant particularly to do what the market seems to want and to expect us to do right away, which does look like throwing the book at the recession now. So, I would like to postpone a more drastic action and would go with ""B.""",384
-fomc-corpus,1982,Mr. Corrigan.,5
-fomc-corpus,1982,"Mr. Chairman, the way I view the current situation is that I just don't think it's possible that the economy can stumble along at essentially zero growth for much longer. The financial strains that are there just won't permit it. If we float around zero for too much longer, with very little difficulty we could end up in a more severe downside situation. It is clear from the international side that the LDCs need to generate some exports. On the domestic side, I suppose some consolation can be drawn from recent developments in the financial markets but, underneath all that, the extremely serious financial strains are still very much with us. My own bet is that, even with the current interest rate structure or something very much like it, the prospects for some growth in real terms emerging in early 1983 and getting up in a range of 4 percent or so are reasonably good. But at the same time, while that is my own bet, I have to concede that the amount I'd be willing to wager at the moment is not much more than a nickel. There is another characteristic of the outlook for 1983 that I'd like to mention, too. All the forecasts, of course, assume that unemployment is going to stay high no matter what. I think something is going on that may make it stay even higher than the conventional forecasts. And that is that a lot of businesses have really cut into their management and white collar work force during this correction period, and I think they are finding that they didn't need all those people. As we begin to see a recovery, that phenomenon is probably going to make unemployment stay higher than it normally would, which simply is going to add more fuel to the fire. Having said all that, in terms of the alternatives that are before the Committee, if I understood them or if I thought they meant anything, I would be inclined to alternative B. That may in one sense seem to contradict what I said earlier, but I don't think it really does. Again, I'm not sure what any of it means, but the thrust of my position is that I would tend to be a bit on the cautious side right now, [given] the monetary growth that we are seeing--whatever the numbers mean. The potential is at least remotely there that we could find ourselves facing a bit of a problem in early 1983. The problem, other things being equal, might even call for a slight increase in interest rates. It seems to me that that is a total no-win proposition. That view is reinforced, at least in my mind, by the peculiarities of the operating environment that we are in. If we have to snug up, regardless of what alternative we are working from, given the way the path is drawn and the operational mode that we are in, the snugging up process inherently is going to be slower and less precise than it would have been under the former procedures. The last thing that is relevant, in terms of being a bit cautious, is this new [financial] instrument. It really won't hit until December, but it seems to me that it is going to depress the growth of M1 when it hits; and on top of that it is going to produce a shift from higher reserve requirement instruments to lower reserve requirement instruments, which as that begins to happen would in turn mean that a given reserve path, however drawn, might have different implications for the amount of money growth, however defined, one might have assumed in the first place. That, too, leads me to the view of being a little cautious among those alternatives. I would hedge my bet along the lines of Mr. Guffey's suggestion of putting the borrowing level down a bit from the $350 million that the staff associated with Alternative B so that we could see a reduction in the funds rate coupled with or followed by a reduction in the discount rate. I might even be prepared to go one step further. If for technical reasons, we aren't able to orchestrate that, I'd be inclined to take my chances with a reduction of the discount rate even with the fed funds rate trading about where it is right now.",825
-fomc-corpus,1982,Mrs. Horn.,4
-fomc-corpus,1982,"Mr. Chairman, I'd like to ask you to expand a bit on a statement you made earlier, which was that you would like to see lower interest rates if that could happen in an environment of less money growth. I'd like to hear you talk about how much lower interest rates you think the market might tolerate in the context of various kinds of money growth. As I look across the alternatives in the Bluebook, it seems one could construct a situation where any of the three alternatives could be consistent with lower interest rates. I'd just like to hear you expand your comment a bit.",115
-fomc-corpus,1982,"My comment was a casual one, not an analytic one, but I will try to make a more analytic comment. I just meant to say that if I were plucking an interest rate out of the air, I'd pick a lower one if I weren't constrained by worrying about how fast the aggregates were growing. I don't know how responsive I can be to your question. Somebody--I guess it was Frank Morris--said that there may be a perversity in the aggregates' growth at the moment. I think we do know at the moment, whatever it means for the future, that there has been an increase in liquidity preference. It almost seems to me tautological that we would get a decline in [velocity] of the kind we got. People want to hold more money; they want to hold more M2 and more M1 relative to economic activity. And it has persisted long enough so that it has been of some cyclical significance. What motivates that? Well, Steve gave a complicated explanation, which I'm not sure I followed entirely, about the differences between liquidity preference and spending preference or whatever. I'm sure it was analytically all brilliant. But there is some element of uncertainty here. People want to be more liquid but that is something I can't measure. To the extent that is true, I don't think it's inconceivable that if people had more confidence and saw the economy growing, at any given level of interest rates we would get less growth in the aggregates because they might invest in stocks, for instance, or put more in bonds, or lengthen maturities, etc. People would begin to look at assets that are outside these very liquid assets. I guess that's what Frank may have had in mind in part. I don't think it's the interest rate itself so much as a general feeling about the economy, which may be tied into interest rates. It isn't 100 percent certain, but if over a period of time--I'm not talking just about the next month--we got a different set of economic expectations, we might find these aggregates growing more slowly rather than more rapidly simply because of a return of confidence. One could argue--I don't know how far I'd want to carry this argument--that by taking a chance in the short run and departing from the usual analysis or the usual expectation of the way these things work that we might end up with lower growth in the aggregates than we would expect if indeed there were a change in the atmosphere and people had some confidence in the economy looking out three or four months ahead. But I can't prove that.",511
-fomc-corpus,1982,Can you imagine that we could do anything about confidence without reducing interest rates somewhat from their current levels?,20
-fomc-corpus,1982,"Well, I can imagine it, yes. Things could just get better at current interest rates. What I'm saying is that if we chose to be more liberal on the reserve-supplying side in the short run, though this analysis suggests that that would produce higher aggregates we might be pleasantly surprised over a few months and find that it didn't work that way. Nobody will ever know because we won't know what would have happened if we had done the opposite. But the differences in these aggregates projections are so small; they are well within the range of our capacity to foresee developments, within a month anyway.",119
-fomc-corpus,1982,"Do you have any uneasiness or any fear that if the markets perceive the aggregates to be growing [rapidly], the movement in interest rates would be upward instead of downward? Is that a [concern] that should be factored into our decisionmaking?",53
-fomc-corpus,1982,"Yes, [though] we may be in an impossible situation. The economy does not always develop in a way that there are any answers except after the passage of longer periods of time than we are thinking about. And I think that is a danger. That's why I pay some attention to these aggregates. What we have to balance is how much we think we can get away with, even if we recognize the dangers in the business situation and want to get interest rates lower. Even if we think that's where the balance of the risks is, we can't throw discretion to the winds for the reason you are suggesting. Where is that balance? I think that's what we are talking about. I think one would have to conclude from what has happened in the market that people haven't been that upset by what they've seen so far. I don't have the figures right in front of me but in fact the surprising thing is that while Treasury bill rates and the funds rate are [not much] lower than they were in early September, CD rates and private rates are. And bond rates are way down, which seems to be the inverse of what you would worry about if there were, at this point anyway, a great fear about what the monetary expansion was doing to us. Now, there are obviously anticipatory effects, but that is roughly right, is it not, Mr. Axilrod?",274
-fomc-corpus,1982,"Yes, [but] the 3-month, 6-month, and one-year bill rates are down [some].",24
-fomc-corpus,1982,"Once we get out in the maturity range, including as short as 6 months, rates came down [more].",23
-fomc-corpus,1982,"It does take a little while, though, for the recognition of the change to sink in.",19
-fomc-corpus,1982,"Well, that's the judgment we have to make. The biggest protection we have against that is that things have changed. I suppose what the market is telling us is that people are not going to get worried about that when they have a sense that the economy, if anything, is still declining. That raises the question of what will happen as soon as they get a sense that the economy may be in recovery; but we've got to get to the recovery first. Everything else is just an extreme example of what we are doing, which is balancing risks. If we had a clear answer, it would be easy to dump it into Mr. Axilrod's computer and he would tell us. But I don't think his computer is that good.",147
-fomc-corpus,1982,"One thing that puzzles me in the market comments is that there is a very widespread view that even if rates come up again in the early part of 1983, they will trend downward during 1983. And yet these are the same people who believe there will be a modest recovery. I'm not sure how they arrive at that view. They have a feel for what everybody else is thinking in the market.",82
-fomc-corpus,1982,"Well, they have seen what is going on. But what I am saying explicitly in answer to Mrs. Horn's question is that I do not discount the possibility that with a feeling of economic recovery we could get a very rapid reversal of this velocity movement in M2. I wouldn't be so certain about M1. I think M1 is just [in a whirl] with interest being paid on it and a change in inflationary expectations and all the rest, so I don't have the same feeling about M1. But for M2 it's a little hard to see why the velocity should go down indefinitely--why people should change permanently the relationship between their liquid asset holdings and income. One could argue, I suppose, that institutional competition has made those instruments so much more relatively attractive than they used to be that we have had a structural shift in terms of how much of that kind of money people want to hold as opposed to stocks, bonds, or whatever else they can hold their money in.",198
-fomc-corpus,1982,That's a good argument.,5
-fomc-corpus,1982,One can't entirely dismiss that either.,7
-fomc-corpus,1982,"Maybe. I wouldn't dismiss it. The interesting thing is that M2 really hasn't budged for three years in terms of its growth rate, including this year. It has been practically the same every year while the economy is going up and down and generally trending lower in terms of inflation and in growth. We have had some tendencies toward a decrease in velocity for some time, although it has only been this year that it has become really pronounced. So, maybe there is a structural change here.",98
-fomc-corpus,1982,"If one looked at the composition of M2 three years ago, what percentage were demand deposits and savings accounts then? I don't know but it was pretty big, wasn't it?",35
-fomc-corpus,1982,Yes. There has been a shift toward things that have a market rate of interest.,17
-fomc-corpus,1982,It is rather interesting. Nothing could have been much steadier than the growth in M2 over the past three years while all this other stuff has been going on.,33
-fomc-corpus,1982,And we are going to have the same amount of overrun this year as last year.,18
-fomc-corpus,1982,"We keep the target the same and only slightly overrun it. One would certainly think, given that inflation is down, real growth is down, and nominal GNP is down, that if M2 growth remains at the same rate, obviously something structural is going on. But this year it must be something cyclical, too. I don't know whether that helps you. You pay your money and take your choice! It comes down to balancing out, as so many people have said, the need for providing some protection on the down side, so to speak, against the danger that it's possible to overdo it, as Larry Roos keeps reminding us. The way to reach that judgment is what we're trying to do today. Governor Rice.",148
-fomc-corpus,1982,"I'd like to join all those who feel that interest rates need to come down from their current levels for all the reasons that have been given, both domestic and international. I won't try to go through all those reasons again. I'd just like to say that it's clear to me that real rates are too high to permit a recovery and, therefore, they have to come down from where they are at present. Like Governor Gramley, I don't know to what level they need to come down. And for that reason we ought to try to get them down gradually. We ought to be careful not to overdo it. But at the same time I think we have to do what we can to move rates in the right direction--downward--but gradually. I also agree with Governor Wallich that we have a limited amount of time during which we will be able to maintain our credibility and we ought to use that time wisely. The clock is ticking and we don't want to wait too long to have some effect on the current situation. I would conclude that we had better use some of that creditability soon in order to encourage recovery while we have time. If we wait too long, we may not make effective use of this credibility. Therefore, I would support alternative A in the belief that that will encourage a gradual decline in rates. I also think, if I understood correctly, that alternative B would not result in any decline at all in interest rates from their current levels. Is that correct, Steve?",299
-fomc-corpus,1982,"Well, if the aggregates came out that way, yes; it's set that way.",17
-fomc-corpus,1982,And if all these other assumptions are correct.,9
-fomc-corpus,1982,"So, to support ""B"" doesn't seem to me consistent with the objectives that we all say we have. I would be content to be somewhere between alternatives A and B provided it resulted in some downward [interest rate] movement. But alternative A seems perfectly safe at this time and that's the way I think we should go.",65
-fomc-corpus,1982,Mr. Ford.,4
-fomc-corpus,1982,"May I ask a quick question? If I did my arithmetic right, the midpoint of the fed funds range in ""B"" is about 1 percentage point below the current fed funds rate.",38
-fomc-corpus,1982,"Yes, for ""B"" we just put in the range that the Committee adopted at the last meeting. But our expectation was for a funds rate more like it is now.",35
-fomc-corpus,1982,"And in ""C"" the midpoint is about where today's rate is.",14
-fomc-corpus,1982,"Yes. We started with ""B"" as the range the Committee had, but the range--",19
-fomc-corpus,1982,"Well, I think you have characterized it exactly right, Mr. Chairman, in saying that we are at a point where we are weighing the [unintelligible]. The consideration is whether or not we're in a historical discontinuity. When I first joined this Committee I thought it was a line-up of Keynesians versus monetarists as to just what we needed to stimulate the economy. I'd like to review briefly what kind of stimulus we are now putting in from both [the fiscal and monetary] sides. As everybody knows, the deficit spending of the government really didn't explode until the second half of the last fiscal year. That is, through the spring we were running a deficit about the same as the previous year at about a $60 billion annual rate. It was in the last six months ending with September that on a seasonally adjusted basis it went from around the $60 billion annual rate up to $110 billion. That means that fiscal policy has only recently become dramatically more expansive. We now apparently are running a deficit somewhere in the range of $120 to $130 billion [or as much as] $150 billion for this fiscal year. In other words, fiscal policy was made much more expansive in the last few months. Likewise, as Lyle mentioned last time, the question of what is happening to the real money supply depends on what kind of monetary theory one likes. If you look at what is happening to the real money supply--I'm sure you've all seen the little chart that shows that it has only been since last summer that the nominal money supply, M1 and M2 both, has been growing. And with the drop in prices, the fact is that what is happening right now is that the real money supply is expanding very rapidly whether one measures it in terms of M2 or M1. That, too, is a quite recent phenomenon; it has only been occurring during the last few months. Those two conclusions, together with the normal lags in the impact of fiscal and monetary policy, lead me to the conclusion that the current set of policies on both the fiscal and monetary sides are very expansive. In terms of the fiscal thrust, the deficit is running at 5 to 6 percent of GNP; in terms of the full employment deficit, [the federal budget] is now in deficit at any reasonable definition of full employment. Real monetary policy is just expansive. And all that says to me is that we are sitting here reading each other the gloom and doom report, but unless we are at a historically discontinuous point in our economy, which a number of speakers have suggested in different ways [may be the case], we are running a high risk of throwing both of the throttles in our economic airplane fully to the wall and the plane has to take off. The great danger is that it will surge forward in the next few months after the normal lags on both fiscal and monetary policy take hold and then we will be in a position of having the worst of all worlds, namely, higher long-term interest rates--we may manipulate the short ones, but the long ones will get to us--higher unemployment, and price inflation starting to turn around against us, all without any significant drop in unemployment. And that's the scene that concerns me on the other side of this judgment we are making. Given that we haven't allowed for the normal lags, I would say we need to wait a little longer and risk keeping policy where it is--that may mean something more like ""C,"" whose average interest rate is right about where we are now--and see after another quarter if the economy does or does not respond to this tremendous stimulus we're giving it now. If at the end of that time, by late in the winter, we still see everybody pushing their forecasts of recovery forward, I would be more inclined to share the judgment a number of you are making, which is that we are already at a historical discontinuity. Then I would say we should go into our mode of being preventors of the great depression. If the problem is that we have had not just four or five quarters of unusual velocity behavior but that we are looking at six or seven quarters of it and the number is getting bigger and bigger in the wrong direction, at that point we should push this kind of stimulus. But until then I want to emphasize the risk on the other side, as noted in the comments of Mr. Wallich. All the business folks are saying they will give us a period of grace of, say, seven months; they will watch this and after that the indicators of expectations turning against us should probably start to break. I look at four things in terms of those indicators: the price of gold, which is turning against us; the exchange value of the dollar, which is currently all right or more than all right as a number of you noted; long-term interest rates, which are still declining, and as you said the market hasn't turned on us yet; and sensitive commodity prices, which are still reasonably okay. But if we go for ""A"" or anything like ""A"" to ""B,"" I think we will start to see these things turn against us, and with the economy surging we really will be in the soup six or nine months from now. So, while I'm worried about what the Congress is going to do to us and I'm also very worried about the fact that most of you may be right and we may be [witnessing] a historical discontinuity, I still think we should lean on the side of not overdoing the monetary stimulus to complement the excessive fiscal stimulus that everybody agrees we now have. I'd go for ""C.""",1139
-fomc-corpus,1982,Governor Partee.,4
-fomc-corpus,1982,"Well, I'm pretty sympathetic to what Bill Ford had to say. I don't think we have allowed enough time to see the effects of what is obviously a considerably more expansive monetary policy that was developing increasing momentum as we went through the summer and into the fall. It is very much like 1980 as a matter of fact. And the fiscal policy setting is certainly on the expansive side. I don't know that I would characterize it as expansive as you do, Bill, because I think we do need to look at the 6-1/2 percent full employment setting. It is negative but it's not so terribly negative at this point, though probably it will drift up rather than down because I think all the Congressional sentiment will be to raise the deficit rather than reduce it, in pursuit of particular job creating policies. On the business situation, I agree most with Lyle. I think it is quite poor. And I'm very worried about the marginal indicators. Jerry Corrigan mentioned that employment may not do at all well, and I think that's quite right. I know of a plant that has reduced its office force from 1300 to 500. They are not doing much out in the yard, but they are going to have to do a lot more in the yard before they add back to that 500 they have in the office. That plant happens to be in a deeply depressed industry, but its [action to reduce office staff] is a mark of what a lot of business people are thinking about because they are very squeezed on cash flows and very scared about their financial condition. So, I don't think business is very good and it isn't going to get very good in the immediate future, but I do think we need to have some time to see what the effect of these policies may prove to be. Over the years the Committee frequently has made serious errors by not allowing for the lag in [policy] effects because we always expect to see instantaneous results and we never get them in economics. I think we ought to wait a little while. I don't know whether interest rates are too high or not. I agree that one sympathetically thinks they ought to be lower because the real rates are so high; on the other hand, we have this structural problem in that they have to be disproportionately higher because of the government's financing needs. That is, the government is interest-insensitive in its demand for funds and it is going to take a substantial share off the top, so real rates have to be higher than in past settings in order to have a balanced economy with that kind of deficit. So, Paul, I come out for ""B;"" I think ""C"" is perhaps a little draconian. And I feel rather strongly that we shouldn't be posting in the directive expectations for the aggregates that are as far out of our expectational range of just 6 weeks ago as those in ""A"" would be. Even if we shade the funds rate range in ""B,"" I think we ought to keep the specifications for the aggregates that are in ""B"" and wait until we see this staff paper and have a little more experience in order to see whether we have to shift our focus entirely in terms of aggregates. The 1930s do suggest that we might have some kind of change in the function here and that we might be back to that because we certainly are going to have many more failures in this economy and many more failures abroad in the year to come. Maybe that means that we have to have more liquidity relative to economic activity. But I don't feel prepared to commit myself to that at this point. So, I would go for ""B,"" and I feel pretty strongly that I wouldn't want to see aggregate growth ranges above those specified in ""B"" by the staff.",756
-fomc-corpus,1982,Governor Martin.,3
-fomc-corpus,1982,"I think the case for saying that we are in a period of discontinuity is a mixed one. I don't think any of us can sit here and say that indeed the liquidity preference schedule has shifted--that the employment of liquidity and debt by the corporate sector or the private sector has really changed. But certainly there are a number of indications that indeed this may have taken place. To the extent there is credibility in the argument, one can look at the past two or three years and see two recessions back-to-back, with really no recovery. My colleague, Governor Teeters, occasionally asks: If one discounts the pseudo-recovery, isn't this the longest period ever of depressed growth? It's an intriguing idea. Obviously, there are many things to go by. That's the trouble. We know so many things that aren't [typical]: this very recent experience in the holding of liquidity; the recent experience of business firms restructuring themselves in terms of employment and outlook on markets; and the apparent significant change in the international situation. Those are facts that can be considered cumulative and they make the discontinuity argument. I am not impressed by the current jargon on how narrow the opening of the window is--that it's only seven months or 19-1/2 days or whatever--because there is an awareness in the markets, as distinct from the flow of articles, Larry. I read all those articles and newsletters and whatnot, too. That is a cottage industry. I'm glad we have nearly full employment there! But I do believe there is a significant difference between what traders and portfolio managers do in the markets and what some very interesting people write in the newsletters and in the financial press. I'm relatively unimpressed by the flow of articles, although I'm vastly entertained by them. Looking at the recent experience of nonrecovery over more than a 2-year period, looking at the benign effect of lower interest rates, if you will, what has been the effect of the decline of 150 or 200 basis points in short and long rates in terms of the international situation, in terms of the amelioration of the fragility of our own economy? People are still failing there. I have major mortgage lenders who come in here and tell me that ""they are still putting our friends out of business,"" a [reference] I take it to adhering to supervisory pressures to clean up the loan portfolio. The down side is still a specter that must be contended with and, therefore, I am an ""A"" to ""B"" person. I am bothered by a target of borrowing of $150 million; it seems to me too low. I can live with $200 million. I certainly can accept $250 million in the short run. I am greatly bothered by the alternative B notion that we might behave in such a way as to produce a 10-1/2 percent federal funds rate.",580
-fomc-corpus,1982,Take about 1/2 point off.,9
-fomc-corpus,1982,"I think a 10-1/2 percent federal funds rate would be a significant negative in the markets. They would understand that. They might not pay attention to 19 articles in that direction, but get that funds rate to 10-1/2 percent and I think we will continue to do damage to the economy. We have done damage to it. We, fiscal and monetary [policy] both, had to do damage. But there comes a point where the battering must stop. And 10-1/2 percent to me is cruel and unusual punishment. So, I'm an ""A"" to ""B"" person. I would hope to see $200 to $250 million as the borrowing target.",145
-fomc-corpus,1982,Mr. Balles.,5
-fomc-corpus,1982,"I come back, Mr. Chairman, to your excellent statement on the balance of risks, and that has me in a coin-flipping stage, I guess. I join everybody around the table in wanting to get interest rates down as fast and as much as possible, but hopefully keeping them down. And that's the hang-up. In a day or so, I assume, Murray [Altmann], the directive from our October 5th meeting will be published and at that time the public will know of just one more key thing that they don't already know, and that is that we set a range of 8-1/2 to 9-1/2 percent for M2 and M3 [growth] at that time. They won't be too scared because the October M2 that has just been published shows 8 percent and that's so far so good. What they don't know and what we do know is that in October M2 was considerably higher than the path plotted by the staff. I'm afraid, given the low assumption on M2 that the staff made for October, that if we get a continuation of accelerating M2 growth in November, which clearly seems possible--I think I heard Steve say that--we could be in [danger] of letting things get out of hand on the up side. Personally, I'm glad that we did in fact have the rapid M1 growth of August, September, and October, and that we got [interest] rates down in a rather dramatic way. But I'm a little afraid that we may begin to get some perverse reaction in the long-term bond market. This is always a judgment call, and judgment will differ around the table, but I begin to worry a bit--not that one swallow makes spring--about the articles I see such as the one on the front page of today's Wall Street Journal in the ""What's New"" column. The article said that officials of OMB and Treasury are beginning to worry now that we will see higher interest rates, higher inflation, and higher unemployment if the current monetary and fiscal policies continue. There are fears that the Fed's monetary policy has become too expansionary, [as reflected by] the fact that the money supply announcement yesterday was received poorly in the bond markets and bond prices went down. So far I think we've been lucky--not lucky in one sense because we have deserved what we have gotten, which is very good treatment--in the sense that our [monetary] expansion over the last three months has been accompanied by a downward drift in long-term interest rates in particular. I wouldn't want to overdo it; I wouldn't want to overplay our hand and carry that too far. As you said. Mr. Chairman, we just can't throw caution to the winds. And it's difficult to judge when you're overplaying your hand. I would join several of those who have already spoken in favor of tugging on the reins a little and, therefore, going with alternative B.",596
-fomc-corpus,1982,Mr. Black.,4
-fomc-corpus,1982,"Mr. Chairman, I think you expressed very well the dilemma that we face in trying to decide what to do today. I don't think there's any real difference among any of us around the table as to the objective we want, but we have some obvious differences about the means. At the last meeting I understood full well why we decided to deemphasize M1, given the international situation, the precarious domestic situation, and the noise in the M1 statistics. I thought we made a bad mistake when we did that but in retrospect I think it had a pretty salutary effect upon expectations, and it accounts to a large extent for this improvement we've seen in attitudes. But I do think a caveat is in order. Despite its having been maligned a great deal, it seems to me, from what I can understand in the literature, that M1 over the long run is still the best predictor of inflation and nominal GNP. Money thrown out to satisfy these high demands for liquidity in a period of recession like this remains around; and when the demand for money shifts in the other direction, it can come back to haunt us. So I'm very much concerned about the [money] growth we've had in the last several months and I fear that this may go on into November. Bill Ford and Chuck Partee after him expressed much better than I my feelings on this. I believe the battle today--if there is a battle or if one can call it that--is going to be fought over the question of whether we move the federal funds rate down deliberately or whether we are going to stick with a steady money market directive somewhat like we did the last time. My choke point is right at that point. If we decide to keep the federal funds rate about where it is now, I can buy that. If we decide to deliberately push it down in the absence of a weakening in the aggregates, I choke over that.",385
-fomc-corpus,1982,Mr. Boykin.,5
-fomc-corpus,1982,"In trying to balance the risks, the down side is very frightening. There is a possibility, though, that there is a little [risk] on the up side. Obviously I'm influenced somewhat by a slightly more optimistic view of where the economy is heading. With regard to the lag effect, the argument has been made that we really have not had time to see the full effect of recent policy actions. I find that to be a fairly persuasive argument [so] the cautionary approach also has appeal to me. I think we can remain cautious and not take a very overt action at this point to deliberately try to bring rates down. So, if I were voting today, I would vote for ""B.""",141
-fomc-corpus,1982,"Well, let me make a couple of additional comments. I gave you a finely balanced statement of pros and cons before, I suppose. I have no doubt in my mind that we've had a change in liquidity preference. The argument is over how long that will last, but it has lasted for five quarters. Well, I don't know if one can say it has lasted for five quarters; the numbers always have bumps up and down in a quarterly series. But when velocity has declined for five [successive] quarters for the first time in the postwar period, something is different.",116
-fomc-corpus,1982,Four quarters.,3
-fomc-corpus,1982,Mr. Axilrod told me it was five.,11
-fomc-corpus,1982,Including the fourth quarter?,5
-fomc-corpus,1982,Including the fourth quarter of last year.,8
-fomc-corpus,1982,And the fourth quarter this year?,7
-fomc-corpus,1982,He's projecting this quarter.,5
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"It seems a fairly good guess, Chuck.",9
-fomc-corpus,1982,"Is that what he said, or did he say since 1960?",15
-fomc-corpus,1982,"He went backwards only with quarterly figures. I used to watch velocity figures in the '50s and I will tell you they were rising, because I used to write stories about the belief that they had risen so much they had to stop rising. And they've risen every year since then!",57
-fomc-corpus,1982,You were sort of premature on your forecast!,9
-fomc-corpus,1982,"That shows you how great an expert I am on velocity! I remind you of Milton Friedman who, looking at a hundred years, wrote his book and said that velocity will always fall. Money is a luxury good and the most certain thing about monetary policy is that velocity is going to fall. Like all scholars he has caught up. I used to write internal memoranda; he had to get a book published. By the time the book came out velocity was already rising and it has risen every year since then, until last year. I think something is going on there; that is the only point I'm making. I have no doubts about that, but that doesn't tell you how long it will last. In terms of the business situation, and putting the international dimension into it--I'm not thinking just of the financial strains, though they are very real--we have a world in recession the way we have never had it before. And now we have additional deflationary pressures rising in a developing world that are very strong and certain. There's no escaping them. In talking to my foreign central banking colleagues, which I have done a bit recently, they are approaching the stage of being--if I wasn't going to be recorded, I would say frantic. Discomfited, maybe, is the better word. There is virtually a unanimous feeling that some efforts ought to be marshaled to push--if that's not too strong a word--interest rates 2 percentage points lower. I don't share that feeling, but I cite it as a symptom of the atmosphere in the rest of the industrialized world based upon their observations and their appraisal of the prospects in their own economies. They may all be wrong. The picture is very sluggish and I think the risks are on both sides, but predominantly on the down side. For better or worse, we're faced with an indefinite period that we are not going to be able to figure out M1 just purely for institutional reasons. I think there is a case to be made that it was the most reliable variable in the past, but I don't think that case can be made looking into the future simply because of the institutional changes, even abstracting from the issue of whether there has been any basic change in velocity on an unchanged concept of M1. We are not going to have an unchanged concept of M1. I think we have to hedge the risks a bit; it's a question of to what degree. That brings us to the specifics. I think we have a choice, given where the weight of opinion lies. Mr. Solomon long ago suggested that we stick with the 9-1/2 percent [for M2 growth], which is within the range that we had last time. We could eliminate the 8-1/2 percent side of it, if I followed him correctly. There's quite a lot of feeling that we ought to reduce the borrowing level, starting off anyway. That is a feeling I share and it is the principal hedge that I would recommend.",601
-fomc-corpus,1982,From what to what?,5
-fomc-corpus,1982,"I don't know where it is now, frankly, but we have had various proposals: $150 million is the lowest one I see in my notes; more people mentioned $200 or $250 million; and the highest was $300 million among those who in general wanted to make it a little lower. Some people may not want to make it lower.",70
-fomc-corpus,1982,Could we ask where it is? What is the case?,12
-fomc-corpus,1982,The borrowing level now?,5
-fomc-corpus,1982,"Yes, abstracting from that--",7
-fomc-corpus,1982,This current week [we expect] $550 million because we started out with $3 billion in borrowing on last Thursday.,24
-fomc-corpus,1982,"The last weekly number that we had that was independent of this problem Peter mentioned was something like $366 or $367 million. We never quite obtained that. Borrowing for the last five weeks has run, in millions, $248, $405, $273, $263, and then $530 million last week, which was also influenced by that high Wednesday.",73
-fomc-corpus,1982,"Well, $200 million or $150 million would certainly be lower.",14
-fomc-corpus,1982,There's no question about that. To put a number on the table--it is around the midpoint of what a number of people suggested and leans [in the direction favored by] those who wanted to hedge the bets this way--I'll say $250 million.,52
-fomc-corpus,1982,You're taking the alternative C growth [for M2] of 9-1/2 percent? Do you mean for October to December?,28
-fomc-corpus,1982,"No, I assumed the 9-1/2 percent meant September to December.",17
-fomc-corpus,1982,Right.,2
-fomc-corpus,1982,"So you're on ""B"" for the growth.",10
-fomc-corpus,1982,For the lower--,4
-fomc-corpus,1982,"Were you thinking of retaining that statement about precautionary demands for money? That would be a critical part of the directive, I think, saying that expected growth in September through December is at levels which might well imply the need to change the nonborrowed reserve path fairly soon.",55
-fomc-corpus,1982,I can't find [my copy of] the directive.,11
-fomc-corpus,1982,"Well, of course, we're virtually unaffected anyway by overshoots.",14
-fomc-corpus,1982,Why not?,3
-fomc-corpus,1982,The 2 percent rule.,6
-fomc-corpus,1982,"That is not true. We increased it--in a muted way, I think it's fair to say--but we increased it from the way we [started out].",33
-fomc-corpus,1982,You say muted and I say virtually unaffected.,9
-fomc-corpus,1982,"Well, virtually unaffected pushed the funds rate up and stopped the interest rate decline and reversed the stock market.",21
-fomc-corpus,1982,"The market went down again today, I understand.",10
-fomc-corpus,1982,The stock market is way down today.,8
-fomc-corpus,1982,It was against inflated expectations. But there certainly has been a trend in recent weeks toward a firmer tone rather than the reverse. It is quite noticeable in the market.,34
-fomc-corpus,1982,What federal funds range do you get with the $250 million?,13
-fomc-corpus,1982,"Well, all those federal funds ranges encompass anything I could see happening, so I don't feel terribly sensitive to it. I'd say it's at least time to knock the 1/2 off the 10-1/2 percent.",46
-fomc-corpus,1982,"Yes, I thought so, too.",8
-fomc-corpus,1982,And why not make 6 to 10?,10
-fomc-corpus,1982,"Yes, 6 to 10.",8
-fomc-corpus,1982,So we're not narrowing the range still further.,9
-fomc-corpus,1982,"I personally don't have any big problem with that, but with the present situation we aren't going to get down to 6 percent, given anything I see developing. Maybe we should, but we aren't.",40
-fomc-corpus,1982,But we don't want to go up to 10 percent either.,13
-fomc-corpus,1982,We don't want 10-1/2 percent.,11
-fomc-corpus,1982,But we don't want to go up to 10 percent either. I don't think we're going to hit either of them.,24
-fomc-corpus,1982,We're considerably closer to 10 percent than we are [to 6 percent].,16
-fomc-corpus,1982,"Yes, I could imagine 10 percent, but 10-1/2 percent would be a shock to the market.",25
-fomc-corpus,1982,"10-1/2 percent is where it is now, right? SEVERAL. No, 9-1/2 percent.",28
-fomc-corpus,1982,I know he means the [upper end of the] range.,13
-fomc-corpus,1982,Where the range is now.,6
-fomc-corpus,1982,"The present range is ""B,"" right? So if we drop it to 10 percent, that indicates a further loosening of policy in the sense of where the band is.",36
-fomc-corpus,1982,Very little.,3
-fomc-corpus,1982,"The way we're operating now, we are not going to hit either end of these ranges. So it's partially psychological. I would assume that if the economy stays this depressed and we saw the rate going up to the 10 percent area, the Chairman would either feel he had enough leeway to make an adjustment or he'd schedule a conference call.",68
-fomc-corpus,1982,"Well, I assume more specifically that the funds rate is going to be within range of wherever the discount rate is. What is going to happen--",29
-fomc-corpus,1982,May we ask what your feeling is on the discount rate? Should it be dropped another notch or left where it is?,24
-fomc-corpus,1982,"Going back to what I said earlier, if I were picking interest rates out of the air, I'd make them lower. So, I have some predisposition in that direction. Whether we have the stage set for it properly against all these other considerations, I don't know. But I wouldn't let a good opportunity pass.",63
-fomc-corpus,1982,"In that connection, I think the question is whether we continue to do what we say we have done, which is to follow the [market] rate down, or whether this is an appropriate time to [lead] by moving the discount rate down.",50
-fomc-corpus,1982,"Personally--I can't defend this very strongly, but just as a matter of tactics--I'd rather have the discount rate down and the borrowings higher, for any given constellation of forces. I feel a little more comfortable when the banks have to borrow a little.",52
-fomc-corpus,1982,"If we had some assurance that there will be a discount rate decrease, I would agree to a little higher borrowing level for the intermeeting period.",29
-fomc-corpus,1982,The trouble with that is that it gets too fancy and is hard to explain. We'd have to face the fact that we would reduce the discount rate [without] a clear signal from the market. But I wouldn't be unhappy to end up in that position somehow.,52
-fomc-corpus,1982,"Well, I think what you're suggesting is okay. I don't think the funds rate range makes much difference. If we want to make the top side 10 percent, we could make it 7 to 10 percent or 6 to 10 percent. It's strictly psychological; it has no operating significance at all.",63
-fomc-corpus,1982,"I think the crucial point is where we start the borrowing. Frankly, I wouldn't put it above $250 million. I wouldn't be unhappy to go lower than that, the way I see things.",40
-fomc-corpus,1982,"How much seasonal borrowing do we get on this, Steve--about $50 million?",17
-fomc-corpus,1982,"It's running fairly low, Governor Teeters. We have had $50, $77 and $90 million recently. It has been below $100 million for the last five or six weeks.",38
-fomc-corpus,1982,And the extended borrowing isn't in that number at all?,11
-fomc-corpus,1982,No. That has risen a little; it's about $190 million.,14
-fomc-corpus,1982,But that's not in the--,6
-fomc-corpus,1982,"It's not in this number, but the seasonal is.",11
-fomc-corpus,1982,I suppose I am affected by believing that in the short run the economy is still declining and industrial production is going to be down in November. Maybe I'm all wet there.,34
-fomc-corpus,1982,"The way it looks now, yes. We have some information on raw steel output, and auto assemblies are down. It looks as if it's going to be a negative number.",35
-fomc-corpus,1982,"The other thing is, looking at the structure of industrial output in October, there isn't any evidence that it is consistent with an immediate turnaround. That is, one normally would expect in an economy that is about to pull out of recession and flatten out that production of materials will not go down as much as final product. In this case what we saw was a flattening out of materials production in the early summer and then it resumed [its decline] again and is still going down rapidly.",97
-fomc-corpus,1982,"I really cannot over-emphasize the extent to which my foreign brethren feel strongly about this. I don't care how conservative the central banks are, they are all in that direction and very strongly. I also do think that the current level of the dollar is catastrophic. As surely as we are sitting here, it's not only depressing the economy today but it is going to turn. We talk about the kind of current account deficits that are projected. I find them almost unbelievable because I don't know how we would finance them. We are going to be in Mexico's situation. The implication is that we are going to have a declining dollar and expect to raise $50 billion in capital abroad. Well, who is going to put money into the dollar when they sense it is on a down trend?",157
-fomc-corpus,1982,Carter bonds. We made a lot of money that way!,13
-fomc-corpus,1982,"Well, we can do the Carter bonds once the dollar has dropped by 30 percent. That atmosphere is going to be awful if it develops.",29
-fomc-corpus,1982,"What about the exchange rate situation? Doesn't that situation give us a little more leeway in terms of being able to do something directly with the discount rate, without having to worry about finessing the market?",42
-fomc-corpus,1982,"If the discount rate were reduced, I think we would have to explain it as a straightforward concern about the economy and, in part, the dollar.",30
-fomc-corpus,1982,"Put more generally, the level of the exchange rate gives us more freedom to do something with money supply, interest rates, and so on without worrying that somehow it is going to have an immediate inflationary or expansive impact. We are not getting a symmetrical response to changes in interest rates. The movement upward in interest rates carried with it a very substantial increase in the exchange rate, so we had a lot of negative effects on exports from that. The decline in interest rates, it seems to me, has not had that effect. It's a lot less than the opposing effect on the up side.",118
-fomc-corpus,1982,"I think Paul is probably right that when it starts to run, it's going to run pretty fast.",20
-fomc-corpus,1982,"We are not going to be left alone in any interest rate decline that develops here. And, of course, that's one of the reasons the exchange rate stays so high. I guess Ted or somebody mentioned that there is--",44
-fomc-corpus,1982,They are going to match it point for point.,10
-fomc-corpus,1982,And maybe more than that.,6
-fomc-corpus,1982,They are holding their breath.,6
-fomc-corpus,1982,"I'm repeating myself, but there is a deep degree of depression and feeling of disturbance in every other industrialized country.",23
-fomc-corpus,1982,"Do you think this proposal of $250 million on borrowing and, say, a 7 to 10 percent funds rate band is consistent with a decline in interest rates?",34
-fomc-corpus,1982,"Oh, it would take the edge off the federal funds rate, presumably. It may not right away; we're going to publish a high borrowing figure this week, but I presume the funds rate--",39
-fomc-corpus,1982,"It would take a cut in the discount rate, wouldn't it, to do something?",17
-fomc-corpus,1982,"Yes, and I think this might be consistent with the funds rate going slightly below the discount rate. It has been below it for months. It does not imply a change from where interest rates have been for the last month, in my opinion. That in itself [would require] a reduction in the discount rate. Even then I'm not sure it's a lot.",72
-fomc-corpus,1982,"Short-term rates now generally are working on the assumption of an 8-3/4 to 9 percent funds rate. They did not align even with a slight upward movement. As I understand it, at least from some of my banker friends, short-term rates are lower than would be indicated by a 9-1/2 percent fed funds rate.",72
-fomc-corpus,1982,"Well, we would have to wait a while to reduce the discount rate in this current market environment. Interest rates are going the wrong way.",28
-fomc-corpus,1982,"Well, I think we would tell them that we don't like to see them going that way.",19
-fomc-corpus,1982,That's why I think we have to do something here.,11
-fomc-corpus,1982,It's a more difficult decision.,6
-fomc-corpus,1982,We have to do something to nudge market rates down and then we can reduce the discount rate.,20
-fomc-corpus,1982,How about using the fed funds range of alternative A the way it is written [in the Bluebook]?,21
-fomc-corpus,1982,That puts me on the other side of the river.,11
-fomc-corpus,1982,6 to 9-1/2 percent?,10
-fomc-corpus,1982,"We could put it at 6 to 10 percent, which would give us a 4-point range.",22
-fomc-corpus,1982,There you are.,4
-fomc-corpus,1982,That doesn't have any meaning.,6
-fomc-corpus,1982,I know it doesn't.,5
-fomc-corpus,1982,"Well, it does have some demonstrable meaning; I think 6 to 10 percent is okay.",21
-fomc-corpus,1982,You mean when it's published.,6
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"Let me sum up my own view another way. I think this general pattern is acceptable. It is playing it very close to the vest, considering what I see going on. The risks are unbalanced but they are on both sides. The risk is that this is not enough.",56
-fomc-corpus,1982,"Or [the Board] could drop the discount rate a whole point. I'm not recommending it; I'll be sending in a 1/2 point recommendation this week. But there is just no more room in this nonborrowed reserve path. There isn't any room to do much more than what we are doing. If we go significantly below $250 million, that runs some serious risks that we could have a very screwy market situation. We are better off with a move on the discount rate.",99
-fomc-corpus,1982,"One way of looking at it, I think, is that what we have been doing for some time is letting these aggregates run a little high because we recognize that there are liquidity pressures and we haven't wanted to move strongly against that. We haven't been very forward in pushing them higher. If we really felt that liquidity was changing and the market was terribly sour and it was going to last for a while, we would take that additional step and push them higher. We haven't done that and I don't think what we're proposing does that; one might argue that ""A"" verges on that. If it turns out that velocity keeps declining, we should have done that.",132
-fomc-corpus,1982,"And we may need to do that, but it's premature.",12
-fomc-corpus,1982,Then we would really have a problem communicating that.,10
-fomc-corpus,1982,"It's easier to communicate the sourer the economy, I can tell you that.",16
-fomc-corpus,1982,"I think the case for waiting was a saleable one at midyear. But too much time has elapsed since then. I no longer think it's saleable to say that we will wait to see whether or not this velocity trend continues. It has been going on too long. So, I think we've got to err on the side of setting specs that give us a high probability that we will not see any upward movement of interest rates and that the greater likelihood is that they are going to move down. It's not guaranteed; one can't guarantee anything in this world. But I'm afraid if we have another recurrence of the disappointment that we have had with an economy not recovering, we're going to see a souring of attitudes, and this economy is going to get away from us. We then are going to have to take some very, very strenuous action on both the fiscal and monetary sides to rescue it. The international complications make this a profoundly different kind of recession than we ever have had before in the postwar period.",202
-fomc-corpus,1982,"If you count four or five months into the future, I'll be fishing and you all will still be wrestling with this. But let's assume that by forcing rates down a little you do achieve an improvement in the economy and this stimulus starts causing interest rates to rise next spring as this long-sought recovery is reaching meaningful proportions. Yet money has grown so quickly that the prospect of inflation is heightened. Are you all going to be willing to apply the brakes at the time? If you don't apply the brakes at that time, we're going to be right back into double-digit inflation rates in a few years.",119
-fomc-corpus,1982,"Somehow, Larry, that scenario doesn't fly with me. I don't think that's the situation we're in.",21
-fomc-corpus,1982,I'd sure be a lot happier about applying the brakes if the car were rolling rapidly down the hill than to roll it backward down the hill.,28
-fomc-corpus,1982,"We'll think of you though, Larry.",8
-fomc-corpus,1982,"I don't discount that [scenario] entirely. It is complicated by the budgetary situation. I don't know that it would happen as soon as this spring, but I think it is possible. As I said before, we will not find this particular monetary growth [pattern] again. I don't know what M1 is going to look like then. I'm not sure we're going to find M2 all that rapid in those circumstances, but we'll have to wait and see.",93
-fomc-corpus,1982,"But if we do something like setting borrowings at $250 million and do whatever you want with the federal funds rate, it seems to me that we have some reasonably high degree of assurance that we're not going to see interest rates higher than they are now; and depending upon finessing the market or [the Board's] willingness to do something with the discount rate in any event, there is the clear potential for lower rates. In the worst of conditions, [the Board could] reduce the discount rate even if the fed funds rate is at 9-1/2 percent; [you would] just bite the bullet and do it. My personal view is that the markets and everybody else would accept that.",143
-fomc-corpus,1982,The markets would love it.,6
-fomc-corpus,1982,But I don't see that--,6
-fomc-corpus,1982,I'm not so sure what would happen with reducing the discount rate by 1/2 point. They have all been expecting it and for that reason it may have very little impact.,36
-fomc-corpus,1982,"No, I'm not saying it will have much impact, but if you don't do it--if you wait too long--there will clearly be a backup in rates. If we actually wanted to move the bond market and the stock market up--I'm not saying we should--then we'd have to consider a one-point move. But I'm not recommending that. I think, though, that you have to move 1/2 point.",86
-fomc-corpus,1982,"But 1/2 point doesn't have to be the end. However it develops, we can move the discount rate down to 8-1/2 percent after a 2- or 3-week delay and it's still--",46
-fomc-corpus,1982,This is true. Judgments can be made as we go along.,14
-fomc-corpus,1982,"Well, let's just see where we stand. Looking back at the directive, if I can find it, what I suggested and others have suggested is to put in 9-1/2 percent [for M2], which is within the range that we had but it looks a little easier. We can put the funds range at 6 to 10 percent if that's where the--",77
-fomc-corpus,1982,"We aren't using a range, though, [for M2]?",13
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,"Well, we could say ""around.""",8
-fomc-corpus,1982,"[This draft] doesn't have ""about"" or ""around"" 9-1/2 percent.",21
-fomc-corpus,1982,"I don't know about that phrase, just in terms of its internal consistency, ""taking account of the desirability of somewhat reduced pressures in private credit markets."" I'm not sure we're saying that this is going to produce in and of itself lower interest rates. We might just leave that phrase out.",58
-fomc-corpus,1982,I would be inclined to take it out because we moved to the 9-1/2 percent on the M2 from 8-1/2 to 9-1/2 percent. We have already taken account of it.,48
-fomc-corpus,1982,"Actually, the private credit markets, as distinct from the public credit markets, have improved during this period. This great tiering and backing up tendency we had in those markets is not evident today.",39
-fomc-corpus,1982,I would like to see that phrase removed.,9
-fomc-corpus,1982,"Well, does this suit, as well as anything is going to suit?",15
-fomc-corpus,1982,"Could we ask Peter and Steve to tell us what they think would happen to the fed funds rate with this kind of directive, in the absence of a change in the discount rate?",36
-fomc-corpus,1982,"I think $250 million on borrowing would tend to produce a funds rate right around, or a shade below, the discount rate.",26
-fomc-corpus,1982,A shade below the present discount rate.,8
-fomc-corpus,1982,Right.,2
-fomc-corpus,1982,"So, if [the Board] doesn't move the discount rate, it won't go down to 9 percent; it will stay at around 9-1/4 to 9-3/8 percent.",42
-fomc-corpus,1982,"You are saying we really have a money market directive--a very tight money market directive, probably--if there is no move on the discount rate.",30
-fomc-corpus,1982,I don't think we'd have much scope for a downward movement in the funds rate with a $250 million borrowing level without a discount rate change.,28
-fomc-corpus,1982,"Mr. Chairman, I have one other point to make on this directive. I'm a little concerned about the phrase in the opening paragraph that reads ""the reinvestment of funds from maturing all savers certificates and the public's response to the new account directly competitive with the money market funds mandated by recent legislation."" The latter half of that statement really flies in the face, I think, of what is said on page 7, paragraph 9 in the Bluebook. It is made pretty clear in the next to the last sentence of that paragraph--and I agree with what is said there--that the new money market account will only have a small [quarterly] effect on M2 when it becomes available in mid-December for the simple reason that it is not going to be around long enough in the fourth quarter. I tried my hand at writing a slightly different version of a directive. I don't know whether this will help or hurt the cause. The bottom line is to take out that phrase in the current proposed directive which reads ""the public's response to the new money market account competitive with money market funds mandated by recent legislation."" I agree it is going to be a big problem when we get into the first quarter; I don't think it's a problem for this quarter.",257
-fomc-corpus,1982,Let me just raise a question. Why do we need this paragraph at all now? We needed it the last time to explain what we were doing. Would we lose anything by just dropping the whole paragraph?,41
-fomc-corpus,1982,No. The last sentence of paragraph 9 is our feeling about it. We're not certain when we--,21
-fomc-corpus,1982,"Well, presumably we will say something about this in the [policy record] discussion. But is there any operative need to put it in the directive at this point?",33
-fomc-corpus,1982,"No, but I do think there is some uncertainty related to both the all savers certificate and the new instrument about what is going to happen in the interim, [which should be in the record] for discussion purposes. I don't know where people are going to store their money in anticipation of those things. But you don't need it for operational purposes.",70
-fomc-corpus,1982,"The only significance of taking it out--maybe it is too much--is that it says ""much less weight."" The fact is that it has some weight. If M1 had happened to be dropping off the table in the last couple of weeks, we would have behaved somewhat differently. If we leave it out completely, we lose any flavor of that.",71
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"Well, I think we would have to explain why we haven't specified it. That is, the earlier paragraph [on the Committee's long-run objectives], which isn't here in the Bluebook, talks about the Committee's expectations for M1 and M2 and so forth. So we have to continue to say why it is that M1 is not figuring in this instruction to the Manager.",77
-fomc-corpus,1982,"That's very important, because otherwise we are in fact implicitly still giving weight to M1.",18
-fomc-corpus,1982,It also has the advantage of showing that we were right for a change.,15
-fomc-corpus,1982,"I'm not quite sure what your particular suggestion is, John.",12
-fomc-corpus,1982,"This talks about M1, John. It seems to me that you were talking about M2.",20
-fomc-corpus,1982,"Well, I was talking about both. I happen to have some copies of this here for distribution. Maybe the easiest way, if it could be helpful, is to distribute them. The main burden of the message is that it backs away a little from what we said last time. There is still uncertainty about M1, but not as much as last time. The opening sentence is that the specification and behavior of M1 over the balance of the year are subject to fewer uncertainties now than at the last meeting in October. You may not agree with that, but that happens to be my view. SEVERAL. No way!",126
-fomc-corpus,1982,I don't want to give any kind of [unintelligible].,14
-fomc-corpus,1982,"Suppose we leave it the way it is now and just say the difficulties of interpretation of M1 continue to suggest that less weight--I don't care whether we say ""much less"" or ""less than usual""--is being placed on movements in that aggregate during the current quarter. And we can forget about that M2 sentence, if that's troublesome.",70
-fomc-corpus,1982,"I ended up the first paragraph by saying: ""Nevertheless, the difficulty of interpretation of M1 still suggests that less than usual weight be placed on movements in that aggregate and more than usual weight be placed on M2 during the current quarter."" In order not to scare the heck out of everybody, I was wondering what we would really tolerate in M1. In the second paragraph, after noting whatever range we decide would be appropriate for M2 and M3, I'm toying with the idea of a proviso clause for M1--""provided that M1 does not exceed x percent over the same period.""",122
-fomc-corpus,1982,20 percent!,3
-fomc-corpus,1982,"Well, you name it.",6
-fomc-corpus,1982,"That's just not the way to go now. Later, maybe. We just have not had the uncertainties clarified [enough to determine] that figure.",30
-fomc-corpus,1982,"Paul, this really raises the question I wanted to ask, which is based on your perception of the usefulness of M1. I have the feeling that in your mind M1 is permanently [distorted], especially in light of what the DIDC is doing [and] the all savers certificates. If the consensus of the Committee is that M1 will never be used again, or at least not in the foreseeable future, then I think we ought to come out and say it and see what happens.",101
-fomc-corpus,1982,"Well, that's a bit of an overstatement of my feelings at the moment. I'm not saying never; never is much too long a period. The question is how soon we are going to be able to make some sense out of it, which is really the subject of this paper we are going to get next time. I wouldn't be too sweeping about any judgment until we have had a chance to consider that explicitly.",83
-fomc-corpus,1982,"Well, of course in January we have to specify aggregates ranges, and--",15
-fomc-corpus,1982,"Yes, I know. What I'm concerned about is what we specify next year, because I anticipate that probably by some time next year we will have full interest payments on transaction accounts at least of individuals. I think we are hanging by a thread, frankly, in terms of having reserve requirements on individual transaction accounts at this point. The new account is so close to it that I can see the lobbyists saying we have this account, which is practically a transaction account without reserve requirements, and you can't go back and put reserve requirements on something that is only marginally different from what Congress just told you to give us without a reserve requirement.",127
-fomc-corpus,1982,Why don't you change the reserve requirements from 1 percent on transactions to one that they allow? When you get to 12 percent--,27
-fomc-corpus,1982,"This new account, depending on how it's developed, is going to be so close to a transaction account that maybe we ought to put it in M1.",31
-fomc-corpus,1982,We'd get some phenomenal annual growth rates--a thousand percent!,13
-fomc-corpus,1982,That will occur with reserves declining.,7
-fomc-corpus,1982,"That would be quite impressive, though, wouldn't it--having a component in M1 that doesn't have any reserve requirements?",24
-fomc-corpus,1982,When it reaches maturity in 7-1/2 years then we could do it.,18
-fomc-corpus,1982,"I would be inclined, in the interest of completing this [discussion], to modify this language to a more minimal degree. I'd say ""considerable"" or something like that instead of ""unusually great"". The second comment is not a sentence is it?",51
-fomc-corpus,1982,The dash is left in.,6
-fomc-corpus,1982,After circumstances.,3
-fomc-corpus,1982,Two dashes.,4
-fomc-corpus,1982,Are we looking at John's [version]?,8
-fomc-corpus,1982,I'm looking at the present one.,7
-fomc-corpus,1982,I guess there are special circumstances in connection with--,10
-fomc-corpus,1982,"I have done a great sample of two people who had all savers certificates. I was not making the survey, but much to my surprise in my sample of two both put the funds in demand deposits and still have it there. One of them is my wife. The other is a distinguished ex-member of the Federal Reserve Board.",66
-fomc-corpus,1982,"Not even in NOW accounts, Mr. Chairman?",10
-fomc-corpus,1982,"I don't want to nit-pick, but I don't see the point of deleting the words ""much less than usual weight,"" as suggested because the Fed watchers are going to wonder what that means. They will wonder if that means we're giving it somewhat more emphasis now. Why don't we just leave it alone the way it was?",65
-fomc-corpus,1982,"I have it left alone in my present version. All I have is ""Specification of the behavior of M1 over the balance of the year remains subject to considerable uncertainty."" I think that's singular--[""uncertainty"" rather than ""uncertainties""].",51
-fomc-corpus,1982,"""Substantial uncertainty,"" I think.",8
-fomc-corpus,1982,"I think we should say ""continues to be"" to refer back to what we said earlier.",20
-fomc-corpus,1982,"It says ""remains."" ""Subject to substantial"" is it?",14
-fomc-corpus,1982,"""Considerable"" seems rather [unintelligible] compared with ""unusual.""",18
-fomc-corpus,1982,"""...substantial uncertainty because of special circumstances in connection with the reinvestment of funds from maturing all savers certificates and the public's response to new accounts directly competitive with money market funds mandated by recent legislation. The probable difficulties in interpretation of M1 continue to suggest that much less than usual weight be placed....""",64
-fomc-corpus,1982,And then drop the last sentence.,7
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"Are you leaving ""probable"" in?",9
-fomc-corpus,1982,"No, I meant to leave out ""probable."" Well, unless there are some other proposals on main points, we are talking about 9-1/2 percent, 6 to 10 percent, and $250 million. Any comments? If not, we will vote.",57
-fomc-corpus,1982,"Chairman Volcker Yes Vice Chairman Solomon Yes President Balles Yes President Black Yes President Ford No Governor Gramley Yes President Horn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Teeters Yes Governor Wallich Yes Eleven for, one against.",50
-fomc-corpus,1982,Okay. I have a few things I have to do. We have to discuss a couple of things.,21
-fomc-corpus,1982,"Mr. Chairman, may I just ask one question? Do we accept that the ground rules for this meeting are that we don't discuss even with our senior economists what we have done?",36
-fomc-corpus,1982,"I guess we better discuss that while we are in this limited session. It occurs to me that I have a speech to give tonight, unfortunately. Let me just read what I have here; I don't know whether I have to alter anything. Frankly, I think we ought to say something; I don't know if we have to, but this is how I started it: As you know, most of the monetary and credit aggregates that the markets watch so closely are running somewhat above the targets we set for ourselves at the start of the year. So far as M1 is concerned, the data plainly came to be distorted by institutional change--particularly in October by the flow of funds into checking accounts.... Prospectively, the introduction of new forms of transaction or quasi-transaction accounts is likely to distort the figures further, although the direction of impact is less evident. In the circumstances we have had little alternative but to attach much less weight to that aggregate in guiding the provision of reserves until the institutional changes settle down. More generally, current developments with respect to the growth of money and credit have had to be interpreted in the light of all the evidence we can gather with respect to the economy, price developments, interest rates, and financial pressures. Taken together the evidence is strong that the desire for liquidity has strengthened appreciably this year, as sometimes happens in periods of exceptional economic uncertainty. The turnover or velocity of M1, for instance, has declined appreciably this year instead of trending upward, as has been the pattern throughout the postwar period. M2 velocity--generally stable in most recent years--has declined even more sharply. In all these circumstances, the Federal Open Market Committee remains willing for a time--as we indicated at midyear--to tolerate monetary expansion at a somewhat higher rate than the targeted annual rate. That approach, in the light of the evidence of exceptionally strong liquidity demands, should in no way be interpreted as a lack of continuing concern about inflation--and happily I don't believe it has been so interpreted by the markets. The fact is that, with velocity patterns obviously shifting at least for a time, rigid pursuit of the targets would have the practical effect of a more restrictive policy than intended when those targets were set out. It's not without relevance, in that connection, to note that growth in bank credit, or private credit generally, has been relatively limited this year, tending to confirm that the greater liquidity provided has not spilled over into inflationary private credit expansion. What recent developments do emphasize is that, in a time of rapid institutional economic change, we must be wary of highly simplified rules in the conduct of policy. That is why we have always looked to a variety of monetary and credit ""targets"" and retained elements of flexibility and judgment in pursuing those targets. What we do not have the flexibility to do is to abandon broad guidelines for monetary and credit growth as the means of judging policy over a period of time. The danger of creating excess liquidity is not so much immediate when there is so much surplus capacity and unemployment, but rather when the economy begins to regain forward momentum. That is why we must continuously balance the need to meet liquidity needs today against the risks of building in fresh impetus to inflation tomorrow. Then the speech goes on to talk about the budget imbalance.",657
-fomc-corpus,1982,That's fine.,3
-fomc-corpus,1982,"I don't mean to be a broken record, but I think it's important that we have uniformity in what we say or do not say to our own immediate, fairly eminent, associates such as research directors. Are we all going to talk about the--",50
-fomc-corpus,1982,"Well, let me talk about the public side first. What is distressing about this to me is that it obviously affected the markets and affected policy. Maybe we came out of it all right and maybe we didn't; I don't know. But it certainly gave rise to more dangers about misinterpretation of our intentions than I had bargained for. I might also say that we had a leak--and maybe more than one--about the Greenbook, as you know. I don't know whether it was from the Administration or the Federal Reserve. I have heard all sorts of allegations from the market--they may be without substance, but it worries me every time I hear this--that there has been an occasional leak of an M2 figure or an M1 figure, or whatever. I hope that is wrong, but it makes me uneasy when I hear about it. What worries me, just looking ahead, is this lack of discipline--if I can put it that way. It's like the vultures going after carrion. Every reporter in the world is challenged to make his own story, and the reporters who may have been involved the first time are all the more challenged to keep it up. I think there is a tendency on the part of any organization, for people to say ""Damn it! If somebody else is leaking, I'm going to talk to a reporter, too, and get my story out."" Unless this is stopped, it's just going to cut us up. I am convinced that in a way it enormously complicates the policy problem because so much of policy is what people think it is or think our attitude is over a period of time as opposed to what we do. This whole situation is intolerable to me. This organization, above all others in Washington--I used to think the Treasury was this way, but certainly do not now--does not leak. And I think it has been to our advantage to have that be both the impression and the reality. It has enormously increased our credibility, the credibility of official statements over the years, and the credibility of policy. I don't see any way we can operate other than on that presumption. We are dealing with a Committee; we are dealing with a lot of people. We can't have a lie detector at the door coming in or out of the office. We ultimately have to do what is right because there is a consensus that that is right and an understanding of what the rules are--an understanding of the people around the table and our associates. Frankly, I think we perhaps should tighten up the distribution of some of the materials--to go to your point--partly as a reminder of the sensitivity of this business. And we will be proposing some changes in that connection. Joe Coyne might just talk a minute about his understanding of the rules and then we'll have a more general discussion of this or of any ideas anybody else might have.",584
-fomc-corpus,1982,"To be brief, my understanding is that the policy record, of course, comes out the Friday after the following meeting, and what that means is that we do not talk about what happened at that [earlier] meeting until that time. There are very, very, few exceptions to that. We can say we had a meeting; we can give the starting time and the closing time, and the attendance. And that's it. That has been my understanding since the Committee adopted the rules.",98
-fomc-corpus,1982,That includes telephone meetings?,5
-fomc-corpus,1982,"No, we do not mention telephone meetings until they are reported in the policy record. That is only for our face-to-face meetings.",27
-fomc-corpus,1982,"This is to reporters, Joe? This doesn't apply, say, if we are talking to the chief economist at a Reserve Bank?",26
-fomc-corpus,1982,This is to the outside world.,7
-fomc-corpus,1982,We are now talking I think about the outside world.,11
-fomc-corpus,1982,"Yes, anybody in the outside world.",8
-fomc-corpus,1982,"What I think I am bound to suggest at the moment is that we just don't talk to reporters for some interval after the meeting, however innocuously. The Washington Post this morning had a comment attributed to a Federal Reserve source. It was not the wildest thing in the world, obviously.",59
-fomc-corpus,1982,"It was just ""a source""? It didn't say--",11
-fomc-corpus,1982,"Well, no. There was one comment that said ""a Federal Reserve source."" And it was the kind of comment somebody could make. The article is a little odd because it makes it sound as if the Federal Open Market Committee sets the discount rate. It said some Federal Reserve source said the option was between blank and blank or something. In the present environment even that kind of comment just feeds this atmosphere. I think it's fairly simple for us, let's say in the first week, not to talk to reporters. People talk to reporters once in a while, and it has to be done, I suppose. But it doesn't have to be done that first week. We typically meet on a Tuesday; it doesn't have to be done during the course of that week.",152
-fomc-corpus,1982,"If I might, Mr. Chairman--",8
-fomc-corpus,1982,"Just to repeat the obvious: You could make a comment that seems pretty innocuous to you, and the reporter finds three more people to make a comment that is pretty innocuous to them. And then if he is any good and knows what the issues are, he begins putting together a story which may be partly right, as that one in The Washington Post was; but the total essence of the article I think was substantially misleading. And that's where we are going to get torn apart even with the most innocent of motives.",104
-fomc-corpus,1982,"Mr. Chairman, I presume we'll talk about this after lunch, but we could finesse the whole issue by releasing [the directive] right after the meeting, [as I proposed in a recent memorandum to you, which I also sent to all Committee members and other Reserve Bank Presidents].",56
-fomc-corpus,1982,"That is something I want to talk about during lunch or whatever, but let's assume that is not going to happen.",23
-fomc-corpus,1982,It may be time to do it.,8
-fomc-corpus,1982,"Well, I didn't mean that. Does anybody else have any [comments]?",15
-fomc-corpus,1982,Did Joe finish?,4
-fomc-corpus,1982,A blackout of the press is a little difficult.,10
-fomc-corpus,1982,"About the points the Chairman made, a lot of reporters will do a round robin and call as many people as they can and compare answers.",28
-fomc-corpus,1982,"May I ask this? My feeling about this has been that we don't discuss it with outsiders, as you suggested, but that [is] the role of a Federal Reserve official, a senior Federal Reserve official especially, giving you the first shot at talking. For instance, the last time you should have had the first shot at that meeting down at the Greenbrier. Now you are telling us you are going to do it tonight. But after that--",91
-fomc-corpus,1982,These are very vague comments as you heard.,9
-fomc-corpus,1982,"We should be guided, no matter how we feel individually, by the line that you are expressing. Basically, in a polar case there are two choices: Either we refer all calls to you or we make a best faith effort to state what the official line is, based on the way you interpreted it.",61
-fomc-corpus,1982,"No, we are talking about a specific decision at a specific meeting. Obviously you have to talk about the general policy line, so to speak. That's quite a different category. But you have to be careful about it. There is a real distinction between that general policy line and this--what the argument was at the Committee meeting, with views attached to individuals. The most damaging thing is to say ""This is what we really meant or somebody really meant..."" and getting into that kind of thing.",99
-fomc-corpus,1982,"I think we have a potential problem, though, with our economists, some of whom are rather like prima donnas who have their noses out of joint by being expelled--correctly, I agree with you--from this meeting. And unless there is some agreed upon way of handling that, one of those fellows will go and tell somebody that the gag rule is on. I'm not disagreeing, Paul, with anything you have said, but I'd just like to get some agreement on this.",98
-fomc-corpus,1982,"Well, it's certainly a relevant question. You obviously have to talk to your senior people. I guess we have to leave it to you to talk with discretion and convey to them certainly the essence of the message that is more or less the common ground here. I would talk with each of those people specifically about this problem. Make sure they understand it. And if you are satisfied they understand it, you obviously have to talk about the policy decisions. I think you could use a certain amount of discretion in [not providing] blow-by-blow accounts, which are inevitably distorted. Everybody goes out of the meeting with a different impression of what was said or even what was decided in some sense except to the extent that it is written down. And people interpret every comment in the light of what they think; in some instances it may be quite different from what the fellow talking thought he was saying. And it might get dangerous when this kind of stuff gets talked about. I hope that we can get away from [attendance at] these sessions being as narrow as it was [today]. But maybe we can have it someplace in between for a while.",228
-fomc-corpus,1982,"If one is on the [morning] call and can't share [the policy decision] with our [appropriate senior staff], whoever that is, I don't see how we can have a meaningful thing to say other than to listen to the bell ring on the call. My people go to a lot of trouble to keep track of your procedures. As I understand it, if we are on the call, we are supposed to be a representative of the group; we do not reflect our own views but whether we think the policy is being instituted in accordance with whatever the decision was. To do that we need somebody to try to track at least roughly how the calculations and decisions are made.",136
-fomc-corpus,1982,I think your senior people have to know about the mechanics of the decision and the essence of the decision.,21
-fomc-corpus,1982,"Well, what about next time? Are you going to settle that now, or are you going to [wait]?",23
-fomc-corpus,1982,"I would welcome any suggestions that you have. Let's not deal with them at the moment, but you can contact me later. We'll pick up this other issue later. Let's go eat. [Lunch recess]",41
-fomc-corpus,1982,"[Unintelligible] tell it to me with enthusiasm and let me just give you one point that may or may not be in this memorandum. [Secretary's note: A copy of the memorandum, ""Immediate Release of FOMC Decisions: Pros and Cons,"" from Messrs. Axilrod and Sternlight and dated November 12, 1982 has been placed in the Committtee's files.] I can understand an argument that the way the directives have been written it would be much less of a problem than in other instances. But once that precedent is set, whatever operating technique we use, whatever kind of directive we use, we're stuck with it, I think, forever. If we really were operating as we used to on an interest rate target and we announced a different interest rate every month--in effect came out of the meeting and announced an interest rate--we would then be stuck with it and we couldn't change it without a subsequent public announcement. Then I think we would be in great trouble. That's just one other extreme form. When we are giving a directive of the sort that we've been using, it doesn't have quite the immediate interest rate implications; it doesn't freeze us in quite the same way. But it does require that every time we have a special meeting in which a decision is made--however much of an emergency the situation is--we would have to put something out right away. And it might be exceedingly inconvenient.",291
-fomc-corpus,1982,"I don't think that's necessarily so. I'd say two things, Paul. If we have to have telephone conference meetings or emergency meetings, I don't think we have to announce them. The [dates of] FOMC meetings are public knowledge. And when we were operating under an interest rate target, the market usually found it out by noon the next day. What we had done was not a secret at all.",82
-fomc-corpus,1982,I think they found out; they obviously groped for it. But those [directives] were not worded in such a way as to [suggest that we would] stay there until the next meeting. There were certain criteria under which we could change. It wasn't that the interest rates changed; they changed very little typically. But there were changes during the period which the market always was searching out.,82
-fomc-corpus,1982,"Well, I already have a call from The New York Times.",13
-fomc-corpus,1982,"Well, that's great! Everybody just has to stay in this room and go three days without any [unintelligible]. We have a bathroom facility right across the hall!",35
-fomc-corpus,1982,And meanwhile all the telephones in the building are tapped!,12
-fomc-corpus,1982,"Get me another sandwich, please!",7
-fomc-corpus,1982,"I honestly don't think that [immediate release of our decisions] will do any harm. It would solve the problem of leaks. And with a group even as large as this one--and the group was cut down from what it was--the idea that we can keep something a secret for seven or six-and-a-half weeks is really a big presumption, it seems to me. The way it's working now, if we do have these leaks--and there will be speculation, considering all the attention that has been given to it--the speculation may finally come down to a consensus of speculation as to what we did or didn't do. In effect, we're giving an advantage to the people who have a little inside knowledge instead of making it available to the public generally. And I think we're better off, even if we want to change the way we write the directive, if we make it publicly available. That doesn't mean that we are frozen into it. We can change our mind. We don't necessarily have to announce those changes in our mind. I think basically the public has a right to as much information as they can [receive] at this point. I don't think the leaks are really going to disappear, Paul. I think that you're going to get caught as I once did.",256
-fomc-corpus,1982,"If they don't, I'll disappear soon!",8
-fomc-corpus,1982,"Well, one gets cornered in an odd way. I once got caught--not here--but something got partially leaked and a reporter called me up and said ""X happened."" And I said ""No, it was X+1,"" and I immediately realized that I'd done the wrong thing. If we have this speculation out there, we're going to get these wrong stories. And the temptation then becomes very great on people to correct those wrong stories.",90
-fomc-corpus,1982,That is correct.,4
-fomc-corpus,1982,"We announce discount rate changes; we announce changes in reserve requirements because we have to. I don't see that this is greatly different from that. Under interest rate targeting they found out pretty well where we were. I think they have correctly interpreted what we've changed to this time around, with some help.",59
-fomc-corpus,1982,There is no leaks.,5
-fomc-corpus,1982,I have heard outside the System.,7
-fomc-corpus,1982,"I have an open mind on the issue of releasing the directive. If it were up to me, I'm not sure how I would come down. But I do have a question. Suppose the directive that the Committee just approved were released this afternoon. What would that really tell the market? It says that the M2 [growth consistent with our objectives] is around 9-1/2 percent; there may be a little message there. It says that the funds rate range is 6 to 10 percent. And then it has a lot of other gobbledygook that could mean a lot of different things. Maybe somebody could just answer my question. Suppose the directive were released this afternoon. What kind of information would that really convey? Or would there just be increased speculation on what that directive really means in an operational sense? How much would we have bought in terms of satisfying the public's and the press's appetite for knowledge about what we're doing?",192
-fomc-corpus,1982,I think one thing we would buy is inquiries for more information.,13
-fomc-corpus,1982,"Well, I think you have [a point]--a lot more.",15
-fomc-corpus,1982,"If they see the directive, they are going to say: ""Well, I want to see the forecast that it is based on and all the rest of it.""",33
-fomc-corpus,1982,"What if we were in a situation where the economy had picked up for a while? If we had announced a 6 to 10 percent funds rate range after one meeting and we announced immediately after the next one that our range was now 8 to 13 percent, what sort of market reaction would you expect in that kind of situation?",68
-fomc-corpus,1982,Very little trading below 8 percent.,8
-fomc-corpus,1982,You're positing that the band would be widened at both ends.,13
-fomc-corpus,1982,He said 8 to 13 percent.,9
-fomc-corpus,1982,I suspect what the Committee would do is that it would gravitate toward even more vague directives.,19
-fomc-corpus,1982,Precisely.,3
-fomc-corpus,1982,"And then there would be a hidden meaning, which we'd all understand but the directive that we'd publish would give us so much flexibility that we could drive a truck through it a couple of times.",38
-fomc-corpus,1982,"Again, I think it would invite a lot of probing at the bottom [to determine] what the real decision was.",24
-fomc-corpus,1982,"Yes, that's the question I'm asking.",8
-fomc-corpus,1982,"Yes, I share your instinct.",7
-fomc-corpus,1982,Won't they do that now?,7
-fomc-corpus,1982,"In fairness to Nancy, her argument, though, is that publication might tend to cause something that we were trying to make happen anyway happen just a little sooner.",32
-fomc-corpus,1982,"If it happened in a nice smooth fashion, that would be all right. I would not worry much about immediate release if I were quite sure we were going to stay with the operating procedures we now have. But we were talking earlier today about what will happen if [banks] begin to [pay] interest on all types of money. And I think the answer to that is that we would have the same kind of problem targeting on M2 that we now have on M1. It would make it very, very difficult to do. And we may end up deciding that, in fact, what we have to do is target on interest rates. And if we start targeting on interest rates and say that this month, by golly, our interest rate target is 1 percentage point lower, the markets are going to go absolutely bananas. And I'm not sure that's what we want.",176
-fomc-corpus,1982,"I didn't think you'd ever say that, Lyle.",11
-fomc-corpus,1982,"Well, the whole problem would be that we would come up with a bunch of mush that could mean anything.",22
-fomc-corpus,1982,And we'd get to the point where we were back in the Martin years.,15
-fomc-corpus,1982,"If we got back to an interest rate target and we couldn't put the target in the directive, we wouldn't be saying much. But that's a big if. It seems to me very likely that we'll always have some proviso on interest rate movements. I certainly am totally disenchanted about interest rate forecasting and I don't think I'll ever return to it. But I think we'd have some proviso. And it would be measured relative to some objective performance indicator--maybe not money or maybe not even credit, Frank, but some objective indicator.",107
-fomc-corpus,1982,"If you eliminate both of those, you don't have an awful lot left!",15
-fomc-corpus,1982,You have the--,4
-fomc-corpus,1982,The Congress would just tell us to target interest rates also.,12
-fomc-corpus,1982,"I can't foresee that we're going to make any radical change, even as much as 2 or 3 percentage points, at any given meeting. Even when we targeted interest rates, I think the most we ever moved [the funds rate] was 1/4 to 1/2 percentage point. [Under current procedures] we've been moving it a percentage point in a 400 basis point range. We gradually move them up and down; I don't see that we're going to get major market shocks or anything of that sort. We did have one major market shock and that occurred when we changed to reserve targeting and a [wide] band on the interest rate target. And the market survived; it was shocked but it did survive. And then it settled down within the space of about a week. So, I don't see that we would be giving away that much information.",175
-fomc-corpus,1982,But the kind of problem I'm concerned about is this: Let's say that we're in a period of uncertainty.,21
-fomc-corpus,1982,We always are.,4
-fomc-corpus,1982,"Well, suppose we think that whatever we are targeting on is going to strengthen greatly between meetings, but we're not sure. So, we give the Manager a wide funds range in which to operate and he is supposed to use that range if the target shows great strength and not use it if it doesn't. In that case we would be publishing a much higher upper limit, and the market would be likely to move quickly toward that limit. Then if the events did not occur to justify the move, the Manager would not move the funds rate. Then the market would be stuck up here, and it would have to come down again. This would produce increased instability in the money market.",135
-fomc-corpus,1982,There couldn't be much more instability than we have right now.,12
-fomc-corpus,1982,"I tend to agree with that, but I retain this great hope that it is going to settle down some day.",23
-fomc-corpus,1982,If we ever get into contemporaneous accounting and we really are targeting total reserves and controlling total reserves--,20
-fomc-corpus,1982,If we have any reserves left at that point!,10
-fomc-corpus,1982,"That's an ""if."" If we have a very wide federal funds rate range, I wouldn't worry about telling the market except for one thing, and I think that's the first argument against it. I'm very sympathetic to what Nancy says, but [I don't like] the idea of political pressure being exerted upon the Committee to change before the policy is fully implemented. And asking anyone who has dissented to justify his dissent when there's [as yet] no [written] explanation as to why he or she dissented in that directive, I think would be very divisive. That is what bothers me, although all my predilections, of course, are for releasing it because I hope we do get to that kind of total reserve targeting some day.",150
-fomc-corpus,1982,"Let me point out that we live in a world, a Washington world anyway, in which somebody has to trot up and testify about last month's consumer price index, which has no policy content at all. If we are going to announce our decisions after a Federal Open Market Committee meeting, I don't think it would be very long before we had a congressional hearing scheduled that afternoon.",74
-fomc-corpus,1982,That's what really worries me. That's the very point that tips me against releasing it.,17
-fomc-corpus,1982,John Balles.,4
-fomc-corpus,1982,"If I could respond first to Bob's concern: If I dissent or somebody else dissents, that would come out immediately before the explanation came out as to why others had voted the other way. The way our minutes of action come out now--if we can keep them in that abbreviated form, not citing individual views--I could see the directive plus those minutes of actions being published on very short notice. And in my view--you might not agree--that would take care of the particular problem you were mentioning.",103
-fomc-corpus,1982,"Yes, that would be a lot better.",9
-fomc-corpus,1982,"To return to the various points that Nancy is making: I sent around a memo generally supporting her proposal, as you may remember. It has occurred to me that there is another reason for supporting immediate release, but originally I was reluctant to put it in writing. I'm even reluctant to mention it now, but I'm going to nevertheless. It is bad enough to have leaks of the type we had, say, in The Washington Post on October 8, but even worse in my opinion is the risk of a leak we may never hear about. And that is somebody with access to our policy record feeding it to a trader, an investor, or whatever. If anything like that ever happened and was disclosed, that would be such a major black eye to us that it would make the leaks recently pale by comparison.",161
-fomc-corpus,1982,"When that sort of thing has happened with government statistics, though, the word gets around. The word gets around because it has a market effect and other people in the markets begin to learn about it and they call in. I agree with you that it would be a terrible black eye. But as far as I know, there is no reason to think that that would ever happen.",76
-fomc-corpus,1982,"I hope you're right, Lyle. I'm not all that positive myself. For example, though I don't have all the numbers with me--I wish I'd brought them--and I'm not sure how much they would prove implicitly what happened, my recollection is that the very day after our last FOMC meeting, Wednesday, October 6th, there was a major rise in bond prices and stock prices.",82
-fomc-corpus,1982,Starting at 3 p.m. in the afternoon.,11
-fomc-corpus,1982,"Yes, exactly.",4
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,And I'm adding 2 and 2 and getting 4.,13
-fomc-corpus,1982,There was a statement by the Secretary of the Treasury on Wednesday.,13
-fomc-corpus,1982,"No, that was Thursday.",6
-fomc-corpus,1982,You're talking about Wednesday?,5
-fomc-corpus,1982,"Yes, sir.",4
-fomc-corpus,1982,"The very next day, we had an afternoon rally. In fact, I went around to Joe Coyne and said ""What's up?""",27
-fomc-corpus,1982,The Secretary of the Treasury's comments were on Wednesday morning.,12
-fomc-corpus,1982,"Yes, they were.",5
-fomc-corpus,1982,Wednesday morning they were on the telerate.,10
-fomc-corpus,1982,"Peter, isn't it true that you get calls from people in the market saying that they know that other people have gotten privileged information?",26
-fomc-corpus,1982,"We sometimes get calls that some statistical release from Commerce or somewhere is out early, yes.",18
-fomc-corpus,1982,"That is the sort of thing I was referring to. When we have heard that, we've typically heard back from the market as to what the information is all about and where it probably came from.",39
-fomc-corpus,1982,"Well, these are the suspicions that I've had reported to me recently, more or less casually, but they are worrisome. They are statistical, such as what the money figures are going to be tomorrow. The last one was what the M2 figure was going to be. Just to clarify what I know about this last episode: I had breakfast with the Secretary of the Treasury the morning after the meeting, as I do every week. The only thing I told him concerning what we had discussed was that we were going to put a lot less weight on M1 because of all the problems he knew about. We had a very short, two-minute or so discussion; he knew what the problem was. I also said I was going to explain this to the public on Friday because I would be going to the Business Council and it would be a good opportunity to put it in the right perspective. Two hours later, it's on the tape, because he literally walked out of that breakfast and went to a meeting of the dealer bank association--of all things, a public meeting--and said something about it. He said something vague about it when he was asked a question. What he said was accurate. But there it was. And then he didn't say anything else. Then Ken Bacon was snooping around. I don't know, but Joe Coyne's story is that Ken Bacon was speculating on this privately, as many of these things go, and assumed that we might have to come to that decision. It got confirmed by what the Secretary of the Treasury said and he ran with the story. He may not have had any other leak. The article was pretty accurate except for the headline, which said the Federal Reserve was easing or something. That wasn't the point. That is obviously not what I wanted to say. But except for that first sentence, it was a pretty accurate story. My speculation is that one reporter got something in the paper, which wasn't itself all that damaging, and it sent the other bloodhounds on the scent. They then got more substantive comments directly, obviously, out of the Federal Reserve. And that was the damaging thing, really. I was upset enough about the Secretary of the Treasury's performance and that story, but the really damaging policy story was the one the next day, which obviously did come from the Federal Reserve. I think it's a perfect example of how one leak generates another.",485
-fomc-corpus,1982,"That's the problem. In terms of the argument that releasing the directive would take care of the leak problem, I'm concerned that it will work the other way. If we put out the directive on the day of the meeting, in the form in which it is now written, we inevitably are going to get reporters snooping around asking ""What does this really mean?"" and trying to get interpretations. And we will end up with more confusion and not less.",90
-fomc-corpus,1982,Not if we don't talk to them.,8
-fomc-corpus,1982,That's right. We don't have to take their calls.,11
-fomc-corpus,1982,That's easy to say. But over a period of time--say we've put an absolute restriction on talking to the press for a week or something like that--that doesn't solve the problem.,37
-fomc-corpus,1982,"It would solve the problem though, Jerry, because by Friday it's a non-story.",17
-fomc-corpus,1982,I don't know.,4
-fomc-corpus,1982,"No, anything about the Fed is a continuing story. This is a continuing saga of the mysterious--",20
-fomc-corpus,1982,"Wait a minute. I have to defend Nancy on this. The logic of it has to be that at the end of a month--with our next meeting only being a month away--they will have it. But somewhere between releasing it the same day and after one month, it becomes a non-story. That is witnessed by the fact that we usually don't get stories about the minutes when we release them.",81
-fomc-corpus,1982,"Yes, but by that time we've had another meeting.",11
-fomc-corpus,1982,"Our theory on the [release date], though, Bill, is that the directive is no longer current. We don't release it until after the next meeting has occurred and there is another directive.",38
-fomc-corpus,1982,Until we've had another meeting.,6
-fomc-corpus,1982,So that's an old directive.,6
-fomc-corpus,1982,"Well, the fact that somebody got some information and put it in the press did not reduce interest in the question of what was going on. It intensified it enormously. I think if we release the directive, which has in it some rather mysterious language about M2 and the fed funds rate ranges, and the language is changed a little--if instead of ""is"" it says ""remains"" and ""unusually great"" becomes ""substantial""--then the phones will begin to ring off the wall. People will ask: ""What does this mean? Did you guys cave in or not?"" It just isn't going to change that problem at all.",130
-fomc-corpus,1982,"There is a growth rate figure there of x, so they will look at every figure. They will see if we are above or below X and ask if we are going to tighten up next week or three days from now or, if not, why not? That's what the directive says.",58
-fomc-corpus,1982,They do it anyway.,5
-fomc-corpus,1982,"They do it less, surely, now.",9
-fomc-corpus,1982,"I don't agree with those who say that releasing the directive will avoid the leaks. I agree with those who say that it might even increase speculation. But I'm a bit troubled with the proposal that we release the directive early, based upon the fact that we think we had a leak after the last meeting. I don't think that we could control leaks by releasing the directive immediately after a meeting. I think the issue that has given rise to the discussion today can't be cured by an early release. I'd also add a detail: That we don't know how we are going to operate in the future and how that directive might look and how we might have to move one way or the other in the intermeeting period. As a result of that, it seems to me to be paramount that we maintain that kind of flexibility. If we can't control the leak problem by early release, then I would adopt a motto that has been used by others in the past and that is ""If it ain't broke, don't fix it."" I would continue to do what we are doing, since we can't control the leak problem in my view, and I would not opt for early release.",230
-fomc-corpus,1982,"I hope we can control the leak problem. We may not control it by that device, and it may aggravate it, but this institution has had a very good record on not leaking.",38
-fomc-corpus,1982,I'm just making the point that I don't think we would cure it by early release--,17
-fomc-corpus,1982,"No, I just wanted to clarify that.",9
-fomc-corpus,1982,--so why try to cure something we can't cure?,11
-fomc-corpus,1982,But this is the second one this year. There was a leak between the end of June and the 20th of July on the Humphrey-Hawkins report. This is the second time.,40
-fomc-corpus,1982,That is right.,4
-fomc-corpus,1982,"I hear rumors--I don't know because I wasn't here --that we've had sporadic leaks over the years. You may be right that we have fewer leaks than, say, Treasury, but haven't we had problems with leaks of this type for many years?",51
-fomc-corpus,1982,Very occasionally. It has been very rare.,9
-fomc-corpus,1982,Are you saying there has never been a leak until the last two times?,15
-fomc-corpus,1982,"No, there have been--",6
-fomc-corpus,1982,"There have been a lot of other instances. I remember when Dr. Burns was Chairman that we did have a leak or a suspected leak, and certain members of the staff were excluded for, I think, two meetings.",44
-fomc-corpus,1982,"If you do this, you'll deprive a lot of retired Federal Reserve people of a very important source of income, Mr. Chairman, trying to figure out what you folks are doing!",37
-fomc-corpus,1982,I think you're wrong. I think it would increase the market. There would be text-analysis as well; we'd get all the English majors as well as the--,32
-fomc-corpus,1982,"They couldn't use English majors, Paul!",8
-fomc-corpus,1982,"I have been sympathetic to this proposal in the past. It has a lot of merit. What gives me pause is the argument in this memorandum about the impact on the policy process. We have some experience with open meetings. The public sits right there. They scribble, but they're not allowed to speak and, as far as I can see, have no real impact on our deliberations. It certainly doesn't embarrass me to say what I say. I have a sense that if I knew the next day there might be a hearing or that there might be a great press reaction, I would find it more difficult both to think and to decide, [particularly] to decide to do something drastic. Most of the time there's nothing to it. It's the critical instances where one worries.",156
-fomc-corpus,1982,"Let me put this in extreme form. You referred to these quiet little meetings we have in public. I'm not sure it has no effect at all, but those involve relatively noncontroversial issues by and large. We discuss consumer credit and some arcane regulations. Let me go on the other side of the spectrum where I've had a certain amount of experience. Those DIDC meetings are a zoo. Anybody who does not think the substantive result is controlled by the fact that those meetings are held in public doesn't have his head screwed on right. Now, we are not talking here about having a public meeting, but I'm afraid it's a step in that direction. In a public meeting one cannot make effective arguments or explore alternatives. And you cannot get anybody to change his or her mind once they have made a statement. And you end up with miserable decisions, in my humble judgment. And that is [true of the DIDC meetings] obviously because they are filled with enormous lobbying interests. You can imagine what interest monetary policy would have--not quite interest groups, and maybe that would diffuse them, but political groups. If we ever got to that point, we could forget about having any coherent policy except by subterfuge. Somebody would talk beforehand and would announce that this is what the policy is going to be and everybody has agreed to say yes or no. In my opinion, that's the way those things have to work, if [the group] is going to make an intelligent decision at all.",300
-fomc-corpus,1982,"I don't believe that the extreme public scrutiny of our every word and our every action and the pseudo-actions that are attributed to us has made us a better functioning organization. I agree with those of you who say that immediate publication of this mysterious [document] would heighten the tension. The staff's memo indicates that the actual individual votes would be recited, and that would focus attention on individual differences. These are operating statements; they attempt to be helpful operationally. The public's right to know, I think, extends to our objectives, our performance, our structure, our composition as individuals here, and our backgrounds. The public interest is not endowed in the operational aspects of the organization. That's a different category. The approaches that we are taking to reduce leaks of information are separate topics from this release [and putting us] in the spotlight. I would lean against the immediate release.",177
-fomc-corpus,1982,"Well, Pres, we already have computer systems that ring a bell and turn on a red light every time we enter the market in various--",28
-fomc-corpus,1982,Is that good?,4
-fomc-corpus,1982,"Well, it exists. They are not going to get rid of it. My question to Peter is: Would it make any difference in the operation of the Desk?",33
-fomc-corpus,1982,"I don't really think so. There would be times when an immediate release would have a market impact that we might not want. At times it could help to bring about the desired thrust in policy earlier. I may be out of order saying this, but having been associated with this for many years and having filed one of the statements in that Merrill suit in which I took a position on the ill effects of immediate release, I would say, after thinking about it long and hard for many years, that I don't think I could make that same kind of statement today because of the different nature of the directive.",120
-fomc-corpus,1982,"I did the same thing for the Board, Peter, and I have the same feeling. I couldn't support it now.",24
-fomc-corpus,1982,"I did the same thing, but I haven't changed my view.",13
-fomc-corpus,1982,Two flexible people and one inflexible one!,9
-fomc-corpus,1982,You people with conscience!,5
-fomc-corpus,1982,"Well, I don't know whether it's worthwhile carrying this on any further. I don't detect a strong consensus to publish.",23
-fomc-corpus,1982,"I want to call facetiously for a vote, so I could be recorded as voting with Nancy on this.",22
-fomc-corpus,1982,I would like to propose facetiously that we put it out for comment.,15
-fomc-corpus,1982,For a year!,4
-fomc-corpus,1982,It's very desirable to discuss this. Maybe we should take it up again at a future time when things are not quite so tense. I think we are doing something that we shouldn't be doing if there weren't strong reasons. We owe the public. That is the key more than the leak issue is the key. But I think the reasons against it are persuasive at this time.,74
-fomc-corpus,1982,"Henry, may I say that, given the center stage that monetary policy has moved into in the past 15 years, I doubt that we will ever find the time when pressures are not on us again--when we will be operating in a relatively quiet back-water sort of way.",56
-fomc-corpus,1982,"I was just going to ask if the Bundesbank does not hold a news conference after each meeting in which the result was some change in policy. If they change policy, they have a news conference immediately after the meeting. Is that not true?",49
-fomc-corpus,1982,"No. I feel as if I'm an expert on this, having consulted with my counterpart on this precise point. I'm not sure I know every detail. They do often have a news conference. But typically they are announcing a Lombard rate change or a discount rate change or something like that. Of course, we announce that, too, if we make a change. That is the typical reason for their having a news conference. If I remember correctly, they don't always have one even for those purposes. They specifically do not discuss open market operations, or their equivalent of open market operations, except in a rare instance, which is the issue here. That is what I asked them about. In fact, it has never occurred to them, according to him, to make a public announcement--except on the rare occasion when they want to--that they are going to provide more of less liquidity to the banking system. Sometimes they do that, but they don't do it as a matter of course.",198
-fomc-corpus,1982,"I was going to add on to Henry's statement. I think the reasons are convincing to a lot of people around the table for not releasing it. I suspect that we would have a hard time convincing outsiders of the validity of those reasons. I think we all did hide behind the ideal that somehow [the release of the directive] would help rich people and give succor to the speculators, and I think that served the purpose for us. If we stood up in public and tried to give a convincing speech on why we ought to do it [the way we do], I think it would be difficult. That doesn't mean that I'm not sympathetic to not releasing it; I'm saying that if we tried to convince somebody from the outside, it would be pretty much an up-hill proposition.",158
-fomc-corpus,1982,The not helping speculators is a better public posture. It is a less good argument.,18
-fomc-corpus,1982,"That is correct. Look, this memorandum, Mr. Altmann is reminding me, has no indication of confidentiality. I wouldn't like to see it spread around simply because the arguments that seem to us persuasive may seem, precisely for your reasons, less persuasive to others.",53
-fomc-corpus,1982,That says a lot.,5
-fomc-corpus,1982,"No, I think it simply says that our interests may not entirely coincide with theirs. I would even go so far as to say that we presumably have the public interest closer at heart than all those people who have reasons for wanting to see a different answer.",51
-fomc-corpus,1982,It says that central bankers have a wisdom that exceeds those of the more normal few.,17
-fomc-corpus,1982,Is there any question of that?,7
-fomc-corpus,1982,"No, not at all. I said it as a statement of fact!",15
-fomc-corpus,1982,"Well, I don't know as we can carry this any further. I suspect we may want to return to it someday. Maybe somebody can come up with a more effective argument on one side or the other and dispose of the issue definitively; I doubt it.  I'm [pressed] for time myself. I have a legislative update, if you want to hear it.  [Our FOMC agenda is completed.]",84
-fomc-corpus,1982,I thought we might change the order [of the agenda] a bit today since the short run blends into the long run and the long-run view may affect the short-run view. I thought we would first approve the minutes anyway.,46
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Seconded.,3
-fomc-corpus,1982,"Without any objection, we'll approve the minutes. I thought we might have the business description first, if Mr. Kichline is ready, and have whatever discussion you want of the business [situation and outlook]. Then we will go to Mr. Axilrod who will talk about the short-run problem but in the context of the longer-run problem. We will then discuss the longer-run problem and come back to the specifics of what we want to do, which would be tomorrow, if that is agreeable. I don't know if it's more logical or not but for some reason it seemed to me it might be more logical. We could wait for [the Managers' reports] tomorrow or we could do that now. Why don't we--",147
-fomc-corpus,1982,"I can do mine now, Mr. Chairman.",10
-fomc-corpus,1982,"We can turn to Mr. Sternlight now. We can't hear from Mr. Cross now because I asked him to go to a meeting in New York this afternoon. He will be here tomorrow morning and we can discuss the international aspects then. Why don't you go ahead and get your report out of the way, which I think is also background.",69
-fomc-corpus,1982,"Okay, fine. [Statement--see Appendix.]",10
-fomc-corpus,1982,Any questions or comments?,5
-fomc-corpus,1982,I have a question. Would you comment some more on the backup in long-term rates following the discount rate drop a week ago? Would you attribute that to technical reasons or is there anything there that might be a harbinger of a change in expectations with regard to Fed policy and inflation?,58
-fomc-corpus,1982,"Well, I don't know if I would attribute the backup to the discount rate. The discount rate reduction certainly didn't have the impact of earlier reductions in reducing longer-term rates; one heard the comment from a few people that maybe the recent money growth would lead to a reemergence of inflation at some point down the road, so that investors were less inclined to continue the interest they had had in the longer-term market. I would regard this last discount rate move as having been about neutral for the longer market. The fact that rates have backed up in the longer end I would attribute more to the supply [of new issues] coming in the longer-term sector. Treasury supplies have been quite heavy and the corporate supply and tax exempt supply are also on the sizable side.",153
-fomc-corpus,1982,"Peter, did you notice anything in the financial markets or other developments that would explain the relatively high volume of demand for excess reserves?",26
-fomc-corpus,1982,"Well, during the recent period, some of it was around the Thanksgiving weekend. There is often a lot of churning then. This tends to be a season of the year when we have high excess reserves; but as I indicated, the actuals exceeded even the above-normal allowance that we had made for it. I'm just surmising now, but the flows associated with the new accounts could explain some of it. Also the period around the mid-December dividend and tax dates is often a time of greater demand for excess reserves. Nothing else comes immediately to mind as a special factor.",118
-fomc-corpus,1982,No other questions or observations? We have to ratify [the transactions]. Do I have a motion?,21
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Seconded.,3
-fomc-corpus,1982,Without objection. We have [the Manager's] request to increase the [intermeeting] limit.,20
-fomc-corpus,1982,May I ask what the limit is now?,9
-fomc-corpus,1982,The intermeeting leeway is $3 billion.,10
-fomc-corpus,1982,And you're asking for $4 billion?,8
-fomc-corpus,1982,I'm asking for $4 billion.,7
-fomc-corpus,1982,"He wants a lot of leeway to be restrictive, as I understand it.",16
-fomc-corpus,1982,To absorb the reserves.,5
-fomc-corpus,1982,I'll go for this provided that he doesn't want to buy coupons directly from the Treasury next time!,19
-fomc-corpus,1982,Do we have a motion on [the leeway]?,11
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Seconded.,3
-fomc-corpus,1982,"Without objection, you get another bit of leeway. Now we will turn to Mr. Kichline.",22
-fomc-corpus,1982,[Statement--see Appendix.] I might note that tomorrow morning we expect to receive the CPI figures for November as well as some revised GNP data for the third quarter.,34
-fomc-corpus,1982,"Will you have the flash tomorrow morning, Jim?",10
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"How close are we, if at all, to the end of this adjustment to natural gas prices--these new contracts that are very high?",28
-fomc-corpus,1982,"Under the current legislation, by 1985 I believe only something like 60 percent will have been completed--that is, freed to the market. So there is another 40 percent under the Natural Gas Pricing Policy Act of 1978 that would still be under [price] control. It is our view that if we have oil prices at about the level they are now and no additional congressional action, we will be facing very large double-digit increases for the next 3, 4, or 5 years at least.",106
-fomc-corpus,1982,"Even at the present market price for gas? The present gas prices, as I understand it, at the margin, are way below those in these contracts. If a buyer just went into the market today and bought some gas, the price would be much less than some of the high contract prices that they entered into a year or two ago.",68
-fomc-corpus,1982,"That's right. Those are the contracts, though, that were adopted in a mood of panic by a number of gas transmission lines who could not service their customers. But the prices of much of the gas under control, the old gas, are substantially below the BTU equivalents of residual fuel oil. And if we continue this discussion too much longer, I will have exhausted all of my knowledge of that market!",81
-fomc-corpus,1982,I will cease. Mr. Guffey.,10
-fomc-corpus,1982,"I would just note that we had a discussion at our board meeting about this very problem, the take and pay contract. I think the [bulk] of that is the take and pay contracts, or at least 10-year contracts that were entered into by the pipelines or other suppliers. The interesting part is the fact that take or pay means that they pay if they don't take but they also have that gas available to them sometime in the future, so they're putting it on their balance sheet. In a sense, there should be a time when these take and pays are either altered or they just run out. There is a supply of gas that is already paid for in these pipelines that sometime out in the 1985-86 period will perhaps bring gas prices to a much lower level than is now being paid for gas.",164
-fomc-corpus,1982,"After that clarification, I--",6
-fomc-corpus,1982,"Well, they are just building up an asset, that's all. In other words, if they don't take it, they have to pay for it but it comes to them later.",36
-fomc-corpus,1982,I was just curious about what that profile of prices was.,12
-fomc-corpus,1982,"There is some movement in the Congress to try to modify those contracts because of the anomalous situation, isn't there?",23
-fomc-corpus,1982,"I don't want to divert this whole discussion to gas. Who has comments about the business scene? Who senses a recovery? Hearing nobody, who has a comment?",32
-fomc-corpus,1982,"[I sense] just a little [recovery] in the nonmanufacturing area. The housing people, of course, are happier and the retail people seem to be a little happier. In general, most areas outside manufacturing seem to me to show a glimmer of a bit better feeling. Salesmen are not coming back with a lot of firm orders but are feeling better that there may be some orders coming up. But in manufacturing, things are still dead; they're more than dead; they are deteriorating. Some of these people consider themselves to be in lagging industries anyway, but I think compared to a month ago I sense just a glimmer, a flicker, of a little better feeling.",141
-fomc-corpus,1982,"In our District, of course, things are still weak but residential construction, which has already been mentioned, is coming on very strong. The National Association of Home Builders is looking for Houston to lead the nation and Dallas to be second in 1983 in residential construction. Office construction is still slow but other nonresidential seems to be picking up a little and so are retail, the state, and other businesses. The energy sector, which was also mentioned, is reviving somewhat. The rig count is up in November and it does appear to be up a little more than we would expect on a seasonal basis. The unemployment rate was down in Texas in November; we don't have a lot of confidence in the state figures but at least it's in the right direction. The weak areas are the ones that we would expect: manufacturing, particularly the durable goods sector, and the farm sector, which still has its problems. Loan demand is weak, with a less-than-seasonal rise in November; retail sales for the District as a whole are not overly promising, although sales in Dallas, Houston, and Austin are looking pretty good.",225
-fomc-corpus,1982,Mr. Roos.,5
-fomc-corpus,1982,"Our District experienced significant strength in new home sales in November, and automobile sales seem to be improving. Retail sales are up on average 6 to 6-1/2 percent. But as Ed Boehne mentioned, the heavy equipment industries are in bad shape.",54
-fomc-corpus,1982,Those are the optimistic comments. Now we hear from--,11
-fomc-corpus,1982,"I think all one can have now is a very muted optimism. I was at a meeting with the head of the National Association of Home Builders, [unintelligible] and Mike Sumicrast. I was quite amazed how optimistic the home builders were.",52
-fomc-corpus,1982,They're very optimistic. I don't know what they're smoking!,11
-fomc-corpus,1982,"I checked this out with the local real estate people around Boston and they have seen quite a turn in the movement of residential real estate. But, tomorrow, don't we also get new orders for durable goods?",41
-fomc-corpus,1982,"Yes, tomorrow afternoon.",5
-fomc-corpus,1982,You can't get that in the morning?,8
-fomc-corpus,1982,I can't.,3
-fomc-corpus,1982,That's going to be a very key number. I think we have to see a turnaround in new orders or this muted optimism we've seen so far is not going to stay with us.,36
-fomc-corpus,1982,"It's all relative, you know. I don't get the feeling that people are super optimistic. It's just that most people have been so pessimistic that even if they don't say much at all, you take it that things may be better.",47
-fomc-corpus,1982,"Don't forget, the increase in housing starts is all the seasonal adjustment factor. The seasonally unadjusted number is flat. And any increase in housing starts that we get from now to March that is seasonally adjusted isn't going to be very many real houses.",52
-fomc-corpus,1982,"Absolutely. And even worse, Nancy, though I don't have the exact numbers in mind, the proportion that is going into apartments is now pretty big in comparison with single-family homes, and therefore builders are using a lot less lumber and cement and so forth. So I think one really has to disaggregate those figures to understand what is going on. I agree with you that [the housing situation] is not really as optimistic as it appears.",88
-fomc-corpus,1982,"But at least there is some evidence that at the present level of mortgage rates it is possible to move some housing off the market, which hasn't been true for some time.",34
-fomc-corpus,1982,It's possible also to refinance some of the balloon payment arrangements that have been made around the country.,19
-fomc-corpus,1982,Who does not see this little--firming is maybe too strong a word--[uptick]?,20
-fomc-corpus,1982,A little twinkle of a star is about what it is.,13
-fomc-corpus,1982,"Apart from the great Middle West, Mr. Keehn.",12
-fomc-corpus,1982,If you're looking for bad news--,7
-fomc-corpus,1982,You are not part of the program.,8
-fomc-corpus,1982,"I would suggest that there has been a deterioration, whereas at the last meeting I had a tinge of feeling that maybe things were getting better. The housing side may be better, but I think Nancy Teeters is absolutely right that we have a seasonal adjustment factor that complicates that scene. The auto side certainly is better. In retail sales, the optimism that was evident as people were getting ready for the Christmas season has begun to deteriorate. People on the retail sales side that I talked with are clearly disappointed by the way they see Christmas shaping up. On the industrial side, capital goods are declining further. There is absolutely no evidence of a turnaround among the people I talk with, and the pessimism is getting to be very, very pervasive. I think some of these people are beginning to run out of gas. They just are terribly, terribly discouraged.",172
-fomc-corpus,1982,Is there anybody who has a good report on Christmas sales?,12
-fomc-corpus,1982,"Yes, I have a reasonable one. The chains tell us that their sales are doing fairly well in the eastern region, with particular strength in apparel, cosmetics, and consumer electronics. But they say that their sales in other parts of the country are not doing as well. For some reason the East seems to be doing fairly well on retail sales.",69
-fomc-corpus,1982,"Remember, there's an extra shopping day, too. That makes a lot of difference at the daily rate they're going.",23
-fomc-corpus,1982,"The head of one nationwide chain told me, and I found it very interesting, that the reason they were doing better than a lot of their competitors was that they had not pared inventories as much and, therefore, they had more stock for consumers to choose from.",52
-fomc-corpus,1982,"I would add my voice to those who are concerned about whether or not the recovery is going to materialize. The Redbook this time, although noting elements of optimism--the twinkle, if you will, Ed--commented repeatedly about the manufacturing sector slipping further into recession and attitudes becoming more and more pessimistic. I think we're dealing here with a combination of a big inventory overhang, particularly in durables, declining business fixed investment, and very, very sick export markets. What I worry about most is the possibility that the efforts to improve productivity, which have been going on in full force since midyear, will continue to erode employment and earned incomes. So this little revival of consumer spending that we feel over Christmas may prove to be very, very short lived. If I were to put down numbers--if I were in Mr. Kichline's position and thank heaven I no longer have to make my living that way--I might come up with some very similar numbers. But my worries all focus on the possibility that in fact we'll see another disappointment.",215
-fomc-corpus,1982,Any other comments on the business scene? I don't hear enormous encouragement around the table.,17
-fomc-corpus,1982,"Well, in the far West, things are continuing to slide downhill. I can tell you why if you want to know, but I'd just as soon not. It's the same old story: Forest products are in a bad slump, and electronics and aerospace, which are two of our strong growth industries over the long term, are in a big slump. Boeing's sales are at the lowest level in twenty years. It's one [industry] after another like that, and we see no signs of a turnaround as yet in our economy.",106
-fomc-corpus,1982,"Boeing must be getting a lot of defense business, aren't they?",15
-fomc-corpus,1982,"They are getting some, but it is in long lead time items, and it's not nearly enough to counteract the enormous number of cancellations, on planes particularly.",32
-fomc-corpus,1982,"We can verify that at Lockheed in Georgia. We had this political battle on getting the C5A versus some 747, which is made out in Mr. Balles' District and we won it. So, I asked the head of Lockheed Georgia, Mr. Ormsby: ""When do we get these thousands of jobs due to our big political victory?"" He said it will start about two years from now. The lead times are quite awesome, in terms of gearing up an assembly line to produce a big plane like that.",109
-fomc-corpus,1982,How are things down in the Sun Belt? Do you sense some pickup?,15
-fomc-corpus,1982,"Well, I'm on the side of the twinklers, without any doubt, although the picture is mixed, especially with the things that Lyle mentioned going on. In our heavy industry belt over toward Alabama up to the lower end of the Midwest, we are getting clobbered. We're still losing jobs; and parebacks and efficiency-type cuts are going on very heavily in some industries. But we are getting the same signs of the nation's recovery, a little stronger I would say in some sectors, mainly in housing. For instance, we are getting a lot of optimism and a pickup in permits in a number of major urban markets around our area. One of my directors quipped the other day that he actually saw a lumber truck going down the road, but he didn't think it was heading for the bankruptcy court. So, we are starting to see a housing pickup. The two big air carriers that operate in our area, Delta and Eastern, both reported advance bookings up pretty sharply for travelling to our area. So, there are some signs of light. I wouldn't bet my life savings on there being a boom just now. We have the same mix of concerns that others have. Residential construction is good, but other construction looks weak.",247
-fomc-corpus,1982,"In the housing sector I do hear from bankers and thrift people that there's a lot in the pipeline that hasn't even shown up in mortgage commitment figures, much less in permits or starts. So, notwithstanding the seasonal problem, I think there is some momentum there.",51
-fomc-corpus,1982,"We've had a lot of new mortgage money flow into our ""price riot"" institutions. Over a billion dollars flowed in two days into the institutions in Atlanta that did the 21 and 22 percent pricing; they have to lay it off somewhere and we're hoping that some of it will go into housing.",60
-fomc-corpus,1982,"They are going to buy mortgages with that hot money, eh?",13
-fomc-corpus,1982,The S&Ls that did it are really talking about going out--you might know more about it personally. The ones that did it are very euphoric; they got a lot of money.,40
-fomc-corpus,1982,"They guarantee that rate for how long, Bill?",10
-fomc-corpus,1982,"For 30 days, until January 13. They're going to make 30-year mortgages with 30-day money, I guess!",27
-fomc-corpus,1982,"Well, you have a happy background, Mr. Axilrod, to tell us how to deal with it.",23
-fomc-corpus,1982,"Well, Mr. Chairman, the Committee's decision today or tomorrow for operating purposes--the one that pertains to the directive between now and the next meeting--also, of course, relates to the fundamental problem before the Committee about how to target 1983 as a whole, a decision that has to be made in February. So these two things are somewhat related at the moment and I'll try to bring the two together if I can. In the alternatives that we presented in the Bluebook we have keyed on the broader aggregates, following what the Committee has done in the last couple of months, of course, though we've given enough data on M1 should the Committee wish to go in that direction. The large memo [Secretary's note: A copy of this memorandum, ""Options for Intermediate Targets and Implications for Operating Procedures of Deposit Rate Deruglation,"" has been placed in the Committtee's files] that was prepared by Messrs. Davis, Judd, Lindsey, and myself and sent to you suggests that in this transitional period that we're entering--beginning on December 14 with the availability of the MMDA accounts, and continuing to January 4th or 5th with the availability of Super NOW accounts--the transitional difficulties with M1 would tend to make it very difficult to present in February a target for M1 for the year. And thus by definition we believe that it would be difficult to target on M1 now going into the first quarter, as the target that is set today or tomorrow will pertain to the first quarter. We came to that view, recognizing that it was quite possible that we would luck into offsetting shifts and we'd have a low number [for M1 growth], but we couldn't really say with any definiteness that that would occur. On the one hand, as you probably read in the DIDC [report], the MMDA accounts could tend to dominate, and that would pull money out of M1 and lower the growth of M1; on the other hand, the NOW accounts may tend to dominate, and that may bring money into M1. I don't see how anyone can decide in advance exactly what is going to happen. We have done our best in the Bluebook appendix to make a variety of estimates and, as you see, we came to a wide range of estimates, particularly with regard to Ml. So without discounting the possibility that we could get a moderate M1 performance from offsetting shifts, we felt that one couldn't rely on that in advance nor could one with any definiteness say exactly how the shifts were going to go, and thus it might be better to bypass M1 at least for a transition period. Now, having said that, the group as a whole felt--and I would say we felt it more strongly as we talked together--that M1 was really the best that might be left if you looked at everything. So we were left with the great ""hope"" that when the transition is over, whenever that might be--and it may be midyear or conceivably earlier if everything goes rapidly--that it would again be possible to target on Ml, but we didn't think it would be the same animal. So, even if it became possible to target on M1 when all the shifts are over, we might be left with an animal that has a very different composition if NOW accounts dominate; it may have a large mix of investment-type funds and transactions funds, something like a money market fund. And, therefore, it would behave differently than the old M1, and it would take some time to analyze and evaluate its behavioral characteristics. That's no more than saying, of course, that the new M1 could be like the M2 that we now have, but it would be somewhat better in the sense that it would at least have more transactions components in it than M2, which has the transactions component and a much wider variety of assets. So, for the reasons given in the memo that I don't need to repeat, we tended to hope that M1 would come back and be a somewhat viable target around midyear, maybe not in the full force it has had before but at least viable enough that the Committee would not feel the need to ignore it within a broad range. M2, of course, also has its transitional problems. I think we went to some pains to point those out; and we tried to make estimates in the Bluebook about how much M2 might be affected by the shifts. We think that pretty clearly we are not likely to see shifts out of M2 into market instruments. So the shifts would be from market instruments into M2, perhaps even from large CDs or from Eurodollar liabilities into M2, through these money market deposit accounts mainly. And we would think, if the behavior of NOW accounts is any guide, just in terms of the speed of transition, that much of it would be finished over a 3- to 4-month period. We have not estimated quite as fast a transition as occurred with NOW accounts largely because a lot of the money that would go into these other accounts is in market instruments, which bear a relatively high interest rate, so in a sense there's [no] need to rush. But our estimate, with a wide range of error around it, was that in the first quarter perhaps something like 3 percentage points at an annual rate worth of funds might be shifted; and that would raise M2 for the year something like 1 to 1-1/2 percentage points [because] of shifts. We think the effects on M3 would be a little less because of offsets. That is, if banks get money through MMDA accounts they may issue fewer large CDs, not to mention shifts directly from large CDs into MMDAs. So, we don't believe M3 will be as much affected as M2. One of the problems, if the Committee does wish to continue targeting on M2 and M3 for a longer period--let us say, 3 to 6 months or whatever--is that, as the Committee knows, we don't get as much automatic response because of the reserve requirements. The average reserve requirement is much lower on M2 and M3 than it is on M1. It's on an order of magnitude of 2 percent as compared with 10 percent; it's 5 times lower. And since M2 doesn't vary proportionately as much as M1, we just don't tend to get as large an automatic adjustment. Now, this would lead to a greater need for the kinds of judgmental adjustments that we have been making with regard to M1. We normally make them on the up side, when the total reserves demanded are $200 million or so in excess of the total reserve path; we have more often than not lowered the nonborrowed reserve path in order to provide more restraint. And with regard to M2 and M3, it's possible that if the Committee wishes to retain roughly the same sort of handle, such a judgment might have to be made a little sooner because the automatic response simply is not quite as great. I ought to point out something that I think was in the memo but maybe not as clearly as it should have been: If you're targeting on M2, you don't have to control it any more closely than you have controlled M1 in the past to get a better GNP performance. In some sense it has that advantage because interest rates are a lot more sensitive to efforts to control M2; you have to push the interest rates to control M2 because it has very little interest elasticity. So, if you're off on M2 by roughly the same [percentage] amount as you're off on M1, you might have more interest rate movement and, therefore, more impact on GNP. So, while it's more difficult to control, if you miss it but you're trying to control it, you may get a somewhat better GNP performance. On the other hand, this has risks that are important because if you happen to have specified the wrong M2 target or the wrong M3 target--if the demand for M2 relative to whatever GNP is satisfactory to you has shifted and you're making a big effort to control this broad M with little interest elasticity, or even a narrow M with little interest elasticity--then the penalty on the economy will be much greater because interest rates will have moved very rapidly and the economy will be behaving very unsatisfactorily in the situation when the target is wrong. That means, of course, that you may want to think somewhat cautiously about letting the money market adjust until you're fairly certain that the movement in the broad money supply is truly reflecting credit demands and GNP behavior and does not simply mean that the public's behavior has shifted and you have chosen the wrong target. So, those are the kinds of risks involved when we move toward broader monetary aggregates and even when we have an M1 that has less interest elasticity. Now, we examined even broader aggregates, which got us to the vexing question of credit. I don't have much to add to the very carefully worded concluding section on credit in Part I [of the memo] where we as a group thought that credit would provide a reasonable context for judging financial flows but felt that as a short-run guide to monetary policy it had its problems, at least at the present stage of our knowledge, given the statistical problems we think there are and the vexing questions of cause and effect that are also involved. Certainly, these kinds of questions also relate to the broader monetary aggregates, so it is a matter of degree as you go out [toward broader measures of money and credit] as to where you think the effect on GNP [dominates] or where you think there is some causal connection between what you do to the aggregates and GNP. There are controllability problems with regard to total credit that are simply the same kinds of controllability problems we have with M2--possibly a little worse--and I've mentioned them with regard to M2. The question is: Can it be controlled independently of controlling GNP? Or when you go to total credit, are you in fact simply saying you are going directly to GNP, so the control mechanism there is not just simply a reserve base to money kind of control mechanism. We also discussed the narrower aggregates, the monetary base and the nonborrowed base. As a group we felt that the monetary base basically should be viewed as derived from the demand for the various other aggregates, so that it did not really save the Committee the difficult task of making judgments about the more standard aggregates. It might disguise that problem a little, but in the end when you come down to making a decision, you really have to judge whether you are happy or not when M1 is coming in strong and the monetary base is on target. So we felt that it was really a derived demand and in that sense did not give it much weight. The nonborrowed base is also in some sense derived from the demand for the other aggregates but at least borrowing is available as a buffer so that it can accommodate shifts between demand deposits and currency; thus we thought there was a little more to be said for the nonborrowed base as a target rather than the monetary base. However, we felt that the nonborrowed base had somewhat less public credibility than either the monetary base or any of the other Ms and we did not in our own thinking put much weight on it as a guide to the Committee. Nevertheless, I would say--and others here can speak for themselves--the more we thought about it, most of us began to see some virtue in it. Looking to the immediate problem, in the context of providing a directive between now and the next Committee meeting, one might be tempted to take the view that the [shape] of the adjustments to the new accounts will be much clearer by early February when the Committee has to decide on the long-run targets and, therefore, that over the next few weeks in this initial adjustment period the aggregates will provide virtually no basis for guiding policy. Even if they're going to provide a difficult basis in February, the question would be: What basis would they provide between now and February? These uncertainties immediately ahead of us--the unknown range of possible outcomes--seems to us to be greater for M1 than for the broader aggregates, as I've mentioned. However, there are uncertainties with respect to the broader aggregates; the direction of effect seems clear but the magnitude of effect is uncertain. Moreover, partly because of the wide range of assets involved, it is going to be very difficult to measure the magnitudes actually shifted after the fact, although obviously we will attempt to assess them from the behavior of various components of the series [constituting the] aggregates, questions to depository institutions, econometric evidence, and consumer surveys. Despite all these problems, the suggested directives for Committee consideration in the Bluebook retain the broad aggregates as a guide between now and the next Committee meeting in February. There are number of reasons for that but an important one is to insure that the public understands that the Committee is continuing on the anti-inflationary course set earlier, even while taking steps to stimulate economic recovery. That is particularly important at this time in view of the doubts that seem to be emerging, at least in bond markets, about the Federal Reserve's intentions. I may put slightly more stress on that than Mr. Sternlight put on it. The last discount rate cut was followed immediately by a drop in long-term interest rates and also short-term rates, but the declines in long rates subsequently have been reversed as have the drops in short rates to a degree. In part these reversals might have been the result of unusual mid-December tax period pressures in the money market combined with the coincidence of unusually heavy Treasury and state and local government borrowing demands. Still, many in the market have come to wonder whether in practice, even if not in concept, the aggregates are not being ignored at the expense of stoking inflationary pressures later. In that context it may be something of a tactical problem whether or not the Committee specifies a [monetary growth rate] in the directive that appears relatively high. If some credence is given to the staff's estimate that shifts into M2 in the first quarter will be at an annual rate on the order of 3 percentage points--and I stress that there's a wide range of uncertainty around that--then a relatively large number would probably be needed for M2 to accommodate that shift, as indicated in the three Bluebook alternatives. However, if we are right about the nature of the shifts that will take place, a relatively moderate M3 figure would seem to be attainable. If a high M2 number is stipulated in the directive and if a moderate M3 is not felt to be a sufficient counterweight, the question naturally arises as to whether an indication should not also be given regarding our preliminary thinking about the extent to which that high number is affected by shift distortions. The risk of doing so is that in the weeks ahead the System may then have to provide a specific quantitative shift adjustment factor, a highly conjectural procedure in my opinion under current circumstances. Qualitative-type judgments about the extent and nature of shifts will be necessary in any event but quantification, apart from fairly broad ranges, is likely to stretch the available data beyond its reach. An alternative approach to the directive would be to provide a relatively low M2 figure and indicate that growth could be high if there were evidence that shifts were distorting M2 by a significant amount. Since the figure initially given should probably accommodate some amount of shifting, I would think that a figure representing M2 growth for the first quarter much lower than 9 or 10 percent may be too far out of touch with possible developments, unless of course the economy and/or the rate of personal saving is much weaker than currently anticipated. If a figure in the 9 to 10 percent range or fractionally lower is inserted initially, it would seem that in practice the Committee might wish to tolerate a reasonable range of growth around it, certainly in the initial weeks of the adjustment period, before any substantial automatic changes in money market conditions occur. This might also be the case for the relatively high figure, though in those circumstances shortfalls might appear more tolerable to the Committee than overshoots. If the Committee goes that route, the initial tilt given to the money market by the Committee assumes more importance than usual in the sense that the odds increase that the tilt will last for several weeks, the next scheduled meeting being 7 weeks from now. With borrowing from the discount window already near frictional levels or implied to be so by the reserve paths, there is only a little, though some, scope for the Committee to ease market conditions, if that's the inclination, without risking losing touch with the market by setting a reserve path that could come to involve virtually no borrowing and thus virtually no anchor for the federal funds rate. On the other hand, the discount rate does remain as an available guide to money market conditions if borrowing is left to fluctuate around or slightly above a clearly frictional level. That probably would put borrowing in a $200 to $300 million range, based on recent experience, although there is a fuzziness about the edges of that range. I apologize for the length of [my comments], Mr. Chairman, but it was an effort to bring the short- and long-run [issues] together.",3521
-fomc-corpus,1982,"Well, you made it all crystal clear for everybody, I'm sure of that! I think the most interesting things in this paper are the chart and tables on the last two pages. To sum up, I think that's--",44
-fomc-corpus,1982,Nothing looks any good!,5
-fomc-corpus,1982,Right. Every one of them is off the trolley in the past year.,15
-fomc-corpus,1982,Even credit.,3
-fomc-corpus,1982,"You pay your money and you take your choice. And I think that is a fact of some significance. Maybe people have firmer ideas than I do, but I would not discount entirely having a meeting before February 8-9, if that seems desirable and seems to be a way to make some progress. Let us open up the floor for any general discussion there is at the moment. I assume there will be some.",85
-fomc-corpus,1982,"I have a question, Steve. You have in your monthly pattern an extremely low growth figure for M2 for December, 4-1/2 percent. That seems a little hard to believe, particularly since you are arguing that the [main] influence of the inflows to the new accounts will be to expand M2. How do you get the 4-1/2 percent figure?",80
-fomc-corpus,1982,"Well, M2 has been very weak [this month] and the average level through the first half of December is not inconsistent with that kind of growth rate. We foresee only a small expansion over the rest of the month beyond the fragmentary data we have through the middle of the month. I would say there is some doubt about that; it could come in higher. But I would put the range of estimates between 4-1/2 and 6-1/2 percent. I don't think we're exposed, at least at this point, to a real burst of M2 growth. Two years ago we had a huge drop in M1 components in the last two weeks of the year, which saved the year in 1981. I think that was the year when we had the sharp [December] drop in M1; we don't have that built into this M2 estimate. What we have is virtually no increase in the nontransactions component. You are quite right that the 4-1/2 percent growth is something that might not develop, but it's not inconsistent with the pattern of weakness that has developed in the last couple of weeks when we have been surprised by the weakness.",240
-fomc-corpus,1982,These problems are related but I think our discussion of general problems might logically precede discussion of the specific problem for the next few weeks.,27
-fomc-corpus,1982,"Steve, in the larger paper, and I think in the Bluebook as well, the point is made on several occasions that we are left with a 2 percent average reserve requirement on M2 and 1-1/2 percent or whatever it would be on M3. The inference is that that is the problem. My question is: Is that the problem or is it the definitions [and] elasticities? Suppose we had an aggregate the size of M2 but it was a nice clean M2 like the old M1 or something like that, then wouldn't a 2 percent average reserve requirement be more than adequate?",126
-fomc-corpus,1982,"Well, if it has a lot more interest elasticity one might have to see; if it doesn't, then it's not going to be. But one can go into that problem another way, too. We used the 2 percent, but it's an open question as to what really will happen in the short run. We could do this [in such a way as] to have a massive effect in the short run. If we assumed that in the short run there was nothing we could do about money market funds and all that and that all we could affect was the demand deposits subject to reserve requirements, then we could construct the path in such a way that when money funds went up we would force all this money out of demand deposits. Then the reserve requirement we are dealing with is 10 percent and we wouldn't be trying to affect everything proportionately because we wouldn't believe that's what would happen in the short run. If we did that, of course, we would get massive interest rate effects in an effort to control it. That's what led us to suggest a shadow of 3 percent or something in between.",220
-fomc-corpus,1982,"I guess I understand. I certainly agree with what you are saying in terms of the kinds of results we could face but I have some problems with the notion, even as you elaborated it, that the nub of the problem is that we have a 2 percent reserve requirement. We would have the kinds of problems you're talking about if we had a 5 percent reserve requirement.",76
-fomc-corpus,1982,"Well, yes. I suppose. I haven't made the calculation. I suppose there is some reserve requirement. If it were 100 percent, we would have no problem because we would force whatever interest rate adjustments were required, and they would be massive. So, at some point, we would find ourselves with a reserve requirement, given the interest elasticity, that would make us feel comfortable. I'm not sure exactly where it is.",85
-fomc-corpus,1982,"The reason I asked the question is because you hold out the hope that when all this transition is through we may be able to go back to a happy world of M1. I have some trouble, given a reasonable guess as to what the components of M1 will be and what it is going to look like, seeing how even by June or July we are going to be able to operate in that happy little world.",84
-fomc-corpus,1982,"I would say, President Corrigan, that we did hold out the hope, but mostly we didn't really want to be in a position of prejudging it at this particular time. I guess we mostly felt that something was needed between the Committee and GNP. If we don't have some aggregate--I don't see much else to choose from, the others may speak for themselves--between the Committee and GNP, then in that case you might just as well start controlling interest rates depending on your best assessment of what is going to happen to GNP. That is what we were grappling with.",119
-fomc-corpus,1982,Was the happy little Canadian experience mentioned at this meeting or mentioned someplace today? They just abandoned M1. They had this beautiful record of the past 5 years of M1 steadily going down and inflation steadily going up.,44
-fomc-corpus,1982,"Steve, with all the nonreserveable components that are already in M2, aren't you going to have a rather major problem trying to estimate what the multipliers are? For any given dollar of reserves we really don't know how much inventory it creates.",50
-fomc-corpus,1982,"Yes, that's true. There can be a lot more shifting within M2, but we get a flow of data continuously and we can adjust for that. If money market funds were strong and demand deposits were weak but M2 was on course, we would simply reduce the reserves for that purpose. Now, with lagged reserve accounting, we don't have any problem with that. When we get the contemporaneous reserve accounting, then we're likely to be faced with a more difficult problem because it could happen in a current week that money market funds are strong and demand deposits are weak. If we put in the reserves as if it were going to be vice versa, interest rates would drop. So, with contemporaneous reserve accounting there is more difficulty with multiplier adjustments. They don't come with certainty after the fact. But in principle, that is what we would be doing.",172
-fomc-corpus,1982,But then wouldn't you have trouble drawing a reserve path if you weren't quite sure where it is going to go?,22
-fomc-corpus,1982,"Yes, but that's in the nature of reserve paths. That's right. That's the problem with anything less than 100 percent reserve requirements and targeting on anything that has aggregates in it that aren't subject to reserves. The controllability to a degree is reduced. That's quite right.",54
-fomc-corpus,1982,"In the discussion of M2 and to some extent M3 in both the paper and the Bluebook, Steve, the numbers that you are using seem to suggest that you're looking almost immediately for the downward movement in velocity to end, except perhaps for the shift adjustment. I note that in the third and fourth quarters we had a decline in V-2 at an annual rate of around 5 percent. If that were to continue into the first half of next year and we added that to the GNP number we wanted and added another 3 points for the shift adjustment from market instruments into M2, we could have a very large number indeed, like 15 percent. Is there some reason, other than hope, that you think [the adjustment in V2] is about to end?",158
-fomc-corpus,1982,"Actually, we're thinking in terms of an underlying [growth in] M2 in 1983, independent of shifts, of something like 8 percent. And we have nominal GNP growth on the order of 7 or 7-1/2 percent, so we have a slight--",59
-fomc-corpus,1982,Very little.,3
-fomc-corpus,1982,"--downward movement in velocity as not out of keeping with that. It's hard to tell exactly what would happen, but we feel that when we get to the point of price stability--and I don't know whether we'll get there, but assume we get there--that the store-of-value function of money will be restored in some sense. People will be more willing to hold money at any given level of interest rates for its store-of-value function because they are not losing purchasing power. At least that is what we think. So, from that perspective, there'd be a one-time increase in cash balances when that occurred. I would be very reluctant to predict whether it would occur next year; it seems somewhat doubtful to me, but it may. The basis for our assumption for next year was that some of this present liquidity that has been provided would tend to be used up. We're not using up much of it because we still have a slightly downward tilt to velocity. If we're using up a lot, we might see velocity go up and we would have a somewhat more rapid recovery. We have projected a rather calm picture with no rise in interest rates from around current levels in the course of next year. On that thought we have not projected what many are predicting--that there will be a sharp turnaround in velocity. We do have it calmer.",268
-fomc-corpus,1982,"Yes, but [velocity is projected to be] a lot less than it has been. We were getting a decline of 5 percent and now you have just a very little decline.",37
-fomc-corpus,1982,Right.,2
-fomc-corpus,1982,Mr. Black.,4
-fomc-corpus,1982,"Mr. Chairman, I'd like to begin by commending Steve and his associates for what I think is a very good paper. I might add that I've heard everyone who has discussed this say the same thing. I agree with a lot of its major conclusions, particularly that we just can't use M1 as a target in the intermediate period. I think M2 is probably the best target that we can use. I don't see where we can really throw M3 in there. But I believe there is some difference between the staff position and my own as to the emphasis we ought to give M1 at this point. The paper clearly recognizes, it seems to me, that it is desirable at some time to return to maintaining some kind of relationship between M1 and our policy. But [the paper] seems a bit vague to me [on that point], and I would like to see us make that a little more definite. Most of you probably are not going to buy that view at this point, but I'd like to see some kind of commitment to return to M1 targeting by mid-1983 unless it clearly is not possible to do so. I don't think we really know whether it will be clearly impossible or not. I favor this for two reasons. One is that I think the pricing policies of Super NOW accounts and money market deposit accounts is going to be pretty well set by midyear and the lion's share of that shifting is going to be behind us. From then on out we should be able to use M1 itself or develop some reasonably good shift-adjusted M1 that could serve for targeting purposes. My second reason is that in the past--it may not be true in the future but presuming that it will--M1 has been a better predictor of the behavior of nominal GNP and prices over the long run, despite all these regulatory changes that people thought would destroy its validity. I think it's quite possible--in fact, this is what I think will happen--that the money market deposit accounts and the Super NOWs will be priced so that most of the savings and investment money will go into the money market accounts and most of the transactions money will go into the Super NOWs. And in that case I see no reason why M1 wouldn't continue to bear a pretty good relationship to nominal GNP and prices. So, I would like the presumption to be that we will go back to M1 unless we find that we can't do it. That would be my main emphasis. I have two more points beyond that. One is that I would recommend very strongly that we devote whatever resources are necessary to see what we can do in the way of developing a reliable shift-adjusted [M2]. I realize that is not an easy thing to do but I think it's something we have failed to try. My second point is that I like the idea of the shadow target but I reach a somewhat different conclusion from Jerry on that. I'd feel a little better if we bumped it a little higher because it's not practical for the Committee to participate in these ad hoc adjustments made to the borrowed reserve target between meetings. So, I would like the automatic part to be larger than it has been in the past. I think I'll stop right there. Well, one other point. If the interest elasticity of M2 is less than that of M1, as it probably will be, and if the elasticity of M1 is less than it has been in the past because of this innovation, then I think we necessarily would have some larger movements in interest rates than we've been willing to tolerate, if we're going to stay on whatever path we finally end up with. So, all of these things lead me to suggest that the automatic adjustment mechanism ought to be made as strong as the Committee is willing to accept.",763
-fomc-corpus,1982,Governor Wallich.,4
-fomc-corpus,1982,"Well, I share Bob Black's comments on the paper. I think it's a very fine paper, and not only because I agree with most of what is in it. But it does not make it very obvious where we should go from here.",49
-fomc-corpus,1982,You mean we have to deal with that too?,10
-fomc-corpus,1982,He kept looking for the bottom line!,8
-fomc-corpus,1982,"I would like to note that if you want a survey of targeting possibilities, some are not in the paper. While I wouldn't recommend these, I think there are serious contenders. One, on the basis of the research done here at the Board, is that the use of intermediate targets is inefficient and that better and more precise results can be obtained by targeting on the real sector directly. On the other hand, there are many arguments against that, including the political one, but it is something that one ought to bear in mind as one makes these choices. Also, I note that there is nothing in the paper about exchange rates. Again, while I don't think exchange rates are a proper target for this economy, they are targets that are used in other countries, in the EMS countries for instance. That again is something to think about. I would think certainly that exchange rates might play a greater role in our targeting in the future than they have. We have a little sentence [on them] in the directive but not much attention is paid to them. Finally, there is a reference to nominal GNP. You may recall that Martin Feldstein came here a few weeks ago and gave us a talk recommending that we target on that. I think that's dangerous advice. It means playing God, and the central bank should be a humble technician administering the aggregates and not trying to say what nominal GNP is to be. On M1, I share all the points made in the paper. I think we have to wait and see if we should use it, if it becomes viable again. What I hear from the market is that the money market deposit accounts may prove more attractive or may be made more attractive by the banks than the Super NOW accounts, but we will have to wait and see. Certainly M1 is the one element in money supply targeting that to me carries any real conviction; with M1 we are dealing with transactions balances and there is some reason to think that they do guide the economy--of course, always through interest rates. On interest rate targeting, which is rejected in the paper, the way I feel is that they are what we should target on if we had the knowledge and no political difficulties. But we have a great difficulty, of course, in deciding what the right rate is and it would be difficult to sustain it in the face of opposition. But since I believe the economy runs on interest rates, not on money, it is in one sense better to target directly on interest rates than it is to target on money and let money determine interest rates. Well, to come to what is doable, I think M2 is our best bet in the short run. We have to keep it very flexible with a wide range around it. It is attractive in the sense that trying to control it produces large changes in interest rates which control the economy effectively even though we do not control the M2 aggregate itself very effectively. We may have to accept considerable deviations. The base, I think, perhaps deserves a little more support than we've given it here, particularly the nonborrowed base. Fundamentally, of course, the base is currency and it's hard to believe that the economy runs on currency. However, currency is about the best behaved variable we have because it's the one about which the least is known! Most of these $500 dollars per capita that we have in the form of currency presumably isn't active in the American economy--[it's in other countries such as] Mexico or destroyed. The base, because it is a fairly stable aggregate, is a safe aggregate to target on and one that would not give us a great deal of trouble, particularly because we can make allowances for misadventures to currency such as [possible] large shipments to Argentina or a boom in the underground economy. But other than that, I think the nonborrowed base has something to commend it. On credit, I feel the same way as the paper does. It is informative; it has meaning but it is technically difficult. The data are poor, late, and subject to revision. And it is difficult to control. So, I would go for a credit aggregate larger than bank credit as an associated device. Thank you.",842
-fomc-corpus,1982,You didn't mention prices on your listing of targets.,10
-fomc-corpus,1982,"Well, as I contemplate setting a price goal, were we to put the CPI at 350, then aim at it for five years and overshoot, we would then have to bring that price level down.",42
-fomc-corpus,1982,Is that very different from the aggregates?,8
-fomc-corpus,1982,"Yes, the price level, of course, is a part of the real sector and that's what we need, I agree. But I think that is where the emphasis on using instruments protects us against the failures that are almost certain if we were to target on prices.",53
-fomc-corpus,1982,Mr. Balles.,5
-fomc-corpus,1982,"Like Bob Black, I certainly thought that Steve and his associates did a fine piece of work. It is a really systematic, in-depth examination of the pros and cons of different options. It is a bit frustrating I'm sure, Steve, to have done all this work and not come up with any positive clear-cut view, but that is in the nature of these things. We are faced, I believe, in the short run here with a lesser evil in a way. I'm a little less optimistic than you are, Mr. Chairman, about the possibility of knowing considerably more by February than we do now, and I'd just like to suggest a couple of reasons why this uncertainty may go on for a while. You know better than I that the DIDC may drop another shoe, so to speak, at some point between now and midyear in the form of Super NOW accounts for business. I'm not sure to what extent that might change the behavior of the aggregates, Steve. Perhaps you could comment on that when I get through, please. Another thing that may continue this uncertainty a little longer than perhaps is indicated in the paper is that there is some indication--I think I just read it in this morning's Wall Street Journal--that the standard money market funds are beginning to fight back now. And that certainly is just the opening gun in a battle that may go on for quite a while. The specific instances that you probably read yourself this morning were with regard to Fidelity and Vanguard funds, both of whom have made arrangements with banks to shift their funds to a bank in case the customer insists on a bank-type money market account. Fidelity is hooked up with some bank; I can't remember what it is.",340
-fomc-corpus,1982,Continental.,3
-fomc-corpus,1982,"Oh, Continental. And Vanguard is going with the [Bank of] Boston, I believe. Heaven knows what this is going to do, with the amounts showing up in M1 and M2. So, I just don't have a feel as yet as to how long this uncertainty will go on. But I certainly agree with what I think was your conclusion, Steve, that it would be premature to dismiss M1 forever. On the other side of the coin, I feel it would be premature, using the words that Bob Black started off with, to commit to returning to M1. That [wording] would be a little stronger than I would be prepared to support. But I agree with Bob's concluding comments that we certainly ought to make it clear that we will be prepared to re-examine M1 when the dust is settled and very possibly return to M1 as a target. Meanwhile, my very, very tentative instincts tell me that if Ml doesn't settle down and start behaving in a way that has a predictable demand relationship and predictable effects on the economy, the nonborrowed base might be the thing to look at much more closely. But I think it would be a mistake to move to something as esoteric as the nonborrowed base just for some interim period if there's any hope at all of M1 finally settling down in a way that we can use it. The problem of explaining the nonborrowed base to the general public, the Congress, and so forth would, I think, be very formidable. Meanwhile, I think you have come up with a good--in my opinion, the best--interim solution, which would be to stay with M2 for some months ahead and see what happens to the behavior of Ml.",351
-fomc-corpus,1982,"I didn't want to suggest, if that was the inference that you drew, that all this would clarify itself by February. I only drew the conclusion that maybe we would have talked it through a little more by February, not that the numbers would suddenly clarify themselves. You had a question for Mr. Axilrod.",63
-fomc-corpus,1982,"One of the reasons we suggested midyear as the time to relook [at Ml]--and we were a little hesitant about that--was the thought that the DIDC presumably would have this interest bearing checking account for businesses coming on stream, although I'm not sure [that will happen], by early spring. So there would be a little more time to see how that behaves. I would assume the adjustment to that might go a bit faster than for the others but I really have no way of knowing in advance.",103
-fomc-corpus,1982,"We will have Mr. Morris, and then Mr. Roos will give us the opposite side.",20
-fomc-corpus,1982,"To consider returning to M1 by mid-1983 is extremely unrealistic, I think. Not only do we have the potential of these corporate accounts but we also have the experience that it takes a long time for people to adjust fully to changing their cash balances. The New England experience with the NOW account was that it took three years to reach equilibrium with NOW accounts. I never did believe the idea that the change would take place that much more rapidly in the country at large. And the fact that NOW accounts have been growing over the past year at about a 35 percent annual rate leads me to question the maturity of this device. So, I don't think we should expect that the public is going to adapt to these new accounts very rapidly. It seems to me that goes against the grain of all our earlier history. Neither should we expect that money market mutual funds are going to sit back and let the banks take all their money away from them. I would expect, for example, that the next move by the money market funds would be to offer unlimited checking. We already have unlimited checking with Merrill Lynch's cash management fund.",225
-fomc-corpus,1982,And no minimum size of check.,7
-fomc-corpus,1982,"No minimum size check and no limit on the number of checks. One pays for the cost of processing with a service charge. If the Super NOW account turns out to be very popular, which I think it will, it seems to me that the money market funds will respond by offering unlimited checking, which will open the ballgame again. When the dust does settle sooner or later--I think it's unlikely to be by mid-1983--what we call M1 is going to be a very different animal, as Steve indicated, than the M1 of earlier years. And it's going to take us 5 or 6 years of experience with the new animal to develop any consensus as to how it's going behave relative to nominal GNP and how we can control it. Certainly, there is no scientific basis for expecting that it is going to behave relative to nominal GNP in the same way that the old M1 did. There is a lot of theology on M1 floating around at this meeting. Steve mentioned a couple of things that raised some of the basic issues. He talked about the vexing questions of cause and effect in using credit as a target, as if to suggest that there are no vexing problems of cause and effect with respect to money, a point about which I would raise serious questions. I agree with Henry that what moves the economy is interest rates and not the black box. Steve also raised the question of whether credit can be controlled independently of GNP. I suspect that it cannot. But I have not seen any demonstration in the last three years that we control M1 independently of GNP. The idea that M1 is so interest-sensitive that we can control its rate of growth by interest rate changes so small as not to have any impact on the economy I find hard to believe. I cannot reconcile that theory, that doctrine, that theology with what has happened in the past three years when we finally made very big moves in interest rates to get M1 under control and those big moves had very big impacts on the economy. So, I find a lot of conflict between the facts and the theology in the case of M1. I think we need a proxy--an independent intermediate target--for nominal GNP, or the closest thing we can come to as a proxy for nominal GNP, because that's what the name of the game is supposed to be. If we have to target something that is not predictably related to GNP, which M1 has not been in the past two years, one of two things can happen. One is that we can do as we did in 1981 and say the M1 shift adjusted, which was our target, is coming in too low and we are just going to let it come in low--we're not going to use it as a target de facto. I think that was the right decision. If we had tried to hit our targets for M1 in 1981, we obviously would have put too much money into the system. I think the targets have misled us this year. That is, up until October when we finally caught up with it, it seems to me that the monetary aggregates misled this Committee into following a much more restrictive policy than we intended. And that is reflected in a nominal GNP growth this year, which we're now estimating at 3.6 percent, that I don't think any of us a year ago would have [favored] as a target for nominal GNP. It seems to me that the best proxy for nominal GNP in this world of enormous change is the rate of growth of debt. Now, that may not be a perfect proxy, either. But we certainly don't want to go back to interest rate targeting. Politically, I don't think we could adopt a nominal GNP targeting approach even though theoretically that is what we ought to be doing. I don't think we can do it. We need a proxy for nominal GNP.",795
-fomc-corpus,1982,What is that political objection?,6
-fomc-corpus,1982,"Well, let's say the President comes out in January and says we are going to have 12 percent nominal GNP growth, and you go up before the congressional committee in your Humphrey-Hawkins testimony the next month and say we're going to finance a 9 percent nominal GNP growth. It seems to me it is not well suited to the needs of the central bank to be that far out on a limb.",84
-fomc-corpus,1982,How far do you think we can go in that regard by saying we're going to project a 9 percent credit growth or 9 percent M2 growth or something that is inconsistent with the 12 percent [nominal GNP growth]?,47
-fomc-corpus,1982,"I would merely submit that we've been getting away with this on the money supply for a number of years. I'm quite amazed that we have. But I think it's very clear that the intermediate target should not be politically sensitive. And the wonderful thing about the rate of growth in the money supply, for all of its problems, is that it was never a politically sensitive item such as the unemployment rate, or interest rates, and so on. Nominal GNP, if we were to use that as a target, would be a politically sensitive target, and we ought to avoid it for that reason. But we need a proxy for it.",127
-fomc-corpus,1982,Mr. Roos.,5
-fomc-corpus,1982,"I think I'm going to miss you. The only way I'll ever be able to get my blood pressure up is to go back to arguing with my wife again! The impression I got from the paper that Steve and his associates put together--and I certainly can't add anything to it--is that all of these targets are flawed in one or more ways and that perhaps M1 presents fewer problems than the others. I was tempted to conclude after reading that paper that there really may be no way to do the job with any certainty. Maybe we ought to look at a lot of things and not concentrate on any one target, as some of us are quoted as saying. But I'm not sure that that will work. In the last few months we have looked at a lot of things; and although the M1 figures that we're seeing may be meaningless, that 16 percent growth over a quarter is disturbing to a lot of people. It seems to me that we have two primary objectives in this Committee: One is to achieve as low as possible a level of inflation, and I think we should get very good marks for having achieved that, which incidently we achieved by a consistent lowering of M1; the other and probably the more immediate concern at this moment is to try to achieve an improvement in economic conditions. As I see it, the worst thing that could impede our desire to improve the economy domestically and our hope for improved international economic conditions would be for interest rates to climb rather dramatically--if we had a significant backup in interest rates, at least at the long-term end, which I think is perhaps the most important ingredient in the market's perception of what we are doing. From the few people I've talked to, I sense a nervousness among some market participants in reflection of the problems that they know we face and in our statement that we would have to, for very understandable reasons, pull away from M1 [as a target] for a while. The question on the minds of those that I've talked to is: Is this going to be temporary or is it going to be permanent? Rightly or wrongly the markets and the public generally have come to look at M1 as something that is important. And if we're going to reject M1, it's going to have to be done in a very convincing way because that is the measure that an awful lot of people look at. I would endorse what Bob Black said in that I think that it's terribly important, though I don't how to do it, to emphasize that we have very serious intentions of coming back at some time to M1. I would like to see our 6-month projections include some M1 figure, maybe with a much broader band, say, 5 or 6 points. But that would at least give credence to the fact that we are not dropping M1 and that we really have something with which we're steering this ship. I don't think we can say--and certainly nobody at this table would want to--that because this problem is so complicated we're just going to run our business by the seat of our pants, because that isn't going to be satisfactory and it isn't going to be productive. This has nothing to do with theology. I would hope, just for the sake of market perception, that some credence is given to M1 and that the Chairman will make a very strong statement that for the immediate future M1 is seriously flawed but that it does have certain long-term advantages not shared by most of the other possible targets. I hope we will say that we have not forgotten M1, because once the markets think we are in effect closing our eyes because we're overpowered by this complex set of circumstances, I think we're in for real trouble. I would just point out in closing that when the NOW account situation presented itself to us, as I recall, we really overreacted to the complication and the [duration] of the complication due to NOW accounts; that settled itself after a relatively short period of time and we were able to adjust. I think we ought not to abandon M1 totally.",817
-fomc-corpus,1982,I disagree with that statement that we have adjusted for NOW accounts. I don't think we have at all.,21
-fomc-corpus,1982,"Well, we were able to drop the adjusted M1, Frank, after less than a year. And according to the analysis our research department did, had we targeted on unadjusted M1 and never had that adjustment we would have had a relatively pretty result that year.",55
-fomc-corpus,1982,"Well, I would submit that the rate of growth of Ml in 1982 would have been substantially less than it was--that a lot of the NOW account money would be in savings accounts.",39
-fomc-corpus,1982,"Well, of course, Frank, we have the capability of making our target, whatever it is, perform as we want it to through our open market operations and other techniques. So, if it didn't perform in accordance with our desires, it may be that we didn't lean on it to the extent that we should have, but anyhow--",67
-fomc-corpus,1982,"Suppose it is true, Larry, that we can make it perform just the way we want. Say we put a target out there and we are right on the target with M1 but the unemployment rate is at 20 percent.",47
-fomc-corpus,1982,"You pointed out in a very persuasive way at the last meeting that it was a matter of choosing risks, and I would agree with you. But I fall out with some of this reasoning in that I believe that if the markets get the impression money is growing too quickly, interest rates are going to shoot up and we're going to be faced with--",69
-fomc-corpus,1982,"But that is what I'm addressing myself to. If markets have that impression, some people anyway are going to be nervous; I think they are today. But suppose we were in this dilemma where money has to grow faster to keep the GNP up. What are you going to do?",57
-fomc-corpus,1982,"Well, we may be between a rock and a hard place.",13
-fomc-corpus,1982,With that I agree. Governor Gramley.,9
-fomc-corpus,1982,"The staff called our attention repeatedly to the range of uncertainties in these estimates, and I'd like to start by stressing that. If one takes a look at table 2 in the Bluebook on page 8, one sees the staff estimates that for the year 1983, fourth quarter-to-fourth quarter, flows to M2 will add somewhere between 1/2 and 2-1/2 percent to the growth rate of M2. But they get to that conclusion by going through a whole series of instruments and by making estimates that are often clever and often well conceived but in the final analysis are off the wall. That is said not in any way to denigrate the work of the staff. There is simply no one who can know whether out of the $350 billion in CDs $1 billion or $50 billion is going to shift. Now, if these uncertainties are bad for M2, think of what they are for M1. From my standpoint, when the estimates for 1983 imply somewhere between a reduction of $8 billion and an increase of $24 billion, which is an increment of from minus 2 percent to plus 5 percent for the growth of M1, that aggregate is a very dangerous target until these things settle down. There has been some suggestion that the way out may be to look at something like the nonborrowed base. I don't interpret the staff documents the way others must be interpreting them. The staff said that if we start with these problems and go back to the total monetary base, we'd be dealing not only with all those problems but one more: the instability of currency demand. Therefore, that is going to be a horrible target. Some of this horribleness would be removed a bit if we went to the nonborrowed base. To focus on what the nonborrowed base would mean: If the demand for money is -4 and we're trying to push out 10, we're going to be dumping in reserves like gangbusters. So, borrowing will go down to the floor to keep the nonborrowed base exploding and interest rates will fall. And we are just going to be all over the place. We are going to have wild instability in interest rates. As I look at what the staff has said, the best we can do at the moment is to focus on a broader aggregate like M2. I come to that conclusion not without some sympathy for where Frank Morris is. But the main problem with a credit target is that we simply don't get the data with the kind of timeliness we need in order to make it a sensible intermediate target for monetary policy. It's just not there.",532
-fomc-corpus,1982,Could I add a point here? My staff has estimated that we can produce a monthly debt number two weeks after the end of the month. We sent their analysis down to Steve Taylor and Steve said it was right.,43
-fomc-corpus,1982,"No, he didn't.",5
-fomc-corpus,1982,"Well, maybe he told them it's right and he told you it's wrong.",15
-fomc-corpus,1982,The answer to this question depends upon whether or not one is in favor of a credit aggregate.,19
-fomc-corpus,1982,"It's closer to three weeks or four. It depends on how much estimating one wants to do. But on the same basis that your staff has, President Morris, we would estimate around four weeks unless we wanted to do a little more estimating than is actually implied in that memo. It's a technical difference, but I think there is a difference. You might do it in two weeks. The truth is that we don't have such a series. We don't have it seasonally adjusted. And we don't know anything about its volatility characteristics. The last time we had one--and we could develop it again--was about 15 years ago when Governor Partee and Governor Gramley were running the division.",138
-fomc-corpus,1982,It was at least a dozen years ago. It was so volatile we couldn't--,16
-fomc-corpus,1982,"It was so volatile, actually, that we gave up on it. It can be developed. I don't think the lag is two weeks; I think it's closer to three or four. But it certainly could be estimated. Our estimate is 65 percent in two weeks as against your 85 percent; we could estimate that 20 percent and add it and not be terribly far off. But we don't have it available in any real sense and it hasn't been tested. That doesn't mean it couldn't be developed or shouldn't be developed. But we're not near it, in any real sense, from our point of view. But if the Committee wants--",128
-fomc-corpus,1982,"My own line of thought on this is that for the moment the best thing we can do is to focus on M2. I think we ought to shift adjust it; I would agree with Bob Black that we ought to get the best figures we can get. But I want to call to the Committee's attention that with the kind of uncertainties we face, there isn't really a serious choice theoretically as to whether we ought to be stabilizing interest rates or stabilizing quantities. The theory of stabilization of quantity develops from the hypothesis that demands for money are more stable than demands for goods and services so that greater stability can be provided to the economy by focusing on quantities and stabilizing them than by focusing on rates. My own guess would be that we're in a situation now, if we're going to use monetary aggregate targeting, where we have to be a lot more flexible than we have been in the past. And we have to give a lot more weight to seeing to it that interest rates don't go through wide swings. I think that's also the implication of what Steve has been telling us for some time about the insensitivity of demand for M2 to changes in market interest rates. If we are not very careful--if we try to control M2 too closely--we're going to see interest rates moving all over the map. And, frankly, I don't think the present very fragile state of the economy will permit that.",282
-fomc-corpus,1982,"May I ask a question, Lyle? With regard to your statement that you consider M1 to be a very dangerous instrument, was that in this interim period ahead or more or less indefinitely?",39
-fomc-corpus,1982,"For however long it takes for the demand for M1 to settle down. Maybe it will settle down by midyear; then we can reconsider that decision. I'd hate to decide now, however, that by midyear it will definitely happen, because as you mentioned, John--",55
-fomc-corpus,1982,I agree with you then.,6
-fomc-corpus,1982,"--the new accounts for businesses, which may in effect end the prohibition of interest on demand balances, may come along soon or it may not. Who knows what is going on?",36
-fomc-corpus,1982,We'll all reserve judgment.,5
-fomc-corpus,1982,Mr. Guffey.,6
-fomc-corpus,1982,"Thank you, Mr. Chairman.",7
-fomc-corpus,1982,Wait just a second.,5
-fomc-corpus,1982,You started out talking about the flow impacts for M2 and how they are off the wall; it surprised me that you concluded that M2 is what we ought to be targeting on.,37
-fomc-corpus,1982,Flexibly.,3
-fomc-corpus,1982,"What I said was: It is better than M1 and I know of no alternative at the moment. And because of those uncertainties, I think we have to use a lot of flexibility--in effect give a lot of attention to how much movement of interest rates we're willing to tolerate to shut off an excessive growth of M2 or to stimulate growth that is too low. If we're not awfully careful, we're going to be chasing an aggregate the demand for which is being changed by financial innovation rather than something fundamental going on in the economy. That's why I want to shift adjust this as soon as [possible].",122
-fomc-corpus,1982,Mr. Guffey.,6
-fomc-corpus,1982,"Thank you, Mr. Chairman. Lyle has said very much what I wanted to say; I may just go at it in a little different way. I agree with those, however, who say that we shouldn't bury M1 totally. We ought to keep it in the background. It has served us very well politically in the past. Perhaps it could again. It may have some informational content, as everything settles down, that we will want to use in the future. As a result the fact that we merely set it aside for some period of time to be looked at again is important. Lyle has made the point that I wanted to make with regard to the interest rate volatility of the proposal made in the paper, using what I think is the only reasonable variable to guide us in the future, and that is M2. We'll have to pay more attention to interest rates and thus perhaps build in an interest rate target, whether we publish it or not, that constrains some [rate] movements. I would just ask a question of Steve or others with regard to M2. It looks to be very stable on a quarterly basis, but if you look at it on a monthly basis, just taking this year as an example, it has ranged from about 4.4 percent growth in February and what would be 4.5 percent in December, if we hit that [estimate], up to about 14 percent. In about 6 months of that period it was above 10 percent and [in the other] 6 months it was below 10 percent. The question that I would pose to Peter or Steve is this: How does the Desk propose to operate without some interest rate constraints? I'm saying, as Lyle has just said, that we have to pay more attention to interest rates; I don't understand how the Desk would accommodate either an increase or a decrease in the nonborrowed path for the purpose of trying to adjust [operations] in an intermeeting period on [the basis of] a directive given to the Desk following the meeting.",415
-fomc-corpus,1982,"Well, in general, M2 is less volatile than M1, though it is volatile, of course. But what would happen as it moved off a path is that the built-in response would, in fact, be less because it is less volatile than M1, fortunately. So the built-in response could be less and the practical question would be [whether to take] a $200 million, roughly, movement of total reserves beyond where the Committee wanted it on average to trigger an ad hoc adjustment to the nonborrowed [reserve path]. It may be as we gain experience that it will turn out to be more [appropriately] like $100 million movements if M2 is targeted. That would trigger a downward movement of some amount in the nonborrowed path because the automatic adjustment isn't big enough. That's the nature of what would happen.",170
-fomc-corpus,1982,But you're going to expand that when you go to the shadow type of reserve requirement--the 3 percent as opposed to the 2 percent?,29
-fomc-corpus,1982,"Well, that would only be if the Committee wanted to; we just suggested that.",17
-fomc-corpus,1982,"Well, my point is the one that Lyle made: This Committee should pay attention to interest rate movements, if we're going to target on M2 as suggested by the paper, using a 3 percent shadow reserve requirement. Interest rates have to be more important to the intermeeting operations of the Desk.",61
-fomc-corpus,1982,"One thing I may not have made clear, Mr. Chairman, is that the way the shadow requirement was set is that we figured out what would give us for the average variation in M2 the same average variation in interest rates that we have had. M2 would move a little more [in relation to] that [interest rate] variation than M1 would have, but the economy would be roughly the same. If you take M2 times its velocity, you would be getting roughly the same GNP. So, you get the same interest rate movement, but because M2 isn't as interest rate sensitive you can get a little more [change in] M2 than you would have in M1 relative to its path, but roughly the same GNP outcome because the velocity behavior will be offsetting to a degree.",164
-fomc-corpus,1982,"Isn't it true that if we had been following this for the last six months, we would have had interest rates moving up in a period of time, say, in the fall--September, for example--when that would not have served the Committee's purpose well?",54
-fomc-corpus,1982,"Well, we were operating with instructions to be accommodative of some overshoot of M2 as well as of M1.",25
-fomc-corpus,1982,"Well, I guess that makes the point that I want to make: That being flexible with respect to the interest rate range that I think should be established by the Committee at this meeting is an important ingredient of targeting M2 in the period ahead.",49
-fomc-corpus,1982,Mr. Corrigan.,5
-fomc-corpus,1982,"Well, Mr. Chairman, we've heard from the theologians and now we will hear from someone who is maybe not agnostic but at least a little more eclectic. To me it's very clear that we will continue to need some kind of rule that is more flexible. I think we need that for the reasons of self defense, in a political sense, that have been identified by many others. But we also probably will need it for a self-disciplinary reason as well. The point will come, though I don't know when, when there will be a need to raise interest rates or to tighten or whatever you want to call it. And for purposes of this Committee in terms of its internal functioning as well as its external relations, a rule serves a very good purpose. Again, it should be a flexible rule, too. There has been some question about nominal GNP and things like that. I have a lot of problems with those kinds of objectives. If we were to pick something at that level, I'd be more inclined to pick the price level, but even that to me is a can of worms. It puts us in a no-win situation in terms of our ability to deal with other problems, the political problems included. The biggest difficulty I have with a lot of the discussion, at least implicitly to this point, is that there seems to be some sense that after all these shifts have taken place our problems will go away. I think that may be just when our problems will begin because after the shifts have taken place, each of the aggregates, M1 included, is going to mean a different thing in relationship to GNP and interest rates and velocity and the price level and everything else. Now, we try to capture that difference by saying in some sense that the interest elasticity in the future will be at least different, and in most cases smaller, than it has been in the past. But I'm not sure that even that statement fully captures the extent to which the various Ms will be indicators that tell us things in the future that have much of a bearing on what they have told us in the past. Whatever else all of that means, I think it does mean unequivocally that the danger of interest rate overkill, even with M1 after all these shifts have occurred, will be greater and indeed potentially significantly greater than it has been in the past. I do think that for the next three or six months if need be we can probably muddle through--if that's the way to describe it--along the lines implied in the Bluebook and suggested in the larger paper, partly because we have a built-in smoke screen for that period and partly because, in my judgment at least, it will be extremely unlikely in that timeframe that we will have to come to grips with the need to tighten monetary policy materially. My suspicion and my hope would be that when the transition is finished we will know enough about M1 that we can use it in a more flexible way, but I'm not even sanguine on that point. It is probably a premature judgment. But I do think, as may have been implied by Mr. Guffey's comments, that at some point we are going to have to take a more in-depth look not just at the question of which of these indicators should serve as the primary guides to monetary policy, but a fresh look at the operating side--questions as to how to draw a reserve path and what kind of response mechanism to build in automatically. Otherwise, my hunch is that six months or nine months from now it is still going to be a pig-in-the-poke in terms of which one of these variables we think is best. And if that's the case, what will become more important at that time is the manner in which the Committee wants to go about trying to steer--and I say steer, not control--the variable or variables that it thinks best suit its overall purposes.",784
-fomc-corpus,1982,"I hear all these comments about the political viability of targeting nominal GNP, which I understand. I want to offer an observation. I would be very surprised if we got through the hearings in February without being asked to reconcile directly whatever target we have with whatever nominal GNP the Administration has. And if it does not reconcile, we're going to have a big problem.",73
-fomc-corpus,1982,You could always change your inflation forecast.,8
-fomc-corpus,1982,We have the nice range on velocity of circulation to use to reconcile.,14
-fomc-corpus,1982,"If you use a velocity number, they can't prove you're wrong.",13
-fomc-corpus,1982,And we say they have to accept that figure. That's--,12
-fomc-corpus,1982,You're saying you have to agree with their nominal GNP forecast?,13
-fomc-corpus,1982,"There will be an effort to push us into that, without any question.",15
-fomc-corpus,1982,Does that mean you have to agree with their inflation forecast?,12
-fomc-corpus,1982,That's not the problem.,5
-fomc-corpus,1982,"There is a little room for maneuvering, but I think we're not going to be so lucky as we were in past years in evading that issue. Governor Martin.",34
-fomc-corpus,1982,"Several of us have commented on the probable length of time of the transition. I'm one of those who come down on [the side of] the long transition theory. It has been said that the length of time it will take before [we can assess] the behavior of the new instruments and indeed the old instruments, which also may have their interest ceilings changed or removed by the DIDC, depends on the aggressiveness of bankers and their marketing efforts. I think that's incorrect because I observe that the commercial banks in the country are going through a few other phases and adjustments right now. If you add in thrift institutions, several dozen of them are failing every month. That's a rather difficult transition. Now they are going to be adjusting to noon presentment [unintelligible] and all that implies with regard to the clearing processes, and to ten percent withholding, which is putting a slight strain on most of their paper shuffling. There are loan write-offs, international complications, etc., etc. If we shift our view from concepts and abstractions to what is going on in the institutions that are out there, I think one can at least make a case that the transition period is going to be rather extensive. And I would suggest to you that the consumer is almost as confused as his friendly neighborhood banker. It's going to take those consumers a while to settle down and determine where they want their balances and how much and what kinds of services they want from institutions that are changing their offerings of services rather frequently these days. I'm not as concerned about the journalistic recitation of expectations of the markets as I am about the behavior of the markets themselves. I don't believe that Milton Friedman, my old friend Herb Stein, Lindley Clark, and the rest of those good folks are going to determine how the market reacts to what we do here in terms of M1 or M2 growth targeting, the changes in the directives, and so forth. I think market participants are much more likely to react to the continued flood of negative or at best neutral information with regard to the company they underwrote last week, last year, or two years ago --literally to the bottom line of a corporation whose securities they are attempting to make a market for--to unemployment, to the export industry complications, to shortfalls in business fixed investment, and to all the rest of what is happening in the real world, and not to what Lindley Clark says in The Wall Street Journal. Therefore, I think we have some action space to pursue some aggressiveness in M2 and some tolerance of M1 because the real world is just not shaping up very well for 1983. So, I'm endorsing what has been said with regard to a continued surveillance of M1. It is certainly attractive. We've all exercised our due diligence now and looked at many of the other measures. And, certainly, we should try to reinstate M1 in the pantheon. But in the meantime, in what I think will be a long transition period, I would hope to see us discuss in our directives and our public utterances both M2 and M3. I'm not wild about M3 as a marvelous measure. But look back at those tables on velocity at the end of the excellent work that has been done here. I would hate to see us confined to one measure among the aggregates when velocity one year is +4 percent and another year -5 or -5-1/2 percent. I'd like to see us have a little flexibility in the aggregates targets and, lacking something better, I would suggest M2 and M3. It's a bit vague; certainly M3 is a bit vague. For that matter M2 is not a model of clarity. But I'd like to see M2 and M3 specified and a little more emphasis in our public utterances on interest rates. We're not fooling anybody, you know. The folks out there know that we're paying a little more attention to interest rates. Why not come right up front with it? That we look at M2 and M3 as the validator is a plus. I think the word flexibility is part of the key to this. I wonder back on the discount rate cut, which wasn't exactly a world beater, what the markets would have done, as they firmed up, if we hadn't reduced the discount rate. So, I opt for flexibility.",880
-fomc-corpus,1982,I don't know how much longer [we can continue]. We're not going to get through everybody on this [issue today]. Not everybody wants to say something. Maybe we can go through a few more. Mr. Boehne.,46
-fomc-corpus,1982,"Well, I think it is the time for focusing on what works rather than some predetermined theology. That is clearly what we need. Jerry Corrigan put it well: An intermediate target is a very useful thing to have both for political and self discipline reasons. I think it's going to be a while, if ever, before M1 is clear. The idea that M1 is going to clear up enough by midyear just strikes me as unrealistic. Perhaps it will, but I think it is going to take a while for the reasons that Pres Martin mentioned. I would go with M2 as a primary target and with M3 as a secondary target, using credit as an informational variable. But I certainly would stay quite flexible, with a sharp eye on interest rates. With respect to the point that you raised about making our targets consistent with the Administration's, it does seem to me that velocity gives us a fair amount of leeway. [This year] we've had the sharpest drop in velocity in the postwar period, and heaven knows what velocity will do next year. It would seem to me that quite wide ranges could be very helpful in terms of being consistent with what we think is appropriate for M2 and M3. As to when or whether we will ever get back to M1, I would approach the issue with complete pragmatism, not a theological bias, and just keep an open mind. If it does clear up and we can make a case that it's a reliable variable at some point, then it's fine with me to go back to it. But I don't think we ought to force it.",324
-fomc-corpus,1982,"I don't think this velocity argument is going to work during this period; it will work the other way around if they are at all smart, which may be an overestimate. They are going to say ""I see velocity went haywire last year, so you have to give us a commitment that you're not going to follow that target but are going to adjust for whatever velocity does. And you better hit that nominal target.""",84
-fomc-corpus,1982,I have a great deal of confidence in your ability to fuzz things up and to cut through to the--,21
-fomc-corpus,1982,Paula Hawkins may not let me. Mr. Ford.,12
-fomc-corpus,1982,"What is motivating me in my approach in this very complex time that we are going through is that the more complicated things get, I tend to react to them by going back to the more simple things we know more about. There are two things that worry me. One is what worries everyone else on this Committee, and that is that the tune is changing on us in our waltz with M1 or M2 or anything else we use. And if, as a result, we don't provide enough liquidity, then the economy is [going to be] down to where the chart outside your door shows it is. I think there was a time when we had charts on the monetary aggregates on the wall, but there are none left now: it's just interest rates and the unemployment rate by your door. When one looks at what is happening in the world, we are worried seriously about creating a depression here. That is implicit in Chuck's question: How do we know velocity won't be even worse? The obvious answer is that usually we'd be thinking about [the economy] going the other way in a normal, cyclical manner. His feeling and that of many of the people on the Committee is that we basically are in an historically discontinuous mode. Things aren't relating in the way they used to; innovation is messing up the picture and, therefore, the big danger lies on the side of retaining some kind of religious commitment to any one of these monetary variables we're fooling around with and overstaying the period of recession and causing a crash. That is what is on our minds; that's what it's really about. At all costs we must avoid not doing the number one job of central bankers, which is to keep enough liquidity out there to keep the economy going. That is what you are worried about and that is what we are reacting to and that is why we are backing away from most of these things. The innovation arguments are part and parcel of that. There's another thing that worries me. It comes from my background as a professor of economic development and history. And that is that if you look at the longer-range experience of what central banks in this country and other countries have done wrong on numerous occasions in this century--especially in other countries earlier in this century--there is another thing we can do that would be terribly wrong. I think we're doing it now. And that is to validate the classic mismanagement of public policy of a government, and I mean both domestically and in foreign countries. What I see happening in our own country under Reaganomics is that we have had an enormous increase in the size of the public sector relative to the private sector. There has been a tremendous increase in public spending and, under Reaganomics, it has shifted away from investment-type activities toward consumption-type activities; defense expenditures can even be called consumption. Around the world we are looking at Mexico and asking what is wrong with Mexico. The answer is that the Mexicans are consuming publicly much more than they are willing to produce and to tax themselves to support. There, too, the problem is public sector expansiveness that they have validated internally with monetary expansion and that our banks have helped to fuel with excessive loans, which we are now choosing to call performing loans when the truth of the matter is that they are not performing loans. The same goes for Poland. Look anywhere in the world where there's a crisis. Another way of looking at the crisis is that one dimension of it involves too much public sector expansion that the country is not willing to finance [by reducing] current consumption in the private sector. So, they're trying to have everything at once. And to me that is the nub of the problem that we're facing as we look around the world, both in international and domestic affairs. So, I see us getting into a different danger than the one that many of you are worried about and that is, through everything we're doing right now, the danger of monetizing excessive public consumption at home and abroad on a very large scale and using all these technical arguments as a way, in effect, to validate it. That to me is an equally great danger that is every bit on a par with the depression worry that worries all of us, especially the rest of you. It can lead to exactly the same place. If I am right about this and it's the second danger that we ought to be focused on, then a year or a year-and-a-half from now there will be a tremendous fiscal stimulus plus the monetary stimulus that is now building up, not just here but on a global scale. We are talking about increasing the IMF [quotas] by 50 percent or 100 percent and pretending that all those loans are good, and forcing the banks to increase [their loans] by 5 to 10 percent. When I add all that up, that worries me. From the other side, we can create a further expansion of credit, which will blow up in our faces and leave us right at the place that we are worried about anyway. As I see it, when we stand back from all the technical issues we're dealing with here, we have to ask ourselves what we are doing as policymakers. We have to recognize that we can go wrong either way. And I think we're going wrong in the second direction right now. It is with that background that I looked at this long paper, which comes to some interesting conclusions. My conclusion was that there is something wrong with every single measure. M1 has a few problems, as do most of the other [measures]. Nobody would argue that M1 is perfect. I surely wouldn't vote for it. But I don't think some of the other things mentioned, like credit or debt, are perfect as measures. Frank was for L for a while; then he abandoned that one and came up with debt. The problem for me with debt is not timeliness; if I were arguing Frank's case, I'd make the argument that if we made the same effort to get timely and comprehensive data on debt that we do on M1, M2, and M3, we could solve the timeliness part of it with less resources. But the question is the causality argument in terms of what is happening to the composition of debt. Let's not ignore the fact that there has been tremendous innovation in debt instruments and in composition of the debt, just as there has been on the liability side of the things we are talking about. And the view that the history there is any more relevant than the changing history of the M1 relationship, I just don't see, frankly. So, my bottom line on this is that we should remember we can lose in either direction and the danger is that we will err on the side of monetizing public sector consumption that is excessive not just here but also abroad. If we do that, how will we know when we're doing that? I would say we ought to look at everything the market is trying to tell us, not just what Lindley Clark says or what others say. I have pages of them here, if you want to see them, and it's not just from one side. The bottom line of this one is that there is no doubt whatsoever that the Fed is inflating again; that pretty much summarizes what the market watchers are saying, whether or not they are right. But I'd complement that by looking not at what they say, but like everything in life, at what they do. Gold is up by $150 since June. Some of the commodity indexes are starting to turn up. The bond market is starting to get a little shaky on us. Many of you seem to think the dollar is automatically over-valued; I don't know that. If you take a look at all these things--what is happening to gold, to the commodities futures markets, to the bond market, to foreign exchange markets, and you see all those things start to look like the world is telling us we are going too far, we had better stop before we go too far down that track. And I think we're starting on that track. Therefore, my bottom line on all this is that, yes, we have to compromise some with M1. due to all its imperfections. But let's not err on the side of expansionism too long because we have already done a lot of expanding in terms of policy and we haven't yet waited to see what effects it will have. There's a long lag. We are looking at today's unemployment rate but doing things that will [not] be felt for months. And the actions we took a few months ago will show up hopefully in the first and second quarters, when I still think we are going to have some recovery, and I hope things will get better. Overall, that's how I see all this. And I hope these few comments will help some people to understand why I tend to be on the conservative side of this policy debate we are having. Thank you, Mr. Chairman.",1794
-fomc-corpus,1982,"Well, we have time--it's 5:30 p.m.--for the two remaining names on my list, if their comments are not too long. Mr. Keehn.",36
-fomc-corpus,1982,"I will be brief. It seems to me, for all the reasons we've said, that we are going through a period of very high uncertainty. And during this transition period, while certainly we shouldn't abandon M1, I think we should deemphasize it considerably. I don't know how long it's going to take before we can re-utilize it, if in fact we can, in the way that we have in the past. But I agree with Governor Martin that the length of time required will be much longer rather than shorter. Certainly for the foreseeable future we should deemphasize it. It seems to me that we have pulled off this deemphasis of M1 pretty well; I am impressed by that. I think the markets have by and large accepted it to a greater degree than I expected. In all the public comments that you have made and everybody else has made we are putting greater emphasis on M2, which I would agree we should do, with a balanced view. And I think there is some considerable market expectation now that we will be following M2. The the very last thing we ought to do at this point is to introduce some new esoteric aggregate that we plan to follow, which could serve to confuse the markets. So, having introduced M2 in this way, I think we should carry through with it and use it as our principal guide. It also seems to me, in looking ahead, that we ought to be contemplating an increase in the range on M2 next year--in my view by a considerable amount. Meanwhile, we have an economy that is awfully sick in my view. We could very well be in a recovery phase. But the people I talk to, particularly on the industrial side, as I said earlier, continue to be very, very pessimistic. I think we should put a very heavy eye on interest rates, not only domestically but as they pertain internationally. We simply cannot at this point afford to have any increase in the rates we have some level of control over--mainly on the short-term side--for fear of the possibility that a recovery will be snuffed out. So, I'd be in favor of M2 but I also would be putting a very careful eye on following the interest rates.",454
-fomc-corpus,1982,"It falls to you, Governor Partee, to pronounce an interim blessing.",15
-fomc-corpus,1982,"Well, I actually agreed with a good deal of what Frank Morris had to say. First of all, I think it's clear that we have to have in mind the nominal GNP under the conditions of whatever time period we're looking at. And I guess that has a little something to do with what Bill Ford said. We don't want a really low nominal GNP because it might just take us right on down the hill. On the other hand, of course, we can't have too much monetary expansion over a period of time or it will affect the inflation rate over the longer run. Today, given 4 to 5 percent inflation, I suppose we ought to look for nominal GNP of about 9 percent, which would be 5 to 4 percent real growth. Now, I don't mean that we should target it, but we have to have it in mind; that really is what we're trying to get at any point in time. We have to have some linkage to the nominal GNP. Well, one linkage is transaction balances. And that, of course, is the old M1. I supported that [aggregate] for quite a while. But I really think it is badly damaged and is going to be badly damaged for quite a while. Even if, as Steve suggests, after the stock adjustment we get back to a place where two-thirds of M1 is transactions money, one-third of it won't be. And that one-third will always have a considerable potential for movement that will muddy what is happening in the transaction relationship between what we're doing with money and the nominal GNP that we really would like to see over a period of time ahead. The other connective that I can see is credit. It seems to me that credit flows are very closely related to the performance of GNP some time out. I agree with Frank in that I don't see this causality argument running any more against credit than it does against money. It's just the way people look at things that makes them say it in the one case and not in the other. My problem is that I just don't think we are prepared to go to credit. We don't have the background work done. We don't have the figures and we don't know what the behavioral characteristics are; and, therefore, we can't do it now. But I hope we will do it in the period to come. ""L"" adjusted actually is the best figure in the set of tables, Paul. That's an interesting thing. Adjusted ""L"" is the best result.",505
-fomc-corpus,1982,Just the [Divisia L].,7
-fomc-corpus,1982,"The [Divisia] adjusted ""L,"" which is--",12
-fomc-corpus,1982,How would you like to explain that?,8
-fomc-corpus,1982,"I just point out that it has the best record; it's better than the rest. But it does suggest that it may be a fairly complicated relationship. The thing that bothers me about M2 and always has bothered me about M2 is that I really don't see how we can affect it very much other than through affecting the economy. If M2 were running high, would you raise interest rates or lower interest rates to get it down? I'm not really quite sure what direction we would want to move unless one says M1 is running too high and that means the economy is going to be too strong and, therefore, we want to raise interest rates in order to reduce income flows and that will lower M2. One might say that, but that's a different thing to say than that we are targeting on M2. It's obviously reflective of the economy. Well, I agree that we have to use M2, which I think instinctively is the wrong thing, but it's the only thing available to us now. And I would agree with Lyle that we certainly want to be very flexible in the way we do it because we have very little way of knowing what the number is likely to be; and then seeing what it is, we have very little capability of influencing it. So, we better have a wide range.",264
-fomc-corpus,1982,You have a complete consensus on action if not on--,11
-fomc-corpus,1982,"Well, we will resume tomorrow morning.",8
-fomc-corpus,1982,"We can come to order. I think we can proceed with the conversation we were having yesterday evening, if additional people want to say something. I have two names staring at me here. I presume that they indicated that they wanted to add to our discussion. Governor Teeters.",55
-fomc-corpus,1982,"I want also to congratulate the staff on a very thoughtful paper. I've read and listened very carefully over the past couple of days and, quite frankly, I think we're back to being as close to ""the feel and tone of the market"" as we've been in thirty years. The relationship, I think, is to nominal GNP and its composition, not just to total GNP. But we want the right relationship between real growth and inflation. As I see it, we basically have three instruments of policy. One is reserve requirements, and that line to M1 has become even more muddy; it never was very good because we never fully got through the phasing in of the Monetary Control Act. And now we have an instrument that doesn't have [comprehensive] reserve requirements on it. The [reserves] link to M2 is very tenuous and it's getting worse. It may well be that the multiplier adjustments will become the major instrument in the determination of policy, in terms of actually carrying it out or trying to figure out what we're doing. The other instrument we have is the discount rate, which we can move at the recommendation [of a Reserve Bank]. And finally, it's the provision of reserves either directly through the open market or through [discount window] borrowings. And through this we get to money, credit, and interest rates one way or another. We can do it a number of different ways, and we have done it different ways over the years. The problem is how to determine the amount of reserves we're going to put into the system. Those normal historical relationships that we've been used to have become disconnected. We don't have a stable demand for money anymore and we have a history of changing velocity this year. Even abstracting from the financial innovation, those relationships aren't very good. And if we add the innovation, they get worse. As I see it, we used M1 targeting as a means of performing traditional monetary [policy] functions, which was basically to help engineer a recession in order to slow down inflation. In fact, what we've done is almost classical. We sort of hid behind M1, but that is what we accomplished one way or another. It seems to me that what we need to do now is equally traditional and that is to get interest rates down low enough to get some real growth going in this economy. I don't really care what we call it--whether we call it targeting on M1 or whether we have broad interest rate targets or something of that sort. I'm perfectly willing to go along and pay lip service to targets if that's going to get us out of this box. Fortunately or unfortunately, for at least the next six months, nobody is going to know what to do anyway. They won't even know whether we're hitting the targets, given all the money that is moving around out there. So, when I thought through my policy goals, at least for the next three months and possibly for the next six months, I concluded that what I want is a federal funds rate in the 6 to 8 percent range and borrowings at the frictional level. I leave it to the staff to tell me what rate of growth in M2 will get me those two objectives.",646
-fomc-corpus,1982,"Speaking of prices, let me just interject in case you haven't heard it: The consumer price index seasonally adjusted rose 0.1 percent in November. It's as low as it is primarily because of declining mortgage interest rates. Governor Rice.",49
-fomc-corpus,1982,"Thank you, Mr. Chairman. I also would like to compliment the staff on an excellent paper, which was done under a great pressure of time. I happen to know when they started to work on it, and I think it was an excellent job all things considered. Like Governor Teeters, I listened carefully yesterday. And while I have no new insights as to how to deal with our problems, that was not your fault. The discussion was an interesting one and helpful to me. I do have some reactions and one main point I'd like to make, if I could. But first where I come out: I would join the emerging consensus and support the targeting of M2 at least over the transition period. Regardless of how one feels about the feasibility of targeting the aggregates in the long run, this is not the time to abandon targeting on a monetary aggregate, given the concern that already has emerged in the financial markets as to the Federal Reserve's determination to continue to restrain inflation. So at least for the next few months, and possibly even beyond the transition period--depending on how M2 behaves--I would certainly support the consensus that seems to be emerging. I would also agree with Bob Black that we should make every effort to shift adjust M2. I would not like to make a commitment at this time to rehabilitate M1 after the transition period has passed. While M1 may prove to have the desired behavioral characteristics, it will take some time, as Frank Morris has pointed out, before we can determine that it does have these characteristics. M1, as pointed out by Mr. Axilrod, will be a new kind of animal and will have to be observed for some time. Like some others around the table, I share some sympathy for President Morris' debt proxy and I think it certainly deserves further study. The problem with it now, from my point of view, is its controllability. I'm sure Frank would say: ""What about our luck in controlling the monetary aggregates?"" I guess I would have to say that we believe we can control the monetary aggregates, even if we don't. At any rate, at this time there are control problems. I don't know how we would get total debt to perform as we would like it to. And, of course, the practical problem is the one pointed out by Governor Partee. The fact is that we don't have the background yet [to target debt]. But, as I said, I would urge further study to determine the feasibility of targeting on debt or some broad liquidity measure. Now, after the transition period, if M2 does not turn out to be a satisfactory target objective, I think we are in some difficulty. We may well have to become more eclectic than we anticipate. I'd just like to say--and this is the main point that I want to make--that I don't agree that the only objective forever and for all time of central bank monetary policy is to keep prices down, to restrain inflation. It seems to me, depending on the circumstances, that the primary objective of central bank policy could be maintaining a steady non-inflationary rate of growth. Or in other circumstances, for example with prolonged stagnation, [high] unemployment, and under-utilization of capacity, it might well be to promote recovery. It seems to me that the primary objective of central bank policy has something to do with the most feasible option with regard to targeting. It may be, and I suspect is the case, that if the primary objective is controlling inflation, control of the monetary aggregates might well be the most feasible object of our targets. It may well be if our objective is maintaining a steady non-inflationary rate of growth that we would want to target on short-term interest rates. And if we're trying to promote recovery from prolonged stagnation, it may well be that some variant of the debt proxy or perhaps targeting directly on GNP would be the most feasible road to take. And with regard to targeting on GNP, I don't agree that one is playing God when one undertakes to probe for a rate of real growth that is non-inflationary. I think it makes perfectly good scientific sense to try to find such a rate in an economy at any given time. So, we may have some difficult choices to make with respect to monetary targeting or other options beyond the transition period. I would simply urge that we maintain a certain open-mindedness or flexibility, if you will, as we live from Federal Open Market Committee meeting to Federal Open Market Committee meeting. Hopefully, in time, the right option will emerge clearly. Thank you, Mr. Chairman.",932
-fomc-corpus,1982,Mr. Solomon.,4
-fomc-corpus,1982,"Well, although we all believe in controlling the money supply over the long run, some of us are placing importance on returning to targeting M1 as soon as possible--say, by the middle of next year--and some of us are more skeptical. I don't think that creates a problem in the Humphrey-Hawkins testimony; it's perfectly finessible. [We should say] that we will be watching it and learning from it what we can, notwithstanding distortions, and that if we see that it becomes free of distortions, it could be an appropriate target. I think there's a widespread feeling of uneasiness among us about M2 and M3 as presently constituted. They don't have a track record; we don't know what they tell us about nominal GNP. One thing that bothers me is this: Suppose next year or the year after we begin to see inflationary pressures develop and we have to start tightening. If M2 and M3 were growing weakly and unemployment were over 10 percent, what is our reason for tightening? What do we offer? I feel that the fig leaf is pretty much tattered and that the mood of the Congress is pretty realistic. The country knows what we are doing and, therefore, that we have an important effect on economic activity as well as inflation. It seems that there ought to be a way of formulating our policy so that it meets the political realities and is a little more honest, and yet doesn't lock us into the bind that we all are familiar with. Therefore, I would recommend for serious consideration that we say the following: That we have certain expectations about where M2 and M3 will end up--and perhaps avoid the use of the word targeting; that those expectations would be importantly influenced by trends and levels of real economic activity and trends and levels of inflation; and that we would be drawing our reserve paths from M2 and M3 as we go along with the meetings. But I'd be fairly honest about the fact that we're looking very heavily as well at other considerations that are less important, such as nominal GNP and the exchange rate. Those would be the two important ones. I would add to that, just as reassurance to the markets, that our long-term policy, notwithstanding any possible alternate later weakness in the Ms, would be to maintain positive real interest rates.",470
-fomc-corpus,1982,"To do what, Tony?",6
-fomc-corpus,1982,"To maintain positive real interest rates is our long-run policy. I think it's important to reassure the markets. There are various ways of formulating that. We don't have to use the term real interest rates, if that's thought to be objectionable. We can talk about the levels of prevailing interest rates in relation to inflation. We don't have to get into the expectations area; we can take the [unintelligible] version of what people mean by that. I would have no objection to substituting for bank credit, which is a very narrow debt measure--as an associated range, not as a target--total nonfinancial debt. Again, I think that shows a certain amount of responsiveness and flexibility on our side and it is fairly realistic. I don't see that it would do any damage. It could be a monthly announcement but it probably would be a quarterly announcement if the staff and the Chairman felt that they didn't want to do that much estimating and wanted to wait for harder data.",197
-fomc-corpus,1982,We don't have a monthly series now.,8
-fomc-corpus,1982,"That's right; I'm aware of that. They could, as Steve said, get it out with some heavy estimating in maybe three weeks after the end of the period. But if we didn't want to do that, then it could be a quarterly announcement. There is one last comment I wanted to make and that is that a couple of people commented that they think we ought to do a shift adjustment of M2. Even though privately the staff will certainly be trying to analyze the movements of M2, I don't see the desirability of calculating a shift adjustment for announcement purposes. I think it's much too dangerous. And I don't think it gains us that much. That's all.",134
-fomc-corpus,1982,Mrs. Horn.,4
-fomc-corpus,1982,"I think M1 has served us well and, indeed, its being linked by theory to our ultimate objectives in the income and price areas makes it very attractive. So I'm distressed that for now and the foreseeable future it will not serve us as a reliable rule. I agree that M2 is what we should be focusing on in the intermediate period. The question, of course, then remains how to control it, which has been discussed at some length. But I do think we need to have enough control over it that it really is a rule and not just a discussion point for the Committee. How do we assure the world that we're still in business? I lean toward having the Chairman make a statement that, while it may be premature to commit to returning to M1 at a particular time or perhaps to commit to returning to M1 at all, as soon as possible we would look to return to M1 when experience has accumulated that would enable us to use it again. I felt [some sympathy] with Bill Ford's reasoning yesterday that there are dangers on one side of collapse and on the other of monetizing the debt. That that would lead us to looking at other indications of what our policy is accomplishing made some sense to me. On one side we could look at nonborrowed reserves or the nonborrowed base; on the other side we could look at the price of gold and long-term bond markets and things that are linked by expectations of future inflation. The exchange rate suggestion also, I thought, was a very good one. The danger in this, of course, is that we gain too much flexibility and don't have the self-discipline of having a rule. Nonetheless, we aren't in normal times and looking broadly at a number of other financial numbers in addition to M2 is perhaps called for. My concern remains that, once the economy does pick up, we must make some difficult decisions about what the future course of the economy should be and perhaps effect a change in monetary policy in that we will be facing a situation with a federal deficit that will not decline adequately to make up for the pickup in the economy. And M2 is a difficult aggregate to control at that point. But for the foreseeable future, I agree with the consensus that M2 is what we should be working with.",460
-fomc-corpus,1982,Mr. Boykin.,5
-fomc-corpus,1982,"I also would agree with the consensus that M2 is probably about the best we can do. I'm not ready to concede that M1 will no longer be viable. On whether to commit to returning to M1, I guess I would like to; but realistically that might be slightly premature. I would couch it in terms of a presumption of returning to M1 if that proved feasible as we gain more experience. In terms of the public's perception, it does seem to me that the explanation that you gave in October of what we were doing could carry forward right into February. We will place less emphasis on M1 and more emphasis on M2, with the explanation of the institutional changes that are taking place and have been discussed. That's all people read about. I think it's pretty understandable. I think a consistent story, much along the lines of what we used in October, would carry us through at least until midyear.",186
-fomc-corpus,1982,"Any other comments? I don't know quite how one summarizes this discussion. In some ways I think there was a consensus; in other ways I think there was a lot of disparity. Let me make a comment about the deficit that has emerged from the discussion this morning. I don't think there is much prospect of the deficit declining in any foreseeable time period, which is a more important problem maybe than some of the ones we've been grappling with in the last couple of days, difficult as those are. The Administration's current estimates are going to be higher than anything we've seen and will remain higher. I think we have to have targets, just by law. And apart from the law, I didn't notice any great tendency around the table to depart from them entirely in terms of monetary or credit targets.",158
-fomc-corpus,1982,"Does the law use the word ""targets"" or the words ""plans and expectations""?",17
-fomc-corpus,1982,"It says ""growth ranges."" I was about to say that we may want to deemphasize to some degree the word ""targets."" That may be impossible to do; we've used it so frequently. I take note of what you have said, but certainly the consensus I hear around the table is that we can't interpret this so rigidly in terms of what is going on currently and prospectively. There was a good deal of feeling that of all these numbers M2 probably deserves the most emphasis at the moment, but there are a lot of qualifications surrounding that, I recognize. I don't think the M1 question is an ""either/or"" question. I don't particularly ignore it even today. Its significance may [involve] a much wider range, but if M1 hadn't been rising as rapidly as it was rising in the last six weeks, we presumably would have had an easier policy in some sense. Even now we can't make out what is behind it; but it gives a lot of people, including me, a little pause when it is rising that fast even if it's not a formal target. And that does to some degree influence what we are doing. So, there's a recognition that I wouldn't say [in my testimony that] we will ignore M1; but it can't have the formal role that it had for some time anyway. I'd leave open the question of when and how we can return to it. As for the total credit measure, I had this interchange with Mr. Reuss and said I would put to you more or less formally whether we would include it. I don't know that I used the word target; I don't think I did. Whatever I said was heavily qualified, but I said we would consider presenting some kind of number for total credit. I'm not sure everybody agreed with that, but unless I hear some objections, I take it we will present some numbers for total credit at the very least on an experimental basis. Exactly which series, how frequently, and all the rest, we'll have to look at. But we will put some kind of benchmark in there unless you tell me otherwise. It certainly won't be emphasized as a target, in capital letters, but as something we observe and which may have an influence on us. I'm not sure that we want to control any of these [aggregates] all that closely, given the degree of uncertainty that exists and those velocity numbers recently. It seems to me that the direction of these signals is clear enough if they are all going in the same direction. If we get mixed directions, then we have a different problem. But if credit growth is high, M2 is high, M1 is high, and M3 is high, or vice versa, we know the direction in which we want to lean. How much tolerance we have and whether we say we're going to hit that target, with a capital ""T,"" and all the rest is another question. But it gives us information about the direction in which we would want to go. From that standpoint, if we don't have those targets in capital ""Ts"" in quite the same way [we used to], I'm not sure that the control issue and just how interest-elastic they are and all the rest are necessarily that much of a problem. That's my reaction; other people may have different reactions. I do think we're going to be forced into a more explicit rationale, whatever we do, in terms of the nominal GNP. I'm not saying we have to target nominal GNP very directly, and there are obviously dangers in that, but I do suspect that we're going to be drawn out on that subject much more heavily than we have been in the past. I think there is a real danger in that because it does overemphasize what we in practice can do. I think there's great overemphasis now on what monetary policy can do either in terms of nominal GNP or interest rates. And it's very dangerous. It's partly just a matter of frustration. Nobody else can think of anything else to do so they say that the monetary authority must have control over all these things and if they press the right button everything is going to come out right. The presumption is that there's a right button to press; I'm not sure there is. Some problems don't have that simple an answer. I suspect we're in one of those periods, and we ought to devote some attention to arguing that we're not all that omnipotent. I myself would accept what some people have mentioned: That we keep an eye on such things as exchange rates or maybe even more importantly the price trend and the price forecast but that we not formally target them. I wonder whether we need another meeting. I think there is enough convergence so that we don't need it for this purpose. I suspect that we may have a telephone meeting anyway sometime between now and February just in terms of current policy, and some of these issues might be raised. Perhaps Steve Axilrod can send out some kind of format or framework as a basis for a discussion of some of these things. I'm not worried so much about what the precise numbers are but about the framework that we might use to present it and to help focus the discussion in February. I'd do that considerably before the meeting and maybe even before a telephone meeting so that we can get any comments on it and see whether we're talking about the right framework when we come back in February with some language about how much emphasis, what these numbers mean, and some preliminary paragraphs--I guess it's not a directive when we present these annual targets--we might write in terms of presenting the annual numbers. We will see whether we can come to some kind of conclusion about the way we want to present this and we will focus more at the next meeting on what numbers we want to put in there or what modifications in the language we want. On balance, I think we're left with what could be termed an eclectic, pragmatic approach. It's going to involve some judgment as to which one of these measures we emphasize, or we may shift from time to time. And if they move in diverging directions, we're going to have to make some judgments as to which one is more significant at any particular point in time against what nominal GNP is or what the goal is or what the real economy is doing and what prices are doing and all the rest. I just don't see much alternative to it. From one point of view it's not the worst thing in the world; that's the way the Federal Reserve used to operate, less elaborately, for years when policy by present standards looked pretty good.",1319
-fomc-corpus,1982,We seem to make our mistakes scientifically now!,9
-fomc-corpus,1982,"That's right. We may make bigger ones that way. In today's world, with things so uncertain and upset, it does have dangers. It personalizes things much more, which I don't think is ideal. It leaves us with more expectational questions. It may be fine now, but everybody will say: What happens when the Board changes and the personalities change and you don't have a rule? But I'm hard pressed to condense what we have to do into a simple rule, given all the uncertainties we face and given some of these numbers going off track. I don't think we have to apologize for the approach, but I don't think it's ideal. There was some question--Roger Guffey and some others may have touched upon it a little--of explicit interest rate targeting. I don't think we have to go to that. It's a fine distinction maybe, but there is a distinction between having an explicit interest rate target and having, as I'm sure a lot of people do around this table, some limits of tolerance on what interest rate change one wants and some general idea as to the direction one would like rates to go as one is interpreting the numbers and setting the targets and setting the borrowing levels and so forth. And I think it's a distinction worth preserving. I'm not sure I'd want to confine myself to talking about real interest rates or saying we have to have a positive real interest rate. I can imagine circumstances in which we might have to have a negative real interest rate. I don't think we anticipate it at the moment, but I'm not sure we want to have too much at stake on a real interest rate. There was one thing I do disagree with, so I will just state it. There was some implication and some comment that people would be perfectly happy with even bigger swings in interest rates--I may be overstating it--in order to keep some of these aggregates on target. That, I think, we cannot afford in the foreseeable future; I just don't think we can. We have had too much [rate fluctuation] in the past for my own blood. But given the state of the economy now I do not think we can be casual about thinking of swings in interest rates of several percentage points up or down and just take that as a by-product of some target we're aiming at that we've not very sure of anyway. That is one thing I would feel pretty strongly about myself.",480
-fomc-corpus,1982,"I agree with you on large swings, but there is some disadvantage in being tied as closely as we are to the discount rate and not having any fluctuation of even, say, 50 basis points.",41
-fomc-corpus,1982,"Oh, I'm not saying anything like that. I'm not sure we're tied that closely to the discount rate.",21
-fomc-corpus,1982,"Well, that's the way it seems to be working out.",12
-fomc-corpus,1982,"All right, maybe during this period. But I'm saying I don't think there's any implication of that at all.",22
-fomc-corpus,1982,"Well, if borrowing stays as low as it is, it leaves--",14
-fomc-corpus,1982,"It's because it has been a by-product of borrowing being fairly stable. But that's a decision we can make all the time, right? No, I'm talking about swings of several percentage points in an effort to get something back on target promptly.",48
-fomc-corpus,1982,It would take at least that on M2.,10
-fomc-corpus,1982,I'm wondering who is in favor of bigger swings in interest rates than we've had. I didn't hear anybody say that.,23
-fomc-corpus,1982,"Well, I may be hearing things that weren't said. I don't think so, entirely. It's not a question of being in favor of it, but I interpreted some comments as saying that if being less sensitive to interest rate movements is a necessary expense of staying on target, that's okay; we just move the interest rates more. I thought I heard some people saying that, but maybe not.",78
-fomc-corpus,1982,"How would what you just described really differ from the 1977 to 1979 eclectic/pragmatic approach? I don't ask this in a critical vein, but does this all add up to conducting policy as we did prior to the need for shifting gears in 1979? Are we, in effect, going back to looking at a whole lot of things and using our intuition?",77
-fomc-corpus,1982,"Well, to oversimplify, I don't think it bears much relationship myself to the particular period that you're talking about. If I wanted to make a comparison I'd go back longer than that; I would go back to, say, the early 1960s. I think it's much more elaborate than what was done then because we are looking at indicators much more explicitly. But it you look at enough indicators, it does get a bit eclectic. There's no question about it. And I don't think we ought to apologize for that. I think that's the way the world is at the moment, but it has some disadvantages. It would be nicer, from a number of perspectives, if we had a simple, clean-cut rule. I just don't see what that clean-cut rule is for the next six months or year anyway. And I think that's what I hear around the table, too.",177
-fomc-corpus,1982,"But it does have a reinflationary potential, doesn't it? Again, I'm not being critical, but isn't this fraught with danger in that regard?",32
-fomc-corpus,1982,It could easily have a deflationary potential. It depends on how the judgments work out.,19
-fomc-corpus,1982,"I think what you might be saying, Larry, which a number of people have said--and I have great sympathy--is that the value of these rules is to discipline ourselves as much as anything. And if there are too many things to look at, one can always find some way to avoid that discipline. I guess we just have to appeal more to our internal discipline, but I think that is one of the things we have to lose. I don't want to overemphasize the difference, but very broadly I would say we were willing to emphasize some of these things so much because we were preoccupied with that need for disciplining ourselves and disciplining the economy. We were willing to accept a lot of guff, if that's the right word, and a lot of potential side effects because [the goal] was all important. It's still very important but the risks have shifted. We have made some progress on inflation; we got it turned around. It's very important that we maintain that, but can we use such a simple rule as we have been using when the relationships between the rule and the economy, which never were all that great, have broken down at the moment? So, we have to look at one to one. I don't think I am saying anything very different from what I heard around the table.",265
-fomc-corpus,1982,"We seem to be talking about the difference between the proviso and the rule. We've switched from this in the past, as you know. We had an interest rate rule provided the aggregates or reserves didn't violate some constraint; then we moved the other way. We had a money supply rule provided the funds rate didn't violate some constraint. I think we're somewhat in this area here. There is a difference in saying we have an M2 target, which we qualify by a number of other things, and saying we are looking at a lot of things but we hope that M2 or some other monetary target comes out right and we will try to effectuate that. There is a difference even though the two [approaches] meet somewhere in the middle.",149
-fomc-corpus,1982,"That's what we need a framework for. What I think I hear, which I don't disagree with at all, is that the central target in some sense is probably going to be M2 for the moment. But that is going to be more qualified than the way we have presented these targets in the past for two reasons. One is that we don't know what institutional impact there is on M2 and we have to qualify it for that reason whether or not we can in some sense formally measure the shift adjustment. We are going to have to have at least an informal shift adjustment. But that's not the only problem. We also have velocity going off the trolley with M2 as well as with these other aggregates. So, M2 is the central target--I guess that's the right term to use--but it's a somewhat more qualified target than we've had before. What I think we're groping for is how to state that M2 is the central target but we also are going to be looking at these other things. One way is a kind of proviso--I don't know what formal language we would use--that if these other things are going off in a different direction, we will evaluate M2 in the light of credit declining or rising or whatever or if M1 for that matter goes way outside some range we would explicitly [take that into account]. I find M1 rather inexplicable in November, not in October; the November behavior worries me and it's continuing into December. Maybe it will all wash out with this new account; it may wash out to a considerable degree or not all. So, we will wait and see. If it doesn't, that worries me. As I said, I think we're tighter than we would otherwise have been if that had not been going on.",357
-fomc-corpus,1982,"May I ask what worries you about M1 in November? I, too, noticed that the amount of change in M1 went way beyond anything we were looking at in terms of all savers certificates, and there was some thought that the [maturing] all savers certificates would give it pop and then would phase out. But the fact is it's more than that.",75
-fomc-corpus,1982,"I would have expected the bulge we got in October in part because of all savers. But all savers maturities were not that large in November, and I would have thought that after a month or so some of that money would be moving into other investment vehicles. An argument is that there are other things going on too. One argument is that everybody, or a substantial number of people, is sitting there waiting for this new account. So that continues to have an influence. Who knows? Maybe we'll get a little more insight when we get the numbers on the new account, but we haven't gotten them yet. That's all I mean: I would have expected the all savers impact on M1 in November to be rather sluggish, and it wasn't.",152
-fomc-corpus,1982,It could be temporary; it's hard to say.,10
-fomc-corpus,1982,It's worrisome. It's well beyond what we were talking about.,14
-fomc-corpus,1982,It could wash out in the period right ahead.,10
-fomc-corpus,1982,"I think we have the other problem that Frank Morris keeps talking about. We seem to have assumed that the NOW account phenomenon was damped to the point of being nonsignificant in terms of shifts this year, and maybe it wasn't, particularly as interest rates came down and got more competitive with the NOW account interest rate. If you look at the old M1, we had a very restrictive policy; even with the old M1-A, we had a very restrictive policy this year until just recently. Now, that has begun rising in the last two months, too, but in the early part of the year it did nothing.",126
-fomc-corpus,1982,May I ask your perception on one other thing you said? You mentioned that you feel we are not managing interest rates. But when you just look at a chart of daily deviations in the fed funds rate and actually measure the variance on a daily basis before and after October--,54
-fomc-corpus,1982,Targeting interest rates. Targeting interest rates.,10
-fomc-corpus,1982,"If you talk to people on the street that I talk to, they are saying that we are not only managing interest rates but are steadily pushing them down and reducing the deviation and that that is our policy. That's something I hear. I would like to ask Tony or you whether you hear or sense any of that and whether or not you feel there is some element of truth that that is what we're doing.",81
-fomc-corpus,1982,"Well, it's the other side of the coin. We have been more tolerant of changes in the aggregates, I suppose, and haven't reacted all that strongly, and that smooths out interest rates. But that's different, I think, than targeting on interest rates. I don't consider it a bad thing that interest rates are more stable. I think that's devoutly [to be hoped for]. If we can do it consistent with the other things we want to achieve, great. If anything, this fluctuation in interest rates for the past few years to me is very broadly a reflection of the sickness of the economy and the financial system. It's not a normal thing to have interest rates bouncing around like that. They don't in other countries, by and large; they never used to here. It is something we may tolerate in an effort to achieve a larger objective but it is of no merit in and of itself, in my view.",186
-fomc-corpus,1982,"I certainly don't like those wild swings in rates. Looking back, there's an obvious difference of opinion as to what caused that. Some people would say that the very fact that we never did stabilize either the base growth or the M1 growth may be what caused the fluctuations, which nobody liked, including me. But looking ahead, I get the feeling that we are being perceived as very tightly managing day-to-day short-term rates and that the market is looking at us that way. I wonder if my perception is wrong. Tony, what do you think? Is the market thinking that or not?",118
-fomc-corpus,1982,"Well, the market thinks there has been a definite change in policy. But I would say the majority of players think that what we have been doing is justified. There is a technical disadvantage in being caught in a situation where the borrowing level is so low. We don't want to tighten the nonborrowed reserve path because we don't want to see interest rates climb up and, therefore, in practice the only way interest rates move down is via a discount rate cut. That's a more technical consideration and maybe it's only short term; I don't know. But I don't think the market or other people are faulting us one way or another for pegging an interest rate. I don't think that it has gotten to a point where they think we are pegging in a targeting sense. If the fed funds rate doesn't move more than 20 basis points or so except with a discount rate cut and that continues over a period of many months, then I think there will be an increasing feeling in the market that we, in effect--no matter what we say--are actually pegging in a targeting sense.",218
-fomc-corpus,1982,The irony is that short-term rates have been fairly steady since September while we have reduced the discount rate about three times. The bill rate is now slightly higher than it was in the middle of September.,40
-fomc-corpus,1982,But Tony is right. The discount rate and the funds rate have been closely linked.,17
-fomc-corpus,1982,They are bound to be when we are operating in a fairly narrow band of nonborrowed reserves.,20
-fomc-corpus,1982,"Paul, do I understand that we have been asked to give more of a Committee forecast with the GNP and associated numbers like real GNP and--",30
-fomc-corpus,1982,"Well, what I understand is that we were asked to give a Committee or a Board forecast.",19
-fomc-corpus,1982,"Well, which was it: Committee or Board?",10
-fomc-corpus,1982,"I don't know whether it was that explicit. But whichever way it was, it was refused. They were told that we would give the same ranges that we gave before with an addition, maybe. I said more than maybe, I guess, but it wasn't absolutely a promise. I said we would explore the feasibility, particularly if the distribution was not symmetrical, of giving some indication of where the central tendency of the individual forecasts lay. But it was not a Committee forecast and it was not a Federal Reserve forecast and it would not be a Federal Reserve forecast, in capital letters. It would be a somewhat clearer description of where the mode of the individual forecasts was. And that's all it has been.",139
-fomc-corpus,1982,"Well, it does tend in the direction of suggesting that in order to make the forecast we need to know what policy is going to be. And yet if I understand it, the way it has worked before is that we have made a forecast before the meeting. I see a procedural problem with that.",60
-fomc-corpus,1982,"I think the forecast is going to take a little more care this time than before. I don't know whether we all make the same assumption on monetary policy or not, but the thought occurred to me.",40
-fomc-corpus,1982,We'll have to have a preliminary forecast and then have a discussion about that.,15
-fomc-corpus,1982,That would probably be the way to go.,9
-fomc-corpus,1982,"There's no question. My assumption is that we'll at least need to have some chance after the preliminary forecast for individuals to relook at their forecasts on the basis of whatever they want to consider. Whether we should force [the individual forecasts] into a common monetary policy assumption I am not sure, particularly if policy is going to be [vaguer] in some way or another about what the targets are. If we say we may change the targets during the year, every individual Committee member may have a different idea of how that may be changed.",109
-fomc-corpus,1982,"But in the end we're going to be stating a Committee stance on monetary policy. And they naturally will expect even as individual forecasts that they will be associated with the Committee's stance on monetary policy, I think.",42
-fomc-corpus,1982,"Well, when you say stance, that's probably unavoidable. Whether it is associated with a precise monetary number, though, is something else again.",28
-fomc-corpus,1982,"All right. Well, that's why I said stance. We have to avoid the word target.",19
-fomc-corpus,1982,"That's correct. We make the distinction between stance and [target]. We will have to think about just how we will do it, but I suspect we're going to need two rounds of forecasts anyway.",39
-fomc-corpus,1982,"I think what a lot of this discussion really comes down to is that we're looking for some kind of steering mechanism that we can in some sense advertise as a target. Much of the discussion has gravitated toward M2 as being put in the role of the primary steering mechanism or the primary target, and that's where I started out. But I'm having some second thoughts even about that. I would at least raise the question of whether we aren't underplaying M3 too much, by inference. Normally, I would never say that. But if you think about M3 in 1983, quantifiably it is going to be less subject to shifts than even M2. If you look at it in the post Regulation Q disintermediation period, in fact it has really been quite stable. Whatever the relationship between any of these aggregates and GNP might be, the relationship between M3 in this period is also less susceptible to change certainly than M2 or M1. And of course it is so vague that it inherently provides us with more flexibility in terms of short-run operations and avoiding the tendency of stepping on interest rates too aggressively. So, I would just like to suggest that in all this we not lose sight of some potential advantages that there may be in M3, particularly from a communications point of view.",264
-fomc-corpus,1982,How much weight would you give it vis-a-vis M2?,13
-fomc-corpus,1982,"Well, at least equal weight with what I hear people giving to M2 right now.",18
-fomc-corpus,1982,"Jerry, how would you control it?",8
-fomc-corpus,1982,"Well, that's the problem, though I don't see any difference conceptually between controlling M2 and M3. As a matter of fact in this period with all these shifts and things, I would guess that M3 will be easier to control because the multiplier effects from the deposit shifts can wash each other out more in M3 than in M2. I don't minimize that problem. Intuitively, I think it might be less of a problem with M3 than M2.",96
-fomc-corpus,1982,"It may be more stable, but I don't think it's more controllable.",15
-fomc-corpus,1982,"I don't think it's more controllable either, but I don't really care about that; it's not less controllable.",23
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,I don't think we can control Eurodollar deposits.,11
-fomc-corpus,1982,But I don't think it's less controllable. I think Frank is right.,15
-fomc-corpus,1982,We would put the Eurodollar deposits in if we could get them on time and we're trying to get them on time.,25
-fomc-corpus,1982,"Well, I mean on a net basis. Isn't it true, for example, that M3 growth has greatly exceeded bank credit expansion recently and that's because banks have been financing their foreign branches? If that reverses, M3 growth would be much smaller than bank credit expansion because banks would be bringing money back from the branches. That kind of thing would be a new dimension and it is of some importance.",81
-fomc-corpus,1982,"No, I concede that.",6
-fomc-corpus,1982,We don't have great definitions of any of these Ms.,11
-fomc-corpus,1982,I think Jerry is right. The most scientific statement made yesterday was Lyle Gramley's statement that the staff estimates of the impact of the new account on M2 are off the wall. And I think that's exactly right. As long as the banks are paying an above-market rate on the new instrument--and I don't know how long that's going to go on--there is a tremendous incentive to shift out of market instruments into M2. At least with M3 there is the offset in that presumably the banks that take in a lot of money this way will be taking in less through large CDs. I would differ with Jerry only to the extent that I wouldn't have an M2 target at all.,139
-fomc-corpus,1982,"Well, we're not going to resolve any of these issues today. I think all we can do is send around a preliminary framework, as I said. And if we want to have another meeting in January, we can. I don't know if anybody else has that feeling, but I don't think we ought to do this before getting some kind of framework.",70
-fomc-corpus,1982,Could I ask one other quick question?,8
-fomc-corpus,1982,I'm not sure.,4
-fomc-corpus,1982,"One more, as Cagney says.",9
-fomc-corpus,1982,"If we are going to report this central tendency in some way or other, do you contemplate that in any explicit way you would try to draw, however gingerly, a connection between departures from the performance of the economy vis-a-vis the central tendency in terms of what we would be looking for in M2 or M3?",65
-fomc-corpus,1982,I'm not quite sure what you have in mind.,10
-fomc-corpus,1982,"Just a simple case: Assume that we have not only a central tendency but a tremendous convergence that says nominal GNP is going to grow by 9 percent; prices will rise by 4 percent and real GNP by 5 percent to make it nice. Then we say we think M2 and M3 and total credit will look like X, Y, and Z. But then this central tendency [puts our forecasts] in a different light than the old forecasts if, as we get into the year, there's a marked departure in actual performance of the economy from the central tendency even though the Ms and whatever else we use in our steering devices look all right. The question is: Do you contemplate any more of a direct linkage between what we would do with the steering devices or targets and that central tendency forecast?",163
-fomc-corpus,1982,"Well, I'm not sure; my instinctive answer would be that I'd try not to make the central tendency all that prominent in terms of what is desirable. But I think we are going to be forced into precisely what you are saying, after some statement. It probably will be viewed more against the Administration forecast or some congressional forecast. They will say: We think a minimum adequate growth is X and if it's below that, are you going to ease?. And if X is low enough, our answer might have to be yes. I don't know how to state it or fuzz that up, but at some point that's precisely what I would expect to happen.",130
-fomc-corpus,1982,I might have to state the associated increase in inflation.,11
-fomc-corpus,1982,"Well, you can't tell. Suppose after all the different permutations and combinations, the inflation rate is high and the real growth rate is low; we'd have a different answer than if real growth is low and inflation is low. One can [consider] any other combination of those. I'd try to talk my way around it. I think the Administration is going to have a low real [GNP forecast], as a matter of fact, because Mr. Feldstein is so preoccupied with not overestimating. But where I'm a little afraid of getting trapped is this: If they have high inflation and high real growth and the Congress says that's just fine, we're glad to live with 5 or 6 percent inflation and we want 5 percent real growth--that's not what the forecast is going to be but suppose it were--we would say that's much too much inflation and we're satisfied with much less real growth. Then we'd have a real problem, I think.",192
-fomc-corpus,1982,"Yes, if we get a high nominal, then we really have trouble. However it adds up, 11 or 12 percent is a problem.",30
-fomc-corpus,1982,"I could picture that the happy staff optimism on inflation is right and it is coming in around [their forecast], but the real growth isn't doing very well. They might say: My word, you're doing much better on inflation than you're supposed to be doing in some sense and you're not doing very well on real growth, so you obviously have to ease up. That, I think, is going to be a big problem. And it's going to be more so in that connection [depending on] what we say is the central tendency.",106
-fomc-corpus,1982,"That reason, as well as the ones I mentioned earlier, led me in the direction of thinking a little more about M3 because I think it will give us more flexibility.",35
-fomc-corpus,1982,"But if we assume that our annual targets on M2 and M3--assuming some velocity of circulation we can defend--are compatible with the Administration's forecast of nominal GNP, which I think they are likely to be, we still would want to say that in setting quarterly targets for M2 and M3, we would be looking at the trends and levels of activity and trends and levels of prices. I can't see how we could ignore that.",90
-fomc-corpus,1982,"Well, certainly I'm not saying--",7
-fomc-corpus,1982,That's what we are supposed to be doing.,9
-fomc-corpus,1982,That's precisely the point.,5
-fomc-corpus,1982,"But it seems to me that that is the answer to your question, isn't it?",17
-fomc-corpus,1982,"Yes, but we open ourselves much more to this [criticism] if we don't have faith ourselves in these relationships over a period of time, or if we have less faith than we used to have. Just to make this all worse in a way: I got the GNP flash. It may be crazy, but it's going to make all these velocity figures look worse. They have a nominal GNP increase in the fourth quarter--well, they raised the third quarter a bit but that doesn't make that much difference, I guess. They raised the third quarter by a percentage point, most of which is real. So there's a real increase in the third quarter with a -2.2 percent real GNP in the fourth quarter and only +2.2 percent nominal. So, we have to add another percentage point in the downward direction to all these velocity figures that we've been looking at if this figure is right on a quarterly basis.",188
-fomc-corpus,1982,They have come in with a plus for the revised third quarter?,13
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,It's plus .7 percent.,6
-fomc-corpus,1982,"The one before that was down to zero, so it's now back up to 1 percent?",19
-fomc-corpus,1982,"They raised the deflator a little. They have +.7 percent on real in the third quarter and +5.0 percent on the deflator; it was 4.8 percent. For the fourth quarter they have 4.6 percent on the deflator, which is 1-1/2 percentage point less than the staff forecast. We'll see which one turns out better in the ninth revision down the road! And they have -2.2 percent on the real GNP and nominal was only up then 2.2 percent. So, I guess this is roughly 1 percentage point less than we were assuming for the fourth quarter nominal GNP, which is going to lower all those velocity figures, if we believe the others. They have final sales up in the fourth quarter; [the downward revision] is all in inventories, which is not bad in terms of the outlook.",181
-fomc-corpus,1982,"Do they have a percentage change there, Mr. Chairman, on final sales [in the fourth quarter]?",21
-fomc-corpus,1982,"Well, it's up only $500 million, so it's tiny. I was hoping to see what they have in inventories. I don't see inventories on this sheet. Do you have the sheet, Jim? It's not on page 1. Here it is. The change in business inventories in the fourth quarter was -$18 billion; that's obviously a big guess.",72
-fomc-corpus,1982,There are a lot of guesses in there; final sales too. They don't have December retail sales figures; they don't have exports for two months at least.,31
-fomc-corpus,1982,It's not a very reliable number; it just gives the general direction.,14
-fomc-corpus,1982,"No, it's not reliable. For what it's worth, that's what it is. Well, are there any other comments? I think we better get something out that will make all this a little more concrete.",41
-fomc-corpus,1982,"I just have one more comment on our central tendency or whatever we're going to call it. Would it make sense to put it in terms of a range? We get a preliminary number [on GNP] and then a revision and then another revision and that's from the past let alone [forecasting] what the future will be. If we had a range of what our forecasts were, and we could conceivably make that range include whatever the Administration wanted, wouldn't that give us some flexibility and avoid the over-precision and still avoid a clash with the Administration? Do we have to have a number?",121
-fomc-corpus,1982,"I hope that whatever range we get encompasses what other people have. That remains to be seen. But this central tendency may not amount to much. It's possible that we will say here's the range of forecasts and it so happens that the individual forecasts are well dispersed within that range. I can't tell you anything more. But it might be that we would say this is the range but most of the people were in the lower half of the range or most of the people were in the upper half of the range. That's about all I intend to say--maybe a bit more than that, but as little more than that as we can get away with.",129
-fomc-corpus,1982,But the range also would help to avoid the Fed coming out with one thing and the Administration with another.,21
-fomc-corpus,1982,"Yes, and we've managed that in the past.",10
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"I think it's going to be much harder this time, though. What bothers me about the Administration forecast is that they are likely to have a higher inflation forecast by a significant margin, not only for [the coming] year but a pretty high inflation forecast out into the future relative to what I think is going to happen. And that doesn't indicate great confidence in the success of the anti-inflationary program, for my money. They have a certain institutional bias; partly they have the budgetary problem. But in part it's because at least some of them want to make darn sure they're not very far away from the consensus of other forecasts. And if you look at the consensus of economic forecasts for the next few years, they have a considerably higher inflation rate than our staff seems to be [leaning] toward. So, if they go toward a consensus forecast partly for budgetary reasons but partly just because they want to be near the consensus, that puts us in the position of arguing that the inflation outlook is really better and it is doable. And they are saying, and everybody else is saying, we ought to be satisfied with a higher inflation forecast and have a more expansionary policy. That's my biggest concern. And it's not just next year's forecast. Maybe I'm wrong, but my gut feeling now is that this will be evident in the '83 forecast and in the 5-year forecast.",279
-fomc-corpus,1982,"Well, in comparing ours with those, I hope we can stretch the ranges as against the central tendency.",21
-fomc-corpus,1982,"It's a little premature because I don't know what [your forecasts will be]. There may be no central tendency, as I say. If the forecasts are well dispersed, all we're obligated to say is that the forecasts are well dispersed. And maybe that's the way it will be.",55
-fomc-corpus,1982,"Mr. Chairman, you raised a question of whether we should all be using the same monetary assumptions. That's a pretty important guidepost for us to decide on one way or the other. It might be advisable, or at least helpful to me at the moment, if we could turn to the staff for a minute on this chicken and egg problem. You have a forecast, obviously, for 1983, as does my staff. And it's based on some provisional assumptions as to M1 growth, abstracting presumably from shifts in M1 because of these new deposit accounts. I think that is what the Greenbook said. Could you clarify, Jim, how you handled the monetary assumptions for the 1983 forecast you have?",145
-fomc-corpus,1982,"We focused on M2 for 1983. Abstracting from the shifts, we used a number of about 8 percent. And compared to our nominal GNP, which I think is around 7-1/2 percent, that gives us very little change in velocity, which we thought was about right as a consistency check. We've gone around on that. The quarterly model, when you feed all the information into it, does dump out an M1 of around 6 percent, which we adjust to abstract from those shifts but allow for other demand shifts that come into the model; but it could be 2 percent or 10 percent; I don't know. But we are stuck in our forecast with an explicit assumption of 8 percent M2 growth Q4-to-Q4.",158
-fomc-corpus,1982,Taking out the shifts?,5
-fomc-corpus,1982,Abstracting from the shifts.,6
-fomc-corpus,1982,That amounts to some unknown amount over and above that.,11
-fomc-corpus,1982,That's correct.,3
-fomc-corpus,1982,And the interest rates are what you had in the back of the Bluebook? Is that what falls out?,22
-fomc-corpus,1982,Those are consistent with that assumption on the GNP forecast.,12
-fomc-corpus,1982,"Well, the reason I find your question somewhat unanswerable, John, is that one can always say it's consistent with this number or that number and think it is today. But if the Committee is in a mood of saying we may change that number if it turns out not to be consistent, where are we? Everybody is going to have his own opinion of it. If we were really saying we were going to aim at 8 percent M2 shift adjusted and we are going to stick with that target through hell or high water, then it's valid to say that's the assumption. If we are saying that's where we are going to steer it now but we are prepared to change it--",137
-fomc-corpus,1982,"I was just a little concerned, Paul, that there might be a booby trap out there for you if you're questioned on this range of forecasts of the Committee.",33
-fomc-corpus,1982,There's a whole mine field out there!,8
-fomc-corpus,1982,"If it turns out that we're all using different assumptions on the growth of the Ms, it could be a little awkward.",24
-fomc-corpus,1982,"Well, if we go all the way in that direction, I literally don't know the answer. What we have then is a nominal or a real or an inflation target but everybody is saying that they are willing to change these things because that's in some sense where they want the economy to come out. How we can maneuver among this, I don't know.",70
-fomc-corpus,1982,I'm curious as to how the staff anticipates drawing a reserve path.,14
-fomc-corpus,1982,"I assume the Committee will come up with, say, an M2 or an M3 guideline, or both, for the period over the next three months and we will simply make, as put in the Bluebook, an initial rough assumption of what would happen to M1 consistent with that; it's all rough. And that would imply a certain total amount of required reserves. The Committee, I assume, will come up with an initial borrowing assumption as it has been doing. We will provide an excess reserve assumption and with all those pieces we'd come out with nonborrowed reserves. It's fairly straightforward, except that we know we're going to be way, way off. So, when the deposit distribution changes, as it undoubtedly will, we would simply redo the reserve path in order to put in the more or fewer reserves that are consistent with the new deposit distribution, assuming the Ms are on track. If the Ms are off track, then we would have to change the reserve path for the change in the deposit distribution but in addition borrowing would tend to go up or down depending on whether the total was high or low.",223
-fomc-corpus,1982,"We can make up an arbitrary formula as to how to shift the reserve path in terms of deviations from these targets. I doubt that we would want to do that right now anyway. Inevitably we would end up, in some sense, with more important judgmental positions about when to change the path in the light of all these things going on. But I assume, as Steve says, that we will operate with a reserve path that has a certain degree of automaticity to it, but it probably will be pretty mild. Whether we want to make it more than that is going to have to be a judgment.",123
-fomc-corpus,1982,"The multiplier adjustments are fairly straightforward. That is, if there is a vast increase in Super NOW accounts and a drop in savings deposits that we hadn't allowed for--savings deposits having no reserve requirement virtually and Super NOWs having a 12 percent requirement--then we'll observe that this week. The reserves come in two weeks from now and we will have put into the reserve paths sufficient reserves to accommodate the big increase in Super NOW accounts consistent with a drop in savings accounts.",94
-fomc-corpus,1982,When do we actually get numbers on these new accounts?,11
-fomc-corpus,1982,"Well, pretty soon. That's one thing I wanted to mention. We are going to be getting the numbers weekly on the new accounts. We have before the Board a proposal to get from the weekly reporting banks [data on] accounts over $100,000 that are nonpersonal accounts with seven days or more maturity. That's in case some of the large CDs that are now in M3 shift right into money market accounts. [Mr. Lindsey,] what are you getting explicitly? Are you going to get a breakdown between personal and nonpersonal on these new accounts?",113
-fomc-corpus,1982,"No, we're getting separately on the report of deposits a slip sheet, starting with the first week of introduction and for receipt at the Board with about a 10-day lag or so, the macro amounts in the new MMDA in total. And then, as Mr. Axilrod is saying, in addition we are asking for some other weekly information on the report of the large banks on the MMDAs with amounts over $100,000 and maturities of seven days or more. Similarly, when the Super NOW comes in, we are going to get information on that account for--in our proposal--a temporary period of a month on the report of deposits, which is a universe report, and then subsequently somewhat less frequently on other reports.",150
-fomc-corpus,1982,But we are also getting the distinction between personal and nonpersonal. We must be because of the different reserve requirement.,23
-fomc-corpus,1982,"Yes, I don't know why [unintelligible] you want anyway.",16
-fomc-corpus,1982,I'm sure.,3
-fomc-corpus,1982,On the report of demand and time deposits? You have to because--,14
-fomc-corpus,1982,"Well, we'll have to sort that out. We better not sort it out here. Is there anything else to be said on this broad subject? Does anybody have a feeling that we ought to have a meeting in the middle of January sometime?",48
-fomc-corpus,1982,How much time is there between our February meeting and [when] you testify? A week?,19
-fomc-corpus,1982,"I'm trying to make that as short as possible, but with all these complications--",16
-fomc-corpus,1982,"The meeting is set for February 8th and 9th and the budget comes in on January 31st with the economic report, or probably two days later. So, we're going to be fairly constrained at both ends.",46
-fomc-corpus,1982,When is our meeting?,5
-fomc-corpus,1982,February 8th and 9th.,9
-fomc-corpus,1982,And Paul wouldn't testify until when?,7
-fomc-corpus,1982,Until the 20th.,6
-fomc-corpus,1982,"I would like to testify as soon as possible after the meeting. But it sounds to me as if it's going to be a whale of a lot more complicated to write this than it was before. Maybe we can do what we did before. We can have that meeting on the 8th and 9th and have another meeting, at least on the telephone, on the 15th or so. [That may be] what we end up doing.",92
-fomc-corpus,1982,I liked your idea about asking Steve to try to formulate the framework within which this whole thing could be presented. I'd simply like to suggest that we wait to get that before deciding whether we need a meeting in January. Maybe he's so good at it we won't need the meeting or we could settle for a telephone call.,63
-fomc-corpus,1982,"The more I think of it now, instead of a January meeting, maybe we ought to get that format as soon as possible. Maybe the relevant question is not having a meeting before the 8th and 9th but whether we need a meeting after the 8th and 9th.",60
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"I think that's better, Mr. Chairman.",9
-fomc-corpus,1982,"All right. For a little change of pace, why don't we go to the international report and then come back to [the domestic side].",28
-fomc-corpus,1982,[Statement--see Appendix.],6
-fomc-corpus,1982,"I want to get into this matter of the swaps a little, but are there any questions or suggestions on the non-swap issues or market developments?",30
-fomc-corpus,1982,Just a question: The Greenbook forecasts of the current account and trade deficits are much larger than I at least have seen from other people. Is it that we know something they don't know? Why do we have a so much more gloomy forecast for the current account deficit?,54
-fomc-corpus,1982,"I don't really have a good answer to your question. The one area where we may know a bit more than is incorporated in other forecasts is on the agricultural side. That's an area over recent months where we have lopped $2 or $3 billion off the current trade and, therefore, the current account forecast. Another factor is that we have been making an explicit provision for the weakness in the developing countries, which is hard to do, and therefore we have a somewhat weaker export picture than many of the private forecasters have. A third area, which is related to that, is on the services side, where we also think that there will be an impact explicitly from Mexico of $1 billion or more. That will reduce service [unintelligible] from Mexico, which is nontrivial, since their investments are so large there. Putting those all together gives us a round number of about $50 billion in contrast to the private forecasts which are now on the order of $20-some billion or something like that. I might add that that $25 billion or so is well within the standard error of forecasting when we're dealing with numbers that are as large as they are these days.",239
-fomc-corpus,1982,The standard error is $25 billion?,8
-fomc-corpus,1982,"Well, it's hard to calculate what a standard error is in these cases, but we're talking about the difference between two numbers with a gross total of over $1 [trillion].",36
-fomc-corpus,1982,"The biggest element in all these accounts is this statistical discrepancy. I find our forecast a bit unbelievable in the sense that if the deficits are that big something is going to happen and all hell is going to break loose. It's a difficult area. Anything else? It's a major depressing factor on the economy. I don't think there's any question about that. It appears in so many industries and it's not all analyzed in the same way, but there's no question that exports are going to hell.",96
-fomc-corpus,1982,"How much more depreciation in the dollar are you expecting, Ted?",13
-fomc-corpus,1982,Plus or minus 25 percent!,7
-fomc-corpus,1982,"Minus 20. In terms of our weighted average, it was around 1.20 yesterday. I think the direction is more important in terms of the forecast than the extent. We have assumed it will go down to about 1.03, so that's about 15 percent.",57
-fomc-corpus,1982,And that will take the relationship to the mark to approximately what?,13
-fomc-corpus,1982,"Well, the mark will go down probably somewhat more than that--by about 20 percent. If the average goes down 15 percent, the mark presumably would have to go down more than that.",40
-fomc-corpus,1982,So that puts it up close to 50 cents for the mark?,14
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,More than that if the mark were down--how much did you say?,15
-fomc-corpus,1982,I said 15 percent for the average.,9
-fomc-corpus,1982,"If it's 20 percent for the mark, you get 48 off the mark and the mark is down to 1.90.",27
-fomc-corpus,1982,Most of the market participants would have it somewhat higher than that. At least the ones I've talked to would have it more in the 2.20 range.,32
-fomc-corpus,1982,"Well, that would be a 10 percent or 15 percent adjustment. Then we are not going to get as much [of a weighted decline in] the dollar; if you want to [extend the forecast] into 1984, you're not going to have as much of a current account adjustment.",61
-fomc-corpus,1982,What are you assuming the impact of your exchange rate forecast has on inflation?,15
-fomc-corpus,1982,"In the longer run, there's always a question on those kinds of calculations as to whether to treat the exchange rate as an exogenous variable, which I think one can't. But treating it as an exogenous variable, a 10 percent decline gives you something on the order, eventually, of a 1-1/2 percent increase in the price level in two years or so.",77
-fomc-corpus,1982,It will be more an '84 effect than an '83 effect.,14
-fomc-corpus,1982,"Right. So, as I said the other day, it's not a net [adjustment], because in some sense we haven't yet had a lot of the impact from the appreciation of the dollar that we have experienced for most of 1982.",49
-fomc-corpus,1982,"On the swaps with Mexico, we have some share of the $925 million. What is that share? I forget. MESSRS. TRUMAN and CROSS. $325 million.",38
-fomc-corpus,1982,"It's $325 million, which is not all paid out yet, but will be paid out presumably by the end of this month.",26
-fomc-corpus,1982,Very likely.,3
-fomc-corpus,1982,"And the part of it that goes back earlier is going to have to be rolled over. I don't think there's any question about that. The earliest that is going to come out or begin to come out is May, with the second phase-in of the bank and the IMF [loans]. Let me go backwards. On the Mexican deal, as you know, the point of getting a tranche [from] the banks is far from complete. I don't know how much they will come up with of the $5 billion total. But we should know this week. And we just have to presume that it's going to come close enough to make the whole thing proceed. If it does, one option--the leading option--is that we will get paid back that original $700 million. We may get paid back some of it before the end of the year out of part of an IMF drawing. And the rest of it will get paid back very early next year out of the combination of IMF and bank money. The position that I've taken is that that should be paid back to us as soon as there is enough liquidity and that should be there for an instant anyway. There is a major question as to how Mexico will get through to the next bank drawing and the next IMF drawing in May. And it seems to me that what we have to be prepared to do is to get paid--and I think it would be preferable, although some of our foreign partners don't like it--on schedule so to speak, out of these first IMF drawings and, in fact, mostly out of the bank drawing so that we are down to zero on that old swap. I can't guarantee that this is possible. But we'd put that back on a standby basis where it is available to Mexico to meet a squeeze they may have before the bank payment. Presume we get paid off again, then. If they do draw in whole or in part, we'd have it ready to come back before the next one following that; that is, we'd keep it on a standby but usable basis. And the net effect of that--if the whole Mexican program goes according to Hoyle--would be that all this central bank money can get paid out by the end of the year. The whole financing plan is based upon that presumption. Obviously, things can go wrong. A major hazard in the case of Mexico, because we know they have had bad crops, is that they are going to have to import more agricultural products than was really allowed for in this program. Some of that and maybe all of it can be covered by the CCC, but we [don't] know that that will be the case. If there is a significant decline in the price of oil, Mexico has a problem and they will not be financed. It's a contingency we'll have to meet if it happens. [The financing] has some nice effects, but this is one of the bad effects. Leaving those kinds of contingencies aside, we should all be paid by the end of the year. We may be out of the $700 million for a period of weeks or months, if all goes according to Hoyle. But I do think we ought to be ready to put it back in again. I just want to make sure there's an understanding of that; I don't know that it has to be a formal Committee action.",671
-fomc-corpus,1982,"If there are no objections, that's all we need.",11
-fomc-corpus,1982,But when they draw again that doesn't have to be any formal Committee action?,15
-fomc-corpus,1982,"Oh, for that size, yes.",8
-fomc-corpus,1982,What is the size that doesn't [require a formal Committee action]?,13
-fomc-corpus,1982,Anything over $200 million does.,7
-fomc-corpus,1982,"So we could put some back in without a formal Committee action. But I think there ought to be an understanding of that approach, a kind of consensus that it is desirable or feasible. So, I'll ask you that question at this stage.",48
-fomc-corpus,1982,"I certainly think they will need to have some flexibility and this is supposed to provide it. I think it's the right thing to do, so I would be favorably inclined.",35
-fomc-corpus,1982,What do we do if the Mexicans come in and say: We are so short of reserves or liquidity that we ask you to defer--not to take repayment and just roll over the loan for another three months or six months?,46
-fomc-corpus,1982,"Well, you have to make two assumptions. On the assumption that the program goes through, I don't think that can happen early in January because they're going to have so much paid out to them at that point that they are going to have enough money for at least a little while. They are going to have $2 billion paid out to them all in one lump sum. It may not last all that long but for a while they're going to have the liquidity. That question arises late this month before they get the big payment, and I think we just have to be a little flexible about this. It's a question of whether we get a couple hundred million paid before the end of the month or whether we wait until January 7th or something like that. But that's on the assumption that the program goes through. If there's not enough bank money in there, or if there's no bank money, there probably won't be any IMF money either. If the program doesn't go through, we can't get repaid.",200
-fomc-corpus,1982,"Let's say we're halfway between the scenarios: The bank money is coming in slowly, though not for the full amount, and the IMF money is going ahead. Do you still think there will be enough to pay us out and then we would put it back on standby?",53
-fomc-corpus,1982,I can think of all sorts of in betweens where we would get some of it paid out but not all of it. It can go any place from being paid back $1 to being paid back $700 million.,45
-fomc-corpus,1982,The substantive difference is simply that we keep them on a tighter leash if we insist on getting paid out and then put it back on a standby basis and release it only in bits and pieces as we feel is justified. I think that's the right approach.,50
-fomc-corpus,1982,"It just seems too uncertain, though, doesn't it, Tony? We just don't know. That bank credit might be [$4] billion instead of $5 billion or something like that. I don't know what a little shortfall like that does to their arithmetic.",52
-fomc-corpus,1982,It will be more than $4 billion but the question is at what stage is it so small that the IMF doesn't feel able to go ahead?,29
-fomc-corpus,1982,That will really be serious.,6
-fomc-corpus,1982,"Then we have a real problem. But they already have [commitments for] basically more than $4 billion except that some of that is contingent on getting more, so it's not perfectly clear yet.",40
-fomc-corpus,1982,"Some of it is contingent also on not triggering the 1 percent SEC disclosure requirement; some of it is contingent on not exceeding the legal limit; most of it is contingent, in theory at least, on everybody else putting up their share. Certainly the IMF would accept $4-1/2 billion; whether they will accept significantly below $4-1/2 billion is the question.",78
-fomc-corpus,1982,"I don't think the IMF has said they would accept $4-1/2 billion except as a starting point--that they might go ahead temporarily if Mexico will be getting the rest later. Well, we just have to wait and see. But that's the general strategy. On Brazil, which is not irrelevant even though we have no money in there, the Treasury lent them $1-1/4 billion a couple of weeks [ago], which is the total amount of the Fund compensatory finance and first tranche--",103
-fomc-corpus,1982,Gold tranche.,3
-fomc-corpus,1982,"Gold tranche, reserve tranche.",6
-fomc-corpus,1982,"It is the gold or reserve tranche and in that sense is secured. The Treasury then went ahead and lent them another $250 million to bridge them over until they could meet with the banks last week and get some more bridging money from the banks. That amount will be counted against a BIS facility, which is under discussion. The Treasury would participate in that to a total amount of $500 million, of which they've already put up this $250 million. Other countries would [put in] $700 million. That seems to be on track with the BIS and probably will be finalized this week, with the possibility of another $200 to $300 million from That is designed to keep Brazil afloat until they negotiate new money with the banks, they hope by early January. That process just began yesterday. There will be, to choose the words carefully, a voluntary rollover of existing maturities for Brazil next year--which amounts in practical effect to a standstill, in the Mexican pattern--and $4-1/2 billion, roughly, of new bank money plus $1-1/2 billion that they think is already committed for next year. So it's really a total of $5.7 billion, roughly, of new bank money next year, all under negotiation at the moment along with some other things like keeping their branches and agencies afloat. Hopefully, that will proceed with the BIS paying out all this money and with the Treasury in for up to $500 million during the next couple of weeks--the Federal Reserve is not involved at all--bringing the total Treasury exposure up to roughly $1-3/4 billion in Brazil. Again, all the financing plans are predicated on the proposition that all that money will be repaid over the course of the next year. In fact, the existing $1-1/4 billion of the first section of Treasury money is to be [repaid] quite promptly out of the Fund drawings in a matter of weeks, if all goes well and according to plan. Again, that is predicated on everything going according to Hoyle and the banks coming up with $4-1/4 billion or $4-1/2 billion, which I presume is going to take a certain amount of front loading too. None of that is decided, but that's the plan that is being presented. So, the Treasury would be paid most of its money fairly quickly if everything goes well. The remaining $500 million would be paid out over the course of the year and probably late in the year. But there is a considerable Treasury exposure there. Moving farther south, we have Argentina. Less money is involved, but there is a plan for the banks to put in some bridging money and then put in some medium-term money later in the year, increasing their exposure on the order of $1.1 billion or something like that.",573
-fomc-corpus,1982,That's the bridging. At the end of the year that exposure would be $1.9 billion.,20
-fomc-corpus,1982,A $1.9 billion total increase in exposure?,11
-fomc-corpus,1982,Without taking account of the fact that some of the money will be repaying some of their arrears.,21
-fomc-corpus,1982,"That is pretty well negotiated by the banks. A lot of that money does go, as Ted said, toward paying arrears. It is not enough money to get Argentina, in terms of timing, anywhere near up to date early in the year. So, the theory is the BIS will provide, with United States and other support, say, $500 million in the next few weeks to Argentina. That money together with bank money would eliminate most if not all of their arrears. That would get them back on a current basis. Again, if the financing program works out the way it's supposed to work out, and this is more agreed than the Brazilian program--there are many fewer banks involved, only a few hundred instead of over a thousand and the amounts are smaller, so it's much more manageable--the central bank money would come out basically in May and August.",174
-fomc-corpus,1982,"Well, before six months.",6
-fomc-corpus,1982,"Well, maybe, six months.",7
-fomc-corpus,1982,"Okay, a little before that.",7
-fomc-corpus,1982,By the end of June.,6
-fomc-corpus,1982,By June?,3
-fomc-corpus,1982,That's the scheme.,4
-fomc-corpus,1982,"If everything goes according to Hoyle. The plan discussed for Argentina is that the BIS would advance all the money under an arrangement in which they already have a of some considerable size--they've had it for some time--from Argentina. Argentina has The BIS would advance all the money knowing that if it is not repaid, they can exercise their right of offset against the That is not entirely free of legal doubt because there are negative pledges which our legal counsel tells us do not apply to a right of offset from an existing but that could be contested. It would be paid formally out of Fund drawings. There is not only bank money in Argentina but there's a Fund drawing and the Fund drawing [amounts to] $1.3 billion or something like that over the course of the year. So that would be some multiple of this BIS assistance. But, obviously, there are two contingencies. One is that the right of the BIS could be contested legally if it came to that. And the general contingency is that if something goes wrong with the program, even if they get the Fund money--and they may not get the Fund money--there may not be enough money there to pay off the BIS. And the BIS doesn't particularly want to end up with It's just too big an amount. So there are several risks that the BIS has to be protected against. And the arrangement is that central banks or governments would protect the BIS against those risks by--I get a little out of my depth here on the technicalities--temporarily providing a deposit to the BIS if they don't get repaid. But ultimately, if they So the central banks would agree",331
-fomc-corpus,1982,When is then?,4
-fomc-corpus,1982,"Whenever it was done. It means that if they haven't been repaid, they eventually would we're probably talking two years from now.",26
-fomc-corpus,1982,The question is: Do the central banks take them out of the risk,14
-fomc-corpus,1982,"After they have The BIS would So that's one contingency they want to be protected against, and I think it's appropriate. Another one is that if in fact there is a successful legal challenge to which would repay them. I suppose it's a similar risk. If eventually Argentina doesn't pay them, they want the central banks just to take over the loan, in effect. So an agreement has been drawn up to cover all those contingencies in which the United States will participate; in fact we originated this. There is still a question as to what the U.S. share will be. If it's 50 percent, which is the preliminary thinking, it would be $250 million, obviously. It may end up being more than that. And then there is the further question of whether the Federal Reserve or the Treasury does it. That has to be looked at in the light of the Treasury's exposure to Brazil. I have had some discussion with the Treasury that we would either do this or maybe instead take over part of their Mexican exposure and let them do Argentina in whatever the amount is. But I have to get your opinion on these matters.",225
-fomc-corpus,1982,"But if we take the Argentina loan, we would agree eventually to these contingencies.",17
-fomc-corpus,1982,"None of this requires any formal action--although I will take advice on this--because we are not lending; the BIS is lending the money initially. It's going to be lending the money against these guarantees from the United States, whichever agency does it, and from other central banks. We do have to enter into the agreement with the BIS, but it's not a swap or a loan now. But it is an agreement under certain contingencies to make a loan one year or two years down the road. And you have to understand that and agree to it. As I say, it doesn't necessarily have to be us and Argentina. Argentina is an Article VIII country, which is one place where we draw the ring around swap agreements. Brazil is not. But we've never had a swap agreement with Argentina; we wouldn't have to have one now but we would be committing ourselves under certain eventualities to have one at some point. Or the Treasury might agree to our just confining our activities to Mexico, where we have a precedent, and they would do Argentina; I don't know. Plus, I'm not sure it makes a lot of difference. The only difference I can really see is that if we do it with Argentina--and I think there are some pluses--the minus is that we have extended the possibility of a swap agreement to a country where we never made one.",273
-fomc-corpus,1982,"Well, isn't there a complication in the very unlikely event that we end up",15
-fomc-corpus,1982,"Okay, but",3
-fomc-corpus,1982,"Sure,",2
-fomc-corpus,1982,"If we do it, we will immediately make an arrangement with the Treasury, I presume, that",19
-fomc-corpus,1982,The issue is,3
-fomc-corpus,1982,"Yes,",2
-fomc-corpus,1982,Exactly.,2
-fomc-corpus,1982,They,1
-fomc-corpus,1982,That sounds like a real good deal!,8
-fomc-corpus,1982,They haven't worked that out exactly.,7
-fomc-corpus,1982,"Well,",2
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,They would have to,4
-fomc-corpus,1982,We'd better check with Mr. Edwards before--,10
-fomc-corpus,1982,But the Treasury,3
-fomc-corpus,1982,I don't think so.,5
-fomc-corpus,1982,That Treasury is as broad as all outdoors.,9
-fomc-corpus,1982,I think so.,4
-fomc-corpus,1982,The Exchange Stabilization Fund could They could,8
-fomc-corpus,1982,"So, from that point of view it would be better for them to do the Argentina deal.",19
-fomc-corpus,1982,These are details.,4
-fomc-corpus,1982,"Why are we doing all this? We are not a full-fledged member of the BIS, as I understand it, for historical reasons. I take it the reasons we're taking BIS out of what appears to them to be a substantial risk is because they are performing the service of getting these other central banks in on the deal and that's the most efficient way to do it. Is that it?",77
-fomc-corpus,1982,"Well, basically yes. We could do it all ourselves directly but there are legal problems with our doing it directly and They happen to have But the other substantive point is that it makes it multilateral instead of bilateral, and it's a convenient way from that standpoint.",52
-fomc-corpus,1982,I thought the Are you saying it's already legally--,10
-fomc-corpus,1982,It's already,2
-fomc-corpus,1982,It's,1
-fomc-corpus,1982,We,1
-fomc-corpus,1982,It is the,3
-fomc-corpus,1982,Get your Ayatollahs straight!,8
-fomc-corpus,1982,"The maximum exposure would be $250 million, roughly?",11
-fomc-corpus,1982,"Well, I can't say that for sure. If it's a 50/50 split, it will be $250 million. But, frankly, the United States was the progenitor of this and we told them we, the United States, would do more than 50 percent if that was necessary.",60
-fomc-corpus,1982,"Why 50/50? Even in the United Nations, we don't take 50/50 any more.",22
-fomc-corpus,1982,"Well, we've had endless discussions about this. That's the price of world leadership, I guess. The Treasury got its back up on this Brazilian deal, quite rightly, and that's why that one is 500/700. And, of course, it's 500/700 in that portion of the agreement. They already had $1-1/4 billion [in loans to Brazil]. And the BIS wanted them to put in 50/50, particularly considering all this other stuff. And that was finally accepted with some effort.",106
-fomc-corpus,1982,"Well, this is partly a reflection of the fact that we don't participate in situations like Hungary and very marginally only in situations like Yugoslavia. So, they feel they have their clients and we have our clients; that is working out to our disadvantage right now, but it was to our advantage earlier.",62
-fomc-corpus,1982,"You stated that a little too generally, I think, Henry. The historical fact was--but it wasn't a policy and your comment may have been interpreted as general policy--that we did not participate in Hungary for purely political reasons. The Administration was anti-eastern Europe. That grates on their mind, and it hasn't helped in this case, but it was just the particular case of Hungary where it turned out that we did nothing and the BIS was very proud of themselves for taking the whole thing. But it certainly is in their mind as are some of these other things: Latin American is your area; Hungary and Yugoslavia we would [unintelligible]--",135
-fomc-corpus,1982,What are the resources of the ESF?,9
-fomc-corpus,1982,"Mr. Cross, what are the resources of the ESF?",13
-fomc-corpus,1982,I think their balance sheet is about $6 billion but a lot of it is tied up at this point.,22
-fomc-corpus,1982,It's higher now.,4
-fomc-corpus,1982,It's always a matter of interpretation with the--,9
-fomc-corpus,1982,"They have, for example, $2 billion that they owe to the general fund.",17
-fomc-corpus,1982,"It's a question in the end of how much risk they can take care of. They can always borrow or expand their resources, but there's a limit to the risks they want to take.",37
-fomc-corpus,1982,Will they have to warehouse with us in order to do some of this? Are they sufficiently liquid to do all these transactions?,25
-fomc-corpus,1982,"Well, of course, Argentina isn't going to cost anybody any money in the United States initially. The BIS is going to finance it all. I don't know what the--",34
-fomc-corpus,1982,Nor will Brazil.,4
-fomc-corpus,1982,Also with the Brazilian deal the BIS provides the cash and there's nothing to be--,16
-fomc-corpus,1982,"That's right. In Brazil they are going to do it that way, too. So, the Treasury is just going to backstop the BIS for the--",31
-fomc-corpus,1982,"Okay, but the Treasury also is considering a $300 million swap with Mexico and a $500 million oil advance.",23
-fomc-corpus,1982,Not the Treasury.,4
-fomc-corpus,1982,That would affect the liquidity of the ESF.,10
-fomc-corpus,1982,"Well, I'm not sure about the oil advance; it comes out of appropriations, I guess. But it is true, and I forgot to mention it, that the Treasury is willing to advance a further $300 million to Mexico in the next few weeks to ease their bind. That's also going to get paid out next year.",66
-fomc-corpus,1982,"Ahead of us, behind us, or at the same time?",13
-fomc-corpus,1982,"Behind us--behind our first [advance], not the BIS part. Where do we stand? On this $700 million, to the extent we put it back in, we will be behind everybody else. Again, the whole program assumes that this will all come out during the course of the year. But when that $700 million goes in we can't be ahead of the BIS including the part we have in the BIS. We don't leap frog over that.",91
-fomc-corpus,1982,"In other words, we're not just making a decision to re-establish our $700 million swap; we're re-establishing it in a less creditworthy position in the line-up. That's what it boils down to.",44
-fomc-corpus,1982,A more delayed position in the line-up anyway.,10
-fomc-corpus,1982,"Well, we're the banker.",6
-fomc-corpus,1982,That is correct.,4
-fomc-corpus,1982,I'm still thinking like a commercial banker.,8
-fomc-corpus,1982,"No, that's right. It hasn't been arranged yet, but I think that's the realistic presumption: That it will come out after the BIS. There should be enough money. Again, you've just got to assume--presuming that the program works--that there will be enough money to pay off the BIS in May and in August, including our portion of the BIS loan in May and August. Some of that, of course, is not out yet. Some of it went out in September; that part will be paid off in May. The part that's going in now will get paid off in September, if everything goes on schedule. If the whole thing falls apart, it falls apart. That's been true all along, I'm afraid. Oh, we are secured by this oil [collateral], but the BIS part is not--not the swap.",170
-fomc-corpus,1982,At current prices?,4
-fomc-corpus,1982,"No, it's the amount of oil sufficient to pay off the debt.",14
-fomc-corpus,1982,"It's not the assignments of payments that are coming due, so it's not related to the present crisis.",20
-fomc-corpus,1982,It's secured by enough oil to pay it off.,10
-fomc-corpus,1982,Right.,2
-fomc-corpus,1982,Whatever the volume of it.,6
-fomc-corpus,1982,Or whatever that's worth.,5
-fomc-corpus,1982,And it's oversecured; it's about $2-1/2 billion for a $1.8 billion credit.,23
-fomc-corpus,1982,"What is the legal basis, Mr. Chairman, of our moving in at the last minute, so to speak, on these loans to the three countries you've mentioned and standing in a superior position to private banks? I have a recollection that that has been challenged legally. But I'd like to get brought up to date on that.",66
-fomc-corpus,1982,This is a question of our having a superior position to the banks?,14
-fomc-corpus,1982,Yes. I thought some private banks were challenging us.,11
-fomc-corpus,1982,The only case that I know of at this point was the challenge raised by Citibank to the Export Import Bank's preferential position in connection with the loan to Zaire. And that never went to a judgment.,43
-fomc-corpus,1982,"I think what John may be referring to is whether we are violating the negative pledge clauses that are here, which is--",24
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,That's the same issue that was raised in that case and there has never been a clear adjudication of that. We have designed the arrangements to be consistent with the negative pledge clause.,36
-fomc-corpus,1982,We think. But they are not free from challenge.,11
-fomc-corpus,1982,"Well, no. We've designed them so that they are--",12
-fomc-corpus,1982,To the best of our ability they have been so designed.,12
-fomc-corpus,1982,"They've all been very broadly drawn. Some of them say ""any arrangements designed to provide preference,"" and that is so broadly phrased it is very hard to find complete avoidance techniques with respect to negative pledge clauses. But the Mexican arrangement is designed to provide a deposit with the BIS and the right of set-off. And the right of set-off has consistently been held not to violate negative pledge clauses. Every agreement that we've seen that has a negative pledge clause also has a set-off provision. And this set-off provision, for example, under New York law, is very broad, which is what we intended to use So, essentially we're taking advantage of a method that allows for deposits to build up, which is with the right of set-off in case the debtor doesn't pay his obligations. And the right of set-off has been known to be consistent with negative pledge clauses.",174
-fomc-corpus,1982,This is why we don't want in the case of Argentina. It raises less question about whether this is setting up a preference arrangement.,26
-fomc-corpus,1982,The agreements by the various countries had their IMF deposits and were not creating any security interest in those IMF obligations or IMF drawings. So there's no inconsistency there with existing agreements either. The promise of Mexico to pay us out of the first IMF drawings is similarly not a violation of negative pledge clauses.,59
-fomc-corpus,1982,"That is one difference, let me say, in our taking over more of the Mexican one [versus] doing the Argentine one. None of these is black and white in the sense that if we basically do Argentina, I think the Treasury would go in there for a [small amount] just to show that we're in there together. But if we do Mexico, it will mean an immediate swap agreement because that's the way the Treasury is financing this Mexican agreement. If we do Argentina, [the loan] may never [be made]. All we would be doing is making a promise to [lend] later under a carefully defined set of conditions that we do not think will materialize. They will only materialize if one of these contingencies is triggered--basically that Argentina can't repay the loan on schedule and",162
-fomc-corpus,1982,It sounds to me as if there's distinctly less exposure there than there would be on another $300 million to Mexico.,23
-fomc-corpus,1982,"Well, in any event, if we do the Argentine thing, I would want the Treasury to do at least a little of it just to indicate that it's a joint effort. But is that the preferable course in terms of the [Committee's view]?",50
-fomc-corpus,1982,"If the technical consideration of is not significant--if it's purely doable but a greater technical complication for us to do the Argentine thing--then from a more substantive point of view, rather than increase the Mexican exposure, we might very well take a substantial share of the Argentine commitment.",55
-fomc-corpus,1982,"The only negative in the Argentine commitment, just to repeat, is that it's a new country [for us].",22
-fomc-corpus,1982,Right. But it's an Article VIII country.,9
-fomc-corpus,1982,It would open up a new swap relationship?,9
-fomc-corpus,1982,Possibly. I just want to get the assurance from the lawyers if we do it this way that we have to make an agreement with the BIS.,30
-fomc-corpus,1982,"With the BIS, that's right.",7
-fomc-corpus,1982,And that doesn't take a Committee vote?,8
-fomc-corpus,1982,"No. This would be the placing of a deposit, and it is within the jurisdiction of the Board to approve the actions by the Federal Reserve Bank of New York and [unintelligible] with that similar situation with respect to The New York Bank can enter into an obligation from the BIS. That would also be an action that the Federal Reserve--",70
-fomc-corpus,1982,"So, it would take a formal action by the Board?",12
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,"An eventual action, Mike.",6
-fomc-corpus,1982,"But presumably we--we, the Board of Governors--would take an action now against the contingencies?",21
-fomc-corpus,1982,That is correct. The Board would have to make the agreement now with the BIS to undertake the two obligations to place the deposits with the BIS in the event that it had liquidity problems arising from the fact that Argentina couldn't pay,44
-fomc-corpus,1982,You're saying we will take a formal action but because of the particular form it will be a formal action by the Board of Governors and not the Open Market Committee?,32
-fomc-corpus,1982,That's correct.,3
-fomc-corpus,1982,"What about that proposal on the eventual workout? If there were an eventual workout way down the road, if the BIS wasn't paid, then that could also be done on the basis of",36
-fomc-corpus,1982,"That would [involve] working out the repayment of the deposits. If the BIS, after a period of, say, two years, were unable to be repaid by the Argentines, then we would in effect take over the claims against Argentina in repayment of the deposits. That would be the backup.",62
-fomc-corpus,1982,"I basically left out this interim step in my original description. We would only, in effect, get to a swap agreement way down the road after this deposit had been there too long.",37
-fomc-corpus,1982,But we need not even have a swap agreement in that case. I think that's what Mike was saying.,21
-fomc-corpus,1982,What we would be doing is buying a participation in the BIS's claim against Argentina. The reason we're doing that is to maintain the BIS's right to set-off against whatever assets they might have with Argentina,40
-fomc-corpus,1982,"I think I have the sense of the [meeting] at this point. From a general policy standpoint, we prefer to do it with Argentina, probably with at least a little participation from the Treasury directly to show the flag. And whatever formal actions have to be taken will be taken by the Board. Let's have a little break. Oh, we have to ratify the transactions.",76
-fomc-corpus,1982,So moved.,3
-fomc-corpus,1982,Second.,2
-fomc-corpus,1982,And the possible renewal of the swaps.,8
-fomc-corpus,1982,Moved.,2
-fomc-corpus,1982,So ratified.,4
-fomc-corpus,1982,"[Unintelligible] about Argentina, about Brazil.",12
-fomc-corpus,1982,Is that the end of your list? You don't have any others on your list?,17
-fomc-corpus,1982,"Other countries? Yugoslavia is the other possibility, but that's mainly a governmental medium-term credit. Just to repeat a point, if we get Mexico, Brazil, and Argentina settled, and perhaps Yugoslavia would be useful in another part of the world, I think the rest of these can go and hang there, to put it bluntly. I don't think it presents a threat to the world banking system if we have these big countries stabilized, and that has been the [focus of the] whole effort. We haven't gotten them there yet, but that's the strategy. If we can get the Mexican and Brazilian situations stabilized, and Argentina is also big, I think we will have the whole situation stabilized because there's nothing else big enough and they'll never sell it to--",154
-fomc-corpus,1982,"In other words if there is a default in one of the smaller countries, the banks could eat it.",21
-fomc-corpus,1982,Right.,2
-fomc-corpus,1982,Maybe they even should eat a little.,8
-fomc-corpus,1982,"Exactly. They should have eaten some of this. Well, they will in some of the private credits. There are a number [of risks]--even if everything in our financial manipulation goes well. For Mexico there is the obvious threat of an oil price decrease, which would be very destabilizing to Mexico. It would help Brazil some; Argentina happens to be fairly neutral there. The other thing is if we don't get some economic recovery here, none of these countries is going to have a good enough current account position to make the arithmetic come out. Nobody is projecting a great ebullience in the economies of the industrialized world. But if we had [no recovery] at all, it probably would be impossible for these counties to meet the current account objectives that are in all of these IMF programs. And, of course, they all have the risk that even in a reasonably favorable world environment they may be unsuccessful in carrying out their programs. So, we're not exactly home free. But in the next couple of weeks we might be in a position where for the moment we have it somewhat buttoned up.",222
-fomc-corpus,1982,Isn't there also a problem of potential civil disorder in Mexico if they become too austere?,19
-fomc-corpus,1982,"Well, that's part of not being able to carry out the program. That is present in all these countries.",22
-fomc-corpus,1982,Less so in Argentina?,5
-fomc-corpus,1982,"Well, in Argentina the dimensions are different. I think the general consensus is that they have a much easier economic problem, but they have such a weak political situation that they may not be capable of carrying through even a more modest program because their political situation is so weak.",54
-fomc-corpus,1982,"Bill, you were making some remarks yesterday afternoon that this assistance to Mexico and Brazil, etc. is all part of an inflationary danger. I don't see that. It seems to me that the bottom line in those countries is that they are going to have to have much tighter fiscal and monetary policies as a result of the IMF adjustment programs. And there's the fact that they are going to get a much smaller amount of new money than they got last year and the year before, and so forth. I don't quite see why you conclude that we are adding to inflationary pressures with this assistance.",118
-fomc-corpus,1982,"First of all, the question is: What is happening to global monetary liquidity as a result of all of these things? You can take it either as a statement or a question. The statement is that there's a danger that global monetary liquidity can be excessively expanded through all of these credit [extensions].",59
-fomc-corpus,1982,I don't think that is what is happening. We are getting some contraction in the interbank credit market globally.,22
-fomc-corpus,1982,"World reserves are going down quite precipitously now. These actions tend to keep them higher than they otherwise would be, but they are going down rather rapidly. The next danger items may be some countries in the industrialized area of the world. France has lost on a net basis what--$19 billion or $17 billion of reserves in the past 18 months?",73
-fomc-corpus,1982,$17 billion is what we came up with.,10
-fomc-corpus,1982,I have a $19 billion estimate.,8
-fomc-corpus,1982,"The other aspect of this that bothers me is the fact that the Presidents of the [Reserve] Banks that I have talked to are all very uneasy about having someone in their Bank make phone calls in which we are in effect saying to the banks: If you will put forward your share of the new package of $4 to $5 billion, we would wink at the realities of the creditworthiness of your loan. That makes me very concerned.",88
-fomc-corpus,1982,That wasn't the language that was used.,8
-fomc-corpus,1982,What I'm saying is that that is certainly the way it's being interpreted in the marketplace.,17
-fomc-corpus,1982,There are a couple of newspaper reporters who have taken that line. Sydney Marks--do you know him?--did in a column recently. He is not in one of the major newspapers. But I have not heard the view expressed in the markets in any widespread way at all that we are encouraging irresponsible behavior by our approach to this regulatory problem.,69
-fomc-corpus,1982,"There was an article in The New York Times that suggested something in that direction. But we have not been nearly as forthcoming as the banks would like us to be. I understand we have not given them any assurance that they wouldn't have to disclose this [lending]. What we have come very close to saying but we haven't said it yet--the specific question was on the prior Mexican debt--is that we would accept [the following] arrangement: That if the Mexican private debtors can get up the pesos and deposit them with the central bank and these banks agree eventually to take it over, if they have to, [we would call that] a new loan to the central bank.",137
-fomc-corpus,1982,We'll pretend it's in dollars.,6
-fomc-corpus,1982,"Well, it is in dollars. The loan has always been denominated in dollars. We are saying for the time being, and it's a bit of a stretch, that the dollars [are] in the hands of a central bank as opposed to the companies [and we] will count that loan as being current, provided the banks agree to lend them the money to pay the interest, which is what they are doing with the whole thing. But every one of these countries is being lent money to pay interest. If you went all the way in the other direction, you'd have to say all these loans were nonperforming because they are all borrowing to pay interest. This is a little more direct.",140
-fomc-corpus,1982,"That's true for domestic corporations. If a bank came up with new money for a domestic corporation so it doesn't fall into arrears, that's still considered a performing asset.",33
-fomc-corpus,1982,"It depends on the terms. If the loans are at commercial terms, they would not be nonperforming. But if they are at concessional terms, they would be nonperforming.",38
-fomc-corpus,1982,Okay. These aren't concessional either.,8
-fomc-corpus,1982,"I don't want to prolong the discussion, but obviously there is a substantive distinction. To be sure, all debt grows over time as assets grow and nobody ever pays off big loans. That's one argument one could make. But one way to look at is to ask: If these banks could do these loans over again, what would they do? From the phone calls that we've had, these banks would all want to be out tomorrow.",86
-fomc-corpus,1982,"There is no question that this has some flavor of compulsion--I mean internal compulsion--in that the only reason they're making the loans is to make the old loans good, individually. There's no question.",42
-fomc-corpus,1982,And the new element is that the IMF is requiring it. Isn't it the first time in history that the IMF is saying: We're not putting up ours unless you put up yours?,36
-fomc-corpus,1982,"That is a popular and widespread misconception. The IMF has in fact been essentially doing that for several years now, basically because the Fund cannot provide enough money by itself in many cases to cover what--as Governor Teeters was remarking--is a reasonable adjustment program in the first year, especially if allowance is made for a country bank getting out. They will not present a program to the Board which says that there is this big financing gap.",88
-fomc-corpus,1982,"Bill, it's true that it hasn't been as explicit in a certain sense because the need wasn't as much earlier. They used to talk in terms of a cap on foreign borrowing; and even though it's still a cap, now there's a problem of a floor as well. Formally, it's nothing new; but I think the [unintelligible] concern as to the financing is greater funding--",79
-fomc-corpus,1982,"There's no question that these loans are not liquid in a very obvious kind of way. I think it is also true that the loans are better after this than they were before because if this doesn't work, you know you have a pot full [of losses]. The banks not only have illiquid loans, they will have no interest payments. It's not a satisfactory situation by any stretch of the imagination.",79
-fomc-corpus,1982,"The IMF programs have always been on the assumption that they do not finance the country fully but they turn the country around so that it becomes bankable again. Now, what is happening here, as I would interpret it, is that they are pulling that moment somewhat forward rather than waiting a year until the bankability is demonstrated. They ask for the money right away.",73
-fomc-corpus,1982,They try another way.,5
-fomc-corpus,1982,"Well, the Fund got burned in a couple of cases where they financed some programs and it looked as though some of their money was being used to pay off the banks and that made it much worse. So, they've gone further and further along this line of insisting on getting the money there up front.",60
-fomc-corpus,1982,"Well, the bottom line is: What is the alternative? Let it all go to hell or try to put a package together if we can get them to play ball? And that is what we're doing. What's the alternative to that?",47
-fomc-corpus,1982,This is a cheaper way of doing it. If everything goes to hell then the amounts of both public assistance and losses to the banking system are going to be [huge]. I can't conceive that the United States would not step in ultimately and do what was necessary to restore order in Mexico to tame the chaotic situation. But the problem may be that political events in a chaotic situation would take over and we might be confronted with a--,86
-fomc-corpus,1982,I think we'd better get to our policy problem. It has been a long time since Mr. Axilrod introduced it.,25
-fomc-corpus,1982,He's been writing diligently.,5
-fomc-corpus,1982,"Let's come to the point, Mr. Axilrod.",12
-fomc-corpus,1982,"Mr. Chairman, I think one helpful comment that could be made would be to explain the two alternative operating paragraphs before the Committee. But before that I should make two comments. One is generated by the Committee's earlier discussion. The staff will go ahead and begin developing a monthly total credit series to see what its statistical properties are and how fast we can get it and how it develops. I would like also just for my own professional peace of mind to go ahead and try to do some econometric work on supply and demand relationships in total credit if we can possibly uncover them, somewhat like what we had tried to do with supply and demand for money. And if we got that far, I think we would be at the frontiers of the economic profession. But we'd like to make that effort. So, we would propose to proceed in that way on the total credit. I don't know how far we'll get before midyear but hopefully fairly far. Another related point on the operational paragraph of the directive, if you turn to lines 55 through 58 on the draft with the numbered lines that was passed out to the Committee--",225
-fomc-corpus,1982,Alternative one?,3
-fomc-corpus,1982,"Yes. Before that it says: ""The Committee also indicated that it was tentatively planning to continue the current ranges for 1983 but that it would review that decision carefully in light of developments over the remainder of 1982."" We have some language that might seem more apropos than that since 1982 has only a week-and-a-half to run. We'll have it typed up and given to the Committee, but it reads at the moment: ""The Committee had also earlier indicated that it was tentatively planning to continue the current ranges for 1983, but it will review that decision carefully at its February 1983 meeting in light of economic developments and institutional changes associated with the new deposit account authorized by the Depository Institutions Deregulatory Committee."" I think that's just a technical holding-in-place. It sounds more apropos than what is in there at the moment. But we'll type that up and send it around.",187
-fomc-corpus,1982,What line is that Steve?,6
-fomc-corpus,1982,Lines 55 through 58.,7
-fomc-corpus,1982,The one we have says it's lines 39 to 42.,13
-fomc-corpus,1982,"Yes, I think you have several versions of this thing floating around.",14
-fomc-corpus,1982,"Oh, I'm sorry. It would be the last sentence before the operational paragraphs.",16
-fomc-corpus,1982,"Steve, could you read the last part of that again? I got most of it but not--",20
-fomc-corpus,1982,"Well, we're going to type it up and send it around. On the operational paragraphs, alternative one as proposed allows for a high M2 growth, something that would accommodate a shift --if you believe our 3 percentage points--of that order of magnitude. But because that number for M2 would be pretty large---- would have to be, say, 11 or 12 percent really, and that may present some problem of credibility--it would almost seem to call for an early estimate of a shift adjustment factor. That is, if you decided on the 11 or 12 percent but thought two or three or four percentage points of that was shift, once you go that route, then I think it inevitably involves a continuing shift. While that is one reasonable approach, the staff--or certainly I--would tend to prefer the approach of alternative two, which allows for a smaller rate of growth in M2 and also includes an M3 growth that probably, as President Corrigan mentioned, is not going to be as much affected by shifts. So, that's our tentative thinking in this current period.",221
-fomc-corpus,1982,Why do you reject alternative C or three?,9
-fomc-corpus,1982,"I'm talking about directive language, President Roos, alternatives one and two of the directive language. The second alternative allows for a slower rate of growth in M2 and gives an M3 rate of growth and then has language which says growth could be higher --and probably more felicitous language could be developed--if there were substantial evidence of more shifts than had been allowed for in this notional number, based on analysis of incoming data and other evidence from bank and market reports. If the Committee went that way, then after the fact a range or some qualitative indication of the extent of shift might have to be given, but it would not be as committed to a definite shift adjustment. It is really for that particular reason that, in terms of directive language, alternative two might seem somewhat preferable. Of course, no matter which of those alternatives you choose in terms of phrasing the language, the policy issue is more on what level of borrowing the Committee chooses to start, since presumably over the next few weeks there might not be much variation around that level of borrowing unless the behavior of the aggregates is really extreme--unless it becomes clear that the shift distortions may be enough to fuzz up one's analysis of the underlying strength of the aggregates. So, it becomes crucial what level of borrowing is chosen, but it is not insignificant, really, what underlying growth in the aggregates you would tend to want.",278
-fomc-corpus,1982,"I wonder if [this approach] would clarify our discussion. The points that Steve raised are very relevant, but keep in mind what kind of general growth in M2 and M3--I guess in a sense that's what we have to put in the directive--you would want to have without these shift adjustments. Then it's a separate point as to how we make those [adjustments] and how we state them. [We would need to decide] whether we add [shifts] in to begin with or whether we essentially use the directive that Steve is suggesting, which gives a number that allows for little or none but says we may have to allow for [shifts] if they develop. One other point I would make is that on our current projections, which obviously are always subject to change with every bit of [new] weekly data, it looks as though M2 and M3 are coming in lower than the present directive suggests. [Their growth] was higher in November, but if you put November and December together, it looks as if it's coming in below the track that we forecast, which in itself tends to push the borrowing level down a bit. But presumably if that gets confirmed, it would move it down more just on the basis of the existing directive. Now, we reset that at this meeting but if we weren't meeting today and the trend developed as now projected, presumably the borrowing level would be coming down anyway. I think that's correct, isn't it? It would be [down] a little anyway.",305
-fomc-corpus,1982,"Yes, if the balance of December comes out as projected. If it's down about as much as the data through [mid-month suggest] it would be [down more].",34
-fomc-corpus,1982,"You can comment on the basic trend that you would like to see in M2 and M3, what your preferences are, and how to state that in terms of these alternatives and the borrowing level. I think those are the key variables.",48
-fomc-corpus,1982,"Mr. Chairman, could I ask Steve one clarifying question on this?",15
-fomc-corpus,1982,No!,2
-fomc-corpus,1982,"Could I slip him a note? Steve, on this second alternative, suppose we settle on ""B."" Would you put in there for M2 11 percent or 8 percent?",37
-fomc-corpus,1982,The second alternative is designed as somewhat of a compromise; I think it would be somewhere in the 9 to 10 percent range. You could even continue with the 9-1/2 percent you now have. That would accommodate some shift--,50
-fomc-corpus,1982,"As I see it, just to make it clean, alternative two wouldn't allow for much shift.",19
-fomc-corpus,1982,"No, some.",4
-fomc-corpus,1982,"You're saying ""some."" Very little to none, I guess, just to keep the choices cleaner.",20
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,You've allowed for what--a 3 percentage point shift in the aggregates?,15
-fomc-corpus,1982,"Yes, we think--and it's just our guess--that 8 percent is not an unreasonable number without any shifts. This numerology is all based on estimates.",33
-fomc-corpus,1982,"You have absolutely no current information that I can see, including the flash report on the GNP, that indicates that velocity is turning around. It is still going down fast for M2.",38
-fomc-corpus,1982,Nothing but the history of every other recovery we've ever had.,12
-fomc-corpus,1982,But we haven't got a recovery.,7
-fomc-corpus,1982,We haven't got a recovery yet.,7
-fomc-corpus,1982,"Whenever you wait until the recovery is obvious, you wait too long.",14
-fomc-corpus,1982,"No, I don't think that's true now.",9
-fomc-corpus,1982,"We still have a negative velocity [growth projected for] the first quarter, Governor Partee, but it is a lot less negative velocity [growth] than we had earlier.",35
-fomc-corpus,1982,"Steve, may I follow up on Bob's question? You were talking about 8 percent as the basic growth for M2 and you are looking at 9-1/2 or perhaps 9-1/2 to 10 percent to go into the directive. And you're thinking of a 3 percentage point shift. Those numbers don't work out.",71
-fomc-corpus,1982,"Well, that's why with the language of alternative two--if the Committee did put in something like M3 growth of 8 percent and M2 growth of 9-1/2 percent, say, and then it turned out that M2 was stronger because of evidence of shifts but M3 was on target, one would assume--depending on the Committee discussion--that we would just accommodate that because that's what the directive would literally say. And one would hope that the moderation of M3 would be an obvious counterfoil to the somewhat stronger M2.",111
-fomc-corpus,1982,"I think in your alternatives here, which I have not explored with great care, you are not allowing for much, if any, shift in M3.",31
-fomc-corpus,1982,"None. Well, there's a little maybe.",9
-fomc-corpus,1982,"So, presumably that is the kind of figure we would put in for M3. And you are saying putting in a number a percent or so higher would allow for just a little shift, which we'd have to explain in the text somehow.",48
-fomc-corpus,1982,That's right.,3
-fomc-corpus,1982,Maybe in the directive itself we should make some allusion to the fact that we've allowed a little [for shifts].,23
-fomc-corpus,1982,"We're basically assuming that bank credit demands are not going to be very strong in the first quarter. And, therefore, if the banks get more money in through these money market accounts, they will not be pressing in the market as much and there might even be some direct movement of CDs into these accounts. So, it's a combination of both. That's what we're assuming.",73
-fomc-corpus,1982,"Putting the shift issue aside for the moment, how much of a negative growth in velocity of circulation are you assuming for the first quarter? What is your figure for nominal GNP growth for the first quarter?",41
-fomc-corpus,1982,"It's 6-1/2 percent, I think. And for M2 on a quarterly average basis, which is different from the December-to-March growth, I have 9.8 percent here. But I have to take something between 2 and 3 percentage points off of it, so it's more like between 7 and 8 percent. So it's a minor negative velocity growth of something like 1 percent, let's say, as against the sharp negative velocity growth of something like 5-1/2 percent over the year.",110
-fomc-corpus,1982,Let me get clear on this. You have a quarterly average of 7 to 8 percent with what from December--?,25
-fomc-corpus,1982,"Well, abstracting from shifts, about 8 percent.",12
-fomc-corpus,1982,How do you break down that nominal GNP figure in the first quarter? How much is inflation and how much is real?,25
-fomc-corpus,1982,"In the first quarter, it's 2 percent real and 4-1/2 percent inflation.",20
-fomc-corpus,1982,"Mr. Balles, you had a question before.",11
-fomc-corpus,1982,"Well, I think my clarifying question has been asked twice now. I gather that the alternatives set forth in the Bluebook on page 6 would be consistent only with alternative one of the directive, which you don't prefer.",45
-fomc-corpus,1982,"There are differing numbers in those alternatives. I'm suggesting that you might use alternative two, which incorporates the lower numbers that do not fully allow for the shifts. If you use the M3 numbers that are there but subtract 2 to 3 percentage points from the M1 number, you would not be making as much advance allowance for the shifts as is in the text, which is our best estimate of the shifts. However, the shifts may not occur.",91
-fomc-corpus,1982,You said M1; did you mean M2?,11
-fomc-corpus,1982,"I'm sorry, I meant M2--I meant M3 actually. We used the numbers for M3, but we reduced M2.",28
-fomc-corpus,1982,Those you think are pretty good?,7
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,For the M3 numbers.,6
-fomc-corpus,1982,"Just to nail that down once more, how many points off the M2 numbers in the Bluebook?",21
-fomc-corpus,1982,Three.,2
-fomc-corpus,1982,"To get a sense of the underlying demand, for whatever that's worth, you take 3 points off. But I would suggest putting a somewhat higher number than 8 percent. If you took 3 points off the 11 percent for ""B,"" you'd get 8 percent because it seems to me it would be reasonable to allow for some shifts. And the Committee already has 9-1/2 percent for M2 on the record for October to December. And that would seem like a continuance of that; that would be just one compromise between the two.",114
-fomc-corpus,1982,Okay. Thanks.,4
-fomc-corpus,1982,"Peter, where do you and the market think borrowings are these days?",15
-fomc-corpus,1982,"Well, I may have to give you two different answers for that. We've been aiming at around $250 million or a little below; it's been $230 million in the recent weeks. A number of recent weeks have tended to come out above that because of exigencies --some shortfalls of reserve projections or greater demands for excess. In the current week borrowing is averaging around $300 million. As for where the market thinks it is now, they probably would just take an average of the recent weeks, which would be between about $250 million and [$350] million.",114
-fomc-corpus,1982,"We always talk in shorthand about this borrowing level, which is very convenient, but it seldom comes out there because what we're really doing is setting a reserve path. If excess reserves are high, the borrowings are high. And we're entering a period, the year-end period, where the excess reserves may be very erratic. So as shorthand for setting a reserve path maybe [we should talk about] a free reserves number rather than an actual borrowing number, particularly when excess reserves are going to be volatile at the end of the year.",107
-fomc-corpus,1982,It's the reserve path that decides--,7
-fomc-corpus,1982,"That's right. We're just setting the beginning point of a reserve path. Well, in the absence of anybody else talking, let me say this: Simply because these other numbers are so big and we have to give an explicit estimate of a shift adjustment we don't know anything about, I like the alternative two approach. I don't know how much to allow for, but I'd allow for some shift; if we're allowing for some, we have to be very clear either in the directive or the text that this is a higher number than we would have put down except that we are assuming some minimal amount of shift.",120
-fomc-corpus,1982,"Well, if we just put in 9-1/2 percent and leave the borrowings there, does this language in alternative one say that if it actually comes in around, say, 11 percent, that we would tolerate it? That's the way I'm reading it.",55
-fomc-corpus,1982,"It's the language in alternative two. I was getting some better language [typed up]; I had hoped it would be done. Yes, the language would imply that if there were evidence from incoming data and reports from the market and from depository institutions that there was a shift--and I added in brackets if underlying demands for liquidity were exceptional, if the Committee wants to say that--[stronger growth would be tolerated]. So, there would be plenty of scope in the directive to allow for stronger growth.",101
-fomc-corpus,1982,"But what it says is that our first bit of evidence would be if [M2] came in high but [M3] did not; then we would be more inclined to think it was a shift than reality. If they both came in high, we would tend to discount the very first--",60
-fomc-corpus,1982,Unless we found some evidence of a huge shift.,10
-fomc-corpus,1982,Unless there were other strong evidence.,7
-fomc-corpus,1982,"Building the shift into the number in alternative two seems to me to take away some of the virtue of alternative two, which is that it allows for what we think ought to be the right number but then allows for an overrun in case [a shift occurs]. It seems to me that is in many ways preferable. But if we also raise the number, then we've taken the high number from alternative one and we still have the overrun of alternative two.",91
-fomc-corpus,1982,"I agree. I think alternative two is clearly preferable. It would seem to me that we're still allowing not only for a one percent shift but also for one to two points negative velocity [growth] if we accept that 9-1/2 percent figure. We could say 9 to 10 percent or we could put in 9-1/2 percent like we did last time. But the initial borrowing assumption ought to be $175 to $200 million because I think we would like to see the markets ease a little on their own and not be pushed down so obviously and aggressively by a cut in the discount rate. If [the Board] does end up cutting the discount rate, we again would appear to be following the markets somewhat more. So I would think we can leave the fed funds range where it is, at 6 to 10 percent.",174
-fomc-corpus,1982,"Just for the sake of completeness, what do you have for M3?",15
-fomc-corpus,1982,8 percent.,3
-fomc-corpus,1982,"What is your M2 number, Tony?",9
-fomc-corpus,1982,"M2 would be 9-1/2 percent, assuming we're going the alternative two route.",20
-fomc-corpus,1982,And assuming we say someplace that we are allowing for a little shift.,14
-fomc-corpus,1982,"I don't know what the adjectives should be, but alternative two would read--",15
-fomc-corpus,1982,Is this supposed to be a shift-adjusted number now?,12
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,The whole idea of alternative one was to put in a number that had no shift adjustment. I thought alternative two was to be an alternative in which we had a shift-adjusted number.,37
-fomc-corpus,1982,No. MR. PARTEE and,7
-fomc-corpus,1982,They're not big enough.,5
-fomc-corpus,1982,That isn't the way it reads. The way it--,11
-fomc-corpus,1982,"In the Axilrod version, it is a conservative estimate of a shift.",16
-fomc-corpus,1982,For alternative two.,4
-fomc-corpus,1982,For alternative two.,4
-fomc-corpus,1982,"I think so, too; 9-1/2 percent doesn't sound high enough.",18
-fomc-corpus,1982,"If these estimates are right, 9-1/2 percent implies a 6-1/2 percent shift-adjusted M2 growth. And that's ridiculous.",33
-fomc-corpus,1982,"No, wait a second. The actual language of alternative two reads: ""The Committee indicated that greater growth would be acceptable if there is evidence of substantial shifts of funds into broader aggregates because of the new money market account.""",44
-fomc-corpus,1982,What kind of a path is he going to draw from this?,13
-fomc-corpus,1982,"Well, if the Committee wanted 9-1/2 percent and 8 percent, I would take our M1 estimate based on that, which is pretty high--something like 8 percent--and draw a path based on the related required reserves. But that wouldn't affect the money market if M2 were coming in strong because with the virtues of lagged reserve accounting we would know the required reserves two weeks later and we would simply accommodate to it.",91
-fomc-corpus,1982,If you thought there was a shift?,8
-fomc-corpus,1982,That's right. If there were shifts and M2 were strong.,13
-fomc-corpus,1982,"Shouldn't that say ""greater growth in M2 would be acceptable""?",14
-fomc-corpus,1982,Right.,2
-fomc-corpus,1982,It doesn't say that.,5
-fomc-corpus,1982,"Oh, I see. Yes, I think that would be a help.",15
-fomc-corpus,1982,"That's about what it says, as I read it.",11
-fomc-corpus,1982,"At the risk of muddying the waters, Steve: Would there be any virtue in an alternative that abstracted altogether from shifts and then left us with an option of adjusting for it ad hoc as we got the evidence?",44
-fomc-corpus,1982,"Well, that's what this in effect does. I think the issue is only whether you put down 8 percent, if that's what your underlying preference is, or whether you put down a number that's a little higher so you give some notional sense that shifts may occur. Thus far, that is what the issue seems to be.",66
-fomc-corpus,1982,"Also, the reason why we would want 9-1/2 percent without shifts is because we don't think velocity [growth] in the first quarter is going to go back to zero, which is an historic norm.",44
-fomc-corpus,1982,Now you're talking about this as a not shift-adjusted number.,13
-fomc-corpus,1982,I'm talking about 9-1/2 percent and that we would tolerate a modest amount of growth beyond that if there were evidence of substantial shifts.,30
-fomc-corpus,1982,But we're already expecting 3 percentage points.,9
-fomc-corpus,1982,"Yes, but that's 3 percent at an annual rate.",12
-fomc-corpus,1982,"I know. But if we're talking about 9-1/2 percent as a not shift-adjusted number, that implies about 6-1/2 percent shift-adjusted and if we have velocity declining in--",44
-fomc-corpus,1982,It's the other way around.,6
-fomc-corpus,1982,"It's the other way around, Lyle. And this is a hybrid anyway; it has 1-1/2 [percentage points] in shift adjustment not taken out.",35
-fomc-corpus,1982,I'm thoroughly confused.,4
-fomc-corpus,1982,"I don't know quite what Tony has in mind. In the Axilrod version, just putting in Tony's number, he is saying that allows for one percent or so of shift adjustment, which we think is minimum. It's the equivalent of saying between ""A"" and ""B"" on the other numbers. If you were really right that the shift was 3 percent, who knows?",78
-fomc-corpus,1982,"That doesn't square with table 4, does it?",11
-fomc-corpus,1982,Where's table 4?,6
-fomc-corpus,1982,"Page 11 of the Bluebook. If I read this Bluebook summary of your estimate of the shifts right, it says that for the December-to-March period we're talking about you think the shift in M2 could be as little as 1 percent and could be as much as 5 percent. Oh, you're getting 3 percent by averaging.",71
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,"It's 1 percent for the year, but 3 percent because they expect a lot of it to be concentrated in the first quarter.",27
-fomc-corpus,1982,"For the December-to-March period our best estimate was one to five. I would like to make clear to the Committee--we tried to say how we got to that estimate--that the range of uncertainty here is really vast, though the numbers weren't quite off the wall, as Governor Gramley suggested. All I'm suggesting is that the Committee put in the directive a number with which it feels generally comfortable; and if it turns out to be bigger, then the market would tighten if there are no shifts; and if there seemed to be shifts--",109
-fomc-corpus,1982,"I will return to my interpretation for the purposes of clarity. We can do it differently, but let's get some common basis here. I'm won't say this is what Tony said; I'll say it's what I'm saying now. We can put in a 9 to 10 percent figure, for instance, or 9-1/2 percent just to make the arithmetic correct, and say someplace--probably right in the directive--that we are allowing for a modest increase in M2 from a normal trend because we think there is going to be some minimal amount of shifting. In fact, we are prepared to see a bigger shift, in accordance with the staff estimate. If the evidence develops that way and the staff is right about the 3 percent, the 9-1/2 percent is equivalent to 11-1/2 percent. In fact, nobody is going to know with any precision if it is in the end. But analytically that's what I would suggest we are saying. In other words, 9-1/2 percent is equivalent, without allowing for any shifting, to 8-1/2 percent.",227
-fomc-corpus,1982,"I think that clarification would take care of the problem I was worrying about, Mr. Chairman.",19
-fomc-corpus,1982,I would prefer the 8-1/2 or 8 percent for that reason. It keeps separate the original unadjusted number and the shift.,31
-fomc-corpus,1982,"Well, I can understand that. But it's just a matter of preference. You would be putting down a number which the staff at least thinks is too small. And we will never make it.",39
-fomc-corpus,1982,"Yes, we'll never be able to make it.",10
-fomc-corpus,1982,"And that has its difficulties, too. My sense of the this is that if we're allowing for any shift here, we probably ought to say it right in the directive. We could say in the next sentence that this number for M2 allows for some exceptional increase in M2 because of this switching. If there's more than this little we allowed for--we keep the [suggested] sentence that's there.",81
-fomc-corpus,1982,The 8-1/2 percent then permits a negative velocity [growth] of 2.,20
-fomc-corpus,1982,"Yes, if the GNP number is right.",10
-fomc-corpus,1982,"Well, I was not very clear about that. By suggesting that 9 to 10 percent or 9-1/2 percent, I was fuzzing together the negative velocity [growth] and the minimal shift; and then if there were a substantial shift, M2 growth would be above that.",61
-fomc-corpus,1982,"Well, you are right where I described it, I guess. There seems to be some general feeling that we ought to work with alternative two. Can I assume that?",34
-fomc-corpus,1982,I was thinking of going the other way. My thought was that we need to include in the directive a number that is realistic and also has some indication of shifting. I think the alternative two as you now propose it is alternative one prime; it is no longer alternative two as it was in the Bluebook. I would prefer to use a number like 11-1/2 percent and say that it includes an amount of shift ranging from one to five percentage points. I want to emphasize the uncertainty. The 11-1/2 percent comes from the same shift-adjusted 8-1/2 percent we started with.,127
-fomc-corpus,1982,I don't think we can put in a number in [alternative] one and say this allows for a shift ranging from one to five percentage points; we would have to put in a range of 3 or 4 points around the number. We would have to say we are aiming at 9 to 13 percent or something to allow for a shift of one to five points. I'm not sure that helps.,82
-fomc-corpus,1982,It's awfully dangerous to be that explicit on the estimate of the shift.,15
-fomc-corpus,1982,"The argument against alternative one, as nearly as I can understand, is composed of two related arguments. We haven't the vaguest idea, really, what the shift is going to be. If we just put in a visibly high number, not knowing what the shift is going to be, we may get a psychological problem, which we don't need to be read into this right now.",76
-fomc-corpus,1982,Maybe.,2
-fomc-corpus,1982,We carried 9-1/2 percent this last time.,13
-fomc-corpus,1982,"Yes. Let me ask my question over again. You responded. I don't know whether you're convinced or not. Do we work with directive two? Okay, that seems to be [the consensus]; let's work with directive two. Let me repeat the proposal we have on the table. Whether or not it's exactly Tony's--and I think it comes close--we put in either 9 to 10 percent or 9-1/2 percent, which happens to be the same number we've been working with and 8 percent [for M3], as I understand it. We say explicitly--Steve just gave me some language: ""Allowing for some shifting into broader aggregates, particularly M2, resulting from the introduction of the new money market accounts."" So, we've explicitly said that 9-1/2 percent allows for some and then we keep something like the next sentence that is already there.",181
-fomc-corpus,1982,"Could we say ""a modest shift""?",8
-fomc-corpus,1982,We don't know if it's going to be modest.,10
-fomc-corpus,1982,But in this first sentence we said [unintelligible] allowing for modest shifting or something.,20
-fomc-corpus,1982,I want to protect against the possibility that we may have to allow M2 to grow by 14 or 16 percent or some number like that.,30
-fomc-corpus,1982,[That would be covered in] the next sentence.,11
-fomc-corpus,1982,The next sentence says that.,6
-fomc-corpus,1982,I think we might even be justified in calling it a minimal shifting.,14
-fomc-corpus,1982,"""Allows for a modest amount of shifting.""",9
-fomc-corpus,1982,"Well, let's see: ""allowing for modest shifting"" or ""some shifting.""",17
-fomc-corpus,1982,"""From market instruments."" We're not talking from M1 up to M2.",16
-fomc-corpus,1982,From market instruments and large CDs.,7
-fomc-corpus,1982,That's why I think that sentence has to be limited to M2.,14
-fomc-corpus,1982,"Right, it should be limited to M2.",10
-fomc-corpus,1982,"All right, we'll say ""allowing for some shifting into M2,"" if that's the way you want it. This states it the other way around, resulting from the introduction of the new money market accounts. It doesn't say from where but it says--",51
-fomc-corpus,1982,Then the phrase about M3 should come down to the bottom so that all of this obviously applies to [M2].,24
-fomc-corpus,1982,"I think if we say M2, it's clear enough. ""Allowing in the case of M2 some...""",23
-fomc-corpus,1982,"Well, there could be a bit in M3. Maybe it's a mild degree of perfectionism--just guarding against all possibilities. It's not clear that they are going to offset.",36
-fomc-corpus,1982,Except that as a bank funding device it seems to me that it will tend to offset.,18
-fomc-corpus,1982,Yes.,2
-fomc-corpus,1982,[Unintelligible] unexpected bank influence on M2 because they aren't going to have any credit demand and they're not going to want to extend credit anyhow.,32
-fomc-corpus,1982,"But there are the thrifts, Governor Partee. I don't know what they're--",17
-fomc-corpus,1982,"Well, they don't have any credit demand either.",10
-fomc-corpus,1982,"We can come back to the precise language. The proposal on the table is 9-1/2 percent, which implicitly allows--I will say--for 1 percent of this shifting in M2 and for zero shifting in M3 with a figure of 8 percent. Tony said about $175 to $200 million for the initial borrowing figure.",71
-fomc-corpus,1982,That's down some.,4
-fomc-corpus,1982,It may be a little low.,7
-fomc-corpus,1982,"That's down from about $230 million. To get some perspective on what that means, I'm told that a 1 percent difference in the target for M2 would mean over a period of one month a difference of $34 million dollars in reserves. Therefore, if we are moving the borrowing from, say, $230 million to a shade under $200 million, it's the equivalent of having a 1 percentage point higher M2 target for one month. So, I would say that at the maximum we ought to set it at $200 million but we might go as low as $175 million.",119
-fomc-corpus,1982,And what does it mean for the funds rate?,10
-fomc-corpus,1982,"Well, it would be somewhat under 8-1/2 percent; how much under, Peter can make a better guess than I.",28
-fomc-corpus,1982,"Well, varying around 8-1/2 percent, but maybe a little more likely to be under than over.",24
-fomc-corpus,1982,Under 8 percent?,5
-fomc-corpus,1982,Under the 8-1/2 percent discount rate.,12
-fomc-corpus,1982,"Under 8-1/2 percent. Borrowing of $175 million would take it down toward 8 percent, wouldn't it?",27
-fomc-corpus,1982,"Not that far, Governor. I think with $175 million it would be more likely to vary under the discount rate, between 8 and 8-1/2 percent, but not necessarily closer to 8 percent than to 8-1/2 percent.",54
-fomc-corpus,1982,Do you figure $100 million [in borrowing] is equal to 25 basis points [on the funds rate]?,23
-fomc-corpus,1982,"Roughly, yes. That falls out of these time-honored relationships, but they don't necessarily hold up in the short run.",28
-fomc-corpus,1982,"It's not very reliable from week to week, and the funds rate will be affected by whether people think the discount rate is coming down or whether the economy is improving and the rate decline is over or whatever.",41
-fomc-corpus,1982,At this level aren't we at or below the frictional level [of borrowing]? As a result wouldn't we have lost the advantage of the path and what it might imply?,34
-fomc-corpus,1982,"Between $175 and $200 million used to strike me as quite frictional; [now] I would think we would be getting below that level when we get down to $50 million or so. I would agree thoroughly with Peter that unless there's a big expectation of a discount rate drop, the funds rate would tend to hang around the present discount rate and would be a little more likely than it is now to be below it. It isn't below it now; it has been running above it except for today.",102
-fomc-corpus,1982,"With the level of excess reserves that the banks want to hold, if that continues, this has some implication it seems to me for the federal funds rate in the period ahead. Is that right?",39
-fomc-corpus,1982,"Yes, the funds rate would go up if we underestimate the demand for excess reserves. We would, of course, make every effort not to; we have models that turn out not to be too bad, in fact. Sometimes they have been better than our judgment on that. So, we have a fairly good way of trying to estimate the demand for excess reserves. And Peter makes his own estimate over the course of the week if he sees that it isn't working out right.",95
-fomc-corpus,1982,"We have a number of pretty sick banks. If we were to have some unexpected borrowing at the window by those sick banks, you would not count that as adjustment borrowing?",34
-fomc-corpus,1982,"Where it's a big identifiable borrowing, we make an allowance for that.",14
-fomc-corpus,1982,"Certainly if it's over a sustained period, it would be [counted with] nonborrowed reserves. If it's a bank that just happens to be at the end of the queue and comes in for a day and is out, that strikes me as adjustment borrowing. But if a bank is in for a sustained period, then it's more clearly nonborrowed.",72
-fomc-corpus,1982,"Of course, they tend to be at the end of the queue because they are generally regarded as weak banks.",22
-fomc-corpus,1982,"That's right. But if, for example, Continental is in one day and then out and it just happened that the borrowing fell on Continental, as it would naturally--",33
-fomc-corpus,1982,"I was thinking more of, say, some of these banks who at least partially lost their access to the Euro-markets. They might have to come back in for a rather substantial loan.",38
-fomc-corpus,1982,"Well, it's easier at that point to adjust for it, but in the initial stages it's likely to be hazy.",24
-fomc-corpus,1982,Yes. I see.,5
-fomc-corpus,1982,"Mr. Chairman, I can accept Tony's formulation of this. I would guess we ought to go to $175 million [rather than] $200 million, but I don't think it makes a lot of difference. I also find myself a little [uneasy], given the length of time until the next meeting and all these uncertainties. I'm not necessarily suggesting a full blown FOMC meeting, but I think it would very wise if a couple weeks into January we at least got updated on where we were.",102
-fomc-corpus,1982,"I think that is correct, and I would plan to do that.",14
-fomc-corpus,1982,I can live with this for three or four weeks subject to a re-evaluation at that time.,20
-fomc-corpus,1982,What would be the evaluation of the market if they could perceive this correctly? Is this somewhat similar to the latest discount rate action?,26
-fomc-corpus,1982,"I think it's close, but it preserves the status quo.",12
-fomc-corpus,1982,"Well, that is what I'm asking. Is it that or will it be seen as another push and does it run the risk of being counterproductive at the long end?",34
-fomc-corpus,1982,"If M2 and M3 growth are as weak in December as Steve is projecting, then I don't think this will be perceived as an aggressive push.",30
-fomc-corpus,1982,"Technically, I think it's slightly tighter than the last directive if one literally--MR. CORRIGAN(?). That's right.",27
-fomc-corpus,1982,"What would bother me in terms of the markets--and I think [the likelihood] is not great--would be if the growth doesn't come in that weak so we do get some natural decline in the fed fund rates. If the fed funds rate stays around 8-1/2 percent and then the Board simply aggressively cuts the discount rate 1/2 point without there having been any softening in the fed funds market, that would give a very strong impression of aggressiveness. That has both positive and negative aspects to it but I think more negative. If we go somewhere along these lines, what we're saying is that unless the weakness develops in M2 and M3 in December, the fed funds rate will tend to stay more or less where it is.",153
-fomc-corpus,1982,It's pretty much a status quo.,7
-fomc-corpus,1982,"That's what we're saying if we adopt this set of numbers. If there is weakness, then the fed funds rate will probably go lower and the Board may or may not choose to ratify that with a discount rate cut.",44
-fomc-corpus,1982,Comments?,2
-fomc-corpus,1982,It sounds all right to me.,7
-fomc-corpus,1982,I agree with this proposal.,6
-fomc-corpus,1982,I'm a little nervous about M2. I don't think M2 bears any relationship to anything. I don't think it's off the wall any more--a number that somebody conceived of. But it doesn't seem very [unintelligible] by itself. I guess I would accept this.,57
-fomc-corpus,1982,"Despite all this discussion of what the aggregates might do and despite my strong predilection toward targeting aggregates, I don't think we have much choice other than to target interest rates in the short run.",39
-fomc-corpus,1982,And that's what this is doing.,7
-fomc-corpus,1982,Carrying that tattered fig leaf for one more--,11
-fomc-corpus,1982,"But I must say that my feeling about what are the appropriate rates is conditioned by four months of what I think has been very excessive growth in M1. I don't pretend to know what caused all that; it may have been precautionary demands for money. But every time the federal funds rate has come down by 6 points or so, as it has over the period since June, we've had a spurt in the aggregates. And I think that drop in the federal funds rate must have played a pretty significant role in itself. I'm very reluctant to go lower on the federal funds rate than we are now. I would want a floor, a lower limit of 8 percent on it. If the aggregates come in weak, I would not mind the rate coming down to 8 percent, but I'm very leery about going beyond that.",168
-fomc-corpus,1982,"The assumption, implicitly, is that the federal funds range in the directive stays at 6 to 10 percent. I don't see any particular reason to change that, as Tony suggested.",37
-fomc-corpus,1982,"I'm not voting but if I were, I would support the formulation that Tony and Nancy and others have subscribed to. There is one point: If the judgment of the Board is to lower the discount rate, to ratify this, I think it would be better perceived if we could see a little more progress on the funds rate toward 8 percent before a discount rate change came along. That's in keeping with the idea of having a mid-January meeting because if the funds rate could drop and then the discount rate followed it, I think that would be digested better than the other way. The other way looks a bit too much like pushing and raises the risk of a perverse effect in the long-term bond market.",144
-fomc-corpus,1982,"I see. We can all say we're targeting interest rates and all this is a meaningless exercise, but in fact we are targeting a reserve path which has some influence on the funds rate. If the aggregates are not coming in at a level which justifies moving the funds rate lower at that point, under these directives we can't do it.",67
-fomc-corpus,1982,I have no problems with this formulation. I think it's fine.,13
-fomc-corpus,1982,"What happens, Steve, if M2 and M3 come in so weak and the demand for reserves is so low that there is virtually no borrowing and we start getting an indeterminate fed funds rate? What will we do at that point?",48
-fomc-corpus,1982,That's exactly the--,4
-fomc-corpus,1982,I don't think that should stop us from going down now to the $175 to $200 million area.,21
-fomc-corpus,1982,We would certainly alert the Chairman if that were--,10
-fomc-corpus,1982,I don't think the funds rate is going to become all that indeterminate all that soon. But at some point we might want to reduce the discount rate and tighten up on the reserve path.,38
-fomc-corpus,1982,It's hard to imagine that for M2 in particular. How could it be that weak?,18
-fomc-corpus,1982,"Steve is talking about 4 percent growth in December and it's possible, though not too likely.",19
-fomc-corpus,1982,Did you say it was revised up to 6 percent?,12
-fomc-corpus,1982,"No, I was just muttering [about how we might] find an [unintelligible] range.",23
-fomc-corpus,1982,"You're not supposed to do that, Steve!",9
-fomc-corpus,1982,"We might have to go through this again, Steve.",11
-fomc-corpus,1982,"I don't want to rush you here, but I don't hear any contrary views. Is there a preference between expressing it as 9 to 10 percent or 9-1/2 percent in the first place? I hear 9-1/2 percent. And 8 percent for M3?",61
-fomc-corpus,1982,"Mr. Chairman, I'd like to raise a question about 8 percent for M3, given the performance of M3 over the past two quarters and what is estimated in the first 2 months of the fourth quarter. It isn't clear why 8 percent is a magic number for M3. It looks to me as if it may be somewhat restrictive.",71
-fomc-corpus,1982,"M3 has been slowing down very recently and we were influenced in good part by that, of course. But for the year it has been--",29
-fomc-corpus,1982,For the year and for October-November it is over 9 percent.,15
-fomc-corpus,1982,"Yes. We have estimated a very weak December coming up. Whether or not that will develop, [I don't know]. This is somewhat stronger than we think the average of the three months--",38
-fomc-corpus,1982,"So, you're anticipating that that trend will continue for the next 3 months. I don't understand on what basis you make that projection.",27
-fomc-corpus,1982,"We go through the various components and then make some estimate of credit growth at banks and how they might finance that, given what we think of the others. And this is what comes out in a sense. VICE CHAIRMAN SOLOMON. The banks are cutting back very strongly on large CDs, Roger, as they get money in the money market accounts, particularly since credit demands are weak. That's a very substantial cutback we are beginning to see.",91
-fomc-corpus,1982,"If there were a considerable expansion in bank credit growth, this number could well be higher. Or if there were a big switch and banks decided to finance through borrowing here rather than abroad, that could affect this. We have not allowed for that; we have allowed for a generally weak economy and still some--",61
-fomc-corpus,1982,There's a real possibility that bank credit will grow simply because of these new money market funds. Funds are being attracted at 10 percent. They don't have any loan demand; they are going to have to put those funds to work in some way.,49
-fomc-corpus,1982,They will go make some more lousy loans!,9
-fomc-corpus,1982,That's right. They're going to have to make some loans because the only rate that can give them any spread is either on commercial or consumer loans.,29
-fomc-corpus,1982,They can use the money to pay down their CDs.,11
-fomc-corpus,1982,Pay down CDs. If that doesn't happen--,9
-fomc-corpus,1982,The borrowing assumption in this package is $175 to $200 million?,14
-fomc-corpus,1982,"Well, we have to decide upon that. Let's just take the numbers [for the aggregates] first and come to the borrowing assumption later. The numbers proposed are 9-1/2 and 8 percent. I suggest language for the rest of the sentence saying ""allowing in the case of M2 for modest shifting into the new money market accounts from CDs or market instruments.""",77
-fomc-corpus,1982,Large CDs.,3
-fomc-corpus,1982,"Yes, large CDs. That sounds fine.",9
-fomc-corpus,1982,All right. Is that sentence agreeable? Then we go on with another sentence--just to complete the directive and we will get back to the borrowing. Did you have new language for the directive?,39
-fomc-corpus,1982,I think you have it right there. It's what I gave you as the new language. It is just typed funny.,24
-fomc-corpus,1982,"What did you give me? It's this page I've been writing on? Okay. ""The Committee indicated that greater growth would be acceptable if analysis of incoming data and other evidence from bank and market reports indicate that the new money market accounts are generating more substantial shifts of funds into broader aggregates from market instruments.""",60
-fomc-corpus,1982,"Should that be just M2 there, too?",10
-fomc-corpus,1982,"No, that covers M3.",7
-fomc-corpus,1982,This covers both as written.,6
-fomc-corpus,1982,"Well, I have a preference--since the amount of shifting to M3 is going to be small--not to have our hands tied by having to have evidence that the shift is occurring in M3 as well. It would seem to me that there's some advantage in having even that sentence refer to M2.",62
-fomc-corpus,1982,It doesn't say M2 or M3; it's general.,12
-fomc-corpus,1982,No.,2
-fomc-corpus,1982,We can interpret [the evidence]; that gives us flexibility to--,13
-fomc-corpus,1982,It sounded to me as if--,7
-fomc-corpus,1982,"No, I think it clearly gives us flexibility. Is that okay? There was a bracketed portion in the original draft reading ""or signs of exceptional liquidity demands."" Do you want to leave that in or out?",43
-fomc-corpus,1982,In.,2
-fomc-corpus,1982,We have so many qualifications.,6
-fomc-corpus,1982,It's just another way of saying we can't predict velocity. It seems to me a very honest thing to put in there.,24
-fomc-corpus,1982,I'm not going to bleed and die one way or the other on this one. I don't know whether that on balance is good or bad. Let's have a show of hands just from the voting members on this portion of the sentence--a referral to if there are exceptional underlying liquidity demands.,57
-fomc-corpus,1982,Is this for leaving it in or taking it out?,11
-fomc-corpus,1982,"Let's make it for leaving it in, in the first instance. It looks as if we have a minority of members who prefer that. Let's leave it out for the moment.",35
-fomc-corpus,1982,Maybe you should poll for taking it out?,9
-fomc-corpus,1982,"It's going to rest upon the strength of one's conviction, I guess. Comments about taking it out?",20
-fomc-corpus,1982,"Yes, I'm in favor of taking it out.",10
-fomc-corpus,1982,I would take it out also.,7
-fomc-corpus,1982,"We have more for taking it out. And we have 6 to 10 percent on the federal funds rate range. All right, that takes care of the directive language. We're left with the borrowing. Let me just try out $175 million as one end of the range that was suggested. Who prefers that? Four. Who prefers $200 million? There may be other numbers. Five.",79
-fomc-corpus,1982,$187.5 million!,6
-fomc-corpus,1982,"The answer is $187.5 million. Let me suggest that we use $200 million, but in these great decisions we make from day-to-day that we make them on the side of being a little below rather than a little above. Is that acceptable? I guess we have done the whole thing. Well, we have that language that you were talking about at the end of the previous paragraph.",80
-fomc-corpus,1982,Yes. We have it; it could be distributed.,11
-fomc-corpus,1982,I would like to have a copy because I can't get the words down as fast as they pour out.,21
-fomc-corpus,1982,Norm is distributing it. I'm sorry about these various forms in which the [draft] directive is being provided. The relevant language is in lines 55 to 58.,34
-fomc-corpus,1982,It's very important because this will only be released after we've already done it.,15
-fomc-corpus,1982,If all goes well.,5
-fomc-corpus,1982,"What does this sentence achieve particularly, Steve? It just shows that we were talking here privately but haven't talked any more about the long-term ranges?",29
-fomc-corpus,1982,It's pointing out that we will review the decision carefully in the light of developments over the remainder of the year. Literally it says our decision is going to be affected by what happens in the next week and a half and that looks a little odd.,49
-fomc-corpus,1982,I agree it does.,5
-fomc-corpus,1982,That's all I had in mind.,7
-fomc-corpus,1982,I think it's trivial.,5
-fomc-corpus,1982,"Yes, no one would pay much attention one way or the other.",14
-fomc-corpus,1982,We could delete the whole sentence in this earlier form or in its new form. I don't know what it adds.,23
-fomc-corpus,1982,"Well, I don't know.",6
-fomc-corpus,1982,"Well, it has a reference to 1983.",11
-fomc-corpus,1982,To delete the sentence tends to delete the reference to 1983.,14
-fomc-corpus,1982,It's a sacred piece of boilerplate. I really think it has no significance whatsoever.,17
-fomc-corpus,1982,That's right. I didn't think so either.,9
-fomc-corpus,1982,Governor Gramley suggests that the first sentence in the whole directive should be changed.,16
-fomc-corpus,1982,I don't like to say final sales strengthened when they went up about a tenth of one percent.,19
-fomc-corpus,1982,"He is suggesting: ""Real GNP declined in the fourth quarter, although final sales apparently were roughly unchanged"" or ""were maintained.""",27
-fomc-corpus,1982,There was a very small percentage increase.,8
-fomc-corpus,1982,I think we can accept that change. I guess we are ready to vote.,16
-fomc-corpus,1982,"Chairman Volcker Yes Vice Chairman Solomon Yes President Balles Yes President Black No President Ford No Governor Gramley Yes President Horn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Teeters Yes Governor Wallich Yes Ten for, two against.",50
-fomc-corpus,1982,Okay. Do we have anything else?,8
-fomc-corpus,1982,"Just the luncheon and, on the agenda, the next meeting date.",14
-fomc-corpus,1982,We ought to think in terms of the possibility of a meeting after the 8th and 9th. We will have at least a telephone consultation sometime in the middle of January.,37
-fomc-corpus,1982,Could we pick a date tentatively today?,9
-fomc-corpus,1982,"Well, I don't know whether it's useful right now because I don't have my calendar here nor do other people. We will send something around. Okay, I guess we can eat.",36
-fomc-corpus,1983,It is now time to come to order. We might as well approve the minutes.,17
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,Is there a second?,5
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,"Without objection, we'll approve the minutes. I will welcome Mr. Roberts; I think it may be symbolic or something that he is sitting on the left side of the table. Where is Mr. Balles?",42
-fomc-corpus,1983,I don't know.,4
-fomc-corpus,1983,"There's no policy significance, Mr. Chairman, in my occupying the St. Louis seat.",18
-fomc-corpus,1983,"We do welcome you, Mr. Roberts, if you don't say too much.",16
-fomc-corpus,1983,I'm glad to be here but I make no promises.,11
-fomc-corpus,1983,"For the first hour, anyway. We might as well go right to work on the business outlook and the longer-term ranges. We may not get through that this afternoon, but I think we can get a long way. So, Mr. Kichline and company. MESSRS. KICHLINE, ZEISEL, TRUMAN, and PRELL. [Statements--see Appendix.]",80
-fomc-corpus,1983,I thought you had another page here showing the directive for the long-term targets over--,17
-fomc-corpus,1983,We're holding that in reserve.,6
-fomc-corpus,1983,"Well, that was a very full report. Let us concentrate on what the outlook is. Why don't we divide it into the real economy and prices at this point?",33
-fomc-corpus,1983,"On the real economy, if you remember your chart, although you have a rise in productivity in '83 you have a drop in productivity in '84, right?",33
-fomc-corpus,1983,"No, not a drop but a slightly smaller rise.",11
-fomc-corpus,1983,That seems like a very low growth in productivity for a period of expansion.,15
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"I'd just like to comment on that for a moment. I've been impressed by the efforts across the board of big businesses and small businesses to cut costs. And it seems to me that the break-even point of most of these businesses now is significantly lower than it was a couple of years ago. What I keep hearing is that if we ever get a recovery, we will see substantial increases in profits, and I think that means bigger increases in productivity than we might expect. It also may mean that the unemployment rate could be stickier than usual in coming down because there's going to be a great reluctance to offset some of the progress that has been made in lowering the break-even point. So, based on just casual talking to a number of people, it does seem to me that we're in for a period, if we do get a recovery, where we probably could expect a bigger increase in productivity.",179
-fomc-corpus,1983,"Well, we are faced with a situation in which our forecast is substantially under the average performance of a recovery period--explicitly, about half the rate of growth in the first year compared to that in the average recovery in postwar expansions. Second, we have been through a period in which the trend rate in productivity, at least as best we can measure it, has been very weak. Our feeling is that trend productivity may be in the 1 percent range at this point. Earlier in the postwar period productivity rates normally ran about 2-1/2 percent. So, in a sense, we're operating around a different slope. I think those two factors play rather important roles. President Solomon, we are forecasting a productivity increase of 2-1/2 percent in 1983 and of 1-1/2 percent in 1984. So, the rate of increase shown on the chart does come down a bit.",189
-fomc-corpus,1983,The reason it strikes me as low is simply based on conversations with many industrialists who have said basically the opposite: They expect relatively strong productivity gains both in '83 and in '84 because they're assuming that the recovery in '83 will not be that rapid and that the expansion will continue well into '84. And they expect to see continued productivity gains in '84 as well as in '83 at about the same rate.,85
-fomc-corpus,1983,Aren't the swings in productivity in manufacturing larger than they are for the whole spectrum including services?,20
-fomc-corpus,1983,"That's right. I think there are a couple of other points. That is one of them. I would suspect that the things we hear relate mainly to manufacturing. That's where the cost cutting is taking place and that's where we get the big productivity benefit. But this is for the nonfarm economy in total and I would suspect that there's not as much going on in the services sector, for example, as in manufacturing. The second point is that our view essentially is that, yes, the trend rate in productivity growth is improving. We expect it to improve further. We have a cautious approach. I would also say that some interesting things happened in 1982. One is that productivity started rising very early--well, throughout the whole year but very early in the recession. So, we had some adjustment for the faster trend rate of [productivity] growth that had been taking place with the massive [cost] cutting last year. The bottom line is that there are factors that cut in different ways. I think this is a conservative estimate. If it's wrong, it's probably too low. We might see much better performance than we have here.",228
-fomc-corpus,1983,"In support of more productivity I would also argue that we've got to get a considerable rise in productivity in finance. That earnings squeeze that you expect for the banks, which is only the tip of the iceberg now that we have money market deposit accounts and so forth, is going to force economization there. But it hasn't occurred importantly up to now. When you talk to bankers, by and large they're distressed by the rise in their operating expenses last year but they haven't done much about it; they say they're going to. I think that they will be forced to by events, so that might help. In addition to the industrial area, we might have some productivity improvement as a result of layoffs in finance also.",141
-fomc-corpus,1983,How do you measure value added in finance?,9
-fomc-corpus,1983,Value added?,3
-fomc-corpus,1983,I'm taking for granted there isn't any to start with.,11
-fomc-corpus,1983,You can have after--,5
-fomc-corpus,1983,Do profit margins get squeezed?,6
-fomc-corpus,1983,Net interest margins.,4
-fomc-corpus,1983,It's probably negative.,4
-fomc-corpus,1983,"Well, that may be going down. We've had comments that productivity is too low. What else is there on the business side?",26
-fomc-corpus,1983,"I wondered if I might just ask a question about the chart showing comparisons of postwar cycles on real GNP. As you commented, Jerry, this is a distinctly less rapid recovery, by a substantial factor, than the typical postwar recovery. You haven't gone back to look at the staff projections of previous recoveries, but I wonder whether there isn't a tendency to understate the recovery that actually occurs because of the obvious fact that there are dynamics in the situation that aren't foreseen at the time we start out on it. Do you have any idea?",111
-fomc-corpus,1983,"I think you're right. I don't have the numbers at my fingertips but I think in general there is a tendency to understate the vigor of the recovery. One just doesn't see the sources of additional strength. We're still hampered by that particular problem; when one looks at the various components and adds them up, one gets a rather restrained recovery.",69
-fomc-corpus,1983,"Isn't your outlook really heavily dependent on the timing of the inventory cycle? If the inventory [liquidation] ceased as of the end of last year, we could get a very large first quarter which could also push the whole year up to a higher level. I wonder if you have information from the first quarter that indicates anything on inventories yet?",70
-fomc-corpus,1983,"That is certainly true. And it does appear that the rate of inventory liquidation in the fourth quarter is larger than the Commerce Department estimated, or that we estimated as well, from the data available at that point. And that would suggest that a stronger first quarter--that is, a rebound in activity--would not be unlikely. The question is: What are the fundamental forces sustaining that growth? Essentially, the information that has become available just doesn't suggest to us that there is very much additional [strength]; it is possible that a slightly stronger outlook is in prospect but nothing has changed our view of the forces that are generating income and building activity.",128
-fomc-corpus,1983,"My point is that when the inventory liquidation quits, at that point we could get a quarter that looks very big but is nothing more than the inventory liquidation ceasing. And it could give us a rather nice growth rate even for a year, if we have a couple of fairly jagged up and down quarters as we go through the year rather than a constant growth rate.",74
-fomc-corpus,1983,That's correct.,3
-fomc-corpus,1983,"Let me make an observation. With a single exception, everybody in this room has a significantly higher forecast than what the staff has just presented. To the extent that that is only due to what Nancy was just suggesting, that you assumed bigger inventory liquidation in the fourth quarter and presumably a lower GNP in the fourth quarter of last year, I don't think it means anything. But maybe you didn't assume that. Mr. Black.",85
-fomc-corpus,1983,"Mr. Chairman, we come out on the high end of most of these forecasts. We're assuming a rate of growth in real GNP fourth quarter-to-fourth quarter of about 5-1/2 percent, and we believe it will be front-end loaded--more growth in the first couple of quarters than in the last two. We're a little more hopeful on the unemployment side; we have that pegged at about 10 percent. But we are less optimistic on the GNP deflator; we are projecting about 5-1/2 percent on that versus 4 percent in the staff forecast. And underlying this is an assumption of a rate of growth of about 6 percent in Ml. We are influenced primarily, I think, by two factors: One is that sharp recessions in the past have tended to be followed by a little faster recovery; [the second] is the sharp acceleration in growth of the money supply in the last half of 1982. We are well aware of the inferences that are being drawn from the reported abnormal behavior of income velocity of money and the inferences that are being drawn about the demand for money. But we did some experiments on this; we lagged money by one quarter and by two quarters in computing the rates of change in velocity. If you do that, it really illustrates some rather interesting things--that the drops are not that abnormal by past standards, reflecting the tendency of the money supply's effect to be lagged some time a couple of quarters later. So--",307
-fomc-corpus,1983,I think we're getting ahead of ourselves. Mr. Axilrod could promptly comment on that at this point in our conversation.,25
-fomc-corpus,1983,"Well, okay. This does get to that. But it does affect the velocity forecasted.",19
-fomc-corpus,1983,What have you lagged it--two quarters did you say?,13
-fomc-corpus,1983,We lagged it one and two quarters. And in either case there were several postwar periods--,20
-fomc-corpus,1983,Shouldn't you have had a recovery at midyear last year then?,14
-fomc-corpus,1983,"It's hard to [comment] without looking into your projections, President Black. We did the same thing; we lagged Ml and M2 one and two quarters and compared the velocity behavior of the past 5 or 6 quarters with the history of these things measured that way. With, say, M1 lagged 2 quarters--to develop M1 against GNP 2 quarters later--in the 6 quarters ending in the fourth quarter of 1982 we get an average decline in velocity of 1.1 percent even on that basis. And if you go back before 1982, you can't find any negative numbers; you can find an increase of 0.5 percent, but you can't find any negative numbers. If you do it for 5 quarters, it's the same thing. We did this for the same reason that you're bringing it up; the question was raised to us by others. We did the same thing for M2 and it shows a bigger increase in demand, even on this lagged basis. So, it's perfectly true that with lags you don't get these negative relations between money and velocity--that a rise in money this quarter generally gives you a rise in velocity 2 quarters later. But allowing for that over time we have the same kind of change in pattern on a lagged basis that we do on a concurrent basis so far as these data show us.",283
-fomc-corpus,1983,"Aren't these past data very much influenced by interest rate patterns? In the past we've had sharply rising interest rates early in recoveries. We don't assume that this time, so we ought to get rather different--",43
-fomc-corpus,1983,I was not projecting 1983. I was just looking at the past.,16
-fomc-corpus,1983,"I think we ought to go on to something else at this point, but you might be interested in these charts on lagged velocity, and maybe we can distribute them. You might tell us, Mr. Black, if you have that big an increase in GNP, where it might arise.",59
-fomc-corpus,1983,"Well, I hadn't worried too much about the components of it, Mr. Chairman. I would think that it would be mostly in consumer expenditures, government expenditures, a pickup in inventories, and not much improvement in capital and equipment. But we really expect that velocity is going to come back. I'd like to look at those figures of Steve's, because what we did was probably not as sophisticated as what he did. We had a decline in the fourth quarter, if we lagged it 2 quarters, of 1.6 percent in income velocity for Ml; and for the third quarter the decline was 2.7 percent.",127
-fomc-corpus,1983,We can return to that subject when we're discussing [policy].,12
-fomc-corpus,1983,Okay. Anyway. we projected about a 5 percent pickup in velocity and that led us to a greater increase in nominal GNP than the staff has been projecting.,33
-fomc-corpus,1983,"I think anyone with a stronger forecast, Paul, probably would have more consumption. It looks as if the personal saving rate was a limiting factor there, but we have to remember with dynamic properties that if you have more output, you have more income and then you can have more consumption and maybe not change the saving rate very much. And that's how you get a bigger--",74
-fomc-corpus,1983,The saving rate is going to go down unless we get more investment someplace.,15
-fomc-corpus,1983,"A little, but nothing like a one-for-one comparison if we got the growth in consumption with output to accommodate it.",24
-fomc-corpus,1983,Governor Gramley.,4
-fomc-corpus,1983,"I like the staff forecast for 1983 at least. And maybe that's because my numbers, which I put down in advance, turned out to match the staff's almost exactly. I look at the higher numbers that many people are now forecasting--5 percent or more for the four quarters of 1983--and I ask myself ""Why?"" I wonder if perhaps we are being overly influenced by signs that we got off to a pretty good January, judging by the improvement in nonfarm employment. I think it's quite possible that if we get off to a flying start, a momentum could develop. But I think it's just as possible that quite the opposite could happen: That after an initial burst, real GNP growth suddenly comes to a halt or at least slows down very substantially; industrial output goes nowhere; unemployment begins to rise again; and a new wave of pessimism begins to set in. I think we need to concern ourselves with that a good deal. However, in making a projection and thinking about the course of 1983 as a whole, I really think the same basic factors that led all of us to worry a month or two months ago about whether recovery was going to happen at all, and if so when, are still there. We're still dealing with a business community that is shell-shocked, that is going to play its cards very cautiously on the inventory front, that is going to wait until capacity utilization has gone up, and that is still very worried about the durability of the recovery. We're still dealing with very, very high real interest rates and very little hope that something will be done at this juncture about the deficit further out to bring real interest rates down. We're dealing with consumers who, although they've improved their financial positions, are not going to lead us out of this into a strong recovery; I think the state of the saving rate is one factor that argues against that. And I think the export markets are just very, very weak. All this adds up to a very modest pace of economic expansion. I think the staff has it about right.",416
-fomc-corpus,1983,Mr. Boehne.,6
-fomc-corpus,1983,"Well, I don't remember what [forecast] I sent in, so I don't have to worry about the consistency with what I say! It does seem to me that Chuck has a point that forecasters tend to underestimate the recovery, but they underestimate the recessions too. I think there are three things that are different about this. One is what Lyle just mentioned about the shell-shocked business community. [Second,] interest rates are still very high and this recovery still needs some nourishing on the interest rate side to make it succeed. That's for later in our discussion but however you look at real interest rates they are very, very high and that puts a damper on enthusiasm. The other thing--and it may be more noticeable in my part of the country than in some of the rest of the country--is that some basic structural shifts are going on in the economy that can have a major impact on the cyclical recovery. For example, even if we get a good recovery, the steel industry just isn't going to be what it once was because of the foreign sector. The automobile sector isn't going to be what it was. We're just not going to get the same kinds of recoveries. It's hard to measure these structural, secular kinds of things that are influenced on the cyclical side. But they do seem to me to tend to put a damper on [the recovery]. Again, I may just be more sensitive about that because of my particular District. But I think there's enough of it in the northeast part of the country that it's bound to have some impact on the national figure.",320
-fomc-corpus,1983,"I misspoke before. I don't know why I only saw one person whose forecast was down with the staff; there are quite a few who are down with the staff, including you.",37
-fomc-corpus,1983,"So, I guess I'm consistent.",7
-fomc-corpus,1983,Yes. I have all those with me.,9
-fomc-corpus,1983,There are some that are actually below.,8
-fomc-corpus,1983,"Well, there's one that's below--",7
-fomc-corpus,1983,"There have to be at least three: one nonvoting president, one voting president, and one Board member.",23
-fomc-corpus,1983,There are three.,4
-fomc-corpus,1983,You're looking at the range there.,7
-fomc-corpus,1983,Does anybody else want to comment?,7
-fomc-corpus,1983,"In terms of the real sector, the number that I have is 4-1/2 percent, as opposed to the staff's 3-1/2 percent, and it's hard for me to get too excited about those kinds of differences. But I'm inclined to the view that the inventory [liquidation] has probably run its course to a greater extent than the staff has [in its forecast]. I also think there's at least a fair potential that the housing sector will be stronger than the staff has projected as well. The area that I find a little more provocative in looking at the range of the forecasts is not so much the real numbers but the price numbers. I have a deflator number that's a little over 4 percent and I struggled a bit to get to that number. But I do agree with the sentiments that were expressed by several people earlier to the effect that productivity will be stronger than the staff forecast. In my own case, I ended up using a unit labor cost number of 2 percent on a fourth quarter-to-fourth quarter basis. Now, what's interesting about a 2 percent unit labor cost number is that if you attack the GNP from the income side, and you assume unit labor costs are going up 2 percent and you assume that unit interest and proprietors' income and all the rest do the same thing, a 5 percent rate of inflation permits something like a 40 percent increase in profit margin measures in terms of the GNP accounts. That, together with the oil price situation and the food price situation, in the context of a 2 percent rise in unit labor costs, leads me rather solidly to the view that we can, in fact, do better than 4 percent on inflation. I think it's important to do it because if we found ourselves with the kind of recovery that's being talked about here and with prices rising at a rate of 5-1/2 or 6 percent by the end of 1983, we'd have one heck of a mess in 1984 irrespective of all the problems financing the deficit is going to cause in 1984. So, I am more optimistic on the price side. I think that's solid. But more importantly, if we don't get that kind of price performance in 1983, it bodes very poorly in my judgment for 1984 and beyond.",476
-fomc-corpus,1983,"Excuse me, Jerry, but I didn't understand the logic of what you just said. Why are you more optimistic--just because it's a message that doesn't work out?",34
-fomc-corpus,1983,"No, I just went through it. I said that I attacked the question of what the inflation rate might be primarily by looking at the income side. I started out with a 2 percent unit labor cost assumption and made a bit of a subjective allowance for oil prices and food prices and then worked through the rest of it. It looks very doable to me to have the inflation rate in the higher 3 percent area--at something like 3.8 or 3.9 or 3.7 percent. I think that's very important.",109
-fomc-corpus,1983,What you meant to say was that you didn't really think the profits would go up 40 percent.,20
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"He didn't say that, but he meant to say it.",12
-fomc-corpus,1983,You said they could go up 40 percent with 5 percent or 4 percent [inflation]?,21
-fomc-corpus,1983,"No, with 5 percent.",7
-fomc-corpus,1983,"And if you make them, say, 30, that gives you--",15
-fomc-corpus,1983,"Again, that assumes basically nothing special about oil prices. Even if you take the staff's estimate of an 8 percent drop in oil prices, then in a sense it's a shoe-in. If we get a larger oil price drop, I don't know. That could get to be a problem too.",60
-fomc-corpus,1983,"On that point, that's the only place where it isn't unit labor costs. In my own case, it is the expectation of a larger oil price drop than the 8 percent, realizing that the natural gas impact is in the opposite direction if you iterate through here a $3.50 or $4 a barrel change rather than a $2 or $2.50 change. I think we tend to underestimate the impact of that iteration. And I think [a larger oil price drop] is definitely in the cards and will produce a slightly lower inflation deflator number than the staff's.",117
-fomc-corpus,1983,"Well, let me ask the question the other way, after hearing you persuasive people. What do you have to assume to get an inflation rate of 5 percent or above?",35
-fomc-corpus,1983,OPEC gets together.,5
-fomc-corpus,1983,"I'll rule that out. Well, I don't know. Is that the answer? Is that the only way [inflation] gets up there?",29
-fomc-corpus,1983,We'd have to have some very bad luck on the food front.,14
-fomc-corpus,1983,Some bad weather.,4
-fomc-corpus,1983,How bad would it have to be on food?,10
-fomc-corpus,1983,It would have to be pretty bad because the stocks are quite large at this point.,17
-fomc-corpus,1983,"We could also get it if wage rates went up more than the marginal [increase in the] staff projection, which I would assume underlies, say, Bob's higher number. You would have a bigger wage rate, [Bob]?",47
-fomc-corpus,1983,"[Yes], and I think there's going to be a big jump in profits. I don't know whether it's 40 percent--that sounds awfully high--but I think profits ought to rise quite rapidly.",41
-fomc-corpus,1983,More than 12.,5
-fomc-corpus,1983,"I think there's another side to this, which is hard to get a handle on. We've gone through the break-even that Ed talked about--the reductions in the break-even capacity, if you will. There are an awful lot of people I have talked to who, as we get into a recovery, are very anxious to raise prices. And as soon as they sense an environment in which they can raise prices, they tend to go at it with a vengeance. Therefore, we are on the high side with regard to inflation--we were on the low side with regard to real GNP--because I think we're going to see some price increases in '83 and '84 that are a little hard to forecast at this point.",145
-fomc-corpus,1983,"Yes, but lumber prices are going down.",9
-fomc-corpus,1983,Really?,2
-fomc-corpus,1983,"If we have a recovery, we're going to see a lot of commodity price increases.",17
-fomc-corpus,1983,We already are starting to see some.,8
-fomc-corpus,1983,One could add up all those commodity prices and none of them equals a small decline in the oil price in terms of impacts on the GNP. We're bound to see increases in volume--,37
-fomc-corpus,1983,"You do hear this interesting comment that we had the other day: That a lot of these prices are being discounted substantially and that businesses don't want to raise prices, they just want to get rid of the discount.",42
-fomc-corpus,1983,How do the indexes pick that up? Do they get the discount prices or is that a messy problem?,21
-fomc-corpus,1983,"Poorly, I suspect.",6
-fomc-corpus,1983,"They try, but they don't get them.",9
-fomc-corpus,1983,"So, there'd be some room for some effective price increases without it getting into the [indexes].",20
-fomc-corpus,1983,"We've had 3 or 4 of our leading businessmen tell us that [price measures are not properly weighted], when one takes account not just of the price but of the nonprice cost factors, like service and whether or not transport charges are loaded on heavily or lightly and so on. They swear that the PPI has been understating things--that the drop hasn't really captured the full extent of price deflation. There's a big gap in there. So, we have a research project going on because a number of our industrialists have told us we are--or whoever puts out that index is--full of baloney on that. May I ask a couple of related questions of the staff? Another thing I heard from a number of businessmen is that our capacity number--we put out the industrial capacity numbers that everybody quotes, do we not?",169
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"That tells us that industrial capacity is now running at 67 percent or something like that. I had a number of people, including the principal shareholder of and a number of other major industrialists who really look at this stuff, say to me that our index is really poor--not in the way we're doing the statistical work, but the meaning of it. The argument goes like this: If they really ran mills at 100 percent of capacity in the way they think we measure it, they still wouldn't make any money on some of their mills, especially those that don't have today's oil prices factored in. Any piece of equipment or any plant that's over 10 years old should not be counted as part of capacity is what they're saying. If one made this adjustment, they say that the measured total against which we measure underutilization of capacity would be lower and, therefore, we'd have a higher-than-recorded utilization rate. Related to that, one of the biggest components of our industrial production figures that we report is electricity production and other kinds of energy production, right? I don't know how big a component it is, but the argument is that with the huge jump in oil prices, even considering the recent modification, there's a trend factor toward conservation which is very strongly reflected in things like energy per unit of output overall. If one adjusted for this in thinking about industrial production, probably the last 3 months instead of being down might actually be up, net of the conservation effect. Do any of these thoughts from businesspeople make sense to you, Mr. Zeisel, or Mr. Prell, or any of you?",325
-fomc-corpus,1983,"They make a good deal of sense and they're a source of considerable concern to us, basically. In regard to the point about effective capacity and the factory that can be used on line, we have been very concerned about this and have been looking at it industry-by-industry. I must add that at this point it's quite a judgment call, but it appears to us that a realistic assessment of capacity that really should be considered obsolete or not likely to be usable would change our capacity utilization figures by about one percent. We'll know more when we get our annual survey. In that survey, we essentially ask businessmen about what they consider their real capacity and, presumably and hopefully, we get a realistic assessment at that point. Nevertheless, I'm inclined to think there's a certain amount of elasticity cyclically in any event--that as things begin to pick up, what was considered obsolete capacity may be brought back on line.",180
-fomc-corpus,1983,"Just in terms of economic logic, it would seem to me that right at that point when we had that huge jump in oil prices there should have been a substantial increase in the year-to-year change in obsolescence--just a priori.",48
-fomc-corpus,1983,"Well, that's right.",5
-fomc-corpus,1983,It did show up in the survey?,8
-fomc-corpus,1983,"Parts of it did. I don't think that one would have seen these discrete changes across the board. There is a so-called vintage effect, which implicitly or explicitly obsolesced a large part of American industry by the change in the relative price of oil. Part of that shows up. There are several things; we also look at the McGraw-Hill survey and the Bureau of Economic Analysis data that are direct industry reports. In addition, we have the cyclical problem--and the steel industry is a classic case--where the issue is how much tonnage they are writing off. We've been in contact with steel companies as well as the American Iron and Steel Institute and we have some feeling, we think, about what they are writing off in a permanent sense. Now, the issue about a hundred versus some other number, I think, is a very important one. We have perceived something like 85-87 percent as peak rates of utilization--the point at which we've really had a problem in the past. So, in terms of the current number or some elevated number--adjusted one percent or two or three percent or whatever it may be--we'd relate that to something like a mid-80's range as full capacity utilization rather than a hundred. All of this, of course, is related to prices. One of the issues is: What is the price of that final product that will bring back these mills that are now viewed as outmoded? There is a price at which these facilities are not destroyed or mothballed forever. It's a messy area. The kilowatt hours also are a problem; that was affected by the 1973 oil price increase. We have sent people around to every Reserve Bank in the last 2 years and we have a survey that the Reserve Banks collect for us and it's a mess. That is the final word on that.",378
-fomc-corpus,1983,"Assuming we have 3-1/2 percent growth in '83 and 4 percent in '84, do you have an estimate as to where we end up on utilization of capacity at the end of '84?",45
-fomc-corpus,1983,"Yes, we end up at about 74 percent as I recall.",14
-fomc-corpus,1983,Governor Teeters.,4
-fomc-corpus,1983,"Let me just make a brief comment about the use of electric power. That's really relevant on a month-by-month basis. It's far [less relevant] in the long term because electric power consumption is really used just within a year to [estimate] these figures from month-to-month. Over a longer period of time we drop out the electric power and use shipments and physical measures of activity. So, the version that resulted from the run-up in oil prices in '72 presumably is taken into due consideration by use of other than electric power data later. But to the extent that these figures distort the month-to-month [changes], as you might guess, we do have problems and have to adjust for it.",140
-fomc-corpus,1983,Thank you.,3
-fomc-corpus,1983,"Going back to the economic forecast, I added up the numbers in our projections and I must say I was quite surprised to find myself on the high side.",31
-fomc-corpus,1983,So was I.,4
-fomc-corpus,1983,"Yes, I know. In part I was surprised because it's usually the other way around. Part of it is inventories and, of course, that could hit in any particular quarter or not hit. But the other thing that struck me is that we had a considerable increase in fiscal stimulus in the last 3 quarters of 1982. We've gone from a full employment deficit of $8 billion, or 0.2 percent of GNP, to one of $60 billion in the fourth quarter, or 1.9 percent. It bobs around next year, but it's over one percent all year long. And when I did come out high, at the staff's suggestion I went back and reconciled the income side. I have higher growth in consumption, which does generate a greater increase in output. It doesn't murder the saving rate; you can come up with a fairly good saving rate. But the other thing that jumped out at me is that when you calculate personal taxes for calendar year 1983, there's almost no increase. We forget that there's a tax cut [in the offing] and it's a big one--to the point that taxes will end up in 1983 within $2 or $3 billion dollars of what they were in 1982. And we're going to get the tax cut in a period of rising incomes; it's not going to come in a period of falling incomes like it did this year--a year in which it disappeared. So, I come out on the high side. I checked all my numbers and I could shave 1/4 or maybe 1/2 point off my forecast, given all the uncertainties, but it seems to me that we have a lot of things going for us. I also assumed that the interest rates would go [down] to 7-1/2 percent, which helps considerably on an economic forecast.",379
-fomc-corpus,1983,"Nancy, what is the price outlook that goes with that?",12
-fomc-corpus,1983,"I'm close to everybody else, or near the median. I think I was at 4-1/2 to 4-3/4 percent on prices. But I do get, as a result, a much bigger drop in the unemployment rate. It pays off.",55
-fomc-corpus,1983,Governor Wallich.,4
-fomc-corpus,1983,"I think this expansion in 1983 is, to perhaps an unusual degree, a composite of strengths and weaknesses. And from rather modest strengths, a picture of an expanding economy has been put together in the face of some very powerful negatives, especially a weakness in exports and a slowness in business fixed investment. The only unusually strong element that one wouldn't have counted on in other expansions is what Governor Teeters mentioned: We have a very large deficit and we're adding to it, and that is a somewhat unusual feature. Now, if you look at the things that are slow, exports and business investment, there is something in reserve that at some point is likely to kick in--for exports, I guess, with a fair predictability, and for investment depending on interest rates and how businessmen feel and how cautious they're going to be. I think we have at least the makings of getting much more strength on the up side than seems likely. That is, the error, if any, might very well be on the down side. Maybe we are not giving enough weight to the possibilities of a combination of stronger factors. But on the down side I would say we have a variety of small elements that have carried a very modest expansion so far and seem likely to put a base under what we're likely to achieve. I don't see the danger of sagging or falling back, as it were. The caution of businessmen in the investment area to me looks more nearly like an element of strength--something that's going to change. And if it changes more in the upward than the downward direction--if we can get a rise without that happening now--I think we certainly have the makings of a continued expansion.",340
-fomc-corpus,1983,Governor Martin.,3
-fomc-corpus,1983,I wanted to raise a question on the housing forecast for the second year. Admittedly this is getting to what we here call the long run--2 years.,32
-fomc-corpus,1983,"That's the hereafter, I guess!",8
-fomc-corpus,1983,"I thought it was 2 weeks until I read this document. In terms of the second year, Jim, it seems to me that there are some lower ceilings in certain other resource areas. We have had shifts of resources out of the housing [area]--certain of the major supplier firms. I wonder if we won't reach a lower limit this time than 1.75 million. That looked like the good old days to me. Do you have any feeling about that?",95
-fomc-corpus,1983,"Well, that could be. As you know, our housing starts forecast for 1984 is an average of a little under 1.7 million. That isn't the days of 2 million plus numbers that we had. So, that's one element in our thinking. Another is that we think housing will still be rather expensive in terms of mortgage rates being high and capital appreciation prospects perhaps not being as great as in the past. So, both from the production side and the cost and financing side, it seems to us that there are reasons to believe that housing won't really take off as in ""the good old days."" But I wouldn't view a 1.7 million number 2 years out as being terribly strong given the pent up demands that presumably are there and the demographic factors. It's pretty much a forecast that I can be comfortable with at this point in time.",174
-fomc-corpus,1983,"And you are on the cautious side with regard to the expenditure growth, I noticed, in the residential area for 1984 and that's a comforting--",30
-fomc-corpus,1983,"Well, that's part of it too. The argument is that people are building smaller houses and that sort of thing.",23
-fomc-corpus,1983,Hence your 9 or 10 percent increments quarter-by-quarter.,13
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Mr. Ford. No, you already spoke. Does anybody else want to comment? Let me raise a question, Mr. Kichline. If you look at your forecast beginning now in this quarter of '83 for a year ahead, is that substantially different than the forecast you had in the beginning of the second quarter looking a year ahead?",69
-fomc-corpus,1983,Beginning in the second quarter of--?,8
-fomc-corpus,1983,Of '82.,4
-fomc-corpus,1983,I think that's a question that I don't have the answer to here. I'm not sure I want to remember!,22
-fomc-corpus,1983,"It's a point not to be precise about, but my memory is that you had a forecast of a fairly gentle recovery beginning in the second quarter during the year ahead.",33
-fomc-corpus,1983,You're talking about our projections of the spring of last year?,12
-fomc-corpus,1983,Exactly.,2
-fomc-corpus,1983,"That's right; we had forecast a modest recovery. So, we did not put in the second-half downturn. If that's the question, you're right.",30
-fomc-corpus,1983,"Well, I only raised the question because I detect a quite different tone in this meeting from only a month ago. Everybody is assuming, or has forecast at this point, a recovery. I would point out that I'm not sure that's in the bag; one could have made exactly the same forecast--whether or not you did, I think you did--nine months ago.",74
-fomc-corpus,1983,I think all the rest of us did too.,10
-fomc-corpus,1983,"In April and May, I think that's right.",10
-fomc-corpus,1983,"I said one could have made that forecast nine months ago. A lot of people did. What we had at that time as I recall were low automobile inventories and some recovery in automobile production and the beginnings of a housing expansion, following two quarters of large inventory reduction.",53
-fomc-corpus,1983,There was tax stimulus.,5
-fomc-corpus,1983,And a tax stimulus coming up.,7
-fomc-corpus,1983,"Which leads to the question: What is different now that is driving this forecast? Certainly, interest rates are different. What other kinds of--",28
-fomc-corpus,1983,Interest rates are lower now.,6
-fomc-corpus,1983,Businessmen 9 months ago were not as cautiously optimistic as they are today.,16
-fomc-corpus,1983,They were less cautious and more optimistic in my mind.,11
-fomc-corpus,1983,I think so. As a matter of fact they started in July to produce for the upturn that never materialized.,24
-fomc-corpus,1983,"Look, I think we're in a recovery. I just say that one month of upturn does not a recovery make. And the most recent trend in automobile sales--I don't know that it means much, but it's down, not up. Automobile production is now up very close to sales. They have a lot of incentive programs going on. We know some sectors of the economy are declining and there are also plus factors in the economy. We'll see.",90
-fomc-corpus,1983,"Mr. Chairman, I just want to raise a question to perhaps lay a base or understanding for future discussions. If I understand the assumptions underlying the staff's forecast, an 8 percent M2 growth after the first quarter translates into your figure of 8.8 percent M2 growth for 1983. Is that correct?",66
-fomc-corpus,1983,Are you referring to the so-called underlying growth rate?,11
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Yes, we now think the first quarter is more like 8-1/4 percent, given the growth rates we got with the new seasonals and the definitional adjustment. So for the year it is somewhere close to 8-1/4 percent, or a little over 8 percent.",61
-fomc-corpus,1983,"We've done a certain amount of talking about the business and the price [picture] and we haven't done any explicitly, except some mention of exports, on the international side or on the credit side. The credit side I think we're going to have to return to in terms of setting targets when we decide what we want to do there. But does anybody have any questions on the international side or on the fiscal side or the credit side? Mr. Balles.",91
-fomc-corpus,1983,"If I may, Mr. Chairman, I have a question on each. I would ask Ted Truman, and perhaps you already told us, Ted, and I didn't follow it, so could you tell us again if you did before: What is going to cause the dollar to depreciate in '83 and '84? That's a very crucial assumption in this forecast.",73
-fomc-corpus,1983,And it comes down to--,6
-fomc-corpus,1983,"A month ago I think I would have told you that some decline in U.S. dollar interest rates might do it. And then we've had this marking up. The major [factor] that we have been pointing to for the past year or so, or half year anyhow, is the prospect that the already large current account deficits that we are projecting would be even larger if we didn't have the dollar depreciation and that as a result that would just tend to be unsustainable in terms of the rest of the world absorbing that amount of net claims on the United States over a relatively short period. And the prospect is that [the deficits] will continue. That, I think, is essentially what you have to consider--plus some washing out of the safe haven argument that was more dominant the last part of the year.",162
-fomc-corpus,1983,"Well, that's a very tough question to answer and I was really wondering what the international staff here thought and whether there was some assumption or view that they had with respect to relative movements of interest rates here versus abroad and relative movements of prices here versus abroad. Do you care to comment on that?",59
-fomc-corpus,1983,"On the interest rate side I provided a chart. On the inflation side we think we'll be doing a little better, [which would] build up the attractiveness of U.S. assets. These forecasts aren't that scientific or precise but, if anything, we would conclude that we might get more in the way of interest rate declines abroad than is implicit in the Bluebook forecast, which does suggest that relative real interest rates are going to be higher. We think, if anything, they'd move somewhat higher in the United States which is why, as I said in my concluding remarks, one might argue that there might be something more in terms of financing that would come out of the private capital flows than one could really see in the historical data. That's the basis on which one might argue against [a dollar decline]: That people would be willing to continue to acquire claims on the United States or acquire dollar-denominated claims to such an extent that we would not get the decline in the dollar in 1983 that we're projecting and the much larger current account deficit and drag on U.S. GNP on the export side associated with that. If you took the dollar as it was and kept it at that fourth-quarter level, which is the bottom line of that chart, that [equates to] about 1.3 or 1.4 percent of GNP at the end of 1984. That is a large component, essentially, of the difference between the growth rates that we have in the staff forecasts for 1983 and 1984.",309
-fomc-corpus,1983,"Thanks, Ted. The reason I was probing on that point, Mr. Chairman--if I remember my own staff's analysis--is that about 40 percent of the drop in real GNP in '82 came from a deterioration in the net export sector. So, this is really terribly crucial to the outlook.",63
-fomc-corpus,1983,"There is no question that we are in a period, I think, without precedent--Mr. Truman can think of all the precedents while I assert this--in that we have had a big recession here and the foreign [trade] balance is declining instead of improving. Usually the balance improves during a recession. And it is a very large fraction of the share of the decline in GNP. If you want to make horror stories for this year, go along the line perhaps of your reasoning: The exchange rate remains high; the trade balance gets even worse than projected; we get a big government deficit holding up interest rates, let's say; and we have a lot of foreign financing of the deficit. The result would be that we have a mess in the economy: relatively high interest rates, relatively high exchange rates, and for both reasons not a good trade balance and not a good [performance in] other sectors of the economy. Governor Wallich.",190
-fomc-corpus,1983,"I wanted to follow up on this. While I basically share the staff's view about the dollar, nevertheless, one has to bear in mind that our prospective current account deficit is not the kind of deficit that historically has caused currencies to go down. It's not the result of domestic mismanagement, inflation, and so on. It's the result of forces that otherwise strengthen the currency--reduction in inflation and tight monetary management. So it's not quite clear that under those conditions a current account deficit is bound to depress a currency the way it does when that deficit comes from other factors. I still think the chances are that it will, and so I share the forecast. But I think one has to bear the other possibility in mind.",145
-fomc-corpus,1983,Mr. Balles.,5
-fomc-corpus,1983,"Mr. Chairman, I have one other question, if I may, and that's related to the financial aspect of the fiscal material. If I could, I'd like to ask Mike Prell a question about a chart in this area, the first chart in his section on the federal government share of total credit flows. This is a technical question, Mike: Does that include or not include off-budget deficits?",80
-fomc-corpus,1983,"It covers off-budget items in the sense that it includes all U.S. Treasury borrowings. It doesn't include sponsored agencies, loan guarantees, and other federal credit programs.",34
-fomc-corpus,1983,"The other question is, I guess, more analytical and substantive: Is there a risk, not recognized perhaps in our Board staff, Bank staff, or [Committee] members' forecasts here, that we really are sailing into uncharted seas with this huge proportion of the total pool of credit--the bulk of it--absorbed by the federal government? I'd like to know your answer. My hunch, Mr. Chairman, is that that supports your degree of skepticism about whether in fact the recovery is in the bag. There are two things that could upset that recovery: the depressing effects of interest rates that are still pretty high both on a nominal and a real basis compared to historical levels, and secondly what might happen when such tremendous shares of credit get soaked up by Uncle Sam in periods of economic expansion. I'm worried about the crowding out phenomenon. Is that something I should worry about?",178
-fomc-corpus,1983,"If I may just tack on: On that chart we're talking about, right about now the federal government share of total credit flows is at an historic high. For a few weeks it's zooming skyward and all of a sudden it levels off, while your forecast projects continuing increases in the deficit, including the structural part. How do those things add up in the flow of funds [accounts]?",78
-fomc-corpus,1983,The other side of this is Nancy's fiscal stimulus. Don't forget that. That's the counterpart of this.,21
-fomc-corpus,1983,"But does fiscal stimulus mean the same thing if it's financed through monetary policy? One of the reasons we have higher real rates, I think, is the deficit. Whatever dollar you get on fiscal stimulus either results in some higher inflationary expectations or higher real rates.",52
-fomc-corpus,1983,"Would you like to answer Mr. Ford's question, Mr. Prell?",16
-fomc-corpus,1983,"There is a complex of things here. In terms of the way the chart looks, plotted as it is, we picked up this sharp rise in the latter part of the recession. The large amount of borrowing that occurred in the latter part of 1982 is at a rate roughly comparable to the kind of borrowing we're anticipating will continue over the next couple of years of financing $200 billion deficits. At the same time we have some slight increase in the overall size of credit flows. Total borrowing by domestic nonfinancial sectors was $413 billion in 1982 and we have it going up to $452 billion in 1983, which is essentially just the increase in government borrowings. And then it's up to $497 billion. So the flow is growing, but its growth is slight. The proportion remains rather fixed. But returning to the question that President Balles asked, I think our whole projection has to be recognized as being in the context of a monetary policy that we still regard as reasonably restraining on the growth of nominal GNP. We do have continuing pressures sustaining what are, in effect, high real short-term interest rates. And that does lend itself to an unusual type of economic recovery. We have reasonably weak investment in the first half of this recovery. Housing starts do move back up, but it isn't a tremendously robust improvement we see going into 1983 and 1984. So the composition of risk and the credit flows that we have do reflect, I think, this crowding out phenomenon in the context of a restraining monetary policy that's still aiming at, and should achieve, some deceleration of inflation in the context of moderate growth.",333
-fomc-corpus,1983,Mr. Corrigan.,5
-fomc-corpus,1983,"In this flow of funds chart, for example, you don't have the business borrowing by '84 getting anywhere near where it was even in '81. I have the same problem: As I look through this in terms of the sources and uses, it's almost inconceivable to me that you could produce the kind of growth that you have there without putting a lot more pressures on interest rates than--",79
-fomc-corpus,1983,It's that 40 percent increase in profits!,9
-fomc-corpus,1983,"The short-term interest rates in our forecast recede only very slightly at the same time that the inflation rate is edging downward. At current levels one would assess short-term real rates as being rather high. And if it's hard to assess the long rates, then certainly relative to the current inflation rate those too are very, very high. So, we have a rather restrained outlook for capital spending.",78
-fomc-corpus,1983,Any more questions?,4
-fomc-corpus,1983,"One other thing, while we're on this page: Given the growing interest of the Committee in credit aggregates as a possible way of tracking or influencing real performance, could you say just a little more about that very unusual divergence between the growth of domestic nonfinancial debt and GNP?",55
-fomc-corpus,1983,"I think that's a good question, but let's defer it until we get to [the discussion of] the targets because it goes right to that question of where a credit aggregate, if we use it, should be in the light of history. Is there anything else just on the general business picture, the international picture, or the fiscal picture? I would summarize my own view on this in a way that John Balles probably [was getting] to: There are a lot of reasons why the price outlook looks pretty good; the business outlook looks pretty good except for the budget deficits ahead and except that the international outlook is a hazard, and except that we still have [potential] problems with real financial disturbances, internationally and domestically, which I'm afraid will be aggravated at some point by too sharp a decline in the oil prices. We have a little problem that has been alluded to here as to how aggressive both labor and business will be in their pricing as the economy expands. I've been relatively optimistic about that but I don't know if there's any basis for being relatively optimistic. If Mr. Keehn is right--I think you were the one who commented on that side--then we have another problem. If everybody's going to be very aggressive [in their pricing] with six months of rise in new orders, I don't know where we are [going]. Only time will tell, I guess. Let us turn to Mr. Axilrod. If you can clarify all this in a statement shorter than the remainder of our available time, my congratulations.",310
-fomc-corpus,1983,"Well, the statement will certainly be shorter.",9
-fomc-corpus,1983,I'm sure of that.,5
-fomc-corpus,1983,"I might say well in advance, because it relates to a question that was just raised about credit, that throughout this all of our money assumptions and our credit assumptions are in some sense high in terms of rates of growth. It came through in President Black's question about velocity and its lagged effects. They are all, over 1983, high relative to what one might have expected looking back at historical patterns in previous cyclical periods. That carries through to Ml. To a degree it carries through to M2, though it's hard to interpret that extracting from the shifts because M2 is such a different animal, given interest rates. For that matter it's hard to interpret Ml. It carries through to M3 and it carries through to total credit. So, we're getting a somewhat smaller increase in nominal GNP relative to the increase we're expecting in all of these aggregates. And, of course, that is what happened last year. We got enormous drops in the velocity of all these aggregates last year. We don't have anything like that [projected for] this year, but there's some sense of a little less lift in GNP relative to the aggregates that carries through into this year. [Statement--see Appendix.]",243
-fomc-corpus,1983,"You indeed finished before exhausting all our time. How successful members of the Committee were in following the complexity of your statement, I'm not absolutely certain. As you were talking, I wrote down some observations and questions. I think what Steve has said is right in our traditional framework, with all the appropriate qualifications. It assumes we're going to have targets on these various things, as we've discussed before. And we will look at velocity hypotheses to set them down. Let me just make two assertions to start with--or one assertion with two subdivisions. I don't think we have any escape from an unusual amount of uncertainty --uncertainty in the technical sense--in approaching this subject right now. I will assert, and I think it is true no matter how you lag these things, that velocity is off the map, as Steve indicated at the start, so far as 1982 is concerned and because we have all these uncertainties about shifts. But I also think there's a more basic uncertainty about the economy, which was reflected in our earlier discussion--the international dimensions, the deficit, the ""financial crisis"" possibilities. [Those concerns] are there. Against that, let me raise some basic questions and then some operational questions. I suppose the first basic question, which we more or less disposed of last time, but I want to repeat is: Do we need these targets at all either legally or economically? I think we tentatively said yes, we should go ahead with them. And by targets I'm talking about these monetary targets; one can conceive of some other kinds of targets. A subsidiary question is: How firmly should they be put forward and on what basis do we change them as the year progresses? And in evaluating that decision: What do we see as the risks with respect to the economy or to inflation, particularly whether they're asymmetrical, in playing our hand? As part of that I suppose a question is: What concern do we have about interest rates, whether or not we target them? Those I see as general questions on which we have to reach some consensus. And then, assuming we're going to have monetary targets, we have those questions about which one we emphasize, what we do with the shifts, what the base is for M2, how much weight we put on Ml, and how we treat this credit aggregate. Probably other questions will arise, but I think those are all operational. This draft directive takes one stab at trying to answer the questions, reflecting pretty much the state of the discussion as I understood it after our last meeting. With that much introduction, I would appreciate some comments on what I characterized as the more basic questions. Maybe we just ought to discuss those a little before we get into which target, which base, and so forth.",552
-fomc-corpus,1983,"May I ask a question before we get into that? Picking up on the uncertainties, what do you see are the main uncertainties as far as the DIDC is concerned? Do you see a good chance, for example, of a business Super NOW account coming along or other kinds of changes that would--?",61
-fomc-corpus,1983,"Oh, I don't know. I would guess against it, but I'd put the odds at 60/40 or something against. But I tell you, with all the other uncertainties, I see that one as about 18th on the list although it would obviously affect M1 if the DIDC did it.",63
-fomc-corpus,1983,"Yes, it would affect the Ml target.",9
-fomc-corpus,1983,"It's a subsidiary question to ""What do we do with Ml?""",13
-fomc-corpus,1983,"There is a new development that is relevant to that: The Fidelity Fund is introducing a new money market fund that will offer unlimited checking. There will be no service charge but the cost of handling the checking would be deducted from the revenue. So it will have some [lesser] flow of yields than their present funds. If others follow, then quite clearly they could force the commercial banks into competing, which they haven't done yet, on the Super NOW. That would also force us, of course, to determine how we would treat this new money market mutual fund in Ml. Presumably that would be open to businesses and that would give those in the business community a vehicle for having an interest-bearing checking account if they wanted it.",146
-fomc-corpus,1983,"I don't want to impose too much order on the discussion, but I will deem those questions as appropriate when we get to the question of what we do with Ml. I'm thinking of the more general questions of how we evaluate the general risks in terms of the very broad strategy of how we play this and what kinds of targets we want and how firmly we adhere to them. Governor Wallich.",78
-fomc-corpus,1983,"I'd like to put forth just two or three very simple propositions. I think the case for money supply targets remains that they are a better protection for the central bank than other forms of targets or no targets at all. Even though the experience we've had in the past year might disillusion one quite substantially, and even though one might have believed all the time that it's interest rates and not the money supply that govern the economy, I think the Congress has given us this mandate to use money supply targets and an opportunity to do something that is publicly much easier to defend than an arbitrary setting of interest rates. So, I would continue with the targets. I think the uncertainty that has been revealed during the year in terms of the behavior of velocity is so great that we do have to give ourselves more leeway. But I would look for that leeway in a wider range around the midpoint that continues to be whatever we think is the most likely single course for that aggregate. If instead of 3 percentage points we have 5 percentage points [as the width of the ranges], it seems to me that under the circumstances, given what has been observed by the public about the aggregates, that would be acceptable and understandable. Our task, then, would be to arrive at some conception of what the midpoints are of the aggregates on which we want to target. I think we can either put M1 on ice temporarily or make it relatively innocuous by having a wide range around it that gives us flexibility. And we could have additional flexibility by saying that at midyear we may want to review that. That may be a trade-off, so to speak, for a lesser width of the ranges.",336
-fomc-corpus,1983,"Let me just insert an observation here. I don't know how many of you read the Economic Report [of the President], but it went through various iterations before the final version was produced and I didn't read the final version. So, I speak projecting changes that were made in earlier drafts. As originally written, it had a very great retreat from certainty of monetary targeting, without any question, because it recognized the changes in velocity. It basically took the position that you have to blend targets with judgment. In some earlier drafts it came very close to saying what we should do is target nominal GNP, which is something that at our last meeting we pretty much decided not to do. I think that has been toned down as the drafts proceeded but there is still some implication of it I suspect. But that's the way they kind of get out of this box: You have to be reasonably flexible with the targets and look very hard at GNP and inevitably forecast, I think, the GNP in setting the targets or in altering the targets. Governor Partee.",210
-fomc-corpus,1983,"Well, I find myself in substantial agreement with Henry. I think we do need to continue to target the aggregates. I believe it is an opportunity--and also there's plenty of basis for it--for widening the ranges. In addition the tone of the Council [of Economic Advisors] report is that you have to be flexible. They didn't exactly say target nominal [GNP]. I just read that before I came into the meeting.",86
-fomc-corpus,1983,I'm sure they didn't exactly say that.,8
-fomc-corpus,1983,"They didn't exactly say target, but they said steer by nominal GNP and to the extent that we seem to be achieving a result that is not consistent with what we wanted in nominal GNP, be prepared to change our targets. Well, some notion of uncertainty and of that kind of flexibility could very well [be read] into it. The only thing I disagreed with [Henry on] is that although I wouldn't target primarily on Ml, as previously we did, I do believe that M1 so far has stood up a little better than the other aggregates. And, therefore, I see no reason, as he commented, for benching it for the time being or sidelining it. I see no reason for doing that so long as we leave in the caveat that if the DIDC does something big, that target, of course, will have to be changed.",176
-fomc-corpus,1983,"Let me just make a distinction there, as a footnote to what we said. Right at the moment M1 may be standing up better as a technical matter; it's not as distorted by these institutional things. It is at least as far off in its velocity over the past year as the other measures. They all are.",65
-fomc-corpus,1983,But I don't see that there's an awful lot to choose from.,13
-fomc-corpus,1983,"No, it's probably neither more nor less over the next few--",13
-fomc-corpus,1983,Even the credit aggregate is way off.,8
-fomc-corpus,1983,"But even if you keep an M1 target, Chuck, you would deemphasize it and say that--",22
-fomc-corpus,1983,"Yes, I wouldn't target primarily on Ml.",9
-fomc-corpus,1983,--basically the reserve path is drawn on the basis of derived M2.,16
-fomc-corpus,1983,Governor Gramley.,4
-fomc-corpus,1983,"I think the situation presently is one in which we have to regard our principal objective for 1983 as making sure we do whatever is necessary to permit a recovery. And we have to be awfully careful in defining our financial objectives to make sure that we keep that in mind. Having said that, I still think it's important for us to continue using quantitative targets of some kind. If we go in the direction of trying to target on interest rates, we will be sending signals that we have changed our fundamental long-run objectives of policy. I agree with Henry completely on that. And I think if we start targeting on interest rates, any hope that we're going to make progress on the budget is going to go right out the window because Congress is going to say ""Well, if you can do all those good things on interest rates, then what's the point of our being more disciplined?"" In thinking about the targets, I have come to the conclusion that Ml ought to be confined to the nearest waste basket at least for the next 5 years. When I look back at 1982, I don't think this decline in velocity is an accident. The 8-1/2 percent increase we had in M1 over the four quarters consists of a 3-1/2 percent increase in old Ml, which is the measure on which we based all of our historical relationships between M1 and GNP, and a 35 percent increase in other checkable deposits. My point here is simply that we have no real idea whether this new composition of M1 will give us a cyclical and secular pattern of M1 anything like the old one or not. And the Super NOWs, of course, make it much worse no matter how much shift adjustment we make for them. So, I think we're in a position in which we ought to give zero weight to Ml and ought to concentrate our attention on the broader aggregates. And I think there's much to be said for using a credit aggregate in some way; I don't think we can use it for a target in the same way we've used the monetary aggregates because we simply do not have the kind of data availability, much less capacity to control it. But using it as an information variable--telling us where we have been, giving us additional flexibility in adjusting our monetary targets as the year goes on--is potentially a very valuable use of that kind of financial variable. Also, if we focus on a total nonfinancial debt variable the way the staff has suggested, it also has the other very substantial benefit of in effect saying to the Congress: ""Look, if the number we're shooting for is, say, $450 billion, and the federal government is taking $210 billion, then we only have this much left for the private sector and anything you can do to bring down the deficit will increase private credit availability.""",571
-fomc-corpus,1983,May I ask the staff a technical question? Do we have the same velocity problems with the old M1 that we do with Ml?,27
-fomc-corpus,1983,I will defer that question until we get to setting the targets.,13
-fomc-corpus,1983,I'm just curious.,4
-fomc-corpus,1983,"Well, restrain your curiosity until we get to setting them up. Mr. Balles.",19
-fomc-corpus,1983,"Generally, along with Governors Wallich and Partee, I feel that, yes, we do need to have some kind of monetary targets. The key questions, of course, are what degree of emphasis and what range we should use, etc. Taking a leaf from your book, Mr. Chairman--you mentioned that we could have made the same economic forecast in the spring of '82 that we're making now and that the thing blew up on us--I would caution that the big surprise that we've had since our December meeting may be that M2 was the aggregate that was hugely impacted and that Ml wasn't. That isn't necessarily settled in cement, though; that could change. I'm not sure why or how or when [this might blow up on us] but, frankly, I would reserve judgment as to whether the relative stability that we see in Ml, which is a big surprise, is in fact something we can continue to count on. Although I would like to see Ml included--Steve has given us both the pros and cons of doing it--I would be cautious and at a minimum defer judgment until the spring of the year, perhaps in April, about whether we're going to have an Ml target for 1983 at all. I would add another thought--maybe piggybacking, if that's the right word, on Steve's point--that there's a good case to be made for using the first quarter as a base for M2. The same logic that led him to that conclusion would lead me to the conclusion that if we are going to use Ml, we perhaps could consider the first quarter also as a base for the year even though there haven't been any big changes, net, so far.",341
-fomc-corpus,1983,"If I can interrupt. I think you're getting a little ahead of this, John. All I'm interested in at this point are broad observations about the targets and how we deal with them.",37
-fomc-corpus,1983,"Well, I don't think there's a need to go around the table. We went over this in great detail.",22
-fomc-corpus,1983,"Well, we'll find out whether there's a need to go around the table. You can make an observation if you care to make an observation.",28
-fomc-corpus,1983,"Okay. I don't think that there's any alternative to having some kind of broad targetry. There's nothing to put in its place that's acceptable to the Committee, as we know from earlier discussions. Now, if you don't want to get specific, then I have to stop there.",55
-fomc-corpus,1983,Any other comments on this?,6
-fomc-corpus,1983,"In terms of this question of how firmly we put forward the targets, which I obviously think we need, I certainly would favor the direction that I think is implied in Steve's comments and your own, but I'd be inclined to go maybe even one step further. And that is, in your testimony at least, in some carefully construed way, I'd suggest that we might indeed use the GNP as a bit of a steering mechanism. Again, I don't want to get trapped into the business of saying we're going to use it for a target, but I do think there is something to be said for getting a little more flexibility into the approach by saying that we're more willing to look at GNP and be guided by it rather than trying to make the case for flexibility simply on the basis of all these technical arguments about the components of the Ms, which people don't understand or care about. The one other point I'd like to make quickly, in terms of asymmetry or lack of risk, is that at this point I do see a somewhat asymmetrical risk in one sense on the up side. But I can't ignore the fact that if one of the things that you and others have mentioned goes wrong on the down side, while the probabilities of that may be smaller, the implications are much larger and we'd really have one heck of a mess. So, I have some asymmetry in my evaluation of risks; it's asymmetrical in its own right.",287
-fomc-corpus,1983,Mr. Morris.,4
-fomc-corpus,1983,"My asymmetry is in the opposite direction. I think a need for an intermediate target will really be important when we get to the point where we have to start pushing interest rates up to prevent an acceleration of inflation. And it seems to me if there's one lesson from the last 3 years, it's that having an intermediate target gives us a good deal of political shelter that interest rate targeting does not. I think the public did have a perception that it was appropriate to decelerate gradually the rate of growth of the money supply and I think we could generate a perception on controlling the rate of growth of credit. But if we suggest [we are] sitting out there managing interest rates, we don't have that public perception going for us.",147
-fomc-corpus,1983,I'm not sure whether I understand what your asymmetry is.,12
-fomc-corpus,1983,"I understood that Jerry thought the real problem of risk was on the down side. I think in any liquidity crisis this Committee is going to say the heck with the guidelines, we're going to put enough liquidity into the system to take care of it. And politically that will never be a serious problem. The real problem comes when, say, in late '84 or '85 we have to push interest rates up. If we don't have something we can point to that's demanding that we do this in the public interest, I think we're in trouble.",108
-fomc-corpus,1983,That's why you want to keep targets.,8
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Do you also want to make the target relatively tight, whatever that means, at this stage?",19
-fomc-corpus,1983,"I want to make the target meaningful in the sense that I think our problem in the last year or two was that we have been in a situation where we had to abandon the M1 targeting two times out two years. We were presumably following the shift adjusted Ml in 1981. That came in very low and we decided not to bring it within the range. I think that was a sensible decision, but it did mean that we were not targeting at the end of the year what we planned to target at the beginning of the year. [Last] year we also made another sensible decision not to try to force Ml back [down to] within the top of the range, which I think would have been disastrous. But we lose a lot of public [understanding] and strength from having an intermediate target when we have to keep abandoning it because the darn thing is getting the wrong--",178
-fomc-corpus,1983,"Yes, but I guess I'm lost. What do you conclude now for '83 on the basis of all this?",23
-fomc-corpus,1983,"I conclude from this that we should go to targeting some broad aggregate, which is not--",18
-fomc-corpus,1983,Other than Ml?,4
-fomc-corpus,1983,[Other than] Ml and M2. I don't think we could set a guideline for M2. I think the only one of the Ms that's left that has any validity--and by validity I mean something that is not going to be dominated by financial innovation--,53
-fomc-corpus,1983,What is it you are arguing for--M3 or L?,13
-fomc-corpus,1983,"M3, L, or debt.",8
-fomc-corpus,1983,"You want a firm target for a very broad aggregate, then.",13
-fomc-corpus,1983,Which we can't achieve.,5
-fomc-corpus,1983,"We don't have any influence on those, really.",10
-fomc-corpus,1983,I think we can influence them just as easily as we can Ml. There's a mythology around this table that we have an extremely tight control over M1. I think it's a lot of nonsense.,39
-fomc-corpus,1983,We don't have any control over credit.,8
-fomc-corpus,1983,Governor Rice.,3
-fomc-corpus,1983,I don't believe that. I don't believe that.,10
-fomc-corpus,1983,"Well, Mr. Chairman, I agree with a good deal--in fact most--of what has already been said. Particularly, I agree with Governor Wallich and the view that we ought to continue targeting the aggregates and should avoid explicit interest rate targeting for the essentially practical reasons that he set forth. I would like to emphasize, though, that we ought to keep in mind at all times what we consider to be a desirable level of real interest rates and, while we do not make these explicit, I think we ought to continue to look at interest rates and keep in mind what range of rates we think would be consistent with the results we would like to get. I especially agree with Lyle that we ought to keep in mind that the main thing we have to achieve now is to get a recovery going and to try to nurture that recovery. Therefore, as we target aggregates I would favor setting targets for Ml, M2, and M3, as well as domestic nonfinancial debt. I would want to remain very flexible in my view of which aggregate was the one to target on at any particular time. I would want to make it very clear in our public statements and in the record that we feel free to shift from one aggregate to another depending on its usefulness. If we find that M3 is more useful than Ml or vice versa, we should feel free to make that shift in emphasis as we have in the past. I would not at this point be prepared to throw Ml in the waste basket. When things settle down six months from now, it may turn out to be a much more useful aggregate to target than it is today. So, I would emphasize two things: (1) we should maintain our flexibility and our right to choose and shift the emphasis from one aggregate to another from time to time; and (2) that we not take our eyes off of interest rates.",379
-fomc-corpus,1983,Governor Teeters.,4
-fomc-corpus,1983,"I agree with Henry for a change and, Governor Partee, I do like the analogy of the fig leaf you cited last time. I do think that the monetary aggregates provided a very good political shelter for us to do the things we probably couldn't have done otherwise. I don't see that we can move to a very broad aggregate and have any influence on it because I don't know what the relationships are to GNP in these cases and I don't think we have the instruments through reserve management to affect to any marked degree the growth of those very large aggregates. So, I can live with monetary targeting for another year. But I do have one major plea. I agree with all the [comments] about wide ranges and flexibility. I'm not so sure we should hopscotch from one to the other, Emmett, but if we have to we might--",170
-fomc-corpus,1983,Why not?,3
-fomc-corpus,1983,"I don't know, but I think it'll break down a little.",13
-fomc-corpus,1983,But it sounds like we would take the one that we're within [the range].,16
-fomc-corpus,1983,"I don't know why we can't, if we explain in the record why we are doing it.",19
-fomc-corpus,1983,"Now, that's my major point here. I think we caused a lot of disturbances in the market last year that weren't necessary by not telling people what we were doing. It was pretty obvious by midyear, and certainly by fall, that we needed to change the targets. We have consistently refused to change targets from the original specification of them 18 months in advance. If we had gone ahead and said that due to technical factors and due to liquidity we are going to change the ranges by a certain amount, it would have settled a lot of the uncertainty in the market. I think interest rates would have started coming down in March of last year instead of jumping off a cliff in July. If we do go this flexible route, I think there is an increased responsibility to be very open about what we're doing and to make it public; it seems to me we should tell people exactly what we're doing or what we're trying to do and why we're trying to do it.",192
-fomc-corpus,1983,Mr. Black.,4
-fomc-corpus,1983,"Mr. Chairman, my position probably will not surprise many people, but you may see that I have an unusual degree of flexibility this time. I think we ought to continue to target the aggregates and I think we ought to include Ml in that for a couple of reasons. For one thing, it has been less distorted. That may not hold over the long run; I don't know. We can address that if it doesn't. I think it's important for our credibility that we put M1 in if at all possible, but I do think there's substance in the arguments made by those who say that it's going to be a little different kind of beast than we've had in the past. So, I would widen the range on the up side because it's probably going to contain a larger element of savings and also because it has grown so fast that I don't think we can risk decelerating it that fast without jarring the economy and knocking off any recovery that may be developing. And if we should try to use Ml, then I think that ought to be the main basis for constructing our target paths because we found out M2 doesn't work very well. We could, I suppose, use a target shadow reserve requirement, as Steve suggested in the memo last time, of 4 percent or something like that. But the truth of the matter is that even though we've gone through the motions, we really have not been doing any kind of reserve targeting during this period. In fact I argued that we really ought just to admit we were pegging the federal funds rate, which is what I think we've done and I think that was appropriate during this period of uncertainty. But if we're going to get back to reserve targeting, it has to involve something that is to a large extent reserveable.",354
-fomc-corpus,1983,Mr. Roberts and then Mr. Solomon.,9
-fomc-corpus,1983,"Mr. Chairman, I'm very conscious, having just left the private marketplace, of the fragile position of commercial banks and also the concern over large government deficits. But I think that another major concern out there is that the Federal Reserve System not sort of operate without any guidelines. I think that the market expects specific guidelines and, if we don't have them, there will be an anticipatory effect in the market that will be negative in terms of interest rates. I would, therefore, strongly favor our maintaining targets for monetary aggregates. It appears to me from my very limited ability to study this matter that M1 has exonerated itself extremely well during this period and, on the assumption that velocity will return to a normal pattern, I would hope that M1 would be very strongly represented in those monetary aggregates.",160
-fomc-corpus,1983,Mr. Solomon.,4
-fomc-corpus,1983,"In addition to targeting M2 and M3, I have a slight preference for continuing to target Ml but I'd make it clear that we are continuing the present policy of deemphasizing it. If we do not say that, we are going to return to a situation where the markets are mesmerized by the Friday numbers and we're going to have a lot of volatility again and we're going to feel much more handcuffed. I think we do have the need for the kind of flexibility that we have demonstrated in the last few months, so I could live either with dropping M1 or leaving it in. We can leave it in but I think it's essential to make clear that it is going to be deemphasized and that basically there's no perception that we're making a significant shift from the present conduct of monetary policy back to a stricter monetary targeting.",169
-fomc-corpus,1983,Would you accept deemphasizing it for now?,10
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"""Now"" is the emphasis?",7
-fomc-corpus,1983,"How do you answer Bob's point that we don't have any reserve targeting at all? We just target on net borrowed reserves--that is, the funds rate.",32
-fomc-corpus,1983,"Well, we all know what we're doing. The net effect of our monetary policy is still restrictive and the majority of the market perceives it as such because they look at the level of real interest rates.",41
-fomc-corpus,1983,I do not see the evidence that we have a restrictive policy. I think credit is beginning to flow and flow in very large quantities.,27
-fomc-corpus,1983,You mean in the first quarter?,7
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,Mr. Boykin.,5
-fomc-corpus,1983,"I would agree with those who are advocating a continuance of targeting Ml, M2, and M3. I would not favor dropping Ml. I don't have the exact wording of how to handle it, I guess. I would not be quite as strong as saying that we are not going to pay very much attention to it and rely more on M2, based on the very recent evidence that we have that Ml seems to be behaving a little better in this transition period. I would probably be inclined to look a little more at Ml but I also agree that flexibility is essential because we're dealing in a very, very uncertain time, with the numbers apparently changing with each report that comes through.",138
-fomc-corpus,1983,Governor Martin.,3
-fomc-corpus,1983,"I would join those who support targeting aggregates. My own predilection would be M2 and M3 at this time, with a statement that we would review Ml. I would go along with John that we review this in April and not wait until midyear. I think that we need to target aggregates for a couple of reasons and they are important reasons. First, they form a basis for communication; they provide a certain degree of understanding not just on the Hill but in the financial community. Secondly, although this may sound a bit extreme, I think that despite our exceeding the targets by such a large amount they provide a certain amount of discipline internally on ourselves. I believe we must go to wider ranges to reflect the uncertainties, though in so doing it may be appropriate--I would just raise this for consideration--that in communication with the Congress we indicate it will be a rather short-term objective of ours to bring down the rates of growth in the aggregates at such time as the recovery will not be impeded thereby. And I'd say that we would attempt to exercise our best efforts not to have such a turn be abrupt or the method in which it was done itself be disruptive. I certainly support those who believe we should use so-called informational variables. It seems to me that we must mention nominal interest rates, not in the sense of a target but as an information variable, because of the credibility question. If we don't mention that we are monitoring that informational variable, I don't think we will be believed. We should likewise mention as an informational variable the domestic nonfinancial debt for all the reasons that have been advanced here in that it does move us a bit toward the GNP inference.",337
-fomc-corpus,1983,Mr. Boehne.,6
-fomc-corpus,1983,"I go along with the targeting for all the reasons that have been given, not the least of which is the political sheltering. I do think, however, that we have to look through these targets to the real economy and therein comes the flexibility. It seems to me that the consequences, both social and economic, of not having a recovery this year are so large that we have to look through to the real sector. Not to include M1 seems to me to emphasize the flexibility that we're trying to convey here. If we include Ml, there is so much accumulated devotion to that particular indicator--with the Friday afternoon releases and all of that--that to bring it back now is to go counter to what we're trying to emphasize, and that is the need for flexibility. So, in addition to the technical reasons, what we're trying to communicate leads me not to include Ml at this point and go with M2, M3, and with credit as an informational variable.",194
-fomc-corpus,1983,Mrs. Horn.,4
-fomc-corpus,1983,"Starting from the premise of targeting aggregates, my preference is to target narrower aggregates both for reasons of controllability and historical relationships with GNP and so forth. Because I favor targeting narrower aggregates, I favor a flexible approach. That flexibility would be on the side of what I think has been referred to as technical reasons--that is, I think we'd have to be explicit that we would be flexible with Ml targets, depending on our fragmented readings of what its velocity is going to be. That's the danger, certainly on the Ml side. With M2, along with the velocity problem, there are also the shift problems. And, of course, the shift problems could develop with Ml as the year goes on. So it's those kinds of flexibilities that I'd like to see introduced into the targeting exercise. I very much agree with Nancy that if we take an approach that is flexible with regard to targets, we must be very open in our communications with the markets. They must believe that we're engaging in an honest flexibility and I think that would be accomplished by frequent and fairly open communication.",215
-fomc-corpus,1983,Would you like to define dishonest flexibility?,8
-fomc-corpus,1983,"No, I'm going quickly onto the next subject!",10
-fomc-corpus,1983,It's sustained upward bias.,5
-fomc-corpus,1983,"I agree with Frank about the risk question; I think the risk is on the up side. In particular, if we take this flexible approach, I think we will be very sensitive as a Committee to the economy needing more liquidity. Hoping that that doesn't happen, then we're going to need the backbone--and the political protection that we will get from the targets will have to come into play--if we get into a situation where we need to start increasing interest rates. And if we build in too much flexibility, that of course takes a bit of that protection away.",114
-fomc-corpus,1983,"Did I miss you, Mr. Guffey?",11
-fomc-corpus,1983,Not yet.,3
-fomc-corpus,1983,"I had your name and I crossed it off without even hearing you, I guess.",17
-fomc-corpus,1983,"Well, I may not have anything to say that hasn't already been said. If so, I'll just repeat what has already been said. I would join those who would retain the aggregates targeting because, first of all, I don't think we have any choice. Legally, I think we're obliged to do so and it's a question of which aggregates we select. My own preference would be to target Ml, M2, and M3, and adopt the debt aggregate. My purpose is twofold. I think Frank Morris said it very well: They may not be used in our implementation process in the immediate period ahead, but they have served us very well as a political shelter. And that wheel is going to turn back around and we're going to need them again. To abandon them now or to dilute them in importance would be a mistake for the future, as far as the public's perception is concerned. I am concerned, however, about the recovery and that we ensure that the recovery takes place. I again agree with Frank that this Committee should look through the aggregates to ensure that recovery does take place fairly early in this year. I hope that's the case, at least. What reinforces my feeling of targeting the aggregates is the fact that the markets are used to looking at them and if we fuzz them up too much without any historical connection with what we've done in the past, we're building uncertainty in the markets. The risk of delayed recovery that I believe is out there is enhanced as a result. This is beyond where you want to go at the moment, Mr. Chairman, but I would set these target ranges in such a way that they can be easily equated to what we have said and have tried to do in the past and move to the lower levels. It bothers me a bit when we talk about a 9 to 13 percent range for M2, for example, and not talk about the 6 to 9 percent range.",389
-fomc-corpus,1983,Mr. Keehn.,5
-fomc-corpus,1983,"I would join the consensus in favor of continuing with the targeting [of the aggregates]. I've certainly been impressed with the analysis that was done with regard to the shifts that are taking place in the aggregates. Nonetheless, we are in a period with an extraordinary amount of noise and uncertainty. Therefore, I would be in favor of continuing to target Ml, M2, and M3, but I would move the bases as far forward as we possibly can to get behind us as much of the shift that has been and is taking place. I would keep a heavy eye, or if not heavy certainly a concerned eye, on interest rates because unless we get the recovery more solidly in place than it is now, we'll have a great deal of trouble. And in all of our public utterances we ought to make it perfectly clear that as we go through the year we are going to be adjusting the ranges, the base, and our whole approach to this to provide for the shifts that are taking place.",199
-fomc-corpus,1983,Mr. Ford.,4
-fomc-corpus,1983,"I was listening to you when you said that you wanted to get back to ask if there were any fundamentally different things that the Committee wanted to consider. In listening to what we've all said here, where we are headed--unless somebody does come up with a different approach--is to [take a decision that would] add to the noise in the marketplace. I want to be specific about what I mean. If you take all the things that have been mentioned here today so far, and that a lot of people nodded their heads in favor of, what they come to is this: We haven't voted on it yet but I'd be willing to bet money that by the time we're done voting we will have agreed that there are going to be more aggregates to look at. Specifically, we're going to add a credit variable or two. We're generally in favor of leaving Ml in, although with much less emphasis. There's strong acceptance of the reality that there is going to be more base drift this time than ever before--and if I remember the numbers right--both on M1 and M2. A number of people, at least Jerry, Ed, Lyle, Roger, and a number of others, have said ""Let's look through all this to the real economy."" That to me is another way of saying we're going to try to impact the economy directly. And I don't think it's too much of a stretch of the words to say we want to [fine] tune the economy in reality. We think we can do it. We've all used the word flexibility. Everyone who has spoken so far has used the word flexibility, which is another way of saying wider bands and more allowance for moving things around. And everyone is advocating the wider bands themselves. When I take all of these feelings that we've expressed, Mr. Chairman, it raises the question in my mind, in line with your question: Why are we dealing with monetary aggregates at all? If you go back to how we got there, the monetary theorists who pushed this whole concept had as one of the fundamental parts of the concept that we shouldn't try to fine-tune and especially shouldn't try on a short-term basis to be flexible about a lot of things. We should be looking at some aggregate that hopefully has some relationship to what we're really trying to do over a long period of time and just let it go in a steady way and the market will know what we're going to do next. And with these six or seven dimensions of flexibility that we're putting on everything--! There are two or three people down this side of the table who in different ways all stuck to it. Karen almost jumped on the table and then backed off. Nancy said it. What we're doing is we are looking at the real economy, trying to manage it in real terms, and de facto we're using interest rates as the principal variable to attempt to do that. That's what we're doing. So, my answer to you would be: If we're going to do all these other things, then it would be in the interest of not creating more noise in the markets just to say that we are now going to attempt in our collective wisdom to manage the real economy out of a recession without managing it back into inflation and the principal thing we're going to do is move short-term rates. Because I think that's the truth. Isn't that what we're really doing? It looks that way on the charts to me. So, just in case somebody wants a fundamental alternative--all the rest of the things all of you have said are variations, I argue, on this theme of flexibility, more targets, and wider bands--I'll offer a basic alternative, if for nothing else but the sake of discussion, which is to stop all that stuff and tell people that we're trying to set interest rates that will get us out of the recession and hope that it won't have side effects that will get us back into another round of inflation after it's over. That would be in my view a more fundamental change and one that I don't want to say I'm personally advocating 100 percent; but if the drift of the opinion around this table is to do all these other things, let's at least consider that as an alternative.",838
-fomc-corpus,1983,"I think you've put your finger on a point that I was going to make in summation. I would not carry it to the point that you carried it, but what I hear around the table--with maybe your exception--is unanimity on targeting, which is where we were before, and a lot of flexibility. I think those are fundamentally incompatible in a conceptual sense, if you push this far enough. In one theory of targeting, anyway, you'll go a long way toward undermining what you are targeting if you're very flexible in handling it. I detected a lot of nuances or differences, which gives us a job to reconcile. I wouldn't go all the way to targeting interest rates very firmly because I think there are targets other than interest rates that we could adopt instead of monetary targeting. We can look at a lot of things in addition to interest rates, which I think is probably what we're doing. But I did want to note that I think the Committee is on two horses; I'm not saying wrongly. But there are two horses: One is targeting and one is flexibility. And they have two different names.",223
-fomc-corpus,1983,They tend to go in opposite directions.,8
-fomc-corpus,1983,It's because of the uncertainty that we were talking about earlier.,12
-fomc-corpus,1983,"Oh, I'm not saying it's wrong. I'm just saying that we better recognize that that's what we're doing. And inevitably, then, you have to put emphasis on other things, whatever they may be at the time--whether it's interest rates or nominal GNP or a number of other things that have been mentioned. As to whether it's reassuring or unreassuring to the markets, I think you could ask a variety of market people and they'd give you different answers to that question depending upon their own predilection. So, that point I think one can interpret for oneself. I have a little strategic decision to make on whether we finish tomorrow or not [unintelligible]. Does anybody else want to comment on these general things in response to what they have heard from others if it doesn't take too long? But I think we are where Mr. Ford suggested. There are a lot of variables and a lot of nuances--or more than nuances--of differences as to what to do with all these variables. And how we condense all that into a directive is the problem. I think this draft that we have in front of us more or less reflects the flavor of the conversation, whether or not it reflects it in the details that everybody would like to see. That's where we are. We can leave it all until tomorrow or we can continue for another 10 minutes or so, I suppose, tonight. If people want to stay for another 20 minutes maybe we could dispose of all these more or less technical questions that I've been deferring about lagged velocity and the question of [the base] that John Balles raised. What else was raised that was more or less discrete? Why don't I just throw open [the discussion] if people are willing to sit here until quarter to six to get more underbrush out of the way. As I read this conversation--tell me if I'm wrong--we probably can work more or less from the directive that we have before us. I'm not arguing that people wouldn't want to change some of the wording, but I think it very broadly has this flavor of targets with flexibility that I hear around the table. Why don't we deal with this language here, which is fundamental I suppose, on how stable velocity is? On the face of it, it wasn't very stable last year. And the question has been raised: Does it look that much more stable if lagged?",482
-fomc-corpus,1983,Mrs. Low will pass out some charts that the Committee could look at. [See Appendix.],19
-fomc-corpus,1983,What about the velocity of old Ml?,8
-fomc-corpus,1983,"It's here. Oh old Ml! I don't know whether Steve is prepared to cover that one, but it's a reasonable question.",25
-fomc-corpus,1983,"Governor Teeters, old Ml last year grew 3-1/4 percent; new M1 grew 8-1/2 percent. Our quarterly model equation would have predicted a growth of 5-1/2 percent, given interest rates and GNP. So, [the model result] is in the middle. It was no more accurate--well, the difference is small--on old M1 than it was on new Ml. It just underpredicted one and overpredicted the other.",103
-fomc-corpus,1983,I don't understand it. I would have thought that old M1 was much closer now. What are you calling it?,24
-fomc-corpus,1983,"It was 3-1/4 percent, Q4 1981 to Q4 1982.",22
-fomc-corpus,1983,That's the growth of old Ml.,7
-fomc-corpus,1983,That was the growth of old M1.,9
-fomc-corpus,1983,What's the velocity of old Ml?,7
-fomc-corpus,1983,"Oh, the velocity of old Ml! I'm sorry, I thought you [meant growth]. The velocity of old M1 would have been a little plus.",32
-fomc-corpus,1983,It went up a little.,6
-fomc-corpus,1983,A little [plus].,5
-fomc-corpus,1983,Zero with no change. But I was [addressing] the question of whether our model predicted it. That's another way of getting it.,28
-fomc-corpus,1983,"Well, it's another way of getting to the answer. But I am not sure what your answer is. I take it Governor Teeter's assertion or question--",32
-fomc-corpus,1983,"No, question.",4
-fomc-corpus,1983,--is: Has not the velocity of old Ml been more consistent than that of new Ml?,19
-fomc-corpus,1983,"Well, I can only answer it at the moment for last year. If you get beyond that, old Ml went to pot with the NOW accounts and all that. I still have in mind what happened a lot earlier when there were no differences between old Ml and new M1.",56
-fomc-corpus,1983,"A lot earlier there was no difference, I'm sure.",11
-fomc-corpus,1983,Last year seems to me the only relevant year.,10
-fomc-corpus,1983,You're probably right.,4
-fomc-corpus,1983,"One easy way to get at that is to say we have an equation based on the whole history and that the infamous, in a sense, quarterly equation in our model just says there has been a downward demand shift in M1 since the mid-1970s. That equation, given income and interest rates in the last year, said Ml would have increased 5-1/2 percent. The old Ml increased 3-1/4 percent. So, the equation overpredicted for the old Ml. The new M1 increased 8-1/2 percent and in that respect the equation underpredicted. I find little to choose by the time I put myself in that framework. Now, of course, Governor Gramley is right that it probably doesn't take into account this special effect of OCDs and NOW accounts and the fact that maybe the behavior is a little different. They have a somewhat different elasticity. The elasticity of M1 with respect to income and interest rates may be changing as the composition changes. We have a problem there, no doubt.",214
-fomc-corpus,1983,"You say the equations are not much different. They're on the opposite side of this. Suppose you take a very simplistic notion and say velocity was averaging 3 or so percent for a long period of time. I take from what you're saying that in 1982 old Ml velocity was about zero. Zero is closer to 3 or so percent than 8 percent was--well, not 8 but--",81
-fomc-corpus,1983,Minus 5.,4
-fomc-corpus,1983,"Minus 5? Okay, minus 5; that's right.",13
-fomc-corpus,1983,"Mr. Chairman, we on the staff here tend to look at velocity with interest rates taken into account. And there was a sharp drop last year in interest rates. So that's why we tend to look at the model, which enables us to look at both the impact of income and interest rates together. That's why we did it the other way.",69
-fomc-corpus,1983,"Wait a minute, Steve. Let me just see if I [understand]. Given the drop in interest rates you would have expected a drop in velocity, if nothing else changed.",36
-fomc-corpus,1983,We expected some drop in velocity.,7
-fomc-corpus,1983,That's what you're saying: a drop in velocity.,10
-fomc-corpus,1983,There's some--,3
-fomc-corpus,1983,"Well, the other way you can interpret Steve's remarks is that what you should do, according to the model, is take the growth rate of old M1 and the growth rate of new Ml and average the two together. Then you get the right answer.",52
-fomc-corpus,1983,That leaves us another problem.,6
-fomc-corpus,1983,"We're holding an array of charts before us, upon which maybe Steve will make the assertion--I'll make it for him for purposes of testing--that there is no significant difference between lagged velocity and otherwise. I think we can detect a slight difference in the most recent period, maybe only because we don't have another quarter for M1 lagged one quarter in that first chart. I suspect the next quarter would show the lagged relationship with a steep decline. I say that because we had a 16 percent rate of increase in Ml last quarter and nobody thinks that the GNP is going to approach an annual rate of increase of 16 percent this quarter.",131
-fomc-corpus,1983,"Another thing to observe, Mr. Chairman, is shown in chart 5 in the way that we plot the growth rates; they are obviously highly variable for both. The standard deviations are a measure of variability. There is little to choose between the standard contemporaneous and the alternative, which is to use a lag on these. In all cases the alternative is a hair better than the standard, but the difference will not be of any significance. None of this means that velocity isn't going to turn around in '83, lagged, unlagged, or any other way. But it--",118
-fomc-corpus,1983,"Could I make at least one observation, Mr. Chairman? Steve, I don't think there's anything incompatible with what we did [in Richmond] and what you did here. You have not used semi-logs on this scale. So, on the vertical scale, an absolute drop there would be comparable to a much smaller drop down here. In the figures that we had looked at back to '54 and '49, the change in velocity lagged one or two quarters was really not that different. So, we were talking about two slightly different things.",110
-fomc-corpus,1983,"A general point I made earlier in the evening, Mr. Chairman, was that whether you look at velocity contemporaneously or lagged, there is a marked change in the behavior of velocity in '82 relative to historical experience. Lagging it doesn't change that. And that's the only point I wanted to make.",62
-fomc-corpus,1983,"Mr. Chairman, could I circulate a memo to show something differently?",14
-fomc-corpus,1983,"Just don't expect us to read it, Bob!",10
-fomc-corpus,1983,"Okay. I think there are precedents. Steve is right that nobody knows what velocity is going to do in this upturn. It may come up and it may not; I don't know. I'm just saying that I was surprised to find out, as I read this, that there were precedents to this kind of drop. But they were in periods before this chart begins; they were earlier in the postwar period. And they may or may not be indicative--",94
-fomc-corpus,1983,Yes. We only went back to where we had quarterly data.,13
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,Interestingly enough--and I think Mike Prell may have mentioned this--on the credit flows we had the same velocity phenomenon. We had something like it in the 1950s for very brief periods. But you have to go back to the 1950s.,54
-fomc-corpus,1983,It is shown on the chart on page 9 in the credit aggregate memo where we did take it back to the 1950s.,28
-fomc-corpus,1983,On the credit [memo]?,6
-fomc-corpus,1983,"That was the memo distributed to you earlier. The other question that arose was about basing. There's just a feeling that if you take M2 in the extreme form, if we have a target for the year and use the fourth quarter of last year, we are going to have a big number, whatever the number should be. It's going to be outside the range of anything we've talked about. If we use the first quarter, it still has quite a lot of [that problem] because M2 was rising so fast during January at least. The only way to cure it is by taking as a base some period that we haven't reached yet. It's much less true in the other aggregates. But it's true in spades of M2. So we're left with this simple choice. If we're going to use an M2 [target] and if we use the traditional base, we're going to have a very large number. The pros and cons of--",190
-fomc-corpus,1983,"One alternative to that, of course, because of the historical significance of the fourth-quarter base is to use that base and for the purpose of your testimony use the underlying growth rate that is assumed and adjust that by the shifts as we go through the year.",51
-fomc-corpus,1983,"Well, we can do that theoretically, I guess. Maybe I just speak for myself but I thought it was the general view around here that it is awfully hard to do that this year because you can't deliver those estimates of the shifts with a straight face and say you have any confidence in them. If you just change one of those percentages a little, you're way off.",75
-fomc-corpus,1983,"I understand that. But the other numbers don't make any more sense, particularly for the Committee setting its targets. And the fact that we're pursuing the course that's consistent with what we've done in the past is probably the most important message that this Committee could deliver to the public and to the markets in the period ahead.",62
-fomc-corpus,1983,"In that connection, I would only point out--and it surprised me a little--Mr. Axilrod's latest estimate. If I read it correctly in the Bluebook, he is saying the estimate is not a good one in terms of being a reliable estimate. His estimate is presumably the center of some range; I don't know whether he said that or not. If it is the middle of some range, what it says is that we have no basis whatsoever for thinking that M2 was high in the last two months. In fact, it was a little on the low side. I don't think that's the public appreciation. That hasn't particularly been my appreciation. I don't think that has been the appreciation anyplace, but that's what it says.",150
-fomc-corpus,1983,Is that going to sell? Can we sell that?,11
-fomc-corpus,1983,I'm wondering myself.,4
-fomc-corpus,1983,I'm serious. I don't mean this as a facetious question.,13
-fomc-corpus,1983,"I don't know. I doubt it, but we--",11
-fomc-corpus,1983,"I think we shouldn't try, Mr. Chairman. The idea of shift adjusting--",16
-fomc-corpus,1983,I don't think it's a question that's fully settled.,10
-fomc-corpus,1983,"When the magnitudes are $200 billion in two months it is absurd because if you get a very minor change in that percentage that comes from non-M2 sources, it makes a fundamental difference in your appraisal.",42
-fomc-corpus,1983,"You can't say it is not great. Even if you believe Steve's number as a center of a range, which he says is a very bad estimate, all you can say is that it's not clear that it's high or low.",46
-fomc-corpus,1983,And you ought to make that point. But I think it argues strongly for using a February-March base instead of a fourth-quarter base.,28
-fomc-corpus,1983,But the problem--,4
-fomc-corpus,1983,I'd just like to follow up by saying that I'd rather fuzz up the adjustment than I would the basic underlying growth rate we're shooting for. And I'd assume the 8 percent.,35
-fomc-corpus,1983,You can still argue that from February-March,9
-fomc-corpus,1983,"Well, the historical connection is what I think would be important to the markets.",16
-fomc-corpus,1983,I think the shock in the market of the very large rates of change that result from using the fourth quarter [as a base] would exceed any kind of side or pseudo analyses that we've shifted the base. I think those large percentage growth numbers would be a shock.,53
-fomc-corpus,1983,I agree with--,4
-fomc-corpus,1983,"Well, Roger's going to take them out, Paul, as I understand it. He will show a figure that is like the 8 percent from the fourth quarter to the first quarter.",38
-fomc-corpus,1983,Absolutely.,2
-fomc-corpus,1983,And then you've got to [unintelligible].,11
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"The markets are so conscious of this $200 odd billion that has moved that I think they would be surprised if we were to base [the target] on the fourth quarter and incorporate this massive redistribution. I think it would be very understandable that we would take the February-March base. Oh, I'm sorry.",62
-fomc-corpus,1983,"No, no, I'm just--",7
-fomc-corpus,1983,"At least I have the clear impression that they would be surprised. They would know the imprecision of our shift adjustment estimates. We'd have to say so quite honestly. And I think they would understand, given this massive movement that's going on, why we would take a February-March base. It's not so much that the size of the numbers bothers me, although I think there are people who don't understand and who will be shocked by the numbers, but I think the market would feel [a February-March base] is a little more accurate way of doing it.",113
-fomc-corpus,1983,"Tony, I agree with you if one thing is true, and that is if the adjustment is slowing down. How fast has it been going the last week, Steve?",34
-fomc-corpus,1983,The MMDAs?,5
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,It has been down to about $20 to $25 billion a week.,15
-fomc-corpus,1983,"I like the idea. I want to get a nice stable base, but if the base is--",20
-fomc-corpus,1983,"Let me just try this. Suppose we use something like the February-March base for M2. Is that considered compatible, in terms of whatever presentational objectives we have in mind, with using a fourth-quarter base for the other numbers? Let me say that the reason it's not clear is that M1, we think, was distorted in the fourth quarter and probably not much in January. So that distortion is already largely in the base. Maybe that's bad. We think M3 is on the plus side by some unknown hazy amount in January but not like M2. It's a small fraction of what M2 is distorted by and will probably be less as time passes. So, there's a bit of distortion but not very much if we use the fourth-quarter base for the other numbers. So, we use a fourth-quarter base for those two aggregates, let's say, and for credit, but an advanced base for M2.",186
-fomc-corpus,1983,What do we do if we get corporate Super NOWs?,12
-fomc-corpus,1983,We hit that problem--,5
-fomc-corpus,1983,We cross that bridge when we get to it.,10
-fomc-corpus,1983,Either way we'll have--,5
-fomc-corpus,1983,"We'd break that series too. That's what we're doing, really--not so much shifting bases as breaking the series and starting out with [a different] M2.",34
-fomc-corpus,1983,It is a kind of break in the series.,10
-fomc-corpus,1983,We might as well break all of them and be consistent.,12
-fomc-corpus,1983,"Well, I'm not sure about that, Nancy. We have such an overwhelming case on the distortion in M2 in terms of the numbers one can point to whereas we have a much more modest reason for shifting the base on Ml and M3. I think one could make an argument either way. My preference would be to show that we are maintaining continuity where we can maintain it--where the distortion is not too great. So, I would have some preference for the asymmetrical treatment of the base, which I think just the sheer magnitude of the numbers would justify.",113
-fomc-corpus,1983,"It's getting late. Let me assert, and people can argue against this tomorrow if they want to, that for purposes of putting in numbers in these blanks we will assume that we're going to do what Tony was just suggesting: We'll talk about fourth quarter-to-fourth quarter numbers for everything except M2 where we will talk about some advance date as the base. Whether that should be February-March, I don't know. In saying that, we would have to say that we assume that this [shifting] will slow down drastically. If it doesn't, we will have to look at the number again. So, when we're thinking about numbers, the staff's estimate--which is probably no better than anybody else's--. Or maybe it is better. Let me reword that. It's probably better than anybody else's but that doesn't mean it's very good. But we may have to say something about it in the directive. The staff has already assumed that just using a February-March base for M2 until the end of the year we're still getting some upward bias by an order of magnitude of--",217
-fomc-corpus,1983,"Well, we've assumed, given what's in that long footnote, [the upward bias] to be about a point of growth.",26
-fomc-corpus,1983,From February-March?,5
-fomc-corpus,1983,From February-March to the end of the year. And that's assuming that [MMDA growth] slows down to $12 billion a week [on average in February] and to $8 billion a week [in March] and all that.,49
-fomc-corpus,1983,"All right, just keep that in mind as an operating assumption. You are assuming that M3 is artificially pumped up for the year by nothing?",29
-fomc-corpus,1983,"Virtually. It's very hard to read. We assume, though it's hard to make any assumptions, that it was somewhere on the order of 3 points in January and with this slowdown in MMDAs that whatever they want to do with CDs they will do.",53
-fomc-corpus,1983,On M1 you're basically assuming nothing at this point from a fourth-quarter base?,16
-fomc-corpus,1983,That's right. But we feel quite uncertain about that because we're not sure why banks have behaved this way with regard to Super NOWs. There is some idea that it could take off once they start competing actively for MMDAs. That's in the back of our minds as a possibility.,57
-fomc-corpus,1983,"Well, unless people take violent exception, let's make those assumptions as operating assumptions. I'm trying to keep the discussion manageable.",24
-fomc-corpus,1983,May I make just one small plea for the other one? The year that we had the shift-adjusted NOW accounts--,24
-fomc-corpus,1983,The other one being what?,6
-fomc-corpus,1983,"To put them all on a February-March basis. The year that we had the shift adjustment for NOW accounts, I was almost totally confused as to what our targets were. We had shift-adjusted and nonshift-adjusted [figures]. There's something to be said for having a common base for all three so that we remember which one we're on if nothing else.",74
-fomc-corpus,1983,You're going to eliminate unemployment for Fed watchers if there is anything difficult!,14
-fomc-corpus,1983,"I'm not sure whether you addressed this question, but I don't know that I agreed with the point that Steve was making about cutting the range on M3 because there was no reason to think that the institutions will want a larger market share. And, therefore, I think we ought to be careful about that.",61
-fomc-corpus,1983,"It wasn't clear, Governor Partee; they may want a lot larger share than we have in here. We still have a relatively low share.",29
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"We have an increase of around 8 or 9 percentage points in the market share of banks and thrifts together of total credit and then some cutback in money market funds. If they want a lot larger share, then I think it would be difficult to cut M3.",56
-fomc-corpus,1983,"One point we ought to keep in mind in thinking of the M1 target and using the fourth quarter is that we in effect are saying that that horrendous drop in velocity, which largely took place in the fourth quarter, is either going to get reversed or we're going to put it into our targets somehow. Otherwise, you see, we're not going to forgive that big fourth-quarter growth; we're going to make up for it later on. Or to put it differently, if you look at page 15 of the Bluebook and take the first-quarter average for 1983, just for alternative B we have 8.7 percent first quarter over fourth quarter largely because of what happened in the fourth quarter.",141
-fomc-corpus,1983,You're talking about Ml?,5
-fomc-corpus,1983,"M1, yes. I think going back to that base of the fourth quarter for Ml is very, very risky. Now, I'm prepared to do that if we're prepared to put a zero weight on the target. To me that's a good compromise: 95 percent weight on M2, 5 percent on M3, and 0 on Ml.",71
-fomc-corpus,1983,"[Unintelligible] M2 very stable, yes.",13
-fomc-corpus,1983,"You can use any base you want. But I think that's a very, very risky business.",19
-fomc-corpus,1983,"Mr. Chairman, if I could have one final shot at this: I could accept what you're proposing but I would again call your attention to the remarks, which I interpret as a warning, that Steve just gave us that Ml could spring to life and the Super NOWs could spring to life. That's why I thought a little while ago and I guess I still feel that a more conservative or safer approach would be to do the same thing for M1 that we've talked about doing for M2--using a first-quarter base--so that we could make sure that this apparent approximately zero net effect in the different accounts will continue through this quarter. I hope it will.",133
-fomc-corpus,1983,"I'm not saying just technically use the first quarter as a base for M2 because I think it falls between stools. It still gives us a high number for the year because it starts at the beginning of January so low. I'm trying to get over that hump so we don't have an artificial, if that's the right word, high number for the year. And we've got to go at least to February to do that. I don't think we have to for M1. But I suppose in terms of symmetry we could say all the targets begin in February-March. But we run into the other problem in that I think it will eliminate continuity where continuity is possible. That's what we have to balance, I guess.",142
-fomc-corpus,1983,Couldn't we develop a technical relationship between the February-March base and a fourth-quarter base?,18
-fomc-corpus,1983,"Oh, sure. You just have to put in a higher number.",14
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"But then we'd have this visually high number. Arithmetically, one can reduce it to the same number.",23
-fomc-corpus,1983,"Mr. Chairman, for us to try to ponder overnight: Which approach do you find easiest to use vis-a-vis the public, the Congress, and the financial markets--basing on the fourth quarter, basing on the first quarter, or some of both?",53
-fomc-corpus,1983,"Who knows? This is somebody's instinct. My instinct is the same as Mr. Solomon's. We can go back [to the fourth quarter] for M2--but then we end up with this horrendous number and are forced to say that it's so big because we're assuming X percent of it is shifts. And then if asked how we defend that number, we say we can't. It's a guess. That's not a very pleasant position to be in. However, if we [advance the base] for all of them, then people will say: Well, you really took a free ride on everything for a quarter. None of [the options] is totally satisfactory because what we're doing is not totally satisfactory intellectually.",144
-fomc-corpus,1983,The other thing is that as the media report on our progress or performance during the year they always compare what the rate of growth is compared to what our target was. But they don't go into the technicalities of what the base was.,47
-fomc-corpus,1983,That argues for one base.,6
-fomc-corpus,1983,I don't know. You get a somewhat better reading from the media on performance as the year develops.,20
-fomc-corpus,1983,"Well, except that we won't on Ml. We were in this trap before because [unintelligible] the facts. We get these changes in the beginning of the year on an M1 target; we'll probably be above the target in the first quarter for the reason Lyle suggested. So everybody says we're above the target and we have to get growth down. We may not have that--",79
-fomc-corpus,1983,"Yes, but if we deemphasize it, then it's not going to--",16
-fomc-corpus,1983,"If we deemphasize it enough, it balances.",11
-fomc-corpus,1983,We can always raise the targets.,7
-fomc-corpus,1983,"Yes, but if we put it on this silly fourth quarter-to-fourth quarter basis that we do, we can't raise the targets enough. We're always going to start above wherever it is.",38
-fomc-corpus,1983,At some point we can raise it enough.,9
-fomc-corpus,1983,"Steve, you're assuming for M2 a velocity of circulation of roughly zero in '83?",18
-fomc-corpus,1983,Right.,2
-fomc-corpus,1983,And for M1 on your alternative II here you're assuming a velocity of circulation very slightly negative.,19
-fomc-corpus,1983,"No. I would say that we have a fourth quarter-to-fourth quarter growth on the order of 6 percent. So, a slight positive is what's in my mind; it's right here in the Bluebook on Ml. That, as Governor Gramley mentioned, would imply a slowdown from here on out, on a quarterly basis, to something on the order of 5 percent or a bit under in growth rates. Our quarterly model, for what it's worth, given the interest rates and income, would predict about a 7 percent growth in Ml. That was one of the reasons I thought that a higher growth than 5-1/2 percent was likely; I couldn't see this downward demand shift we've been experiencing occurring this year because we're not ratcheting up interest rates and all that. So, I would say 6 or 7 percent seems to me about the right Ml.",179
-fomc-corpus,1983,Okay.,2
-fomc-corpus,1983,"All these fine velocity assumptions that he made in the Bluebook rest upon a staff forecast that probably has a lower nominal GNP than everybody else's forecast, or is at the bottom of the range, anyway, of everybody else's forecast. If everybody else really believes his or her forecast and believes this velocity business, we ought to have higher--",67
-fomc-corpus,1983,Higher targets.,3
-fomc-corpus,1983,Higher targets.,3
-fomc-corpus,1983,"Or, we might get more GNP with the same money, higher velocity, and not much interest rate change, if everyone decides to undo their liquidity. That's a possibility.",35
-fomc-corpus,1983,"Yes, but you're saying if your velocity assumption is wrong.",12
-fomc-corpus,1983,"Yes, that's right.",5
-fomc-corpus,1983,"Steve, if we've made our computations right, an assumed M1 growth fourth quarter-to-fourth quarter of 6 percent implies a 1.4 percent rise in velocity of M1 over that year.",41
-fomc-corpus,1983,With their forecast?,4
-fomc-corpus,1983,"That's right, with their forecast.",7
-fomc-corpus,1983,"Yes, that's right. That's why it would be a slowdown from now on.",16
-fomc-corpus,1983,"That's the reason I went into that issue awhile ago, Mr. Chairman, and you thought I was premature. I was trying to explain why ours was high and it was based upon an assumption that it would bounce back, which it may well not do.",51
-fomc-corpus,1983,"One percent, historically, would not be much of a bounceback.",14
-fomc-corpus,1983,"No, it's--",4
-fomc-corpus,1983,"No, we assumed about 5 percent. That was really the reason I went into what you thought I was going into prematurely: to justify our high forecast.",32
-fomc-corpus,1983,"But it is of interest, Mr. Chairman, that a lot of the slide occurred when interest rates were going up cyclically. And in '71 when they didn't go up cyclically, the increase was 2.9 or something like that on velocity.",52
-fomc-corpus,1983,"Interest rates are now going up, however.",9
-fomc-corpus,1983,"Well, we're not projecting [that] as part of this whole projection.",15
-fomc-corpus,1983,It could be wrong.,5
-fomc-corpus,1983,In which case the staff's forecast probably also will be wrong--not in the direction of more nominal GNP but less.,25
-fomc-corpus,1983,"Well, we know everybody is wrong. We just don't know who is the most wrong.",18
-fomc-corpus,1983,"Well, we'll see you tomorrow morning at when--9:00 a.m.?",16
-fomc-corpus,1983,9:00 a.m.,6
-fomc-corpus,1983,"Well, ladies and gentlemen, after listening to our conversation yesterday, it seems to me that this tentative directive is probably a reasonable reflection of our concern to have targets but be flexible. So, I would suggest we assume something like this draft directive will be used. There will be chances for editorial comments, but let me just suggest in the interest of focusing the discussion and expediting things that we put some numbers in those blanks. And on page 3 of that directive I would tentatively suggest that we eliminate the alternative for M2 [that measures the range from] the fourth quarter to the fourth quarter, just for purposes of the discussion at this stage anyway, and assume we're going to [measure it] from February-March to the fourth quarter. If we take the middle course of what the staff says is consistent with their forecast--recognizing that very large amounts of uncertainty exist about that and recognizing also that their forecast for nominal GNP is lower on average than other peoples' by 1 percent or something like that--that says basically 6-1/2 to 9-1/2 percent for that period, allowing for 1 percent or so of shifting from that base.",239
-fomc-corpus,1983,That's right; it would be about 8 percent plus around 1 percent.,16
-fomc-corpus,1983,"That could be rounded up to 7 to 10 percent, I suppose, or rounded down to 6 to 9 percent, but we're in that range. Turning to M3, for the fourth quarter-to-fourth quarter comparison the staff says 6 to 9 percent, period. That could be pushed; last year it was 6-1/2 to 9-1/2 percent, so I think we're in that range. Whether or not we want to include Ml in the same sentence or make that a slightly more subsidiary sentence or tentative sounding sentence is an issue that we can return to. But the number that they have for M1 is 3 to 7 percent; that could be made slightly higher, I suppose. So, we're around 3 to 7 percent or 4 to 8 percent, I think. And for total nonfinancial debt, which we really haven't discussed much, they propose this rather peculiar result in terms of past cycles of 8 to 11 percent, which they'll have to justify at some point--a little more than I think we've already discussed. It contemplates in their forecast a further decline in credit velocity, which would be unusual during a period of recovery. But I take it they're prepared to defend that proposition. I just throw those out as a focus for your discussion. Let's see what comments we get on them.",279
-fomc-corpus,1983,"I have a question of Steve. I had the impression, Steve, that when you shift the base to February-March from the usual average of the fourth quarter, that 6-1/2 to 9-1/2 percent is tighter than 9 to 13 percent. Am I correct?",62
-fomc-corpus,1983,"Well, for the top in a mild sense it is. Our point estimate [on the fourth quarter-to-fourth quarter range], such as it is, is 11.8 percent, within the 9 to 13 percent range. So, it's 1.2 points from the top of the range. Our point estimate on the 6-1/2 to 9-1/2 percent range from February-March is 8.9 percent. So, relative to the 9-1/2 percent it's 0.6 point from the top of the range. With a 7 to 10 percent range, it would be more comparable in terms of distance from the top of the range.",145
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,But that's only in that arithmetic sense.,8
-fomc-corpus,1983,And you've allowed about 1 point for continued shifts?,11
-fomc-corpus,1983,"From February-to-March, that's right.",9
-fomc-corpus,1983,"Well, I don't know about the 1 point; it could be a lot more than that.",20
-fomc-corpus,1983,"The second question I have is: If we want flexibility, shouldn't we aim for a four-point spread in M2 this year instead of 3 points?",31
-fomc-corpus,1983,"Our technical reason for narrowing it when the base is February-March is that just a little more of the year is done and the more of the year that is done, presumably the more you know. So, you could have a narrower range. Also the argument is that the bulk of the shifts is behind us, and the reason for the wide spread was to take account of the uncertainties about the shifts. Of course, it's highly uncertain in any event. But that was the reason for suggesting a slightly narrower spread.",103
-fomc-corpus,1983,Even though you eliminated January from the base there are still a lot of uncertainties.,16
-fomc-corpus,1983,"Yes. Our thought was that most of the shift would be done. Now, to the extent that isn't true--",23
-fomc-corpus,1983,"But we would have to go back and look at it anyway if most of the shift isn't done. If we get into March or April and M2 is still growing rapidly, or if February and March are distorted, we better go back and look at it again. I think that's clear.",58
-fomc-corpus,1983,I'm a little worried that 6-1/2 to 9-1/2 percent may be a little tight. I certainly would oppose rounding it off downward.,34
-fomc-corpus,1983,"I feel the same way. It seems to me flexibility appears at all margins, and here's one more--the width of the range--where we ought to allow for it.",35
-fomc-corpus,1983,"I would echo Governor Teeter's comment of yesterday. I'd rather have a narrower range and then at midyear go back. We admit we don't know what the behavior will be and we can continue to reinforce that position and go back in July. If we have to change it, we can change it then.",62
-fomc-corpus,1983,We may have to change it before then.,9
-fomc-corpus,1983,All right.,3
-fomc-corpus,1983,"Let's look at them one by one, if that's the way you want to do it. Let's look at M2. Does anybody want to go above 7 to 10 percent?",37
-fomc-corpus,1983,"One way of handling the binding aspects of this is to widen the range and make it 6 to 10 percent, extending the upper limit. That has the additional virtue of maintaining the same lower limit as we had last year.",46
-fomc-corpus,1983,"Mr. Chairman, I might say that when we put the ranges that way, they weren't centered on the midpoint. And the reason was that in the previous year the FOMC had established a range and said it expected growth around the upper end. For that reason we simply didn't suggest ranges that were set on midpoints on the thought that the same range would then accommodate lower growth if possible. So, these were not set at midpoints for M2.",92
-fomc-corpus,1983,"Steve, if I read that footnote connected with alternative II correctly, [the consistent range] would be 7 to 10 percent. The footnote says that [the ranges for the three alternatives] would be from 6-1/2 to 9-1/2 percent through 7-1/2 to 10-1/2 percent.",74
-fomc-corpus,1983,"Yes, that's right.",5
-fomc-corpus,1983,"I assume that the middle one, alternative II, is 7 to 10 percent.",18
-fomc-corpus,1983,"That would be leaving that same gap, Governor Partee, of a little over 1 point above the expected--",23
-fomc-corpus,1983,I just wanted to make clear that we weren't really talking about liberalizing what had been proposed in--,20
-fomc-corpus,1983,"In the area that we're talking about, 1/2 point is inconsequential. There's a certain argument for making it 7 to 10 percent because they are round numbers and why have spurious precision.",43
-fomc-corpus,1983,I think that's right.,5
-fomc-corpus,1983,A range of 7 to 11 percent doesn't sound good. It sounds like we're really gambling!,20
-fomc-corpus,1983,I think 6 to 10 percent would be a little more--,14
-fomc-corpus,1983,I'm not sure what that gains you.,8
-fomc-corpus,1983,I get the impression--,5
-fomc-corpus,1983,I don't know what it does.,7
-fomc-corpus,1983,"Well, it gains you two things: One is the greater leeway and the other is a lower midpoint.",22
-fomc-corpus,1983,"Of course, we've never been any place close to the lower end of the range in the last several years for M2. And to leave it at 6 percent when we have a new instrument seems funny to me.",44
-fomc-corpus,1983,"Even though I like the four-point spread, I'd like it on the up side.",17
-fomc-corpus,1983,I'd rather have [unintelligible].,9
-fomc-corpus,1983,It probably is.,4
-fomc-corpus,1983,Do I sense 7 to 10 percent as a temporary feeling here? Let me move to--,20
-fomc-corpus,1983,"Mr. Chairman, could I just ask if this decision relates to the strategy?",16
-fomc-corpus,1983,This is all highly tentative at this point.,9
-fomc-corpus,1983,[Unintelligible.],6
-fomc-corpus,1983,"Yes, I assume something like that. We'll get to this language, but roughly, yes.",19
-fomc-corpus,1983,While I support the decision that was just made on the 7 to 10--,17
-fomc-corpus,1983,Very tentatively.,4
-fomc-corpus,1983,"Yes, the tentative decision. I have some concerns about the strategy and the relationship to the alternatives that we select.",23
-fomc-corpus,1983,"Well, let's get to that in a minute and we will reach an iteration. Now, on M3, again just as a starting point, the staff says flatly 6 to 9 percent, for whatever that's worth.",46
-fomc-corpus,1983,"Mr. Chairman, I think you ought to--",10
-fomc-corpus,1983,A 6-1/2 to 9-1/2 percent range is what we had last year. Is it worth horsing around with the half point?,34
-fomc-corpus,1983,"Yes, particularly because 6 to 9 percent is going to be too tight next year in 1984. We'd have to raise it.",29
-fomc-corpus,1983,When we start to get some expansion in the [unintelligible].,15
-fomc-corpus,1983,Why would it be too tight next year?,9
-fomc-corpus,1983,"Well, in the first year of recovery we normally get more GNP for M3, or M3 velocity tends to rise in the first four quarters of recovery and to be essentially flat--no velocity change--in the second year. I think Steve would support me on this: that we would have to raise it next year.",66
-fomc-corpus,1983,"I'm afraid, President Morris, that we have not really worked it out in detail that far ahead. I really don't have any comment on that.",29
-fomc-corpus,1983,I don't think it's worth cutting it a half point.,11
-fomc-corpus,1983,"I would prefer the higher number, Paul. The banks have been adding a lot of securities and I think they'll continue to do so. And I think the S&Ls will be aggressive. They will pay down some debt but they're going to be looking for places to put their money. So, I'd hate to see that reduced.",66
-fomc-corpus,1983,"If, as we agreed yesterday, they strive for a larger market share and are more aggressive intermediaries, [M3] could easily come in higher. I don't see the point of cutting a half point on the up side.",46
-fomc-corpus,1983,"Mr. Chairman, a partial answer to Governor Partee and President Morris: As a percent of total credit our projections in the flow of funds at this point assume that thrifts and commercial banks together take 35 percent of the market in '83 and 30 percent in '84. I haven't worked that through to M3 as such, which would have to take account of money market funds and shifts from raising money abroad through CDs and that sort of thing. That [share of the market] going back from 1980 to 1952 has generally run in a 40 to 60 percent range. So, [our projection] is well below the norm if the norm can be thought of as the previous 30 years. And, as Governor Partee has suggested, we may be too far below it if the depository institutions get very aggressive.",172
-fomc-corpus,1983,What was it in 1982?,8
-fomc-corpus,1983,"We have it rising from '82, which was 27 percent; and in '81 it was 30 percent. Those were all low years.",30
-fomc-corpus,1983,Thrifts were really squeezed.,6
-fomc-corpus,1983,"But before that, numbers in the 40, 50, and 60 [percent area] are what you would have seen. That's [higher] because we think much of that money is being raised through the bond markets--",46
-fomc-corpus,1983,"Well, I don't know. Again, I do not have a strong degree of conviction in the area of a half point.",25
-fomc-corpus,1983,I think we gain nothing by cutting it a half point. We allow ourselves a little more flexibility by leaving it where it was.,26
-fomc-corpus,1983,There is some advantage in making it the same as M2.,13
-fomc-corpus,1983,Except that we're going to sound like the United Kingdom.,11
-fomc-corpus,1983,"When we shave off a half point like that, we imply a level of precision in our thinking that seems to me inconsistent with all the uncertainty we keep talking about. I would just stick with the provisional target we set up.",45
-fomc-corpus,1983,"Do I hear any other comments? Hearing no other comments, we'll put it tentatively at 6-1/2 to 9-1/2 percent.",33
-fomc-corpus,1983,"May I ask a question, Mr. Chairman? Could I just ask you to review quickly what you said on Ml? I'm not sure I--",29
-fomc-corpus,1983,We haven't done it.,5
-fomc-corpus,1983,We're getting to Ml right now.,7
-fomc-corpus,1983,I thought you had already passed it.,8
-fomc-corpus,1983,No. M1 is now before the house. The staff says 3 to 7 percent for the middle course on their forecast.,27
-fomc-corpus,1983,"Again, Mr. Chairman, that range is not centered on the midpoint [of our forecast]. We left everything along [the lines of] the Committee's previous decisions that growth would be running toward the upper ends of the ranges.",46
-fomc-corpus,1983,What was the midpoint?,5
-fomc-corpus,1983,"In my view, the midpoint [for Ml] consistent with the 8 percent underlying M2 growth would be in the 6 to 7 percent range unless one thinks in some model sense that there's a downward demand shift.",45
-fomc-corpus,1983,"You assume, though, no change on business demand deposits?",12
-fomc-corpus,1983,And that assumes that the DIDC doesn't do anything on the business demand deposits.,16
-fomc-corpus,1983,"And that doesn't assume much on Super NOWs, I take it.",14
-fomc-corpus,1983,It doesn't give much room for Super NOWs and assumes that we don't experience again the downward demand shift that we had from 1974 on.,29
-fomc-corpus,1983,We can make it 4 to 8 percent.,11
-fomc-corpus,1983,"Mr. Chairman, I would like to make a pitch for the 4 to 8 percent for several reasons. As I understand the Board staff's projections for the first quarter, Steve, Ml is expected to grow at a 5 percent rate, roughly, for February and March. Our San Francisco money market model, which we started with last year, is projecting about a 10 percent growth in those two months. Time will tell which projection is--",91
-fomc-corpus,1983,10 percent growth in what 2 months?,9
-fomc-corpus,1983,"A 10 percent average growth in February and March. And I would hate to see us get trapped in a posture where too low a range would force tightening and produce a premature rise in interest rates in view of the uncertainties that I feel about the solidness of this business recovery. Therefore, I would hedge my bet and go for 4 to 8 percent on Ml.",75
-fomc-corpus,1983,"I would strongly support that. An additional argument for the ones that both John and Steve have given is the fact that we're looking at responses to Super NOWs which at the present time are being conditioned by the fact that the banks and the thrifts are just being flooded with money on MMDAs. I think a very logical possibility is that, as the MMDA rates settle down, interest in Super NOWs is going to build up, and none of us knows exactly how much allowance to make for that. I think we ought to provide flexibility on that score.",113
-fomc-corpus,1983,Yes. I would add to that. It seems to me that the thrifts still have a competitive device that they have not exploited. My conversations with many of their representatives this week in Washington go to that conclusion. This is a vehicle which can get them into a side of the financial markets that they're very interested in. And I think this is one of the arguments for separating the [Ml] comment here and not making it pari passu with M2 and M3. We really don't know what is going to happen when certain financial institutions begin to exploit this in this calendar year.,117
-fomc-corpus,1983,Yes. The editorializing is something I want to return to when we get beyond the numbers. And maybe I'd make this range sound a little more tentative.,31
-fomc-corpus,1983,"May I ask a question? Steve, your own [Ml] projection for the first quarter is an increase of 8.7 percent, isn't it? So, you must be projecting substantially lower growth rates as the year goes on.",47
-fomc-corpus,1983,"It's about 5 percent for the rest of the year. It's roughly the same as in February-March. I should add that our monthly model would say around 9 percent at current interest rates, somewhat similar to what President Balles mentioned. Our quarterly model at around the current interest rate gives the quarterly average that we have here, around 8-3/4 percent. Take your choice on which model you go by. We put a little more weight in this case on the quarterly model, which gives this slowdown. Of course, it could be somewhat higher in the coming months.",118
-fomc-corpus,1983,"But the uncertainties are so great on M1 that if we don't want to express them by some qualification of it as a target, then I think we need a wider range.",35
-fomc-corpus,1983,"We'll come back to that question on qualifying it as a target. It's a question of how strong it's implied, right? It's not implied in this sentence but it's implied in a later sentence.",38
-fomc-corpus,1983,"Mr. Chairman, there's one other--",8
-fomc-corpus,1983,"I hate to say it but it seems to me that all it does, even with 4 to 8 percent, is move us slightly away from the upper end of the range without even allowing for the growth of Super NOWs later in the year, etc. In the course of conversations with some key market people, in general I've noticed that they give the advice that according to the market it's much better to project higher targets and hit them during the course of the year than it is to worry about the initial effect of the higher targets. That is just the general advice I heard from one of the key people in the markets. So, even though we will have deemphasizing language, I assume, I'm not sure that 4 to 8 percent does anything more than move us slightly to a more realistic range. And it still doesn't allow for any Super NOW growth.",175
-fomc-corpus,1983,"I rather like 4 to 8 percent, though, because it's less than we had last year. We had 8-1/2 percent last year?",33
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"It's a little less at the upper end. I think if we went above 4 to 8 percent, we might as well forget it. Already it seems to be quite a liberalization of our previous targeting.",43
-fomc-corpus,1983,"I think if we forgot it, it would be a big step forward.",15
-fomc-corpus,1983,"I realize you feel that way and probably Tony does too. But I think there are others who would like to keep it, including myself.",28
-fomc-corpus,1983,Then you'd have to [marry] alternative II into alternative I.,14
-fomc-corpus,1983,"Well, except that I think their [unintelligible] figure is too tight.",18
-fomc-corpus,1983,"Well, I mean that we've taken a couple of the figures out of alternative I and set them into alternative II.",23
-fomc-corpus,1983,"And we do have to remember that we have a higher forecast than the staff for the GNP. So, I would move 4 to 8 percent, Paul.",34
-fomc-corpus,1983,I haven't heard any contrary view expressed strongly.,9
-fomc-corpus,1983,"Mr. Chairman, I didn't express it very strongly but I feel it very strongly. I wouldn't go as high as that. I think 7 percent is as much as we dare risk. And the only reason I'd be willing to go as high as 7 percent would be that I think there is probably going to be a higher element of savings in M1 than we've had before. Otherwise, I'd say 6 percent is as high as we ought to go.",93
-fomc-corpus,1983,Does anybody else have an opinion?,7
-fomc-corpus,1983,"The previous midpoint was 4 percent, with the 2-1/2 to 5-1/2 percent range. We can achieve that midpoint by the admittedly rather extravagant range of 1 to 7 percent. Then we haven't raised our target any time.",54
-fomc-corpus,1983,One percent is too low even for me. Even three percent is too low.,16
-fomc-corpus,1983,Seven is too low.,5
-fomc-corpus,1983,"I will assert that when the width of the range gets to be 6 percentage points, we might as well not have one.",26
-fomc-corpus,1983,"Mr. Chairman, I'd like to be associated with a 4 to 8 percent range, with the hope that the midpoint of the range is what we'd be working toward. I think we have to come off a rapid growth rate slowly instead of abruptly.",51
-fomc-corpus,1983,"Does anybody else want to speak to this point? I seem to have a considerable opinion for 4 to 8 percent. Well, let us pass on to total domestic nonfinancial debt. You have some more or less elaborate analysis suggesting that total domestic nonfinancial debt is the [measure] we ought to be using. I guess what it shows is that on these growth rates it makes a trivial difference, so I'm not sure it's worth an elaborate discussion. I'm just talking about the definition now--whether we use total nonfinancial debt, total domestic nonfinancial debt, or total domestic nonfinancial debt [plus net stock issues]. They all seem to have more or less the same [projected] growth number.",142
-fomc-corpus,1983,"May I ask why we're establishing such a target at all? It doesn't seem to relate to anything, as I read the material. There seems to be an assumption that we're going to use a target like this. I don't understand what the purpose of it is.",52
-fomc-corpus,1983,"It's not exactly a target, but this has a certain history. We can do what we want to do, but we have been requested to provide such an associated range anyway.",35
-fomc-corpus,1983,What do we do with it?,7
-fomc-corpus,1983,"We're dropping out the bank credit here--and whether we want to do that is another decision--so, it fulfills the role that bank credit used to do. I think what we do is look at this [sort of range] to see if it confirms a contrary indication of what is going on as time passes.",63
-fomc-corpus,1983,There's a very good reason for looking at what happens to debt growth in a year in which the monetary aggregates may well be developing a new kind of relationship with GNP that we don't fully understand. I would hope we'd use this seriously. And I do want to say something about the numbers at the appropriate time.,62
-fomc-corpus,1983,Why don't you go ahead right now.,8
-fomc-corpus,1983,"I think another way of getting a perspective on it--and none of us really has looked at this number very closely--is to look at the flow of credit implied and how that relates to the level of GNP forecast for the year. We're starting with a range that in my judgment is too low. The 8 percent lower limit would imply a growth of credit equal to 11.7 percent of forecast GNP. And that would be the lowest ratio we've seen since 1970 in a ratio which has a secular tendency to go upward. Furthermore, if you take out the $210 billion the staff is forecasting that the government will borrow, that leaves $171 billion for private domestic nonfinancial borrowing. That ratio is 5.3 percent of GNP. You have to go back to 1950 to find anything similar.",168
-fomc-corpus,1983,This is if we took 8 [to 11] percent.,14
-fomc-corpus,1983,"Yes. The midpoint is 9-1/2 percent and is also in my judgment very, very low. It leaves a ratio of private credit expansion to GNP of 7-1/2 percent. There's only one number since 1961 that was that low: 1975. So, we're talking about recession levels of private credit expansion relative to GNP.",76
-fomc-corpus,1983,The height of the number is accounted for by government.,11
-fomc-corpus,1983,Right. Of course.,5
-fomc-corpus,1983,"But even the aggregate number in Appendix IV in the Bluebook is 13.9 percent, which is not up much from last year and is well below what it was running earlier.",37
-fomc-corpus,1983,What page do you have?,6
-fomc-corpus,1983,Appendix IV gives this. I'm looking at the far right hand set of numbers in the middle column.,21
-fomc-corpus,1983,"To put Chuck's point in a different way: There is a secular upward movement in this ratio. We get in the 13 to 14 percent range, as a portion of GNP, for the first time in 1972-73. We're talking about a very, very stringent set of credit market conditions that would lead to that kind of ratio of credit expansion to GNP. I think 9 to 12 percent would be more appropriate in terms of the kind of credit market situation we all want.",103
-fomc-corpus,1983,I'm not sure I understand this table that Mr. Partee has called to our attention. What column are you looking at?,25
-fomc-corpus,1983,"The last set of numbers is the ratio of the flow of credit to GNP. The middle column--these abbreviations are such that it's hard to make it out--is the private debt, isn't it?",42
-fomc-corpus,1983,"Yes, that's the domestic nonfinancial debt.",9
-fomc-corpus,1983,"That is the domestic, right.",7
-fomc-corpus,1983,That includes the government?,5
-fomc-corpus,1983,"That includes government, yes.",6
-fomc-corpus,1983,"Yes, that includes the government.",7
-fomc-corpus,1983,And we certainly ought to include government.,8
-fomc-corpus,1983,"We know there was an increase during the 1970s. As we came out of the '75 recession, the ratio went up to--",29
-fomc-corpus,1983,To 17 percent.,5
-fomc-corpus,1983,"The nearest equivalent here is 1975, if the forecast is right, and it's 1.4 percentage points--",24
-fomc-corpus,1983,But we're not targeting the flow; we're targeting the percentage growth.,13
-fomc-corpus,1983,But that's a flow.,5
-fomc-corpus,1983,We're targeting this first set of numbers.,8
-fomc-corpus,1983,I know; but they have to relate.,9
-fomc-corpus,1983,I'm just looking at it a different way and one that to me is a more familiar one. And I think what it says is that we're targeting on growth rates of private credit relative to GNP that are [comparable to] the ratios of 10 years ago.,54
-fomc-corpus,1983,"But Lyle--Mr. Chairman, may I address this? It seems to me one should think about the overall balance sheet. Now we're talking about the other side of the balance sheet than the one we normally talk about. Isn't your argument tantamount in some sense to saying that there's a low saving rate in our economy, which we have in our forecast and which affects the flow of funds overall plus other things? You're suggesting we take it as a given--as something that we implicitly accept--that there's going to be a huge bite of federal sector borrowing as projected in the nice charts we had yesterday, even with the cheery assumption that it's going through the roof right now but it immediately levels off for some reason. I still don't understand the chart from yesterday's presentation. Another way of saying what you're saying is that if we choose these numbers we're talking about now, we're not leaving room for the private sector. Doesn't that translate into saying ""Let's monetize the federal debt""?",195
-fomc-corpus,1983,"Yes. I wouldn't have put it that way, though, Bill. I think Lyle is the one who made the point about the private sector. I'd look at the total, including the government, and say it ought to be in reasonable relation to the kind of growth in GNP that we hope to achieve.",63
-fomc-corpus,1983,Why not? It would be nice if you could have it. It depends on the policy guide.,20
-fomc-corpus,1983,And I think Lyle is right that the number is a little too low.,16
-fomc-corpus,1983,"If you look at this other column on velocity, however, you get a different answer it seems to me. I have a little trouble seeing how we're going to justify all this debt expansion. We will have as low a velocity number as we have ever had except for last year.",56
-fomc-corpus,1983,That is to say that the debt number is pretty low.,12
-fomc-corpus,1983,"Well, another way to look at it would be that GNP [growth] is very low. We have a bigger percentage increase in this debt aggregate than we do in GNP. And our past experience in recoveries was that that wouldn't take place. So, one other way to look at it is that your GNP number might be a little low. Of course, that would then lower that ratio that's troubling Governor Gramley.",87
-fomc-corpus,1983,"Our analysis of debt indicated that a 7 to 10 percent range would be adequate for 1983. So, I think 8 to 11 percent is going to be plenty.",38
-fomc-corpus,1983,We're talking about a ratio of private credit expansion to GNP that we last saw maybe in 1954-55 or somewhere around there. You'd think somehow--,33
-fomc-corpus,1983,"I don't understand this, Lyle. This number you're looking at is this last column, isn't it?",21
-fomc-corpus,1983,I'm looking at the middle column of the last row. And then I'm saying: What if we took out the government component of that and got to the private ratio?,33
-fomc-corpus,1983,"All right. You're looking at private. If you look at the total, this number is high relative to the 1960s and a little low relative to the 1970s.",38
-fomc-corpus,1983,You will note that this ratio has a secular upward trend to it. It started out in the 6 to 9 percent range in the early 1960s and got up into the 12 to 14 percent range in the early 1970s.,53
-fomc-corpus,1983,Showing credit inflation.,4
-fomc-corpus,1983,"Well, that's part of it.",7
-fomc-corpus,1983,And it has been declining since 1978.,10
-fomc-corpus,1983,We don't need to roll back the world that fast.,11
-fomc-corpus,1983,You certainly don't want it to be 16 or 17 percent.,14
-fomc-corpus,1983,No. I wouldn't suggest anything of the kind.,10
-fomc-corpus,1983,"Lyle, may I ask what you did? Did you take the $413.3 billion in the middle column in the third set of numbers and subtract out $145.6 billion for the federal and then on the $452.3 billion did you take out $218 billion?",57
-fomc-corpus,1983,"Yes. Well, from the $452 billion I took out the staff's [projected deficit] number, which I think was $210 billion, and I got a figure--I don't have the numbers--whatever 452 minus 210 is. And I divided that by the GNP and got 7-1/2 percent. I looked at my own tables here, which I happen to have with me, to compare that 7-1/2 percent. And when I went back, I thought: Well, in 1975 we had 6.9 percent. And then I went all the way back and had to go back to 1961 to find any comparable ratio.",141
-fomc-corpus,1983,"You know, 1976 was 11 percent.",11
-fomc-corpus,1983,"Mr. Chairman, we don't feel extremely confident about all of these numbers--and Mr. Prell may be able to make some comments on how he got to here a little more elaborately--but if we attempted to have a lot more private credit, we believe that interest rates would be a lot higher in that process and we wouldn't get the GNP because the rise in interest rates would begin to cut it back. So, this is where we came out with a consistent set of relationships. We didn't think that there was room for any more private credit within the monetary targets and given the government's [needs].",122
-fomc-corpus,1983,"But to state it the other way around, you are also saying, if I understand it correctly, with this relatively small amount of private credit you think interest rates would decline and the GNP would rise as you projected.",44
-fomc-corpus,1983,"Yes, [with rates] stable and maybe edging down.",12
-fomc-corpus,1983,That comes out of this chart show.,8
-fomc-corpus,1983,"But let's get this causation straight. You do not put interest rates up, if you were targeting on credit aggregates, by having high credit aggregates. The reason that credit expansion declines is precisely because interest rates go up. We want a target here, I think, that accommodates a sufficient expansion of credit at something close to prevailing interest rates. That's the way one would have to look at it.",79
-fomc-corpus,1983,That's what they say they've done.,7
-fomc-corpus,1983,"I think the argument almost came out the other way around. That is, that you could have low credit aggregates because there may be sufficient restriction on the economy with present interest rates so that private credit demands are not going to be strong. I say that may well be, but we may be misappraising the level of interest rates necessary to hold credit expansion down this low. And I want to make sure that our credit aggregates are not that tight. It's because I'm taking these numbers seriously--and I hope we use this number seriously--that I'm arguing this strongly. Maybe we're not going to, but maybe--",122
-fomc-corpus,1983,"The velocity of debt in the first year of expansion tends to be about 2 percent. So, if you had an 11 percent rate of growth in debt in the first year of expansion you should be able to finance 13 percent nominal GNP [growth].",53
-fomc-corpus,1983,"That 13 percent could be used to set the monetary aggregates very low. Typically what we have had in the early period of recovery is a marked increase in interest rates from very low levels, which leads to economization of money and credit use. But that's not the situation we're in now. We're already starting from real interest rates that are very high and we're worried about whether or not interest rates are going to go up enough to choke off the recovery. And one way to guarantee it is to set both monetary and credit aggregate targets that are too low.",110
-fomc-corpus,1983,"I would say the opposite. You're talking about long-term rates when you're talking about capital. What we have to worry about in the marketplace, if we do some of these things--set the aggregates too high and throw in this credit aggregate with it--is that the bond market, which seems to have flattened out and is starting to tick up now, could take off on us and we could get the exact opposite of what you just said. I'm still trying to figure out where the bottom line of the paper is that the staff did. But I read one thing over and over again. In terms of comparison with money measures. M1 performs as well as the best of credit measures. Look at this chart that was given out yesterday, which shows the huge increase in velocity there. That's the same thing you guys are complaining about--the monetary velocity.",170
-fomc-corpus,1983,A huge decrease in velocity.,6
-fomc-corpus,1983,"A decrease, yes. That's the same thing.",10
-fomc-corpus,1983,It was a dramatic change.,6
-fomc-corpus,1983,One does see the same effect running through all these numbers.,12
-fomc-corpus,1983,So why add another obfuscating factor to the set of already imperfect measures? What Lyle is saying--if we were to state it in [our targets] and then take it seriously--could be interpreted in the money markets as saying that we are worried about adequately financing the federal deficit. Another way of saying what he's saying is: Let's monetize the debt.,73
-fomc-corpus,1983,I think that's the right way of looking at it. The question is: How much credit expansion can the economy stand without inflation? And the sad fact is the government limits the amount that the private sector can have. We have to recognize that by limiting the total credit expansion.,55
-fomc-corpus,1983,"And you can't say: Let's take the government part as a given and then add on and make sure there's enough there for the private sector, which is what I hear Lyle saying. That's another way of saying we will monetize the debt no matter how big it is.",54
-fomc-corpus,1983,"Monetizing the debt in that sense, Bill, would mean taking off all limits and I'm not arguing that. It's a question of what particular numbers are appropriate, and there can be disagreement on whether or not 8 to 11 percent or 9 to 12 percent is appropriate. Arguing that raising the limits by one percentage point means monetizing the debt seems to me to be a bit extreme.",83
-fomc-corpus,1983,"Well, we have the other targets that would prevent that anyway. But I think what you're saying, Lyle, is that the deficit really is cutting very deeply into permissible private credit expansion. There's no way of getting around that by saying that we will have more private credit expansion anyway. That would let the total become excessive.",65
-fomc-corpus,1983,"All I'm arguing is that we're dealing with a new ratio that none of us really knows too much about. I'm saying, in my judgment, 8 to 11 percent is just too tight. It's as simple as that.",45
-fomc-corpus,1983,"Is the question, since we can't control this measure, what it will turnout to be if we set the aggregates? We don't control this measure, do we?",32
-fomc-corpus,1983,"If the aggregates run off [track], we may use this to look to see whether we--",19
-fomc-corpus,1983,But it's just a monitoring device.,7
-fomc-corpus,1983,It's more a monitoring device; I think that's right.,11
-fomc-corpus,1983,It can influence one's decision.,6
-fomc-corpus,1983,We want to have the right setting if we're going to use it as a monitor.,17
-fomc-corpus,1983,"When you say influence your decision, Tony, do you mean that if it were running differently than you expected, you would do something differently in terms of the aggregates?",33
-fomc-corpus,1983,Let's say that we had a very difficult decision to make. This is just one more straw on one side or the other--whether it's running tight or running easy--that we would look at. To some degree we also are influenced by the exchange rate and by a lot of other things. I think it would have some influence.,66
-fomc-corpus,1983,"So, it should be consistent with the aggregates, if there is any relationship.",16
-fomc-corpus,1983,Another way of looking at it is to look at the first column where you see that the highest rate in the whole period since 1960 was 13-1/2 percent. So that 11 percent historically is--,45
-fomc-corpus,1983,12-1/2 percent.,7
-fomc-corpus,1983,It was 13-1/2 percent in 1978.,14
-fomc-corpus,1983,13-1/2 percent in 1978. First column.,14
-fomc-corpus,1983,We're looking at the middle column.,7
-fomc-corpus,1983,"That's total [debt]. You want to look at domestic, which is the second column.",19
-fomc-corpus,1983,"All right; then it's 12.9 percent. Therefore, it seems to me that in the first year of expansion, when business credit demands are not going to be all that strong, 11 percent is plenty high.",45
-fomc-corpus,1983,"But those were years of much higher rates of inflation, weren't they?",14
-fomc-corpus,1983,That's exactly why I think we don't need 12 percent.,12
-fomc-corpus,1983,"Those were also years in which the criterion of business managers for financing was leverage, leverage, leverage without any expectation that leverage would ever work against them. There will be some tendency to try to shift toward equity and try to reduce debt. We are leaving out the equity sector, and we know we are, for the reasons that were given in the paper.",71
-fomc-corpus,1983,"I must say that Mr. Morris' point looks pretty persuasive to me, Mr. Gramley. What do you say to that?",27
-fomc-corpus,1983,"When you look at the 3 years we've just completed and see that we got away with 9-1/2 to 10 percent expansion in total credit, you say to yourself: Well, maybe that's enough. What I want you to recall is that in those 3 years we have had no growth in economic activity at all. None. We've had extremely high real interest rates. It is no surprise that debt expansion assumes a very low--",90
-fomc-corpus,1983,We had inflation 5 percentage points higher on top of it.,13
-fomc-corpus,1983,This relates to nominal GNP and how fast credit grows overall. Nominal GNP figures clearly were much higher in the latter part of the 1970s.,33
-fomc-corpus,1983,What was nominal GNP growth in 1980 and 1981?,15
-fomc-corpus,1983,Fourth quarter-to-fourth quarter in '81 it was 9-1/2 percent.,19
-fomc-corpus,1983,"No, you need year-over-year figures for these.",11
-fomc-corpus,1983,Year-over-year in '81 it was 11-1/2 percent. I don't have the number for '80.,25
-fomc-corpus,1983,These are sort of fourth quarter-to-fourth quarter.,11
-fomc-corpus,1983,"Oh, I guess you're right. These are kind of fourth quarter-to-fourth quarter.",18
-fomc-corpus,1983,"Yes, I think it is fourth quarter-to-fourth quarter.",13
-fomc-corpus,1983,"Frank, the fellow who has been pushing this is Ben Friedman. I don't remember when I talked to him what his numbers were. Have you had a conversation with him?",34
-fomc-corpus,1983,"To my knowledge, I don't think he's recommended a target for it.",14
-fomc-corpus,1983,I have an instinct that not very many market people would be familiar with this and spend a lot time analyzing whether this is easy or tight with the exception possibly of Henry Kaufman and Ben Friedman. I'm sure Ben will be commenting on it. I was just wondering.,53
-fomc-corpus,1983,But a 12 percent rate of growth will not look very tight to those guys.,17
-fomc-corpus,1983,"Even more important, the way the sentence is worded is terrible.",14
-fomc-corpus,1983,"I would like to make it 9 to 11 percent, Paul. I think that would take care of all our problems. That range is awfully wide; a 3-point range in a number as large as this is awfully big. I think 9 to 11 percent would take care of the problem of the very low number; Lyle looks to the bottom end of the range. The high number wouldn't be as high and wouldn't bother [other] people. And for my purpose, the midpoint would be 1/2 point more and I think that is about what it ought to be.",123
-fomc-corpus,1983,I think that's basically [unintelligible].,10
-fomc-corpus,1983,9 to 11 percent.,6
-fomc-corpus,1983,"May I suggest in addition that we change the wording of that sentence? It says: ""And the associated range of growth for total domestic nonfinancial debt has been established at...."" It sounds as if we know what we're doing.",46
-fomc-corpus,1983,That is too serious.,5
-fomc-corpus,1983,We think it may be in that general neighborhood.,10
-fomc-corpus,1983,"I think the word ""estimated"" is a good idea.",12
-fomc-corpus,1983,"""Estimated"" is good, yes.",8
-fomc-corpus,1983,"Well, it's a little odd that we have a very narrow range for the figure we don't know much about.",22
-fomc-corpus,1983,The difference between the high and the low ends must be around $100 billion when it's 9 to 11 percent.,24
-fomc-corpus,1983,"It's a more reliable number, so we don't need a wide range.",14
-fomc-corpus,1983,"Yes, but I think we should also--",9
-fomc-corpus,1983,The number we're talking about is around $500 billion.,11
-fomc-corpus,1983,"You're right. When you add one percentage point to the flow, you get an extra $4.8 billion. An extra $4.8 billion of credit is a lot.",36
-fomc-corpus,1983,Let the record show.,5
-fomc-corpus,1983,Shouldn't we also add a sentence?,8
-fomc-corpus,1983,"You sound like Everett Dirksen--a billion here, a billion there!",15
-fomc-corpus,1983,It adds up to [real] money after a while!,12
-fomc-corpus,1983,It's the percent that counts here and not the dollars.,11
-fomc-corpus,1983,"Well, I'm talking about the dollars because a lot of people look at those flow of funds numbers.",20
-fomc-corpus,1983,What's the total of this figure?,7
-fomc-corpus,1983,It's around $500 billion.,6
-fomc-corpus,1983,It was $4.8 [trillion] at the end of 1982.,18
-fomc-corpus,1983,$4.8 trillion is the stock.,9
-fomc-corpus,1983,Think of it as 50 percent more than GNP. Right?,14
-fomc-corpus,1983,Ten percent of $4.8 trillion is $480 billion.,13
-fomc-corpus,1983,"Mr. Chairman, I would also like to add a sentence after this.",15
-fomc-corpus,1983,How can you miss a target that's 50 percent--?,12
-fomc-corpus,1983,When you have a 2-point range that's a hundred billion dollars.,14
-fomc-corpus,1983,I would like to add a sentence in here that indicates that we have not bought Ben Friedman 110 percent--that we're looking at this as something we would follow rather than use as a strict target.,40
-fomc-corpus,1983,There already is one in there.,7
-fomc-corpus,1983,To give it a 2-point range when the others are mostly 3 points I think gives it a special status that will be regarded as being particularly confining when we really mean it's particularly loose.,40
-fomc-corpus,1983,"I don't know. Who the heck knows what this figure should be, but I'm a bit bothered by a lower figure than 9 percent which is where it has been running roughly. Presumably, we're disinflating during this period. We haven't had a figure--",53
-fomc-corpus,1983,We haven't had a figure as low as 9 percent--,12
-fomc-corpus,1983,"That's right. During the inflationary period, we haven't had a figure as low as 9 percent.",21
-fomc-corpus,1983,"We're talking about all this financing by the government, which is a part of it, and we have a low end that's below anything we've had.",29
-fomc-corpus,1983,"The last time it was below 9 percent the economy was a lot healthier than it is now, gentlemen. That's what we're trying to do, isn't it? I'm not kidding about this. That is the other way of saying it.",47
-fomc-corpus,1983,1970 was the last time it was below 9 percent and that was a recession year.,19
-fomc-corpus,1983,There was accelerating inflation in that period.,8
-fomc-corpus,1983,It got down to about 9 percent in '74 and '75 when there was more inflation than there is now.,24
-fomc-corpus,1983,"Well, the aggregate responds very little to inflation. Otherwise, it should be 5 percentage points lower now than it was at its peak.",28
-fomc-corpus,1983,"Well, it's 3 or 4 percentage points.",11
-fomc-corpus,1983,"It's responsive to nominal GNP, Henry, not just inflation.",13
-fomc-corpus,1983,The chart looks pretty good until the last couple of years.,12
-fomc-corpus,1983,"[Unintelligible] economy from the liquidity position of businesses and individuals. And it clearly has a very strong secular upward trend. It always has; that went on before there was an acceleration of inflation [unintelligible]. If you go back to the 1950s, you'll find there was an acceleration in the growth of debt relative to GNP.",74
-fomc-corpus,1983,I don't think that's true. The velocity has been unchanged for 20 years.,16
-fomc-corpus,1983,"I think, Mr. Chairman, we have a very modest growth in nominal GNP here and we're getting [rising] economic activity only because we have very low growth in prices. Our problem, we thought, was to explain why total credit growth was so small with this kind of nominal GNP, given--",63
-fomc-corpus,1983,So large.,3
-fomc-corpus,1983,So large.,3
-fomc-corpus,1983,"I meant so large, pardon me.",8
-fomc-corpus,1983,"That's where I start out. De novo, the question I have is: Why is it so large? Why is credit in the first period of expansion expanding faster than nominal GNP?",37
-fomc-corpus,1983,Maybe because a dollar government bond doesn't have the kick that a dollar Carter bond does.,17
-fomc-corpus,1983,"Part of our answer was that we weren't getting enough strength in economic activity to generate a substantial cash flow to businesses, so we weren't getting them able to finance as much, relatively speaking, internally. The character of this expansion is somewhat different from the character of earlier expansions. It's slower. It's dominated by government.",62
-fomc-corpus,1983,That's the problem. It is totally dominated by government. And I don't know how you can walk away from that.,23
-fomc-corpus,1983,"Remember, if you don't like the crowding out argument in that we're taking the government's share as given, another thing that's implicit in what Lyle is arguing is that you will increase financial leverage of corporations. Because what you're talking about providing them adequately with is debt, which as Governor Martin noted, has to be related to equity. And what he just said is that there's not going to be equity forthcoming for whatever reason. That's in the forecast. I'm not arguing with it. But the logical conclusion is that if we put a high number on the range and if we make the credit available to the private sector after the government gets its share, the net result will be an increase in the debt/equity ratio of corporate America. And that ratio, if I'm not mistaken--I'd like to ask the staff--",162
-fomc-corpus,1983,"You can't reach that conclusion, Bill, because one of the biggest sectors in here is the consumer--mortgage debt and consumer debt.",27
-fomc-corpus,1983,"Well, I hate half points [in the ranges], but the arithmetic resolution of this problem would be a range of 8-1/2 to 11-1/2 percent.",38
-fomc-corpus,1983,"I thought of that, but it seems to me that implies some precision. I wonder if it's wise to make that--",24
-fomc-corpus,1983,"We just did, under your urging, for M3.",12
-fomc-corpus,1983,Maybe we should just stop with what we had already set up before.,14
-fomc-corpus,1983,I would buy 8-1/2 to 11-1/2 percent.,18
-fomc-corpus,1983,"I would like to make one suggestion. I don't feel that strongly about it, but I'd like to point out that there is an advantage in addition to this associated [debt] target of leaving in our traditional associated bank credit target for two reasons. One is that we always hit it for some strange reason, and that's very nice to have happen. [Laughter] The other one is that there are a lot of people in the markets who aren't going to understand [the debt aggregate]. If they do, it's very--",105
-fomc-corpus,1983,Of course their argument is that we get that [bank credit] figure on a much more up-to-date basis.,23
-fomc-corpus,1983,"And it seems to me that there would be some sense of continuity. If people see that same bank credit target of 6 to 9 percent or whatever it is that we've had every year--and we always hit it rain or shine--they're going to tend without doing any independent analysis, which will be limited to a very few people, to feel reassured about the higher numbers on this broad credit measure because they'll assume it's consistent.",88
-fomc-corpus,1983,Do you have the number for bank credit?,9
-fomc-corpus,1983,"Well, the number for bank credit that falls out of this whole consistent set of data is 7.8 percent.",24
-fomc-corpus,1983,It's still within 6 to 9 percent; it's still the same thing.,16
-fomc-corpus,1983,Keep 6 to 9 percent.,8
-fomc-corpus,1983,"It really ought to be depository credit, but we don't have a number for that.",18
-fomc-corpus,1983,Maybe we wouldn't hit it that way.,8
-fomc-corpus,1983,"If we vote on these, as I've figured it, we've now substituted all the specifications of alternative I and the rate of growth from a February-March base for M2, and we're calling it alternative II.",42
-fomc-corpus,1983,"That's correct, I guess. One could argue, however, that these are all based upon a somewhat lower GNP than everybody is calculating.",28
-fomc-corpus,1983,"Furthermore, the M2 number is based on sheer speculation on the part of the Board's staff that after the end of March--",26
-fomc-corpus,1983,So are the other numbers.,6
-fomc-corpus,1983,--M2 is going to grow 8 percent.,11
-fomc-corpus,1983,"I was just thinking on the mechanics of voting. I might say I favor old M2 and you might say you favor the new M2. I was just pointing out that a transposition has sort of taken place, rightly or wrongly.",48
-fomc-corpus,1983,"You are right. Well, what do you think about this bank credit issue? We could write a sentence in here saying that this would be consistent with a bank credit range of to _ percent. That gets another number in there; I don't know whether that's good or bad. I don't mind saying that at some point. We could use it as a transitional device but not monitor it, or put it in parentheses.",83
-fomc-corpus,1983,"What advantage would there be of that, Mr. Chairman? I thought initially we were aiming at substituting a broader measure of credit than the narrow bank credit measure which had been affected by the degree of intermediation or disintermediation or whatever. I suspect we might be getting too many targets.",61
-fomc-corpus,1983,"Obviously, it adds another number and that's a disadvantage. I think we ought to say some place, though we don't necessarily have to say it in [the directive]--we can say in the text of the [policy record]--that we have this range and it was pointed out that this was the practical equivalent of the 6 to 9 percent range for bank credit.",76
-fomc-corpus,1983,That's all right.,4
-fomc-corpus,1983,I think that's attractive.,5
-fomc-corpus,1983,"Well, why don't we do that. Take a note of that somebody. Why don't we go back over this and look at the language, paragraph by paragraph. I had a very minor change back in the boiler plate part. In line 20 it says ""Growth of M2 surged to an extraordinary pace in January."" That's certainly right. Then it says ""largely reflecting...."" If I understand it correctly, it's more than largely reflecting. It misimplies that it's only partially [the reason]. So far as we know it may be the whole [reason]. We don't know. I would make a big change and substitute the word ""apparently"" for ""largely."" Somebody says it's just an arithmetic thing; I guess it's what you're measuring from. In lines 12 and 13 it says ""In recent months the advance in the index of average hourly earnings has slowed appreciably further."" I guess that depends upon precisely what month you're comparing it with.",194
-fomc-corpus,1983,"We could say ""slowed further, but not appreciably.""",13
-fomc-corpus,1983,"I don't remember exactly what the numbers were. I thought the January figure was a little lower, but I just figured--",24
-fomc-corpus,1983,"If you take the period from last September to January, you get a 5.3 percent rate of increase. The third quarter was 5.5 percent, measured from June to September. There has been a tiny further slowing, but not a lot.",52
-fomc-corpus,1983,"Just take out the word ""appreciably."" Is that okay?",14
-fomc-corpus,1983,I definitely think that would do it.,8
-fomc-corpus,1983,All right. Does anybody else have anything on the boiler plate part?,14
-fomc-corpus,1983,"I do. On page 2, line 37--",12
-fomc-corpus,1983,That's not the boiler plate.,6
-fomc-corpus,1983,It never changes.,4
-fomc-corpus,1983,This is the armor plate!,6
-fomc-corpus,1983,"That first sentence is certainly boiler plate, but I--",11
-fomc-corpus,1983,It was the first sentence that I had trouble with.,11
-fomc-corpus,1983,"Now we are down after line 33. What do you have, Nancy?",16
-fomc-corpus,1983,"First of all, the word ""sustainable"" is used twice and I don't know what it means to say ""a sustainable pattern of international transactions.""",30
-fomc-corpus,1983,We never did.,4
-fomc-corpus,1983,The only virtue that it has is that we have an unsustainable pattern. We've had it for years and we haven't changed the sentence.,27
-fomc-corpus,1983,"Steve, what was the--",6
-fomc-corpus,1983,"I think the question is whether we want to change something--this particular sentence--which has in fact been boiler plate. I raised the same question. Actually, it may be more relevant now than it was before in terms of the exchange rate. I would be inclined to leave it. But nobody's going to notice it because it has been there forever.",71
-fomc-corpus,1983,"It's very hard to say anything about the balance of payments; still, something should be said. And then we'll in effect have to say something about the dollar.",32
-fomc-corpus,1983,Is there anything else in that first paragraph? Anything down to line 49?,16
-fomc-corpus,1983,"Mr. Chairman, in line 44, I would prefer to put the lower market rates of interest after declining inflation because it sounds as if the declining inflation is what is causing the lower market rates of interest. It would read then, starting at line 43, ""...and that the availability of interest on large proportions of transactions accounts, declining inflation, and lower market rates of interest....""",78
-fomc-corpus,1983,"Anything else in that first paragraph? Let me go to the next paragraph, which is bracketed. It seems to me that that ought to stay in, but I wonder whether we shouldn't reverse this somehow. I don't have any [precise] language, but something like ""In establishing growth ranges for the aggregates for 1983 the Committee felt that M2 might be more appropriately measured after the period of highly aggressive marketing of money market instruments has been completed. The Committee also felt that a somewhat wider range is appropriate for Ml."" We need some language in there, I think, to make that range sound a little more tentative, consistent with the rest of it.",133
-fomc-corpus,1983,"""For monitoring Ml.""",4
-fomc-corpus,1983,"Well, that would be all right with me. And that would be explained a little later, if that's--",22
-fomc-corpus,1983,I think we ought to say something here to indicate that these ranges are more uncertain than in the past since we haven't quite said that except for Ml.,30
-fomc-corpus,1983,"Well, it says that right now. That's the last sentence. I think the whole thing conveys that. The first paragraph says something about that and then this paragraph concludes with it. I'd make it ""Those growth ranges will be reviewed in the spring and altered, if appropriate, in the light of evidence"" etc. Then what this is saying--let me just be clear--is that we may look at M2 [after] we see what happens in February and March and see whether we like that as a base or whether it [should be] changed. And we'll see whether we have any stronger feeling about M1 at that time, which is before the normal period [for our review of the ranges]. Okay?",144
-fomc-corpus,1983,Did you want the narrowing to apply to the M2 range as well?,15
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,Altered.,3
-fomc-corpus,1983,"No, we're changing the word ""narrowed"" to ""altered.""",16
-fomc-corpus,1983,"Maybe it's a minor point, but in lines 53 and 54 we use the phrase ""after the period of highly aggressive marketing of [money market deposit accounts] has been completed."" We are implying that by using February and March as the base that the aggressive marketing will be over then. I'm not sure we can say that.",66
-fomc-corpus,1983,"[We could say] ""subsided."" It depends upon what one means by ""highly.""",20
-fomc-corpus,1983,I'd give it a more temporary--,7
-fomc-corpus,1983,The distinction is between highly and not so highly.,10
-fomc-corpus,1983,"""Subsided"" is a lot better word.",10
-fomc-corpus,1983,"""Subsided"" is all right.",8
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Should we add ""hopefully""?",6
-fomc-corpus,1983,Perhaps.,2
-fomc-corpus,1983,"We just talked about the tentative numbers for the next paragraph. I think Governor Martin raised some question about how M1 is stated. Let me suggest this. It would read as it is except for putting an ""and"" after M2 and before M3. ""For the period from February-March to the fourth quarter a range of 7 to 10 percent ...taking into account the probability of some residual shifting...."" Well, there's a question right there. Do we attempt to quantify that residual shifting? I would say we ought to quantify it very roughly in the earlier discussion [in the policy record], but we don't have to do it here. Then just make it ""and for the period from the fourth quarter of 1982 to the fourth quarter of 1983, M3, which appears to be less distorted by the new accounts...."" And then say something like ""A tentative range of 4 to 8 percent""--if that's what we have--""has been established for M1 assuming Super NOW accounts are not vigorously pursued and that the [proposal before the DIDC for] business demand deposits isn't adopted.""",227
-fomc-corpus,1983,Is not adopted?,4
-fomc-corpus,1983,"Is not adopted. It's not ""business demand deposits,"" but put in whatever the right language is.",20
-fomc-corpus,1983,The implication of that is that Ml is receiving substantially less weight than M2.,16
-fomc-corpus,1983,"We say that specifically in the next paragraph, I think. It comes up again in the next paragraph.",21
-fomc-corpus,1983,You'd like me to wait until discussion of that?,11
-fomc-corpus,1983,"Well, we can't determine this paragraph independently of the next one; I think it does have that implication. So, whether or not you like the language in the next paragraph, it's designed to make it consistent with the next paragraph.",46
-fomc-corpus,1983,"Mr. Chairman, that language about the Super NOWs--if it says we assume nothing happens on that--may compromise your position at the moment with the DIDC. Does it bother you at all?",41
-fomc-corpus,1983,I'd just say that we had to make some assumption one way or the other.,16
-fomc-corpus,1983,But you used the wording that this range makes no allowance for any marketing of Super NOWs for businesses. It would be a little difficult--,28
-fomc-corpus,1983,Not marketing. It's the possibility of them.,9
-fomc-corpus,1983,The range makes no allowance for that.,8
-fomc-corpus,1983,"Well, I didn't mean to give definite language. I haven't any language here, but I don't mean to make it read as though that decision is prejudiced; it's just a factual statement of what our assumption was in establishing this range. We can accomplish that.",52
-fomc-corpus,1983,"We have to be a little careful, I think, with the phrase we have about Super NOWs too. Of course, they're being marketed now to households.",32
-fomc-corpus,1983,I haven't any language written down.,7
-fomc-corpus,1983,"Maybe ""assume no unusual...""",7
-fomc-corpus,1983,"Yes, some institutions would say they're pushing them pretty heavily.",12
-fomc-corpus,1983,"Why don't we say ""assuming Super NOW accounts do not draw a substantial amount of funds from outside of MI"" or ""draw only modest amounts of money from outside of Ml."" And I think we could say ""assuming that interest payment on transactions accounts is not extended beyond the present eligibility.""",57
-fomc-corpus,1983,"Or ""extended to corporations and other businesses"" or something like that.",14
-fomc-corpus,1983,"Either ""corporations or other businesses"" or ""beyond the present eligibility."" It's just meant to be a factual statement of what our assumption was in establishing a range.",34
-fomc-corpus,1983,What will you answer if some member of the [Congressional] Committee said: Does that mean then that in the DIDC you are going to oppose the extension to corporations?,35
-fomc-corpus,1983,It just means that's the assumption that we made.,10
-fomc-corpus,1983,[Unintelligible.],6
-fomc-corpus,1983,"I probably will say yes, anyway, but that has nothing to do with this.",17
-fomc-corpus,1983,"I do believe the comment [on the DIDC proposal] has run pretty much close to this, hasn't it?",23
-fomc-corpus,1983,"I'm not sure, but that's my impression. I haven't looked at it myself.",16
-fomc-corpus,1983,On the following paragraph that deals with the question of emphasis on--,13
-fomc-corpus,1983,We're not quite to the following paragraph yet until I make sure there are no more comments on this one.,21
-fomc-corpus,1983,Should the range of bank credit go with this?,10
-fomc-corpus,1983,"No, I think we agreed to put that in the [policy record] text earlier, not here. It will go in the summary of the discussion or whatever we call it but--",37
-fomc-corpus,1983,It's not a specified target.,6
-fomc-corpus,1983,In the summary we could indicate what the total credit would be of which we think bank credit would be about so much. That would take care of it.,31
-fomc-corpus,1983,The only question I would raise as far as numerical sequencing is: Why not address the Ml situation up front--address it first? I realize it's being downplayed.,33
-fomc-corpus,1983,"I think that's the reason. Again, I think that is dependent upon what we say in the next paragraph. I just think it's better this way if it has a little less emphasis precisely because it does have less emphasis.",44
-fomc-corpus,1983,I guess my basic problem is that I wonder if I would give it quite that much less emphasis.,20
-fomc-corpus,1983,"Well, that's going to come up in the next paragraph. Let's turn to the next paragraph, which starts out by saying ""[In implementing monetary policy,] the Committee agreed that substantial weight would be placed on behavior of the broader aggregates.""",47
-fomc-corpus,1983,"I do have a bit of a problem in terms of this question of emphasis on Ml. As I look at it, we're talking about targets in general that at least strike me as being toward the high side in a context in which there's at least a 50-50 chance that we are going to get some recovery, if not a fairly robust recovery, in velocity. Now, if we find ourselves in that situation, M1 with all its imperfections and everything else is really the only device to use, in terms of the way we run monetary policy, to be able to snug up. That may develop out in the year some time, but I--",131
-fomc-corpus,1983,"But, Jerry, that's a pretty good sentence there at the top of page 4.",18
-fomc-corpus,1983,Why do you say that? I don't understand.,10
-fomc-corpus,1983,Why do I say it? I guess I have at least a degree of concern that we could run into a problem on the up side.,28
-fomc-corpus,1983,"Yes, but why is that only going to be reflected in M1 and not the other Ms?",20
-fomc-corpus,1983,"Well, in terms of open market operations, the fact of the matter is that--take the extreme case where it's not even a question of emphasis but we have nothing there on M1--as a practical matter our ability to react in a reasonably effective way to what is happening with M2 or M3 or credit or whatever is limited.",68
-fomc-corpus,1983,"I don't understand that. If they're running high, we tighten up.",14
-fomc-corpus,1983,"Mr. Chairman, let me see if I may help on this point. We would lose the automatic adjustment mechanism to a large degree.",27
-fomc-corpus,1983,Less automatic--,3
-fomc-corpus,1983,The Committee sets the initial borrowing target and after that all the Committee has is the automatic part because we don't participate in any ad hoc adjustments. I sure would like to have that automatic part fairly strong.,40
-fomc-corpus,1983,"I think it's less automatic; I agree with that. I think the Committee does participate; it's less automatic but it's there. If we want to use it, it's there.",35
-fomc-corpus,1983,"Jerry's point that we're going to need M1 later on for the upside possibility is one that I agree with. And it seems to me that while we have uncertainty about economic activity and the macro outlook, one of the things we could do as a Committee is say that we will react to M1 going above the target. We will react less quickly than we did historically; historically we tried to get it back in [its range] over a 10- to 12-week period between discount rates and reserve movements. We could say we will react less quickly as a Committee. I'd like to see Ml receive more emphasis than this directive puts upon it.",131
-fomc-corpus,1983,"Well, we're talking about long-range targets for the moment. And if Jerry's problem becomes a real one, the way we can deal with that is in the short-run directive in May or June or December or whenever the date is by providing more weight to M1 because then we'd get the more automatic response. So long as we haven't thrown it out, as I suspect [we may have], we're all right.",83
-fomc-corpus,1983,"But the fact that we are talking long term is why it seems to me that just the sequencing of it gives a little more weight to [its deemphasis]. I'm not arguing about the qualifying language but since we are looking out for a year, if what Jerry says does materialize, it seems more logical to be consistent and address Ml, M2, and M3 as we traditionally have. I think it would leave the impression at least that M1 is not as abandoned as it apparently is right now.",102
-fomc-corpus,1983,"I think you have to look at where we've come from, though. We have deemphasized Ml, in fact, in recent months. And while we may feel a little better about putting M1 back in a monitoring sense, what really has happened over the last 6 weeks that would make us jump from essentially not using it at all to putting it back up there?",75
-fomc-corpus,1983,I'm not arguing for jumping that far; I'm just arguing for acknowledging that there is such a thing now.,21
-fomc-corpus,1983,"Just to put a little balance on this discussion in that direction, my concern about that sentence on the top of page 4 was that it was too strong. I'd ease it slightly and say ""While the behavior of M1 will be monitored, the weight placed on that aggregate over time will be dependent on evidence.""",63
-fomc-corpus,1983,"What kind of evidence may I ask, Paul? Remember, if you go back not 6 weeks but back to last fall when we were arguing about M1 in a discussion like this, we were saying that we were worried about what would happen when the all savers [certificates] matured and we were worried about what would happen with MMDAs. But we had double-digit growth of M1 before October and after October,",87
-fomc-corpus,1983,"My answer to that is that there's no question M1 is running high relative to targets. We can make these technical adjustments, but it's running high when you look at that whole period. But the relationship between Ml and the economy I don't think has settled down, to say the least. And my problem is that I don't know how soon I would have the intestinal fortitude, if that's the right term, to say that I have any conviction on what the velocity is of M1. I'm not [just] assuming that it's distorted by these technical things. If we had an undistorted Ml figure, I'd say: Okay, it's undistorted, but what its relationship is to the economy, I don't know at this point.",147
-fomc-corpus,1983,But what Jerry is saying is: Why should we start out by assuming anything except that velocity is going to make a comeback? And the weaker language we put in now will probably be--,37
-fomc-corpus,1983,"The target assumes velocity is going to make a comeback and I assume it's going to make a comeback, rightly or wrongly, to some degree. But on the question of whether the velocity is going to be 1 percent up or 5 percent or 6 percent up, I will tell you I'm a complete nihilist. That's my problem.",68
-fomc-corpus,1983,"All I'd say, along the lines of what Jerry thinks, is that the farther we let this horse out of the corral, the harder it's going to be to jump back on it when we think we need it.",44
-fomc-corpus,1983,I suffer from the disability--I'm sorry--of not understanding Jerry's point in the first place. I don't want to jump back on it if I don't have any confidence in the darn thing.,39
-fomc-corpus,1983,"Let me try to make the point a little differently, then. I am thinking out perhaps well into 1983. I'm not worried right now and I probably won't be worried for at least a number of months. But I could be worried come the summer or sometime when I see the velocity rising 4 or 5 percent and we're at the top of the M1 range. We'd have a mess on our hands at that point to suddenly be in a position where we have to reemphasize Ml because we want to be able to live with the automatic mechanism in a more direct way. I think that is a very difficult position.",128
-fomc-corpus,1983,"You would agree, though, that by definition if we went back to that situation of giving it that much emphasis, we would then have more confidence that velocity was telling us something.",36
-fomc-corpus,1983,I think that's right.,5
-fomc-corpus,1983,"So, therefore, one would handle it the way Lyle Gramley suggested: that if that situation does arise, then it's perfectly consistent with this. Right?",32
-fomc-corpus,1983,"Well, you have two parts to your statement. The first part I understand--that it's running high and by implication nominal GNP is running very high and you want to tighten up. I think that's separable from the automaticity issue where you just say Ml is running high, let's tighten up.",60
-fomc-corpus,1983,"My question is that I'm not sure the extent to which, in fact, it might be separable. That's what I worry about.",27
-fomc-corpus,1983,I guess I'm somewhat sympathetic with that too. I think this is tending rapidly to become an argument between those who like M1 and those who like money market conditions.,33
-fomc-corpus,1983,"Actually, I don't like Ml. MR. PARTEE I would have thought that we might say here ""Some weight will be given also to Ml, depending on the performance of velocity""--that is, velocity coming back. It's a shading.",48
-fomc-corpus,1983,"Is this simply added weight? If we're setting any kind of target for Ml at all, we presumably are putting something other than zero [weight on it].",31
-fomc-corpus,1983,"Well, this doesn't say; it just says it will be monitored.",14
-fomc-corpus,1983,"Because it says now ""monitored closely,"" you see.",12
-fomc-corpus,1983,"Some weight, with the amount depending on the extent to which it resumes a predictable velocity relationship. That way, you see, we'd be in a position as velocity comes up to give it more weight. We would have positioned ourselves for it.",48
-fomc-corpus,1983,That's the point I was trying to make. You just made it much better than I did.,19
-fomc-corpus,1983,"Well, I don't know where we are. I'm a bit bothered by the word ""closely."" That's my only problem.",25
-fomc-corpus,1983,"Yes, let's delete ""closely.""",8
-fomc-corpus,1983,"I don't think it helps any, but if you want to get your point in, instead of saying some weight we could say ""with the degree of weight placed on that aggregate over time being dependent on...."" Is that all right?",47
-fomc-corpus,1983,That helps me.,4
-fomc-corpus,1983,It's the kind of thing we can more easily change and give more weight to it as time goes on.,21
-fomc-corpus,1983,"We could monitor it ""carefully"" instead of ""closely,"" Mr. Chairman.",18
-fomc-corpus,1983,Let's just monitor it.,5
-fomc-corpus,1983,"Well, we do everything carefully.",7
-fomc-corpus,1983,"We have it now reading: ""The behavior of Ml will be monitored, with the degree of weight...."" Now to this credit flow issue. We're on that sentence.",34
-fomc-corpus,1983,The more I listen to this discussion the more I wonder whether we are on the wrong foot here. Is it really the degree of weight that we want to emphasize or is it the appropriate range of growth that would be the thing to concentrate on?,49
-fomc-corpus,1983,"I would argue that appropriate growth, which is obviously relevant here, is covered in this other sentence that says we're going to look at that again anyway. I think they are two different points and I guess it's just a question of where we discuss the two different points.",53
-fomc-corpus,1983,The [appropriate] range of growth is going to depend on what velocity is.,16
-fomc-corpus,1983,"Well, that's right; the two are opposite sides of the same coin in a way.",18
-fomc-corpus,1983,"They both are relevant. My sense, as a matter of drafting, is that this paragraph is directed explicitly to the degree of weight. In the paragraphs before we said we are going to have to look at it again in terms of the range. MR. BALLES(?). True.",57
-fomc-corpus,1983,"Just in the interest of being clear with my suggestion--since you didn't adopt it, maybe you didn't understand it.",23
-fomc-corpus,1983,The other possibility is that I didn't like it!,10
-fomc-corpus,1983,"Well, that's possible. I assume this is a democratic matter and, therefore, let me be clear. I would say ""Some weight will be given to the behavior of M1 also, with the degree of emphasis dependent on the extent to which that aggregate over time shows velocity characteristics resuming more predictable patterns.""",62
-fomc-corpus,1983,I will tell you why I don't like it. [Unintelligible] is that I think right away the market is going to say: What's going on with M1 beginning right now in February? And it's going to put us in a box; they're going to be looking at those weekly figures very closely.,63
-fomc-corpus,1983,That is precisely the danger.,6
-fomc-corpus,1983,"It's a real danger. Oh, they love those numbers, that action!",15
-fomc-corpus,1983,The Reuters tape on Friday afternoon--,7
-fomc-corpus,1983,"Well, you can't assume that's irrational either, if the marketplace judges it to be important. I think the market is concerned currently about the rate of expansion in the money stock.",35
-fomc-corpus,1983,"Yes, if we return to the kind of weekly volatility that we had before, it would seriously impede the recovery. And I don't think it adds anything to our anti-inflationary posture to have that kind of weekly volatility.",46
-fomc-corpus,1983,"No, but I think we should stay hinged to a rate of growth in Ml, and we've done that. And the assumption, as I understand it, is a resumption of normal velocity. I don't see anything wrong with that. I think this wording looks all right.",55
-fomc-corpus,1983,"I'm not sure I see anything wrong with it in the future, which is what I think this wording conveys. I don't like the implication that in the next few months we're going to be at that mercy.",41
-fomc-corpus,1983,"Does what you just said imply that if velocity returns to some normal pattern based upon historical experience, we'll go back to targeting Ml as the single aggregate as we did at some time earlier?",37
-fomc-corpus,1983,It doesn't foreclose that. It doesn't say we're going to target it as the single aggregate; I don't think we ever did.,26
-fomc-corpus,1983,Primary is right. I think I would oppose getting back--,12
-fomc-corpus,1983,"We say that, but I'm not even sure how true that is. Look at 1981. M1 was running low and we said: Well, let it run low because the other aggregates are running high. That's explicitly what we said.",49
-fomc-corpus,1983,We were also working against inflation then and were all willing to see Ml run low to try to achieve lower prices.,23
-fomc-corpus,1983,"That was certainly a factor in it, but that's not what we said.",15
-fomc-corpus,1983,My point is that if this is taken to mean that if the one condition is met--that velocity returns to some normal pattern--,26
-fomc-corpus,1983,A predictable pattern.,4
-fomc-corpus,1983,"--a predictable or historical pattern--then Ml assumes some importance, as I think it did before, then I think some additional language might be appropriate. In fact, I rather like Chuck's language of emphasis rather than characterizing it as is done here in this sentence.",54
-fomc-corpus,1983,"My only problem with it, Mr. Chairman, is that I don't see that we have a basis for differentiating Ml and M2. That is, M2's velocity is certainly as unreliable in this situation as Ml's.",46
-fomc-corpus,1983,Let me ask a question. I just don't know. I guess we're saying the opposite.,18
-fomc-corpus,1983,All we need is a sentence here that keeps our options open. I think we're arguing much too hard about details of the language. We want to keep the options open.,34
-fomc-corpus,1983,"What about an approach something like this: ""The behavior of Ml will be monitored closely. Should evidence [emerge] that velocity characteristics are resuming more predictable patterns, the Committee will reopen the issue of the weight that it will place on Ml."" I'd suggest something like that, which pushes to some future point a discussion of where Ml fits, depending on what the evidence is. I think that connotes the idea that it's not being given a whole lot of weight in the very current period.",99
-fomc-corpus,1983,"I don't have any particular problem with what you're proposing. It seems to me it is virtually identical to what we have here. I would, frankly, take out the word ""closely,"" which I think maybe confuses the issue at the moment. But in substance what you said is the same as what this sentence says. It's a drafting preference.",70
-fomc-corpus,1983,"I think, though, that my approach does give a coloration to it that the Committee is keeping open the whole issue of the weight that it's going to give to Ml. This [wording] gives an automaticity to it that if certain preconceived conditions arise, then the Committee will automatically go back to Ml. My wording pushes that decision into the future, should that evidence exist.",77
-fomc-corpus,1983,You interpret it as a diminution of Ml at the moment.,12
-fomc-corpus,1983,Postpone it.,4
-fomc-corpus,1983,"We have a clear split here between those who want to imply a stronger possibility of a return both to an emphasis on Ml and a greater degree of automaticity and others who simply want to be neutral about keeping the options open. I guess that's what the argument is about. I tend to agree with the second view. And I had thought that was the thrust of the consensus view generally--that we don't want to imply to the market that we are being extremely sensitive and that there is a near-term probability. I do want to be neutral on Ml. The big question in the market is: How long is the Fed going to continue its current approach to monetary policy as opposed to at what point do they [return] to some more automatic emphasis on Ml? It seems to me that in the face of that, we ought to be carefully neutral.",169
-fomc-corpus,1983,"As I interpret it, the sentence as modified by Mr. Partee suggested a stronger Ml and I guess Mr. Boehne interprets his suggestions as being weaker on Ml. And what we have is in the middle. So, I guess I'm left in the middle. If I don't hear violent objections, I'm left with the question of whether the word ""closely"" is in or out.",80
-fomc-corpus,1983,I would hope it would not be in.,9
-fomc-corpus,1983,I would [too].,5
-fomc-corpus,1983,"I happen to agree, as I said earlier. I just think that the market is extremely sensitive to the question of whether we are leaning back toward Ml again.",32
-fomc-corpus,1983,"If we don't put it in, it sounds as if we're paying about the same amount of attention to M1 as we are to the total credit flow. We are also saying that we are monitoring that.",41
-fomc-corpus,1983,"We can say ""carefully,"" though.",9
-fomc-corpus,1983,"Carefully, as opposed to our usual sloppy--?",11
-fomc-corpus,1983,You can intentionally monitor your speedometer while going 85.,12
-fomc-corpus,1983,You can even monitor it while--,7
-fomc-corpus,1983,"That's right. We have all the options. We can not look at the speedometer, we can look at it, or we can look at it very closely or we can look at it carefully.",40
-fomc-corpus,1983,"No, I think this states that--",8
-fomc-corpus,1983,The question is where you put your foot!,9
-fomc-corpus,1983,Where we ought to be guided in choosing these options is that for a while we'd just be looking at it and it may be very high. It can't go on very high indefinitely.,36
-fomc-corpus,1983,"I think the word ""monitored"" assumes that if you look at the speedometer you pay some attention to it now and then. It's just the degree of attention you want to pay to it.",40
-fomc-corpus,1983,It depends on whether it's a governor on the motor.,11
-fomc-corpus,1983,"Yes, the degree changes over time.",8
-fomc-corpus,1983,"Well, I think the issue is whether ""closely"" is in there. We can substitute ""carefully."" How many want ""closely"" in there?",33
-fomc-corpus,1983,"I would suggest ""casually.""",7
-fomc-corpus,1983,"I interpret that as a vote against ""closely."" Who wants ""closely"" out? You want it out.",24
-fomc-corpus,1983,I don't have a vote.,6
-fomc-corpus,1983,"Well, everybody will vote in this general [poll]. Who wants ""closely"" in? I guess we have a majority to take it out, but that was not the most overwhelming vote I ever saw!",42
-fomc-corpus,1983,Could we say that some members will monitor it fervently?,12
-fomc-corpus,1983,Closely.,3
-fomc-corpus,1983,Let's go on to credit flows for the moment.,10
-fomc-corpus,1983,"Is the word ""degree"" in that sentence or not?",12
-fomc-corpus,1983,"Yes, I assume that we're using ""degree of.""",11
-fomc-corpus,1983,"""With the degree of weight,"" okay.",9
-fomc-corpus,1983,"That implies, I guess, some weight right from the beginning. Well, I now have it without the ""closely"" but with ""the degree of"" in there. On credit flows, this question has arisen before, and here is the sentence that's supposed to answer the question: ""Credit flows, while not directly targeted, will be evaluated in judging responses to the monetary aggregates."" That's one of the more declarative sentences, I think.",89
-fomc-corpus,1983,It's nice and straightforward.,5
-fomc-corpus,1983,Any comment on that sentence?,6
-fomc-corpus,1983,Shouldn't we spend a couple of hours discussing whether [evaluated] carefully or not so carefully?,20
-fomc-corpus,1983,Last sentence.,3
-fomc-corpus,1983,I think we ought to leave in what is bracketed.,12
-fomc-corpus,1983,"If what is bracketed is left in, just in the interest of clarity, it ought to say ""including evaluation of conditions in domestic credit and foreign exchange markets.""",33
-fomc-corpus,1983,We are doing that.,5
-fomc-corpus,1983,Do you want to leave that? I think we are doing it now. Is that the consensus?,20
-fomc-corpus,1983,It would be incomplete without it.,7
-fomc-corpus,1983,"Well, that completes the long-term ranges. Let me go back after all this discussion [to the numbers]. We put in tentatively: 7 to 10 percent for M2, with a February-March base; 6-1/2 to 9-1/2 percent for M3; 4 to 8 percent for Ml, with a note at the end of that. I take it we're using ""estimated"" instead of ""established"" for the 8-1/2 to 11-1/2 percent range for credit. And in the text of the discussion [in the policy record] that will be rationalized with the present range for bank credit. And that does, as a matter of fact, correspond pretty much--maybe exactly--to alternative I. I note again that most of you at this point have a slightly higher GNP [forecast], nominal and real, than the staff estimated in establishing the alternative II ranges. Unless anybody has a further question, we ought to vote.",208
-fomc-corpus,1983,I find confusing the reference to credit flows. Is that specifically what we mention as total--,18
-fomc-corpus,1983,Where are you?,4
-fomc-corpus,1983,Page 4.,4
-fomc-corpus,1983,"It's on page 4. We have ""Credit flows, while not directly targeted, will be evaluated."" Are these credit flows the total domestic nonfinancial debt? If so, then I think we ought to repeat that because the way it is stated in the earlier paragraph, it looks like a quasi-target. And here we are saying we are not targeting it directly.",73
-fomc-corpus,1983,"But we use ""associated range of growth"" on the previous page. I think it's just a reiteration, making clear that this--",27
-fomc-corpus,1983,"But the distinction is that ""associated range"" is the same as ""not directly targeting.""",18
-fomc-corpus,1983,You would like to use the same title.,9
-fomc-corpus,1983,Yes. It's only known to this group.,9
-fomc-corpus,1983,There's a different problem too. On page 3 we talk about total domestic nonfinancial debt and on page 4 we talk about credit flows. We know that we mean the same thing; I wonder if readers will.,44
-fomc-corpus,1983,Exactly.,2
-fomc-corpus,1983,"I don't really care, but I don't know when those data come in. Presumably, we'd be looking at credit flows against the background of that range; we get some clues without having that precise number [for total domestic nonfinancial debt] in front of us. It sounds awfully technical to me to repeat total domestic nonfinancial debt. But if that's what you want to put in, I'm perfectly happy to put it in.",86
-fomc-corpus,1983,That leads to this--,5
-fomc-corpus,1983,"Why don't we put ""credit flows"" as the title?",12
-fomc-corpus,1983,"We could just call it ""debt expansion.""",10
-fomc-corpus,1983,"""Debt expansion."" That's fine.",7
-fomc-corpus,1983,"Yes, it's closer.",5
-fomc-corpus,1983,"Rather than getting all that technical about it, ""debt expansion"" is fine. If there are no other comments, I guess we can vote.",30
-fomc-corpus,1983,Chairman Volcker Yes Vice Chairman Solomon Yes President Balles Yes President Black No President Ford No Governor Gramley Yes President Horn No Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Teeters Yes Governor Wallich No Four against.,47
-fomc-corpus,1983,"All right, we will go to the immediate [policy]. I don't know whether we need any more discussion from Mr. Axilrod at this point or whether we need a coffee break.",38
-fomc-corpus,1983,"Yes, I think so.",6
-fomc-corpus,1983,"[I need] a lot of that coffee, Mr. Chairman!",13
-fomc-corpus,1983,Why don't we have a brief coffee break.,9
-fomc-corpus,1983,"We live in a wonderful world where setting short-term targets is affected by the last figure we have. We live in a world in which we've just changed all the seasonals and patterns and all the rest. As a preliminary, Mr. Axilrod ought to discuss without the latest numbers, which we'll tell you about in a minute, what all these revisions did to last year's numbers and [this year's numbers] to date.",85
-fomc-corpus,1983,"Mr. Chairman, the benchmark revisions, which were put in the appendix to the Bluebook, lowered the growth in M2 from 9.8 to 9.2 percent, largely because of the exclusion of IRA/Keogh accounts for the year; they had no effect on Ml, which grew at about 8-1/2 percent, and reduced M3 growth for the year as you see from 10.3 to 10.1 percent. However, for M1 within the year there were very sharp changes in the seasonal pattern, which changed the months and quarters to a substantial degree. The growth for Q4, which on the old seasonal pattern had been 16.1 percent, changed to 13.2 percent. The January growth for Ml was reduced to 9-1/2 percent from the higher number, 12-1/2 percent, that it had been before the seasonal revision. These changes in the seasonal pattern were reflected also in the weekly data. You may remember that the last week published, the week of the 26th [of January], showed an increase of $2.7 billion for Ml. Now it has a decrease of $2.6 billion but the preliminary data we have show substantial increases thereafter for the weeks of February 2nd and February 9th, suggesting that we're on track toward a higher M1 in February whereas we had revised down the January growth by 3 points and thought it would continue at the lower growth rate. The data for early February on the revised benchmarks and seasonals suggest that we're on a higher track for February than the estimate of around 6 percent we had in the Bluebook. I don't have additional data.",346
-fomc-corpus,1983,"There are several points. The growth in M1 in the last quarter of last year has been revised substantially down. It's still high, but instead of 16 percent it's 12-1/2 percent.",42
-fomc-corpus,1983,13 percent.,3
-fomc-corpus,1983,"It's something like that, if I remember. January, with the radical revision of data for the week of the 26th, which may or may not be right, is now less than 10 percent instead of over 10 percent.",48
-fomc-corpus,1983,9-1/2 percent.,7
-fomc-corpus,1983,"But you show, [if] one can believe it, that the radical revision is promptly offset the following week, which goes into February, with a further increase the following week of some substantial size. That now makes February look higher than January. The data are subject to equally radical changes in the rest of February. What to make out of all of this, I don't know.",76
-fomc-corpus,1983,"It makes it difficult, Mr. Chairman, on the face of it to think that Ml is going to slow substantially in February and March on average from January.",32
-fomc-corpus,1983,"Do you have a revised M2 for January, Steve?",12
-fomc-corpus,1983,Not at this point.,5
-fomc-corpus,1983,"Well, we return to what we want to do. When do we meet again?",17
-fomc-corpus,1983,The end of March--March 29th.,10
-fomc-corpus,1983,March 29th. A period of--,9
-fomc-corpus,1983,Close to seven weeks.,5
-fomc-corpus,1983,Seven weeks exactly. I don't quite know what numbers to put in here. And the question is whether we need any numbers.,25
-fomc-corpus,1983,I would agree with that.,6
-fomc-corpus,1983,"Mr. Chairman, maybe Steve could explain to us how he intends to operate. It might help us decide what kind of numbers we put in.",29
-fomc-corpus,1983,"Well, how he intends to operate depends upon what we decide here.",14
-fomc-corpus,1983,Bring in borrowings.,5
-fomc-corpus,1983,"Basically, thinking back to the amendment we adopted at the last conference call, we talked about seeking to maintain existing reserve conditions and not increasing the restraint. That comes closest to what we are really doing, assuming that we continue with the $200 million borrowing assumption. If it were our judgment that we wanted to press toward some more easing, we should adopt something lower, say, $100 or $150 million. If we want to defer that easing, okay, we can defer it. But it seems to me that the operation is best summed up either in the first sentence of the paragraph the way it is now or we could go back to the language adopted in the amendment in the last conference call.",140
-fomc-corpus,1983,"Without numbers, you're saying?",6
-fomc-corpus,1983,"I have a very mixed feeling about the numbers. I realize that we really can't drop the number for M2 and leave one in for Ml and M3 without confusing people; they'll think we are paying more attention to M1 and M3 than we are. So, I suppose we really either have to drop them all or leave them in. But we have to make clear that they will not govern and won't override what is basically an intention to continue with the existing degree of restraint or, if the aggregates slow down sufficiently, to ease. So, even though I realize that the word ""contemplated"" that has been put in achieves in a certain sense what I'm talking about, I'm not sure that ""contemplated"" is quite the right verb. Perhaps ""were expected"" or [unintelligible] ""experienced""?",167
-fomc-corpus,1983,"Well, let me just put on the table an alternate proposal for the first sentence and at least explore what we want to do in substance. Suppose we just say ""For the more immediate future, the Committee seeks to maintain the existing degree of reserve restraint expecting that that will be consistent with some slowing of the aggregates."" If we want to go further and consider what would be very nice if it happens, ""Lesser restraint would be acceptable in the context of appreciable slowing of growth in the aggregates."" It leaves open the question of how we quantify this or whether we quantify it at all in the directive. I think what that says is that we don't want to tighten up in this next seven-week period as we see it now and we don't want to ease up unless the aggregates turn in a favorable direction. I would make that view fairly explicit. We can put in the numbers or not put in the numbers, I guess.",185
-fomc-corpus,1983,What was the alternative you suggested? I understood the first thing and then you suggested something else that I didn't quite understand.,24
-fomc-corpus,1983,"The other thing is not an alternative; it just takes care of another possibility--a further [action] not for today. The first one says we will maintain the existing degree of reserve restraint; the second one says lesser restraint would be acceptable in the context of appreciable slowing of growth in the aggregates. That would not be for today but if the aggregates came in low in the next three or four weeks, we would ease.",86
-fomc-corpus,1983,"Your first sentence was ""[existing degree of] reserve restraint expecting that this will...""",16
-fomc-corpus,1983,"Expecting; that's not promising, but expecting. Just to be clear, I think the second part would reflect a view that right now we don't want to tighten, which is implied by the existing language but is not quite as clear. If we're putting in both sentences, it says we don't want to tighten right now but we do contemplate easing if the aggregates are noticeably, or quite visibly, soft.",80
-fomc-corpus,1983,Is that soft relative to those earlier targets?,9
-fomc-corpus,1983,"Well, we have to decide whether to put in the numbers.",13
-fomc-corpus,1983,What is soft?,4
-fomc-corpus,1983,What is soft?,4
-fomc-corpus,1983,"Well, M2 is bound to be slower.",10
-fomc-corpus,1983,It'll drop from 30 percent to some lower number.,12
-fomc-corpus,1983,"[Unintelligible] flows, yes.",10
-fomc-corpus,1983,"We certainly do want to be concerned about the possibility of a relapse. That was mentioned a couple of times yesterday, by Lyle and I think by you, Paul. And I agreed that it's conceivable that after this goes on for a month or two there could be a relapse in the economy. And we want to guard against that.",67
-fomc-corpus,1983,"I think the probabilities are that we are beginning a recovery. But I would not discount at all the [other] possibility; the atmosphere changed radically from the last time we met. If something so simple as car sales were to come in at between 5-1/2 to 6 million, the third consecutive month of decline, and suddenly production schedules are no longer increased in the automobile industry but decreased, and housing doesn't do much more in the next month, people's moods will change rather sharply, I suspect.",103
-fomc-corpus,1983,I would opt for the second sentence in addition to the first. I think it makes our intention clear. And then we leave open the degree of appreciable slowing and how we interpret that.,38
-fomc-corpus,1983,Any other comments? There must be some comments. Mr. Guffey.,16
-fomc-corpus,1983,"Well, I'm not sure I understand what you've done to this language. If we retain the language consistent with the current degree of restraint, that suggests that there isn't any flexibility for easing and achieving a discount rate decrease, for example, because we would provide reserves in such a way as to maintain the current interest rate levels unless we saw the aggregates coming in much, much slower or at least slower than now. That seems to me in the period ahead to be somewhat unlikely to any appreciable extent. I come out on the side of wanting to ensure recovery and thus, although [a discount rate action] is the Board's prerogative, wanting to see some additional downward movement in short-term rates to ensure that.",143
-fomc-corpus,1983,"All right, look: I think the issue should be clear. The alternative language that I propose says, I think, what you said it says. It says that we will maintain the existing degree of restraint unless the aggregates come in lower in some sense than we now expect. And that doesn't give room, probably, for a discount rate cut to the extent that that's [not] consistent. If I understand you correctly, you're saying this is a little tighter than you would like to see it.",99
-fomc-corpus,1983,"Yes, indeed it is. I'd like to see language that would permit us, without regard to what the aggregates do, in some period ahead when a window comes open again to move rates to a somewhat lower level, whether it be 50 basis points--. It doesn't sound like much, but it has a psychological impact.",65
-fomc-corpus,1983,"You say regardless of what the aggregates do. You are in effect saying, if I understand you correctly, that what we ought to say in this first sentence is that we will ease reserve pressures a bit right now.",43
-fomc-corpus,1983,Or leave open the possibility.,6
-fomc-corpus,1983,Leave open the possibility; that's correct.,8
-fomc-corpus,1983,Leave it open on the basis of what criteria? How does it differ from doing it--,18
-fomc-corpus,1983,"Well, we've left it open in Paul's language--that is, if we get weak aggregates.",19
-fomc-corpus,1983,"If we get weak aggregates, it is left open, but I think really what Roger is saying is do it now.",24
-fomc-corpus,1983,I would want to communicate my position as not agreeing with that.,13
-fomc-corpus,1983,"It seems the only thing that we can control at the moment is interest rates. Our biggest objective, as far as I'm concerned, is to ensure a recovery. And if we're all hung up on waiting for the aggregates to show us some diminution in their growth, then we've given up the only thing we can do to aid the economy.",67
-fomc-corpus,1983,"Well, that's a clear point of view.",9
-fomc-corpus,1983,"Then the implication, Roger, is that you wouldn't put in numbers.",14
-fomc-corpus,1983,"I think that's correct. And I'd maybe not put any language in that suggests that we'll continue this restraint until we see the aggregates growing at some lower rate, because that also would--",36
-fomc-corpus,1983,"Well, yes, I think you're forced to that. Just to be clear: I'm not arguing for or against it at this point. I think you have to put in some language that says we would seek to reduce--or I suppose you could live with this language if the discount rate is reduced, which isn't your decision.",65
-fomc-corpus,1983,"[Unintelligible] true, but it's--",11
-fomc-corpus,1983,"Well, I think technically in the first sentence or two it could be maintain the reserve restraint but we'd do it with a lower discount rate. We would just go ahead and reduce the discount rate on some bright day. I think that would satisfy Roger's position, as I understand it.",57
-fomc-corpus,1983,"Yes, I think that's right.",7
-fomc-corpus,1983,"I think it would take a real collapse of the growth rate of the aggregates to justify reducing interest rates under present conditions. That could happen; we shouldn't preclude it. But if the aggregates remain half-way strong and the economy expands moderately, I don't think that's the time to reduce interest rates.",59
-fomc-corpus,1983,"I wouldn't go quite as far as Roger, myself. But what we might do is to say that lesser restraint would be appropriate if justified by monetary, credit, and other conditions.",36
-fomc-corpus,1983,"In fact, what we could say is that lesser restraint would be acceptable in the context of appreciable slowing in the growth of the aggregates or signs of more business weakness, or words to that effect.",40
-fomc-corpus,1983,I don't think we have to be that explicitly honest. All we're trying to do is not lock ourselves in or not close the door to the possibility that we might want to cut rates in some way or other even if the monetary aggregates were not appreciably slowing.,52
-fomc-corpus,1983,"I would go one step further and suggest that we do want to cut the rates without regard to the aggregates because we have no control over those. Our focus should be on the economy and the recovery. I, at least, would have cut the discount rate two to three weeks ago. But the Board didn't.",62
-fomc-corpus,1983,"The only thing I disagree with here is that I think we can't make too sharp a break. If we get too explicit in disregarding the monetary aggregates, I think it's going to cause adverse market reactions.",41
-fomc-corpus,1983,"Well, I understand that point.",7
-fomc-corpus,1983,"And, therefore, I think we ought to be a little more generalized in our language.",18
-fomc-corpus,1983,"I certainly agree with Roger's objective that we want to ensure a recovery. But I would argue that 50 basis points on short-term interest rates is not going to do the job. If we don't have interest rates low enough now to provide reasonable assurance of a recovery, then let's forget about 50 basis points on short-term interest rates and knock them down 200 basis points; I would agree with trying to go to a 50 basis point reduction only if that were a first step in a substantial further easing of interest rates. And frankly, I don't think that's necessary. The best thing we can do now is to provide some assurance that interest rates are not going to rocket upward. To provide a signal that we're going to knock them down now and then maybe knock them up again a week from now is going to shake markets much worse than leaving them where they are.",174
-fomc-corpus,1983,"I have a lot of sympathy for what Roger is saying. I think the recovery is at a very fragile point. I don't think it's a fact yet, though we probably will have one. But expectations about what is going to happen are very important. And while there may be some risks of a perverse reaction in long-term bond markets, I think the business community needs a bit of assurance, a ray of hope, a signal, that interest rates certainly are not going to go higher. A little tilt downward at this point, including a discount rate [cut], would provide that signal. I don't think that necessarily means a commitment to go 200 basis points further. This recovery is at a very critical stage in terms of psychology in the business community, and the consumer community needs a little psychological lift. I think a tilt toward ease would serve that need very nicely.",174
-fomc-corpus,1983,"Let me put the question more modestly than that, without disregarding that question. Do we want, in effect, to foreclose a tightening in the coming weeks? SEVERAL. Yes.",40
-fomc-corpus,1983,"For the next seven weeks, yes, I would.",11
-fomc-corpus,1983,"Is that the general feeling? If we know that much, we know quite a lot. If we want to do that, I'm inclined to think some variant of this alternative language I suggested, which says that fairly plainly, is probably right. That leaves open the question of whether we want to go further, but it says that much at the minimum. So, if I judge you correctly, that's agreed. Now we have this Roger Guffey-Ed Boehne kind of approach. Let's have more discussion.",103
-fomc-corpus,1983,"I think that's just dead wrong, Mr. Chairman, because if we just control interest rates without consideration of the aggregates, the markets will take over in terms of expectations--I think it's already happening in the long market--and raise interest rates and that will be self-defeating and abort the recovery. We'd get exactly the reverse of what we want. The Board could lower the discount rate to zero, but if it has nothing to do with market rates, it doesn't mean anything.",97
-fomc-corpus,1983,"Without being quite that strong, I would remind you that we just had a chart show that gave us a reasonably respectable performance for the economy. I believe it was said that almost everybody here had [projected] growth rates somewhat above what the chart show indicated. January certainly is a strong month. It doesn't seem to me obvious at all that rates need to be lower to bring on a recovery. It may be that they will have to be lower but it doesn't seem obvious that they have to be. In the meantime, I agree with Ted that the market is becoming pretty apprehensive about these aggregates. And for us just to abandon them altogether I think will be certainly a featured comment in the market and could give a counterproductive result.",147
-fomc-corpus,1983,"I doubt it, but I'm confused. Just now I thought I didn't hear any objection--I just heard one, Mr. Roberts--on not tightening in this period.",34
-fomc-corpus,1983,"Well, I disagree with that. But I think you're right that the consensus is there. I thought you were asking ""Is that the consensus?"" And I think it is. But I personally disagree with it because I think we face the possibility of a very vigorous [economy]. Suppose these events continue and all these things--the real things that we lack such as housing starts and auto sales--start to take off coupled with all the aggregates, however defined, continuing to grow at scary rates. Then what would you do?",105
-fomc-corpus,1983,But we're only talking about between now and the end of March.,13
-fomc-corpus,1983,"That's quite a critical period. At the risk of embarrassing John, who may want to refute what I'm going to say, he was just showing me some research that he likes, which seems to indicate that the traditional problem the Fed has faced in the past is overstaying ease because we're always talking about what is happening in the economy today when the decisions we're making will impact with a lag--in the summer, the fall, and the end of the year. So, I don't agree with the consensus, but I think you correctly identified it.",109
-fomc-corpus,1983,"Let me make sure I correctly identified it. Let me have a show of hands of all those who as we sit here right now making the best judgment we can--we're not talking about [forever] because if something radically different happens we can always have another meeting--don't want to put in an automatic tightening. Well, I guess it is the consensus; let's stop talking about that aspect. I understand there may be some opposition to that.",90
-fomc-corpus,1983,That's why I didn't bring it up.,8
-fomc-corpus,1983,"Just to make my own point clear, in response to Bill's comments: I agree that that has been the strategic mistake we've made in the past, but I don't agree that we have already overstayed ease. I think we need a little more ease; that's where our judgments differ.",57
-fomc-corpus,1983,"All right. Barring another meeting and reconsideration in the event things change from the way people now see them, it looks like we're not going to tighten on reserves. So, presumably we say that. Now we still have the question: What do we say beyond that, if anything? We can just say that.",64
-fomc-corpus,1983,"Mr. Chairman, I'd be worried about not putting in the aggregates at all, although in some ways it's tempting not to do so. But in not putting in any short-term targets it seems to me the discontinuity between what we're saying for the year as a whole and what we would say for the two months ahead would just be far too great. And I suspect the market would be very concerned, upset, and worried, speculating about what we were really up to unless in some loose way at least we continue to pay some attention to growth of the aggregates.",113
-fomc-corpus,1983,"We've got to get to that. Let me just see whether we can get to that faster if I am a little more explicit and say I interpret the consensus that was just stated as being basically the first alternative sentence that I proposed: ""For the more immediate future, the Committee seeks to maintain the existing degree of restraint, expecting that would be consistent with some slowing of the aggregates.""",76
-fomc-corpus,1983,"""Restraint in reserves.""",7
-fomc-corpus,1983,"Yes, ""restraint on reserve positions"" or ""reserve restraint."" ""Restraint on reserve positions"" would probably be more accurate.",28
-fomc-corpus,1983,"I think that's better. Then ""expecting that would be consistent with--",15
-fomc-corpus,1983,"--some slowing of the aggregates.""",7
-fomc-corpus,1983,"Well, we may find that the slowing is only in M2.",14
-fomc-corpus,1983,That is right.,4
-fomc-corpus,1983,We may very well find the slowing is not in all the aggregates.,14
-fomc-corpus,1983,"But I think that language. Tony, would be well received in the market. Just the mention of [maintaining] restraint and the [expectation of a] slowing [in monetary growth] I think will be well received.",46
-fomc-corpus,1983,"Yes. Now, if we have a sentence of that sort, a question still remains in that it says nothing about any easing at all under any contingencies. The second sentence I suggested says we might do that if the aggregates are slow enough. We have had some expression of opinion that we ought to be doing that anyway.",65
-fomc-corpus,1983,Might.,3
-fomc-corpus,1983,See if there's agreement on that.,7
-fomc-corpus,1983,I just find it hard to see how to write this unless we say we want to do it. I don't know what other criteria--,27
-fomc-corpus,1983,"The only other way of doing it is something like I suggested earlier: that some easing might be acceptable or appropriate in the light of monetary, credit, and economic conditions. So, we would be leaving open what will trigger that and yet we would not be ignoring the monetary aggregates.",56
-fomc-corpus,1983,"Mr. Chairman, it seems as we sit here today that the obvious thing that would create the window to allow for more easing would be a substantial slowing in the aggregates. So, for that reason, I support that wording. If something unusual were to happen in the next two months, then in fact a move on the discount rate could [be taken] into consideration in this period. But as we sit here today it seems to me that a slowing in the aggregates that would permit--",97
-fomc-corpus,1983,Let me give you two alternatives. I think the second sentence as I gave it to you does what you want to do.,25
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"""Lesser restraint would be acceptable in the context of appreciable slowing of growth in the aggregates."" We could just leave it there or add something after that, such as ""in the context of appreciable slowing of growth in the aggregates, or further evidence of low velocity, or further evidence of unusual demands for liquidity, or evidence of unexpected weakness in the economy."" We could put in any of those things.",81
-fomc-corpus,1983,"I'm with Karen, Mr. Chairman.",8
-fomc-corpus,1983,"I would like to add ""unexpected weakness in the economy"" because it could be that the January numbers are a fluke. I think that's what we're basically aiming at anyway: to restart an economic recovery. And we need a window to do it with, if it turns out that way.",58
-fomc-corpus,1983,"That doesn't really satisfy the objective that I have because we would have to wait for this evidence to come forth. I agree with Lyle that 50 basis points isn't going to make a lot of difference except for the psychological impact that that 50 basis points may have in the market. And we need it now, not at the end of March.",70
-fomc-corpus,1983,It could have the same psychological impact we had the last time we made that move.,17
-fomc-corpus,1983,That's a risk. I'm just saying the risk is on the up side.,15
-fomc-corpus,1983,"The last time it was done, it was done before the funds rate was dropped. I think we have to ease the funds rate down to around 8 percent before a discount rate cut.",38
-fomc-corpus,1983,And we can do that by our borrowing level.,10
-fomc-corpus,1983,How can we do that? We already have it down to $200 million.,16
-fomc-corpus,1983,Go to less than $200 million.,8
-fomc-corpus,1983,Make it a minus?,5
-fomc-corpus,1983,"Let me approach this in baby steps. Given the consensus we already have on the first sentence, would members of that consensus object to the first part of the second sentence? That part, in other words, is that we ease if we were to get further appreciable weakening in the aggregates.",58
-fomc-corpus,1983,What do you mean by appreciable?,8
-fomc-corpus,1983,"Well, we'll get to that later.",8
-fomc-corpus,1983,That's a word we've used--appreciable.,10
-fomc-corpus,1983,"Well, it's a word I have here at the moment anyway.",13
-fomc-corpus,1983,Which is more or less--substantial or appreciable?,12
-fomc-corpus,1983,We will get to the discussion of what the numbers are and whether to put them in here in a minute. Is the sense of that agreeable?,29
-fomc-corpus,1983,Do you mean about weakness in the aggregates or unusual liquidity?,12
-fomc-corpus,1983,"I'm just talking purely about weakness in the aggregates now. I'm going to get to the other question next, but I'm just asking: Is going that far desirable?",32
-fomc-corpus,1983,If we can find language to define the aggregates.,10
-fomc-corpus,1983,"All right. So, tentatively, we go that far. Now we take the next step. Do we put an ""or"" in there which may be ""high liquidity,"" ""low velocity,"" or ""unexpected weakness in the economy""? How many want that additional step? We're now getting close.",60
-fomc-corpus,1983,"If after four or five weeks' evidence on the state of the economy or the monetary aggregates they are too fast instead of too slow and we decide we ought to change our policy, we're making decisions based on last week's numbers, not on a well-reasoned view of where the economy is going to go. So, I would stop with the slow growth of the monetary aggregates.",76
-fomc-corpus,1983,"I just can't recall a directive that had a reference to the economy directly in it. Steve, do you remember any? Peter?",26
-fomc-corpus,1983,I can't in the operating paragraph.,7
-fomc-corpus,1983,[I can't recall] in the operating paragraph where weakness in the economy would bring a change in policy.,20
-fomc-corpus,1983,We've had weakness in bank credit.,7
-fomc-corpus,1983,We never did anything so sensible as that.,9
-fomc-corpus,1983,I must say the velocity reference strikes me as ludicrous because we can't really say what velocity is until more time passes.,25
-fomc-corpus,1983,"Again, why can't we cover the same stuff in more general terms by saying ""if monetary, credit, or economic conditions so justified.""",27
-fomc-corpus,1983,That just sounds so wide open.,7
-fomc-corpus,1983,"Doesn't it just say that regardless of the movement of the aggregates, you're going to do what you want to do?",24
-fomc-corpus,1983,"That's true also of these other formulations with liquidity or the weakness in the economy, etc. If there is a consensus for that, all I'm saying is that it ought to be worded more generally. I don't like the phrase ""weakness in the economy.""",52
-fomc-corpus,1983,It seems to me it's implicit. If we have an international crisis or liquidity crisis we're going to deal with it ad hoc.,25
-fomc-corpus,1983,We certainly could always have a conference call.,9
-fomc-corpus,1983,"Let me just ask the voting members at this point, and I won't try to pin down the exact wording: Who wants to go beyond what we've just tentatively agreed to--that if the aggregates are weak enough we ease--and add another phrase referring to the economy or liquidity or something? Five. How many clearly do not want to add any other phrase? Just to make sure, we'll see how many mugwumps there are on that side. Five. Five to five and one person who didn't express an opinion apart from myself.",107
-fomc-corpus,1983,"In doing this, you're still limiting it to those in consensus with the whole thing, right?",19
-fomc-corpus,1983,I guess that's right.,5
-fomc-corpus,1983,But for somebody who is voting he asked for a vote on whether you wanted that phrase in or not.,21
-fomc-corpus,1983,"Well, I asked originally for those who are [members of the consensus].",15
-fomc-corpus,1983,"Oh, I see, Paul. MR. FORD(?). Well, I'll go with the five if you need another vote. I [don't] know who the other one is. Oh, it's you. I'll go with the five who are concerned about easing for too long a period. Whichever direction that five is, that's mine. There you have it.",73
-fomc-corpus,1983,We're obviously rather evenly split on that point.,9
-fomc-corpus,1983,"I'm not sure, if I may say so, that we're really achieving what Roger intended at all.",20
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,We're not.,3
-fomc-corpus,1983,I'm actively opposed to it.,6
-fomc-corpus,1983,"Even with the five who have expressed some support for these other conditions--. I'm going to retract my view on this. The more I think about it, we can always have another meeting if there is a problem, and if we go further than saying that there will be less restraint if the monetary aggregates slow down appreciably, then without achieving very much on the other side we may be inviting some risk of a market reaction.",85
-fomc-corpus,1983,I agree.,3
-fomc-corpus,1983,I think I'll reverse my vote.,7
-fomc-corpus,1983,We appreciate your vote.,5
-fomc-corpus,1983,"If the issue is posed ""Do we look at the economy or do we not?"" we have to say we look at the economy and not just at these aggregates. So, that's why when that issue comes up I can't vote any other way.",49
-fomc-corpus,1983,But not in the operating instructions to the Desk.,10
-fomc-corpus,1983,"Well, I'm not sure it adds a lot to include it, knowing we can always meet again. I will tentatively leave it off. Where we are is with the first sentence as I gave it to you and the second sentence with the aggregates in there and nothing else. That leaves us with the question of how and whether we quantify this in the directive or how and whether we quantify it outside the directive in explicit words. I think we can leave the numbers out of the directive, but it's a matter of choice. I don't know what numbers to put in here at this point with these very preliminary new numbers we got. We don't know whether they are going to show a different [M2] over the quarter but they show it lower in January and at this point higher in February, which changes the pattern anyway.",164
-fomc-corpus,1983,"I appreciate the difficulties of putting in any numbers at all given the prevailing uncertainties. But to put out an operating paragraph which says, in effect, that we have some numbers and we're going to act in accordance with them but we're not going to tell you what they are, doesn't seem like a reasonable way to proceed.",63
-fomc-corpus,1983,We don't tell them until after the period is over anyway.,12
-fomc-corpus,1983,"I'm not sure, Lyle, that we even have any numbers.",14
-fomc-corpus,1983,Then we ought to use different language.,8
-fomc-corpus,1983,"Well, it says we expect [monetary growth] to be lower. If it's appreciably lower, we might ease some.",27
-fomc-corpus,1983,"I would not put numbers in here because it's so uncertain, but I would refer to the longer-term ranges and say if the actual numbers fall significantly below most of those and we have a collapse in the aggregates then, yes, [we would ease]. But if they are just more or less in the ballpark, I would want easing precluded.",70
-fomc-corpus,1983,We're expecting a minimum growth of around 15 percent in M2.,14
-fomc-corpus,1983,"Yes, but you can't even do the M2 in relation to the longer term because we're establishing the base for the longer-term in February and March.",30
-fomc-corpus,1983,"One thing we could do is make that [relative to the] longer term, if it weren't for the distortion of M2.",26
-fomc-corpus,1983,We could do that; it makes sense.,9
-fomc-corpus,1983,"Yes, but it doesn't make sense with M2, which is the key aggregate we're looking at. And even the 15 percent may turn out to be an underestimate in view of the way February [seems to have] started off.",48
-fomc-corpus,1983,Is the problem with indicating numbers that M2 is too high and you don't want to mention it? I don't think that's a good enough reason.,29
-fomc-corpus,1983,"Well, the trouble is that we haven't the vaguest idea, I guess, what M2 is going to be. It depends upon how fast these MMDAs continue their rise during--",38
-fomc-corpus,1983,"If we take the attitude that we don't want any increased restraint in the period immediately ahead and have interest rates go up, it seems to me that the real decision is on the level of borrowing because we don't know where the growth is going to go or what M2 is going to do. Now, whether we want to open that up in the directive, I don't know.",75
-fomc-corpus,1983,I think maintaining the existing degree of restraint means that we keep the borrowings where they are now.,20
-fomc-corpus,1983,It's a question of under what conditions would we ease.,11
-fomc-corpus,1983,I'm not sure.,4
-fomc-corpus,1983,"That could be specified in terms of M3, I think, but I don't know about Ml or M2 for this period.",26
-fomc-corpus,1983,But M3 is being affected by the growth rate in M2 also.,15
-fomc-corpus,1983,But relatively little. We could pick--,8
-fomc-corpus,1983,We don't want to spell out a target for M3. That would be pretty--,17
-fomc-corpus,1983,That's the difficulty we're in.,6
-fomc-corpus,1983,"If we refer to the totality of our many targets in a broad way so that M2 can be seen as being exempted if necessary, one gets a sense of what I think we ought to aim at amongst the aggregates.",46
-fomc-corpus,1983,"There's a great sense that these aggregates are rising rapidly. M1 I think is. For M2 and M3 it is not at all clear. There were very low numbers in December for both of those aggregates. They were very low. And liquidity was practically nothing in December. I am just wondering whether we can get some language along the lines that Henry has suggested here. But M2 is a real problem. ""Lesser restraint would be acceptable in the context of appreciable slowing in the growth of the aggregates to or below the paths implied by the longer-term ranges"" or something like that.",120
-fomc-corpus,1983,If I were reading that literally--,7
-fomc-corpus,1983,"I think that's too [unintelligible]. What we're saying is that we're not going to allow them, even for a short period, to fall below the long-term ranges.",36
-fomc-corpus,1983,"No, no. We can't prevent them from falling below. We'd be delighted if they fell below. What we'd say is that we would ease in those circumstances.",32
-fomc-corpus,1983,"Yes, but some people when they see our long-term targets would read that as meaning that unless M2 gets all the way down to 7 to 10 percent or something like that, we're not going to be easing.",45
-fomc-corpus,1983,"Well, I'm not so sure. But we can put in a sentence on M2 to describe that. If we literally took this language ""to or below the paths [implied by the] long-term ranges,"" we would say in the policy record that we don't expect M2 to revert immediately, given all these things, to whatever we said up above--7 to 10 percent. We'd say we know that M2 growth is going to be high for a while.",95
-fomc-corpus,1983,"Yes, we'd have to say that.",8
-fomc-corpus,1983,I don't see how we can quantify this without causing more trouble than we have already.,17
-fomc-corpus,1983,"We could say, ""taking account of the distortion of new accounts."" I'm not so sure that's so bad.",22
-fomc-corpus,1983,"That does take care of it, technically. That would take care of it.",16
-fomc-corpus,1983,"""Lesser restraint would be acceptable in the context of appreciable slowing of growth in the aggregates to or below the paths implied by the long-term ranges, taking account of the distortions related to the introduction of new accounts.""",44
-fomc-corpus,1983,That sounds good.,4
-fomc-corpus,1983,"What you really mean, don't you, is assuming that the real economy is going down at that time. It's possible that the nicest thing that could happen would be that that would happen while the economy is still going [up], meaning that velocity has turned around. And would you still want it in there?",61
-fomc-corpus,1983,"Well, all that it says is lesser restraint would be acceptable. I can imagine circumstances in which we wouldn't want to do it because the economy looks so strong. I agree with that. But I don't think this binds us to ease if suddenly the economy were taking off and these aggregates came in low for a few weeks.",64
-fomc-corpus,1983,Don't these sentences in lines 82 to 85 [of the draft directive] take care of the qualification and make it unnecessary?,26
-fomc-corpus,1983,"I was just looking at that. If we took the sentence the way it's written here tentatively, I'm not sure we'd need that. We don't need any of that bracketed material I see.",39
-fomc-corpus,1983,We don't need them both: that's for sure.,10
-fomc-corpus,1983,"Yes, I think this is a substitute for that proviso that we were talking about. I think the way you put it is acceptable, Paul.",30
-fomc-corpus,1983,Is that all right?,5
-fomc-corpus,1983,"Could you please read that again, sir?",9
-fomc-corpus,1983,"I'll read the whole thing to you. ""For the more immediate future, the Committee seeks to maintain the existing degree of restraint on reserve positions, expecting that will be consistent with some slowing in the aggregates. Lesser restraint would be acceptable in the context of appreciable slowing of growth in the aggregates to or below the paths implied by the long-term ranges, taking account of the distortions related to the introduction of new accounts.""",84
-fomc-corpus,1983,"Do you want to add at the end of the first sentence ""slowing from their recent pace""?",20
-fomc-corpus,1983,That was meant to refer to December-to-January.,11
-fomc-corpus,1983,"The trouble with ""some slowing in the aggregates"" is that when you look at all this through a microscope that's certainly true of Ml, but it's not true of M2 or M3. M2 adjusted and M3 raw, if you take December and January together for instance, are already low.",60
-fomc-corpus,1983,"But some people might not understand what ""slowing in the aggregates"" means.",16
-fomc-corpus,1983,"Well, I'm wondering whether I know what it means now that I look at it closely. Why do we need that part?",25
-fomc-corpus,1983,"That only refers to January, because of the problem you raised. So, if that isn't clear--",20
-fomc-corpus,1983,"We would have to put in January. It's just based upon one month there? As I look at it now, I wonder whether we need that. ""For the more immediate future the Committee seeks to maintain the existing degree of restraint on reserve positions. Lesser restraint would be acceptable in the context of appreciable slowing of growth in the aggregates.""",68
-fomc-corpus,1983,"Mr. Chairman, it seems to me that we have to compare that slower growth to something. If we don't, somebody might conceivably think that we're referring to the last part of '82.",40
-fomc-corpus,1983,But I think the second sentence conveys what appreciable slowing is: It's to or below the paths implied by the long-term ranges.,26
-fomc-corpus,1983,"Oh, I thought you took that out.",9
-fomc-corpus,1983,"No, I'm taking it out of the first sentence for the reason that you suggest. Now that I look at it, we're not really looking for any slowing, except in Ml, from December-January. We are obviously looking for slowing in M2. Because of that, I guess that doesn't add anything. So let me read the two sentences over again at this point. ""For the more immediate future, the Committee seeks to maintain the existing degree of restraint on reserve positions. Lesser restraint would be acceptable in the context of appreciable slowing of growth in the aggregates..."" That may be ambiguous in itself, but once we add ""to or below the paths implied by the long-term ranges,"" it tells someone what we're talking about, it seems to me. Then ""taking account of the distortions related to the introduction of new accounts."" Maybe we should say there ""particularly in M2.""",178
-fomc-corpus,1983,"Well, as to the strength of Ml, Mr. Chairman, I'm not sure how much is Super NOWs at the moment. I don't have any added data. It might be desirable to leave it more general.",43
-fomc-corpus,1983,"All right, I won't add that. Does that catch the flavor of what we're talking about?",19
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,Quite explicitly we're saying we'd be very reluctant to tighten during these next seven weeks.,16
-fomc-corpus,1983,"As a matter of fact, it says we won't tighten.",12
-fomc-corpus,1983,I think as it stands it says we won't; that's right.,13
-fomc-corpus,1983,"And if we have an opportunity, we'll ease.",10
-fomc-corpus,1983,Right. And not tightening means something around $200 million [in borrowing].,15
-fomc-corpus,1983,"Does it leave open the possibility, Mr. Chairman, that if there is an unusual strengthening in the aggregates, we would consult?",26
-fomc-corpus,1983,"It leaves open the possibility of consulting just as, if the economy weakens or something, we'd consult on the other side. But clearly it says, barring any further decisions, we will not tighten. Then I guess we leave out all the bracketed material. And then we have to fill in the blanks presumably in that last sentence. We currently have 6 to 10 percent. Is that where we want to leave it? I'm talking about the last sentence on the federal funds rate.",99
-fomc-corpus,1983,"Oh, I see. It's hard to move it down, I think. It's about 8-1/2 percent. If we made it 6 to 9 percent, it shows that we [unintelligible] problems or we could have 7 to 9 percent in an attempt to show that. It's consistent with the first sentence to move it down to 6 to 9 percent.",82
-fomc-corpus,1983,Yes it is.,4
-fomc-corpus,1983,It might be consistent with the first sentence to move it to 7 to 9 percent or 7-1/2 to 9 percent or something.,32
-fomc-corpus,1983,Or 8-3/8 to 8-5/8 percent!,16
-fomc-corpus,1983,"Well, I don't think that.",7
-fomc-corpus,1983,I don't care whether we leave it alone.,9
-fomc-corpus,1983,"Well, unless somebody has a strong feeling, we might as well just leave it where it was. Are there any other comments? I guess it's clear in everybody's mind what we mean to convey by this. In fact it's pretty plain, I think, in the main.",55
-fomc-corpus,1983,It is.,3
-fomc-corpus,1983,"Shall I read it again just to make sure? ""For the more immediate future, the Committee seeks to maintain the existing degree of restraint on reserve positions. Lesser restraint would be acceptable in the context of appreciable slowing of growth in the aggregates to or below the paths implied by the long-term ranges, taking account of the distortions related to the introduction of new accounts. The Chairman may call for Committee consultation if it appears...federal funds rate...of 6 to 10 percent.""",99
-fomc-corpus,1983,"Is the word ""introduction"" the right word in that phrase ""introduction of new accounts""? Maybe it is.",24
-fomc-corpus,1983,This is all part of the introductory period.,9
-fomc-corpus,1983,"When you refer to ""aggregates"" I would make that ""monetary aggregates.""",18
-fomc-corpus,1983,"""Monetary and credit aggregates""?",8
-fomc-corpus,1983,"Well, the credit aggregates aren't slowing, Mr. Chairman.",12
-fomc-corpus,1983,Leave them out. Okay. We understand. We can vote.,13
-fomc-corpus,1983,Chairman Volcker Yes Vice Chairman Solomon Yes President Balles Yes President Black Yes President Ford No Governor Gramley Yes President Horn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Teeters Yes Governor Wallich Yes,44
-fomc-corpus,1983,"I guess we have nothing else to do. Is that right, Mr. Secretary? [Secretary's note: Mr. Bernard replied in a whisper to the Chairman.] Oh my gosh, I forgot to do that earlier! We have our Managers down there [with their transactions] unconfirmed.",58
-fomc-corpus,1983,We've been waiting patiently for two days.,8
-fomc-corpus,1983,"Mr. Sternlight, proceed if possible. Somehow we made our decision before we heard from our Managers!",21
-fomc-corpus,1983,"Shall I proceed, then?",7
-fomc-corpus,1983,"Proceed, please. You may say something so radical we may want to reverse all our decisions.",19
-fomc-corpus,1983,We have to promise we're not going to!,9
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,Comments or questions?,4
-fomc-corpus,1983,"I just have a question for Peter: How will you interpret the language we've just adopted here with respect to the current level of restraint when borrowings have been at $110 to $150 million in the last two weeks? Are we talking about a $200 million borrowing level or are we talking about a $150 million borrowing level? Maybe it's a question to you, Mr. Chairman.",77
-fomc-corpus,1983,"Well, $200 million is what we were aiming for. As I mentioned, the last two full weeks have come out at about $150 million. This week so far it's at about $110 million, although I wouldn't be surprised if it got up a little higher than that with Wednesday's borrowing.",60
-fomc-corpus,1983,"I haven't been following this very closely, but I assumed we were aiming at around $200 million.",20
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,We were aiming [for that].,7
-fomc-corpus,1983,Any time we've constructed a reserve path it has been with $200 million of borrowing [consistently].,21
-fomc-corpus,1983,"But the current level of restraint is something less than that, as evidenced by the borrowing level.",19
-fomc-corpus,1983,"I would say not, President Guffey. The funds rate has averaged between 8-1/4 and 8-1/2 percent steadily, which is what one would expect aiming at $200 million of borrowing. There have been variations around it, but they haven't been accompanied by much variation in the overall constellation of money markets.",69
-fomc-corpus,1983,"And they're really aiming for reserve provision consistent with $200 million of borrowing if their excess reserve assumptions come out correctly. And it's the excess reserve assumption that has been a bit off in recent weeks. You can't expect to hit the borrowing on the nose because of that variation and because of other reasons. But if the excess reserves calculation itself has been off what they had been expecting, there may have been errors in the actual calculation of the factors too. I don't know how they contributed, but--",98
-fomc-corpus,1983,"What I meant, Mr. Chairman, is that unless told differently we would construct a nonborrowed path based on the required reserves that are evident that week, assuming that borrowing will satisfy $200 million of the total of excess and required. And that's how it will be constructed until we're told differently.",60
-fomc-corpus,1983,"Peter, do you have a sense from looking at the last six weeks or so what the underlying growth in reserves is--in other words, extracting from the reserve impact of all the shifts in deposits and so on?",43
-fomc-corpus,1983,"I'm not sure I'd know how to answer that because the shifts have had a big impact, most recently slowing the growth of reserves quite a bit. With the shift out of the reservable big time deposits into the MMDAs that are reservable and extracting from that, I'd say maybe you're looking for the underlying M2 growth or something, which--",70
-fomc-corpus,1983,A rough estimate.,4
-fomc-corpus,1983,I think the staff has been estimating fairly moderate growth--in the 8 percent area.,18
-fomc-corpus,1983,"It depends, as Peter said, on what you thought anything would have been doing otherwise. Our rough estimate was something like 10 percentage points in January. It had been reduced by that amount because of the CD drop--",44
-fomc-corpus,1983,Right.,2
-fomc-corpus,1983,--and the 1 percent out of the saving deposits. But that has some rough assumption of what it would be otherwise.,25
-fomc-corpus,1983,The actual figures on reserves are showing very little expansion.,11
-fomc-corpus,1983,"Yes, largely because of this sharp drop in required reserves because of shifting into the--",17
-fomc-corpus,1983,"Actual reserves figures are showing a decline in January, as I remember.",14
-fomc-corpus,1983,"I'd have to look it up, but I think it's February where we are going to have a decline.",21
-fomc-corpus,1983,Any other questions?,4
-fomc-corpus,1983,"Yes. Just so we'll all know, Mr. Chairman, has the date of your testimony been set yet?",22
-fomc-corpus,1983,February 16th.,5
-fomc-corpus,1983,We have a total reserve growth of 1-1/2 percent roughly at this point for January. A sharp drop is projected for February.,29
-fomc-corpus,1983,"If there are no other questions, Mr. Cross.",11
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,"Before we proceed, I am reminded that I forgot to request ratification of the domestic transactions.",19
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,Without objection the domestic actions are completed. Now we will go to the international [intermeeting transactions].,20
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,"And we have to ratify anything we have to do on those proposed [swap] renewals if they prove necessary, as they are likely to be.",31
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,"No objection. We will do that. I might say that the Mexican commercial bank loan has been delayed beyond all conscience I guess, partly by the hassling over the precise terms of the loan agreement, which runs to 175 pages. There are some substantive questions and the banks are trying to get all they can out of this agreement. Of the $5 billion of commitments that they were seeking, the last I heard was that they had $4.8 billion approximately, which is close enough, I think, to close the gap. It may not be closed in the ordinary course but somehow it'll be closed. I don't think that's essentially what is holding it up. It's getting the agreement on the loan agreement. It's running more than a month after it should have been done and I [unintelligible]. The remaining repayment on the swap has to be out of that money, which is why that has been delayed.",184
-fomc-corpus,1983,Any doubt that it will jell?,8
-fomc-corpus,1983,"Well, there's always a doubt when it's delayed and, of course, the new uncertainty put in the situation is what happens to Mexico if there is a real oil price decrease. That is a question to which I do not know an answer. If it's small, I guess we can paper it over a little more and get a little more money someplace. If it's large, I don't know what we would do.",82
-fomc-corpus,1983,"In the view of the key people who are negotiating all this, of the four remaining substantive areas being negotiated there is only one really difficult one. And that is the question of what foreign exchange assurances the central bank will give in regard to the ultimate repayment of what will be the rescheduled private debt, [unintelligible] debt. The other three are resolvable. I was surprised to find that the people who are running this operation feel that the $4.8 billion in commitments they have are solid even if there were, let's say, further erosion in oil prices. Even if there were further concerns, they seem to think that they can depend on that. In the meantime, they have agreed to try to speed up their discussions as much as possible. But the Mexicans also share some of the blame in not getting the rate [unintelligible] up there regarding this foreign exchange position.",183
-fomc-corpus,1983,"Tony, are they going after the other $200 million or are the participants about where they're going to end up?",23
-fomc-corpus,1983,"I think that their formal posture has to be that they're going to continue pursuing this until they get full pari passu $5 billion. But I agree with Paul that there may be ways of handling this so that we can still go ahead and still appear to have gotten the full $5 billion while we're still striving to get it. We're probably not going to get very much more money but I think the leading banks would probably help make up a part of that $200 million debt. So, there are different ways of handling it.",106
-fomc-corpus,1983,"Carefully. I think the Open Market Committee meeting is over unless somebody else has anything. There are a couple of other things I want to mention. But we're finished with the meeting with the date set for the next meeting, [March 29th]. Let me say what is obvious. I see no excuse for any leaks whatsoever from this meeting. And I see no need for anybody to talk with anybody in the press between now and February 16th, period.",94
-fomc-corpus,1983,Do you mean about monetary management?,7
-fomc-corpus,1983,"I'm looking at all parts of the room.   I think you can just avoid any confusion by deferring any discussion with the press until a time not very far off, a week from now. We have these [individual] GNP forecasts.  I would hope you would get in any revisions that you want to make on those forecasts in the light of any additional information, including this meeting, by the close of business tomorrow so we can incorporate that in my report.  I presume that we will pick out some central tendency, or mode, or something, in presenting those forecasts.",117
-fomc-corpus,1983,"Mr. Cross, do you have anything to say about the foreign currency authorization, the foreign currency directive, or the procedural instructions?",26
-fomc-corpus,1983,No changes are recommended.,5
-fomc-corpus,1983,And you have no comments?,6
-fomc-corpus,1983,"Would you refresh my memory, Sam? What kind of authority does this gives us on the foreign currency operations?",22
-fomc-corpus,1983,What kind of authority does this give us?,9
-fomc-corpus,1983,What restrictions exist on our authority to deal in foreign currencies?,12
-fomc-corpus,1983,"These are procedural restrictions, which set out limits on how much we can--",15
-fomc-corpus,1983,And which currencies we can deal in.,8
-fomc-corpus,1983,And the currencies we can deal in.,8
-fomc-corpus,1983,And the amounts [allowable] within intermeeting periods unless the Foreign Currency Subcommittee moves on something urgent.,22
-fomc-corpus,1983,"We have 14 currencies listed, some of which we've never dealt in, I believe. Is that an exhaustive list of the currencies that we can deal in without Committee action?",35
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,It would take Committee approval to add a currency to that list? Is that right?,17
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,The Authorization would have to be changed.,8
-fomc-corpus,1983,The Authorization would have to be changed. And likewise the aggregate limit?,14
-fomc-corpus,1983,There is an aggregate limit. Let me check on whether Committee action is required on that. It is required.,22
-fomc-corpus,1983,"Well, except in exigent [circumstances].",11
-fomc-corpus,1983,"It is required, but a change can be approved by the Subcommittee, which would be subsequently taken to the Committee [for ratification].",28
-fomc-corpus,1983,"But normally the Subcommittee doesn't act unless there's a time bind, and even then I think a proposed change is frequently referred to the whole Committee.",29
-fomc-corpus,1983,"I was questioned recently by a Congressional Committee on this, in the environment of discussing the possibilities of bailouts of foreign countries. And I reassured them that we weren't going to bail out any foreign countries through the operations of the Federal Open Market Committee. So, I wanted to be sure that there wasn't anything here that really would permit us suddenly to move in and buy the Yugoslavian currency or the Chilean currency or even the Brazilian currency--currencies that are not named on our list.",99
-fomc-corpus,1983,"I think the answer to your question, Governor Partee, is that an addition to that list of 14 currencies has to be authorized by the full Committee. To the extent that the procedural instructions, which relate to the day-to-day operations of the Desk, [address this], there are some provisions such that if the full Committee can't be consulted there's a way of continuing to do business. But I think, as common sense would suggest, that would be only in cases in which we had ongoing operations and not something that we were starting fresh.",109
-fomc-corpus,1983,And the only Latin American currency we have on the list is the Mexican peso?,16
-fomc-corpus,1983,That's the only one.,5
-fomc-corpus,1983,Are we talking about the swap arrangements or the Desk operations?,12
-fomc-corpus,1983,I'm talking about Desk operations in foreign currencies.,9
-fomc-corpus,1983,Okay.,2
-fomc-corpus,1983,"Although the two happen to be the same list right now, I think. It's not exactly coincidental, but it's accidental in the sense that there could be a different list.",35
-fomc-corpus,1983,"Yes, but on the swap agreements the Desk has to have prior authorization from the Committee to activate a swap.",22
-fomc-corpus,1983,"No. The procedural instructions call for activation of the swap by the Subcommittee if it's [less than] 15 percent of the arrangement or $200 million. So, as a matter of the Committee's procedures, that's what is called for. In most recent cases that I remember when the foreign country was activating the swap, as a matter of practice, the full Committee has been consulted.",78
-fomc-corpus,1983,"Anyway, [despite] what Ted said, Chuck is exactly right: You don't have to worry about it.",23
-fomc-corpus,1983,"I just wanted to probe a little for the record to see whether I got general agreement from people here that there's nothing to worry about. I think it's true also, Roger, that among the problem countries the only one we have a swap line with is Mexico.",52
-fomc-corpus,1983,In which one of these [documents] does the overall limit appear?,14
-fomc-corpus,1983,Agenda item 4a: Authorization for Foreign Currency Operations.,12
-fomc-corpus,1983,It's in the Authorization. Have all the sublimits on particular currencies disappeared?,15
-fomc-corpus,1983,"On holdings, Mr. Chairman, the last time around on that the Committee maintained the overall limit of $8 billion.",24
-fomc-corpus,1983,"$8 billion. Yes, but I don't see the sublimits.",14
-fomc-corpus,1983,We have not made those limits public.,8
-fomc-corpus,1983,Even to the Committee?,5
-fomc-corpus,1983,Where are those sublimits?,6
-fomc-corpus,1983,They are not in these documents.,7
-fomc-corpus,1983,They're not anyplace?,5
-fomc-corpus,1983,They aren't in the documents that were circulated to the Committee.,12
-fomc-corpus,1983,Where are they?,4
-fomc-corpus,1983,"They were determined in a decision by the Committee the last time this was reviewed, which I think was last May.",23
-fomc-corpus,1983,But we do have an outstanding decision that controls individual currencies?,12
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,Yes. There are so-called informal limits and the total is $4-1/4 billion.,20
-fomc-corpus,1983,"It's $5 billion, actually.",7
-fomc-corpus,1983,Mr. Bernard.,4
-fomc-corpus,1983,"My list may be a little out of date. When the informal limit was $4-1/4 billion, at any rate, [the breakdown] was $2-3/4 billion in German marks, $1 billion in Japanese yen, and $500 million in all other currencies. I don't know if that $4-1/4 billion was increased or not.",76
-fomc-corpus,1983,I think it was increased to $5 billion the last time.,13
-fomc-corpus,1983,"It was increased to $5 billion last year and the German mark portion of that was increased to $3-1/2 billion. Now we are getting close to that $3-1/2 billion limit. We do not expect to need it within the next few weeks, but we are not that far away from the limit and we continue to earn interest on these marks, so it is a matter of time before we may need to change that limit.",92
-fomc-corpus,1983,How far are we from the yen limit?,9
-fomc-corpus,1983,$502 million.,4
-fomc-corpus,1983,We're under [no] pressure on the yen limit.,11
-fomc-corpus,1983,We're holding these--,4
-fomc-corpus,1983,We're $502 million away from the limit?,9
-fomc-corpus,1983,"There is the limit in the Authorization, though, for an overall open position of $8 billion, which the Committee set. And that is what appears here in paragraph 1(d) in the Authorization. The Committee has chosen to set limits on balances in these currencies informally in the way in which Norm and I together with Sam have described. That limit is $5 billion, with the sublimits of $3.5 billion in marks, $1 billion in yen, and $500 million in all other currencies. In the case of the yen, we hold roughly $500 million in yen balances and, therefore, there's $500 million to go.",131
-fomc-corpus,1983,"Well, the only reason these would be working up is because of earnings.",15
-fomc-corpus,1983,"Yes, interest earnings.",5
-fomc-corpus,1983,"I must say that in reviewing the material this came to my attention and I don't recall it ever being discussed by the Committee. One could have presumed that when we received the earnings on our foreign investments we would liquidate the earnings--that is, convert them into dollars. But instead, apparently we have never converted any of these earnings to dollars; we leave them in the foreign currencies. Is there some reason for that, Sam?",86
-fomc-corpus,1983,"I don't think it makes sense to be buying dollars at a time when we're all worried about there being such a strong appreciation of the dollar, Chuck. I think that was the only reason.",38
-fomc-corpus,1983,"[I suppose] that's the only reason, because I see no reason in principle that we wouldn't want to convert the earnings to dollar form.",27
-fomc-corpus,1983,Do these limits include the holdings that we have for repaying the Carter bonds?,16
-fomc-corpus,1983,The Treasury has those.,5
-fomc-corpus,1983,They're put in and then taken back out.,9
-fomc-corpus,1983,"No, these are not the currencies that are held against Carter bonds.",14
-fomc-corpus,1983,"So, those holdings are in addition to what we hold in",12
-fomc-corpus,1983,The currencies you are talking about are the currencies held by the Treasury. The currencies that we hold under warehousing [agreements] are in addition.,30
-fomc-corpus,1983,[That has] come way down.,8
-fomc-corpus,1983,Do I have a motion on these?,8
-fomc-corpus,1983,"Well, Mr. Chairman, let me say that since we're getting close to the limit on [marks] and the Committee has had this chance to discuss it, you may want to consider whether to raise it.",42
-fomc-corpus,1983,Let's wait until we get to your part on the [agenda].,13
-fomc-corpus,1983,I want further discussion before I'm prepared to vote.,10
-fomc-corpus,1983,Move approval of item 4(a).,8
-fomc-corpus,1983,"All right, I second.",6
-fomc-corpus,1983,"Objections? In the absence of any objections, they're all approved. On Treasury warehousing, [we received] a memorandum from Mr. Truman. This is something we review every year. The staff's recommendation is that it be agreed to for another year. The Treasury is still warehousing a lot, I guess.",64
-fomc-corpus,1983,"Mr. Chairman, the remainder being warehoused is entirely in marks and it's just under $1.1 billion. The timing of that warehousing agreement is such that it will be used to pay off remaining Carter notes--Governor Teeters, this is where the Carter notes come in--in May and June.",63
-fomc-corpus,1983,May and July.,4
-fomc-corpus,1983,"May and July of this year. And then we would have no more [foreign currency holdings] actively warehoused with the Treasury. On the other hand, it seemed to us and the Treasury, given their activities in other currencies--ones we'd just as soon not hold --and the fact that they do hold a certain amount of marks and Swiss francs and yen in addition to what they've already warehoused, that to the extent the Exchange Stabilization Fund might get into a liquidity bind it made sense to maintain this facility for that purpose.",108
-fomc-corpus,1983,I'd certainly like to argue in favor of it. I see no reason for discontinuing it; it's an important help to the liquidity of the ESF. The Treasury would have had some very serious problems from time to time if it had been operating without the warehousing fallback.,55
-fomc-corpus,1983,Would you like to make a motion?,8
-fomc-corpus,1983,I would move that it be extended for another year.,11
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,What happens here with the earnings?,7
-fomc-corpus,1983,We keep the earnings.,5
-fomc-corpus,1983,In foreign currency form?,5
-fomc-corpus,1983,"Well, it's Treasury earnings.",6
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,"They are the Treasury's foreign currencies, aren't they?",11
-fomc-corpus,1983,It's the Treasury's foreign currency but the--,9
-fomc-corpus,1983,I think we pay--,5
-fomc-corpus,1983,"The warehousing takes the form of a spot sale and a forward purchase, flat. So, they sell us 100 marks and we sell them back 100 marks, except that the 100 marks have earned some interest in the meantime.",48
-fomc-corpus,1983,Which we put in our regular-,7
-fomc-corpus,1983,We keep it in our balances.,7
-fomc-corpus,1983,As marks?,3
-fomc-corpus,1983,As marks.,3
-fomc-corpus,1983,And we then perhaps pay them off in dollars?,10
-fomc-corpus,1983,"No, we pay them off in marks.",9
-fomc-corpus,1983,"It accumulates in marks on their side too, so we're neutral so far as the foreign exchange risk is concerned on the earnings.",26
-fomc-corpus,1983,"No, we take the earnings into our portfolio. The principal is where the--",16
-fomc-corpus,1983,The Treasury bears the foreign exchange risk.,8
-fomc-corpus,1983,"On the principal, as far as--",8
-fomc-corpus,1983,So much [unintelligible] exchange is coming-,12
-fomc-corpus,1983,"The explanation, as I understand it, is that we just take the earnings into our portfolio and add them to our balances in foreign currencies.",28
-fomc-corpus,1983,"So, forget the exchange rate risk.",8
-fomc-corpus,1983,Forget the exchange risk on the principal.,8
-fomc-corpus,1983,There's a risk on the earnings but not on the principal.,12
-fomc-corpus,1983,These earnings come from investments in mark-denominated securities?,11
-fomc-corpus,1983,"Well, among other things, yes.",8
-fomc-corpus,1983,We're not talking about weak currencies here?,8
-fomc-corpus,1983,"No. Again, the only currencies that the System Account could hold would be the 14 that are on that list.",24
-fomc-corpus,1983,Even for the Treasury?,5
-fomc-corpus,1983,"Even for the Treasury, except by a separate authorization of the Committee. In contrast to other operations the Treasury has with us, like the SDR monetization, this is not an automatic facility. It's at our discretion as to whether we agree about the liquidity conditions or the circumstances. If we deem that the circumstances so deserve, they can activate the facility. So, we have to agree to the circumstances.",80
-fomc-corpus,1983,Do we manage the investment?,6
-fomc-corpus,1983,We manage it; we have some for the Treasury anyhow. It's through the Treasury account at the New York Bank that we would manage the investments.,29
-fomc-corpus,1983,"Is the holding of a foreign currency resulting from interest receipts defined as intervention or is the nonholding--that is, the disposing of that--defined as intervention in your report? You know what I mean.",41
-fomc-corpus,1983,"As I remember, the report is agnostic or somewhat ambivalent on this point [as is] the U.S. government itself. I was amused to hear President Solomon's response to that because I think when he was once [wearing] another hat he argued--and we did too--that interest on dollars that foreigners accumulate should be put into the markets. Now, I think you can argue the economics of the issue on either side. Likewise, the question of whether it's intervention can be argued on either side. My purist colleagues would say that that is indeed intervention since the interest changes the net asset position in foreign currencies.",127
-fomc-corpus,1983,We take the interest in foreign currency form and it then flows through to the earnings of the Federal Reserve System.,22
-fomc-corpus,1983,Right.,2
-fomc-corpus,1983,We then pay the earnings of the Federal Reserve System in dollars to the Treasury.,16
-fomc-corpus,1983,Right.,2
-fomc-corpus,1983,"As I see it, in some sense the quality of the Federal Reserve's balance sheet deteriorates.",20
-fomc-corpus,1983,You might look at it just as that we've diversified further.,12
-fomc-corpus,1983,"Are there any objections? Not hearing any objections, it's renewed. We now have the Authorization for Domestic Open Market Operations, agenda item 6. We have a recommendation from Mr. Sternlight to increase from $3 to $4 billion the intermeeting limit on changes in System Account holdings. He had a memorandum. Do you have anything further to say, Mr Sternlight?",75
-fomc-corpus,1983,"I'd just remind the Committee that the last change in that standard authorization was made in 1974, when the Committee raised it from $2 to $3 billion. I think the recommendation is logical. It seems to me, with longer intervals between meetings and larger dollar volume changes in the typical factors affecting reserves, such as seasonal currency flows, that a change is in order. And I think this proposed change would reduce the frequency of occasions for going back to the Committee for intermeeting changes of the leeway but would still call the Committee's attention to really large needs for change. In the past two years, for example, there were 8 occasions when we came to the Committee for a change in the leeway. Had the leeway been $4 rather than $3 billion, there would have been just 3, rather than 8, such occasions.",173
-fomc-corpus,1983,This is still low enough so that there will be some occasions for a check upon your operations.,19
-fomc-corpus,1983,"I would expect so, Mr. Chairman.",9
-fomc-corpus,1983,Do I have a motion?,6
-fomc-corpus,1983,Moved.,2
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,"Any further discussion? Do I hear any objections? The limit is raised from $3 to $4 billion. Now, item 6(b) is a recommendation to delete section 2 of the Authorization pertaining to direct lending to the U.S. Treasury. We also have a memorandum on that from Mr. Bernard. Are you going to say something?",70
-fomc-corpus,1983,"I have nothing really to add, Mr. Chairman, beyond underscoring the fact that--",19
-fomc-corpus,1983,It's against the law.,5
-fomc-corpus,1983,That's right. And there are no prospects for renewal [of that authorization] that we know about.,20
-fomc-corpus,1983,"As it now stands, we provide for an authorization to do something that's against the law. I think that's--",22
-fomc-corpus,1983,That's too frank!,4
-fomc-corpus,1983,"If there were an unexpected cash problem in the Treasury, then in practice that night we would honor overdrafts, I gather. But they would be expected then to do a cash management bill and get the cash in before close of business the next night?",50
-fomc-corpus,1983,"I don't know that we've been that precise about it. I think if they're stuck and they overdraw their account, we're stuck. But I guess we'd get after them.",34
-fomc-corpus,1983,"Yes, but we do have a ruling from a lawyer who says that that overdraft is not lending to the Treasury but is performing a normal banking function.",31
-fomc-corpus,1983,"Okay, if they can't--",6
-fomc-corpus,1983,A normal banking function in this day of lax banking practices!,12
-fomc-corpus,1983,Was that Burt Lance who wrote that?,8
-fomc-corpus,1983,[Unintelligible] everybody overdrawing?,10
-fomc-corpus,1983,Burt Lance is going to be relieved to hear this!,12
-fomc-corpus,1983,"Steve, but what happens if we honor the overdraft and the next morning they issue a cash management bill but they can't settle it until the next day? Are we permitted under the lawyer's ruling to give an overdraft the second night?",48
-fomc-corpus,1983,I think they would have to extend their ruling a bit [beyond] one day. I don't know that they would--,25
-fomc-corpus,1983,"Well, I don't see why under present procedures they wouldn't be able to settle a cash management bill the same day. If I can just elaborate on this first point: This ruling from a lawyer sounds very open ended, but it has to be judged an inadvertent overdraft--something that arose despite prudent and proper planning.",64
-fomc-corpus,1983,Did you have to try more than one lawyer?,10
-fomc-corpus,1983,Do we get the discount rate plus 2 percent on that overdraft?,15
-fomc-corpus,1983,I don't know if there's any interest provision.,9
-fomc-corpus,1983,We better get this changed. If it [unintelligible] Patman [unintelligible]--,23
-fomc-corpus,1983,It seems strange that this [legal authority] ended in [1981].,15
-fomc-corpus,1983,Do I hear a motion?,6
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,Without objection we will approve the deletion. Next is a recommendation from Messrs. Axilrod and Sternlight to renew the authorization to conduct RP transactions in bankers acceptances. I don't know which one of you wants to address that; I understand we also have a memorandum on that.,57
-fomc-corpus,1983,Mr. Sternlight.,5
-fomc-corpus,1983,"I think I speak for both Mr. Axilrod and myself when I say I see this as a fairly close judgment call. The activity is of some use in implementing reserve objectives, although it's not really so critical that we could not get on without it. At the same time, we see the financial risks of continuing the activity as fairly low. By doing RPs only in paper regarded as ""prime"" by the market and engaging only in short-term transactions with reputable dealers who are obliged to buy the paper back in a few days, the System incurs little risk in our view. Perhaps a more likely source of difficulty, though, is the possibility that we would be presented with paper that we had some reason to question. It could be awkward to turn down a name that had previously been regarded as prime, lest that very refusal escalate the questions being raised. If we were not now involved in doing RPs in BAs, I don't think I would suggest getting into the activity even if it did help us somewhat in meeting reserve objectives. At the same time, given that we are occasionally involved, one must weigh the impact of withdrawal at a time when confidence in the national and worldwide banking system is still fairly tender--though less so than last summer and fall. Withdrawal could be taken as a sign of lack of confidence in the banking system and not merely a judgment that the activity was not essential in meeting reserve objectives or showing support to the BA market. On balance--acknowledging that it's a narrow rather than an overwhelming balance--I'd favor retaining the authorization and so recommend to the Committee. It should be recognized, though, that under a continued authorization, it may well be deemed expedient under certain circumstances to continue accepting names that may be starting to come under some question, lest our refusal aggravate doubtful situations.",365
-fomc-corpus,1983,"I have great doubt myself whether we should continue this for a more underlying reason than anyone mentioned: I think the bankers acceptance market has developed far beyond what was technically thought of as a bankers acceptance in the year [Congress] put in the Federal Reserve Act that we can deal in bankers acceptances. And I'm not sure we want to give this kind of official endorsement to the market anymore. I don't feel strongly that it should be done now. I think there's something to the point that withdrawal at the moment would raise questions in a rather tender situation in the market internationally. So, I don't feel strongly about that. But I do think we probably ought to take an early opportunity to get out.",138
-fomc-corpus,1983,"How often do we engage in RPs in the BA market? Is this once a week, once a month? Is it with the kind of frequency that if we were out for any significant length of time there would be commentary on it?",48
-fomc-corpus,1983,"We normally do it in conjunction with doing RPs on behalf of the System. When we have some temporary reserves to inject, we have the choice of whether to engage in RPs on behalf of the System or to just pass through to the market some of the foreign account temporary investment orders. It is done largely on the basis of the size of the need we have to put reserves into the market. If it's a fairly sizable need or we're going to do multi-day RPs, then we do them on behalf of the System and we normally do them on acceptances as well as Treasury and agency securities. I would say it works out on an average to be a few times, maybe two or three times, a month.",145
-fomc-corpus,1983,Would it be noticed if you did it half as much in the future as you do now? Would that be commented on?,25
-fomc-corpus,1983,It would be noticed if we did fail to include acceptances when we were doing RPs on behalf of the System. If we reverted to just leaning more often on passing through the customer RPs and less often on our own RPs--a modest change in that direction--I don't think it would attract great attention.,64
-fomc-corpus,1983,"I want to agree with the Chairman. We have had just a massive increase in the issuance of acceptances relative to the capital of the banks, which would be an occasion for saying: All right, if this is going to be such a big market, it can operate on its own without our doing RPs in it. In addition, we have the problem, which is not quite yet disposed of, of the risk participation acceptance. Now, that'll depend on the Board's definitions of terms, if I understand the matter correctly, and the Board has not yet defined the terms on risk participation. But it makes it at least possible, depending on what the Board does, that we can have an awful lot of acceptances out with a bank's name with the indirect guarantee of secondary banks. And I think we might get in a situation where, although we wouldn't ordinarily have any problem with the bank--let's just take for example Chase Manhattan--that if there were three times that many acceptances circulating with Chase's name because they have participated out with banks like that one in Oklahoma City and others, the risk might indeed begin to cause us trouble. So, I can see the possibility of an embarrassment, looking ahead, particularly with this risk participation question.",251
-fomc-corpus,1983,"Isn't the practical consequence, though, that under those circumstances the bank would come to the discount window and give us the same asset and we would accept it for discounting and we would still have the asset?",42
-fomc-corpus,1983,"That might well be, but in that case we have the administrative possibilities of counseling with them that we don't have when they do an acceptance in the RP market.",32
-fomc-corpus,1983,"It seems to me that, psychologically, it's a poor time to [make a] break. At the moment it's still a high quality asset and it gives us flexibility. I'd be for retaining the flexibility.",41
-fomc-corpus,1983,"I'm for retaining it for the time being but it's not clear to me, aside from waiting until there's much more confidence in the banking system, [when and how to get out]. If you were requested, Peter, to figure out a scenario to get out of this within a year, what kind of strategy and what kind of rationale would you adopt, assuming you knew you had a very healthy period of time in which to work your way out of it?",91
-fomc-corpus,1983,"Well, I'd probably suggest just announcing a future date beyond which we would cease that activity.",18
-fomc-corpus,1983,What explanation would you give--that the market had developed enough that it didn't need this?,18
-fomc-corpus,1983,"Well, I'd say that the market has matured to the point that it doesn't warrant any vestige of Federal Reserve participation in it as a supporting arm and that it's of such modest usefulness in open market operations that that reason for staying with the activity has distinctly diminished. And to provide an adjustment period for the market, we can announce a date X months ahead beyond which we would not do it. I don't see a way to phase it out in step-by-step procedures.",93
-fomc-corpus,1983,"If we gave a substantial delay--I don't mean a time limit of one month but, let's say, 6 or 9 or 12 months--do you think there would also be some market feeling that we were leery of this stuff?",50
-fomc-corpus,1983,There might be.,4
-fomc-corpus,1983,Even with such a long time?,7
-fomc-corpus,1983,I suspect that there would. I don't know; it's hard to say.,15
-fomc-corpus,1983,"My main concern is not that I'm leery of them but that they are not what they purport to be. They're no longer self-liquidating pieces of paper. Well, I am perfectly [willing] to put this off, given the surrounding circumstances. I think we ought to come back to it in 6 months or so as one way of dealing with it.",75
-fomc-corpus,1983,Couldn't we also recommend that we decrease our activity in them rather gradually over time?,16
-fomc-corpus,1983,"Well, as Peter says, there are limitations on what we can do without calling attention to it. I suppose we could just buy fewer when the Desk normally would go in. I don't know how we would lean in that direction, I guess.",49
-fomc-corpus,1983,"Peter, about the comment on page 9 with regard to the two firms that are not on the regular government securities dealer roster: Is it feasible to drop those two off?",35
-fomc-corpus,1983,"Well, we've been thinking about that, as the memorandum noted. My inclination is that as long as we're satisfied, as we have been, with the financial strength and so forth of those firms, I don't think I'd recommend discontinuing activity with them. But I think we would be very reluctant at this point to take up with any new firms that were active only in acceptances and not in the whole range of government securities.",85
-fomc-corpus,1983,"Does our presence in the market contribute at all to the quality of this instrument any longer, in terms of what we will accept and not accept?",29
-fomc-corpus,1983,I'd say it's a pretty small factor.,8
-fomc-corpus,1983,That's the only reason I can see for staying in it--if we exerted some discipline in the market. But I don't think we do.,29
-fomc-corpus,1983,"I think you're right, Paul, that we ought to review the matter maybe in 90 days or 4 months or so. The Board is now positioned to make this definitional determination because I sent a letter out on that a few days ago. So, I'd favor a temporary extension and a review of the matter.",64
-fomc-corpus,1983,"I don't think we need a motion, if I understand this correctly. It can just stand as it is but we will make note of the fact that we ought to review this, let's say, no later than September.",44
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,We need to approve the minutes.,7
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,Without objections. We'll now go to foreign currency operations.,11
-fomc-corpus,1983,"[Statement--see Appendix.] Mr. Chairman, I would also like to get back to the question of the possible increase in the limits on the currencies we hold. The present limit is now $5 billion overall of which $3-1/2 billion represents maximum holdings of German marks. We are now at about $3.450 billion marks--in other words, $50 million below the DM limit. We're not going to run against that limit immediately, but with the continued receipt of interest earnings it would be appropriate to provide some additional room for these earnings to accumulate. I would like to recommend that the Committee consider an increase from $5 billion to $5-1/2 billion for the overall limit and an increase from $3-1/2 billion to $4 billion for the DM portion.",162
-fomc-corpus,1983,"Let me raise the question of ratifying the previous transactions, just to get that out of the way. Do I hear a motion?",27
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,Without objection. On the first point that Mr. Cross raised--renewing the Mexican swap drawings--have we a motion?,25
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,"That includes the second [renewals], I suppose. Without objection that will be approved. Now, let me add to what Mr. Cross said. I think there is some possibility here with the weakening of the mark and a potential weakening of the yen--there's considerable nervousness about the level of the yen and has been for some time--of more willingness perhaps to intervene should that weaken further. I think we have a $500 million limit on the yen.",93
-fomc-corpus,1983,We have $500 million left under [the $1 billion informal limit.],15
-fomc-corpus,1983,"That may be enough, but I'd throw that question into the pot too.",15
-fomc-corpus,1983,"Well, the limit on the yen is $1 billion and we have $500 million left.",19
-fomc-corpus,1983,Right.,2
-fomc-corpus,1983,"I don't think we have much leeway in either of these currencies. Obviously, we have very little in the mark. I think the yen is the more likely candidate for early intervention simply because [the Japanese] would not be surprised if [it did weaken]. I know they want to use their money; they don't use it because they're afraid of renewing the pressures on the yen. And it's possible that we might want to intervene, if they did, if the yen in fact did weaken.",98
-fomc-corpus,1983,Intervene to hold it up? Is that the idea?,12
-fomc-corpus,1983,To prevent it from weakening.,6
-fomc-corpus,1983,Don't we want a weaker yen? Isn't that our national objective?,13
-fomc-corpus,1983,"No, we want a stronger yen.",8
-fomc-corpus,1983,We want a stronger yen. All right. I got it reversed.,14
-fomc-corpus,1983,"This always gets confusing. It's weaker in number. We would like a yen that had a smaller number attached to it. So, I think this is a relevant question. I didn't realize we were as close to the limit as we are in terms of marks but it's potentially relevant with respect to the yen as well.",63
-fomc-corpus,1983,"It still doesn't make any sense to me to take the marks that we get as interest and turn around and sell them. Therefore, I don't see why it's relevant to his proposal, which is to raise the limit in order to accommodate the interest that we'll be getting in marks.",55
-fomc-corpus,1983,Because we have to raise it. We get the interest and it raises our holdings in marks and begins to threaten this limit.,25
-fomc-corpus,1983,We're only $50 million below.,7
-fomc-corpus,1983,"So, we don't have much more interest to be earned without raising the limit or selling them in the market.",22
-fomc-corpus,1983,All right. And I'm saying that we ought to raise the limit because it doesn't make any sense to sell them.,23
-fomc-corpus,1983,"We're in agreement, I guess.",7
-fomc-corpus,1983,How much interest do we earn on the marks?,10
-fomc-corpus,1983,We get about $25 or $30 million a month.,12
-fomc-corpus,1983,"Mr. Chairman, I would suggest: Let's sell marks and buy yen. Really, that would solve it.",22
-fomc-corpus,1983,I understand the yen part but I'm not sure I understand the mark part. That's been pretty weak too.,21
-fomc-corpus,1983,The mark has been quite weak recently.,8
-fomc-corpus,1983,"We haven't got a currency to sell, I'm afraid.",11
-fomc-corpus,1983,Excepting dollars.,4
-fomc-corpus,1983,Dollars.,3
-fomc-corpus,1983,How much of other currencies do we hold?,9
-fomc-corpus,1983,"The total is $300 million and something, and most of that is in Swiss francs.",18
-fomc-corpus,1983,Has there been any change since Reagan [came into office]?,12
-fomc-corpus,1983,We have the best one can hold relative to the dollar. They haven't been any good but I don't know of any better.,25
-fomc-corpus,1983,"There has been no change. Aside from repaying the Carter bonds, there has been no change, virtually, in the combined Treasury and Federal Reserve holdings of foreign currencies since the new Administration came in.",40
-fomc-corpus,1983,"We had a little intervention, I think.",9
-fomc-corpus,1983,What I meant was: Do you sense any change in the Treasury's stand on intervention?,18
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,We've seen signs of flexibility but haven't seen the flexibility.,11
-fomc-corpus,1983,"Well, there hasn't been a real clear reason to [intervene] in recent months. But there was intervention last fall at some point.",28
-fomc-corpus,1983,October was the last time.,6
-fomc-corpus,1983,A very small amount.,5
-fomc-corpus,1983,It was not very large.,6
-fomc-corpus,1983,"Governor Teeters, we hold at purchase price, which is what these balances are carried at, $296 million of Swiss francs and only about $20 million in currencies other than Swiss francs. I don't have [a list of] all the others but it's only about $20 million.",57
-fomc-corpus,1983,"The others are very tiny balances of several currencies. Holdings of Canadian dollars, I think, are very modest.",22
-fomc-corpus,1983,Are there specific staff recommendations on the mark and the yen?,12
-fomc-corpus,1983,"Well, we have one on the mark and I threw the yen into the pot at this point, which is obviously less pressing since we have a $500 million leeway. I don't feel strongly about it except it's not inconceivable that we may run into conditions where we would want to change that.",61
-fomc-corpus,1983,Is there no limit on our actions? We can do whatever is our judgment?,16
-fomc-corpus,1983,There's no legal limit.,5
-fomc-corpus,1983,No legal limit on anything.,6
-fomc-corpus,1983,There would still be the $8 billion overall limit.,11
-fomc-corpus,1983,"That's right. But this is all within the $8 billion, which is in our formal authorization.",20
-fomc-corpus,1983,"Absent some change of policy by the Treasury, though, we're not going to use that $500 million on the yen, are we? We're not going to do it unilaterally?",38
-fomc-corpus,1983,"Not at this stage, no. I don't think it's particularly a matter of Treasury policy, if I can distinguish the two. They are ready to do it, if it is weakening.",37
-fomc-corpus,1983,But it seems to me sensible to provide for that in case they give us a little leeway.,20
-fomc-corpus,1983,"I don't know what that means, Paul. Today for example, the deutschemark started at 2.42, didn't it, Sam? And now it's down to what--about 2.39?",41
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,I mean up to 2.39.,9
-fomc-corpus,1983,"It has changed over the course of the day. There have been a number of days when these exchange rates have moved by, say, 1 percent. The mark got down to over 2.43 today. It closed at 2.42-1/4 on Friday. The dollar in terms of DM got down below 2.43 again. There have been a substantial number of occasions where the DM has moved a couple of pfennigs or even more and the yen has moved by a comparable amount. So, a 1 percent movement in these rates is by no means unusual. And there have been a lot of periods when there have been substantially higher pressures. Throughout this period there has been a considerable amount of volatility in these rates and a considerable amount of nervousness and unsettlement.",161
-fomc-corpus,1983,"Under what circumstances would you encourage the foreign exchange Desk, Mr. Chairman, to make to you and the Treasury a recommendation that intervention seems appropriate to us? Earlier we made that recommendation a few times when there had been a very substantial weakening in a key foreign currency and the Treasury would then say: Well, let's wait a while and watch. And so the opportunity would be missed. [Their] reaction might have been that if there's a further weakening, yes, we'll do something. But by then there had already been a 1 percent or a 1/2 percent move and then there wasn't any further weakening.",123
-fomc-corpus,1983,That has been the story of our life recently. It moves and we're ready and then it moves the other way.,23
-fomc-corpus,1983,"But it would seem to me that we could have a prior understanding and a presumption that, if it were to move more than, say, 1/2 point in 3 hours or more than a point in 4 or 5 hours or overnight, we wouldn't wait for a further significant weakening--that only a few basis points move after that would be sufficient to trigger it.",78
-fomc-corpus,1983,We have a long history of trying to reduce it to arithmetic and I'm not sure at this stage that we can.,23
-fomc-corpus,1983,We don't know in advance what kind of news would have brought that about. We wouldn't know what the news is.,23
-fomc-corpus,1983,"In any event, we have a recommendation for $500 million, which I would support. I think the yen is more problematical. We could do $250 million as a gesture or we could do nothing now and wait and see what is needed.",51
-fomc-corpus,1983,How long will the $500 million last you? It doesn't sound as if it would be a whole year even.,23
-fomc-corpus,1983,It would not be a large amount if our policy were one in which there were more intervention; $500 million is not a large amount if we're intervening with very much activity.,36
-fomc-corpus,1983,"Certainly, it can last you. I don't think we're going to become that aggressive all of a sudden. It presumably will last you for a few days at the very least.",35
-fomc-corpus,1983,"Oh, yes. And that would be time enough to convene the Subcommittee.",17
-fomc-corpus,1983,"As a matter of procedure, normally in recent years when we have intervened, the proceeds have been shared with the Treasury in any case. The limit on actual intervention is twice that much.",38
-fomc-corpus,1983,I move that we increase the limit on the deutschemark but not on the yen. Are you ready for a motion?,24
-fomc-corpus,1983,I don't think we need a motion. This is done by an understanding.,15
-fomc-corpus,1983,"It's not a vote, no.",7
-fomc-corpus,1983,"Unless I hear some objections, we will assume that we have another $500 million on the mark.",20
-fomc-corpus,1983,"Therefore, the total is--",6
-fomc-corpus,1983,This is all within the $8 billion.,9
-fomc-corpus,1983,All within the $8 billion.,7
-fomc-corpus,1983,All within the $8 billion.,7
-fomc-corpus,1983,The total informal limit would go to $5.5 billion.,13
-fomc-corpus,1983,"That would be enough for quite a few months' interest, wouldn't it?",15
-fomc-corpus,1983,"Yes, it would.",5
-fomc-corpus,1983,That's around $30 million a month.,8
-fomc-corpus,1983,It would carry us for several months.,8
-fomc-corpus,1983,I don't know how you feel about the yen. Let me suggest the $250 million increase in order to test your acquiesence for a little more intervention if the occasion arises.,36
-fomc-corpus,1983,"Well, if that's the purpose of your discussion, I join you.",14
-fomc-corpus,1983,It isn't much intervention; I would certainly support that.,11
-fomc-corpus,1983,Why would we want to intervene? Do we know better than the market what the rate ought to be?,21
-fomc-corpus,1983,At times.,3
-fomc-corpus,1983,Yes. MR. PARTEE(?) I doubt that.,11
-fomc-corpus,1983,"We like to think that, but I think we know [better]. Didn't you say you tried the arithmetic on this a lot of times and you could never figure out a formula for intervention?",38
-fomc-corpus,1983,"I could never figure out a formula for whether it should be 1 percent more or less in a day. I have no doubt at all in my own mind that the yen at 270, or wherever the heck it got to a few months ago, was too low and was greatly damaging to our interest and theirs. I have no hesitation at all in pronouncing that. I thought so at the time and I think so now.",87
-fomc-corpus,1983,"But what we are talking about is disorderly conditions, isn't that right? We're not talking about trying to set a yen/dollar relationship; we're talking about smoothing a movement in the market so that we could--",42
-fomc-corpus,1983,"The only contingency I see now is that the yen might weaken appreciably, contrary to the desires of the Japanese government and contrary to the desires of our own government as a policy matter.",37
-fomc-corpus,1983,And in the process that would create problems of protectionism and a larger current account deficit for us.,20
-fomc-corpus,1983,Let me hasten to say that I don't think we're going to cure the basic problem by a little intervention. But it's a gesture.,27
-fomc-corpus,1983,"[If you are] testing the tone of the Committee's thinking, obviously, I would be in favor of raising it. But I didn't think that $250 million had very much meaning. There is a real need to move on the deutschemark because we're getting near the limit with the interest earnings.",60
-fomc-corpus,1983,"Although $250 million is not all that much, Mr. Truman is correct that what we're basically talking about in terms of intervention is $1-1/2 billion of leeway and that is more than I suspect we will need in any short period of time.",53
-fomc-corpus,1983,Am I right in thinking that we have $500 million leeway now?,15
-fomc-corpus,1983,"Yes, I think that's what the Chairman's arithmetic was. The $500 million plus [$250] million is $750 million and times two it's $1-1/2 billion.",37
-fomc-corpus,1983,How do we get times two? SEVERAL. Treasury.,13
-fomc-corpus,1983,That's a lot of intervention.,6
-fomc-corpus,1983,"There have been times when the Fed has intervened without the Treasury, but it has been more common--",21
-fomc-corpus,1983,"Well, the Treasury might not want to intervene just because they're worried about their own cash position. That's the only--. It's quite possible at some point along the line here. Well, what is the overwhelming sentiment one way or another?",47
-fomc-corpus,1983,"I would prefer not to until we can review the whole question of intervention at the international level, which I think is going on, if I understand it. Am I right in thinking that there is still such a study? CHAIRMAN VOLCKER. Yes. There is still such a study, which will be discussed in Williamsburg. What I'm saying is not apart from that in the sense that that's part of the background. But it could well arise before Williamsburg--like tomorrow.",95
-fomc-corpus,1983,"The study, as far as the studiers are concerned, has been completed. Our lords and masters have not had a [unintelligible]. It is actually going to be at the end of April that they are going to have a meeting on the subject.",54
-fomc-corpus,1983,It has not yet been considered by the governments.,10
-fomc-corpus,1983,"Well, my thought was that I didn't get a clear answer to [my question on] this disorderly market test. It sounds as if maybe we're changing the test some on why we would intervene, in which case it seems to me we really ought to consider what the issues are and to what extent it ought to be the Federal Reserve and to what extent the government ought to be directly the intervener [under] a different policy. I just don't feel very comfortable with it.",96
-fomc-corpus,1983,"You know, we have a directive--",8
-fomc-corpus,1983,We haven't discussed this at all. It hasn't come up in months and now it suddenly is coming up and I'm just not prepared to support it.,29
-fomc-corpus,1983,"Well, we've done a little intervening off and on--",12
-fomc-corpus,1983,$5 million.,4
-fomc-corpus,1983,--and we were prepared to do more if the markets moved the other way.,16
-fomc-corpus,1983,We've been doing an awful lot of $5 and $10 million amounts with a $500 million leeway.,22
-fomc-corpus,1983,"We have been prepared to do considerably more than that upon occasion, if the market ran the other way--nothing very big. But this directive, I think, was the same when we did a lot more.",42
-fomc-corpus,1983,"And it is always directed against countering disorder, so you're--",13
-fomc-corpus,1983,"Except I was uncomfortable about it before, and now we've not done anything for a couple of years to speak of and I'm still uncomfortable about it. I am just not prepared to support it today, that's all.",42
-fomc-corpus,1983,"You're prepared to support the mark increase, though?",10
-fomc-corpus,1983,"Well, that seems to be because of the interest that came in. Although, again, I have some doubts about it.",25
-fomc-corpus,1983,What you're saying is that you'd prefer a full-dress debate on this one.,16
-fomc-corpus,1983,I think we ought to have an issue paper and have a discussion here in the Committee.,18
-fomc-corpus,1983,"Well, I hope you're not suggesting that we would not intervene, assuming the Treasury was in agreement, on occasions that we decided met the criteria that have been existing for some years.",36
-fomc-corpus,1983,"Well, I didn't even think I had the latitude to suggest that because there's $500 million of leeway.",22
-fomc-corpus,1983,I take it that wording has been there since 1976 when we were going through a great game of intervention from active to inactive to moderately active to moderately inactive.,33
-fomc-corpus,1983,"Yes, there's not very much--",7
-fomc-corpus,1983,"We had a full-dress debate on this in 1980 and we continued the policies that we had been following jointly --the Treasury and the Fed--in terms of trying to slow the appreciation of the dollar. And we got up to $8 or $9 billion in foreign currency holdings by the time the current Administration came in and [intervention] was brought to an abrupt halt. Even though there had been some incidental comments on that at various meetings, I guess we haven't had a full-dress discussion. In deference to Chuck's view, why not schedule one for the next meeting? That will be after Williamsburg; it will be after your G-Five Ministers of Finance meeting, Paul.",141
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,I don't know when that is.,7
-fomc-corpus,1983,"It will be after that. That would be a logical time, then, to have a discussion here. In the meantime, we can just move on the deutschemark limit.",35
-fomc-corpus,1983,"If we're going to be talking about doing something considerably larger here, which seems to be in the wind, I'm interested in the question of how much we could reasonably do without using these foreign currencies to collateralize Federal Reserve notes. That's an ancillary issue that I'd like to have investigated because there must be some limit. We've collateralized, as it happens, our currency with foreign currency something like 138 times. And that needs to be examined too so that we know what we're getting into if we considerably expand our effort in this sphere.",106
-fomc-corpus,1983,"I do not want to suggest at this particular time that I see anything I would consider really large in terms of affecting the overall [composition] of our asset portfolio in any significant way. Have we concluded that we have ample leeway for the yen for the time being? If we have to change it later, we'll bring it up. We will change the mark. Mr. Sternlight.",78
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,Comments or questions? You uncovered an overpowering interest--,11
-fomc-corpus,1983,"I have a premature question. If the fed funds rate continues at around 8-3/4 percent, am I correct in assuming that it's rather unlikely that the prime rate would move up but that if it were to go to 9 percent the prime is likely to move?",56
-fomc-corpus,1983,"Well, as I mentioned, that spread between the prime rate and the rate on CDs or other things that I think the prime tends to take its cue from has gotten relatively narrow. I think it's at the point that would very likely call for a move. Obviously, as the funds rate moves up and other short-term rates move up, at some point a prime rate move would very likely be kicked off. I think the whole set of public policy considerations that banks will look at will play a role here. I'm just guessing, but if funds got up to around 9 percent or somewhere in that area--maybe more toward 9-1/4 or 9-1/2 percent--there probably would be very strong pressures for the prime rate to move.",153
-fomc-corpus,1983,"It's above 9 percent really, Peter, that you would be concerned that the pressures could be [strong]?",22
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,Where is the CD rate now?,7
-fomc-corpus,1983,The CD rates are now 9 to 9-1/8 percent--something in that area.,21
-fomc-corpus,1983,They may be in a danger zone right now. SPEAKER(?) That's before reserve adjustments.,18
-fomc-corpus,1983,We haven't got much for them.,7
-fomc-corpus,1983,"On the decision, Peter, to err on the side of providing fewer rather than more reserves when there has been some closeness in that decision: Was that related to a conscious decision to react to the strong aggregates or was it more technical than that?",50
-fomc-corpus,1983,I think that was part of the background. I'd say this came about just in the day-to-day implementation when we had discussions on our morning conference calls or with senior Board staff. I don't know whether Mr. Axilrod wants to add any comments on that.,53
-fomc-corpus,1983,"I will speak for myself to the extent that I was involved. Yes, because of a stronger business picture and strong aggregates [I had the view that] if we were going to make a mistake, it'd be better to make it on that side than the other side. Also, I think in terms of free reserves we were overshooting on the liberal side earlier--inadvertently, but there it was. We need a motion to ratify the transactions.",92
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,"Approved without objection. I didn't want to cut off any discussion, but I didn't hear any. Let's turn to the staff report on the economic situation. Mr. Zeisel.",35
-fomc-corpus,1983,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1983,"Well, the staff has presented you with a nice smooth middle-of-the-road forecast, I suppose.",20
-fomc-corpus,1983,"The smoothness is the nature of forecasting, Mr. Chairman.",13
-fomc-corpus,1983,"I think that's probably right--most forecasts anyway. I'd be interested to explore who has something sharply different than a nice smooth, even, business forecast in either direction.",33
-fomc-corpus,1983,For the remainder of '83 or are you talking about next year too?,15
-fomc-corpus,1983,Whatever you want to talk about.,7
-fomc-corpus,1983,"I have a question, just out of curiosity. The change in final sales was predicated upon a big swing in CCC. How big was that and is that based on something unusual? Has that happened before?",42
-fomc-corpus,1983,"Mr. Zeisel, would you like to respond to that?",13
-fomc-corpus,1983,"CCC has had a tendency in the last 3 years approximately to rise very, very sharply toward year-end, much more rapidly than it had historically. And that's one of the problems in the sense that if it had been going on long enough it would be in the seasonals and it would be damped. But as it stands, we have tended to get these huge payouts in the fourth quarter and then a smaller rate of payout in the first quarter for the last couple of years, and this has tended to distort the numbers. This will be less of a factor next year. But for the time being, it really does distort.",127
-fomc-corpus,1983,"Would it be fair, therefore, to conclude that final sales weren't really as strong in the fourth quarter and aren't as weak in the first quarter?",29
-fomc-corpus,1983,"They've been running about 3 to 3-1/4 percent in both quarters. So, it's fairly moderate. It suggests that--",29
-fomc-corpus,1983,Do you mean final sales have been running 3 to 3-1/4 percent leaving out this factor?,23
-fomc-corpus,1983,Leaving out CCC.,4
-fomc-corpus,1983,What about the next quarter?,6
-fomc-corpus,1983,"Leaving in other components of government, however--just taking out CCC.",14
-fomc-corpus,1983,But didn't you say this morning that there were some influences on that final sales number from net exports also?,21
-fomc-corpus,1983,"Oh, there are.",5
-fomc-corpus,1983,"Not between the two quarters, though.",8
-fomc-corpus,1983,"Well, it changes the pattern. If you exclude net exports, you'd get a slightly larger deceleration, but it doesn't change the fundamental picture. Excuse me, final sales excluding net exports were about 4 percent in the fourth quarter and about 3-1/4 percent in the first. So, it's in the same ballpark, I suppose.",72
-fomc-corpus,1983,I think you're right [that] it is clearly a distorting factor in trying to trace final sales. Any other questions or broader comments?,28
-fomc-corpus,1983,"At this point you have just the month of January on inventories, don't you? So, you really have no feel yet for what February and March are doing on inventory liquidation.",35
-fomc-corpus,1983,"No, we don't really. This is a forecast and it's a forecast based upon the fact that the inventory level in real terms has been reduced to at least, or actually below, pre-recession levels; it's extremely low. The inventory/sales ratios have been brought down considerably. There are indications in some very key sectors, such as automobiles and steel, that the end of liquidation is at hand and they're beginning to build a little. And these factors are sufficient to indicate that we've just about run the course on our inventory liquidation. We have some liquidation actually in the total continuing for the next several months, but the rate of liquidation decelerates considerably and by the end of the second quarter is no longer a factor.",144
-fomc-corpus,1983,What assumptions with regard to the trade deficit and the current account deficit underlie your projection?,18
-fomc-corpus,1983,"We are assuming that the trade deficit this year, Mr. Solomon, will be on the order of $35 billion dollars.",25
-fomc-corpus,1983,That's the current account.,5
-fomc-corpus,1983,Excuse me. The current account is $35 billion and the trade deficit--that's a wrong number here--is about $65 billion. They are rising by $20 billion approximately next year.,39
-fomc-corpus,1983,Both?,2
-fomc-corpus,1983,Both.,2
-fomc-corpus,1983,The only way that you factor the extent of recovery abroad into your domestic projection is through the trade account?,21
-fomc-corpus,1983,I'm not sure what else you would have in mind.,11
-fomc-corpus,1983,"Well, I'm not sure myself. I was just wondering.",12
-fomc-corpus,1983,"As far as GNP, that's largely it--well, the exchange rate too, and prices. Price is more generally in international trade prices.",29
-fomc-corpus,1983,"Well, the exchange rate too.",7
-fomc-corpus,1983,What are other people forecasting for the trade balance?,10
-fomc-corpus,1983,"Most outside forecasts, although there are some in the range that we're in, tend to be in the $20 billion range for the current account. I misspoke again, excuse me. The [trade] account forecasts tend to be in the $20 billion range. There are some that are as high as ours.",63
-fomc-corpus,1983,I think it's fair to say--you can correct me if I'm wrong--that your depressed outlook for the current [account] has not been matched by developments so far. You were predicting a bigger deficit than materialized in the fourth quarter and potentially in the first quarter?,54
-fomc-corpus,1983,"Well, the fourth quarter in fact was a $24 billion current account deficit; we had forecast somewhat higher, I think, but not more than $2 or $3 billion dollars higher than that for the fourth quarter.",44
-fomc-corpus,1983,It was $34 billion in the fourth quarter?,10
-fomc-corpus,1983,"It was $24 billion in the fourth quarter of last year, at an annual rate. At one point we had forecast somewhat higher--I think $25 or $26 billion--for the fourth quarter of last year. The figure that came out was a bit lower. What came out was a little higher than even we had forecast at the last meeting.",71
-fomc-corpus,1983,"Could I ask about capital goods? I think you indicated that as we get further into recovery you expect an improvement. But with the level of capacity utilization where it is currently, when would you expect this to occur? Is it an '83 event or are you thinking about later?",56
-fomc-corpus,1983,"It's an '83 event. Breaking it down into equipment versus construction--that's important because they are really in different phases--we expect a recovery in purchases of business equipment to start very shortly, within the next quarter roughly. Looking back at past relationships between purchases of business equipment and production, there tends to be something like a one-quarter lag there. Typically, it starts with purchases of trucks, cars, office equipment--off-the-shelf kinds of items. But we have a rather moderate turnaround occurring. On the nonresidential construction end of things, we expect weakness to continue throughout '83 and then relative stability in '84.",126
-fomc-corpus,1983,"Do the figures show weakness currently in commercial building--not the new orders figures, the actual expenditure figures? Are they coming down?",26
-fomc-corpus,1983,"Well, there was a one-month jump in January--",11
-fomc-corpus,1983,Up?,2
-fomc-corpus,1983,"Up. But the vacancy rates on commercial buildings have been rising and are quite high. And we feel that there's a fairly long digestion time involved, given--",31
-fomc-corpus,1983,There's no evidence yet in the actual spending figures of a downturn?,13
-fomc-corpus,1983,"Well, the January spending figure was up.",9
-fomc-corpus,1983,"Yes, it was up. Were there any previous months that were down appreciably?",17
-fomc-corpus,1983,"There was a flattening out, an indication that they were weakening. But there was not a sharp decline, no.",24
-fomc-corpus,1983,How would you change this forecast if the tax cut were rescinded or if there were another more or less equivalent tax increase before the end of the year?,31
-fomc-corpus,1983,"I think the initial response might well be in consumer expenditures, in terms of the effect on disposable income, [which might tend] to damp the growth somewhat. The longer-term response is, of course, a function of changes in attitudes and market perceptions of the implications of these changes. I think they would be positive over the longer run, but I do think the first response would be to slow down the recovery somewhat.",84
-fomc-corpus,1983,Stop the recovery?,4
-fomc-corpus,1983,"Well, that would depend on how large--",9
-fomc-corpus,1983,[If the] third stage is dropped.,9
-fomc-corpus,1983,"Oh, the third stage alone. No, I don't think so. The third stage is not really that big. As it stands now we're talking about something in the neighborhood of a net effect of about $30 billion at an annual rate for Q3 from that alone. I don't think that would undermine the growth momentum overly.",65
-fomc-corpus,1983,The jobs bill that just passed will show up where--in state and local purchases?,17
-fomc-corpus,1983,"That would be mostly in the form of transfers and, therefore, will show up in state and local purchases.",22
-fomc-corpus,1983,"And is the new increase in the gas tax devoted exclusively, as in the past, to highway construction?",21
-fomc-corpus,1983,"Well, that gets a bit obscure; I think there is a promise that a good deal of it is so dedicated, but I don't know if all of it is.",34
-fomc-corpus,1983,Mass transit takes some of it.,7
-fomc-corpus,1983,"Mass transit, yes. It's not a big item in any event. Wait a minute. No, I'm sorry that's the bill that's [unintelligible]; the jobs bill is not so big.",40
-fomc-corpus,1983,But between the two of them it's $10 billion.,11
-fomc-corpus,1983,The jobs bill is $4.6 billion over a 3-year period: it reaches a maximum in 1984 of about $3 billion of expenditures.,32
-fomc-corpus,1983,"How sensitive is your forecast to interest rates? The underlying assumption, I gather, is about constant or perhaps a slightly downward drift in rates. How much of a backup in rates do you think this forecast could stand before the cumulative momentum would be affected seriously?",51
-fomc-corpus,1983,"That's an interesting question. We don't have a very vigorous forecast and it's already in a sense damped by historically high interest rates, particularly in real terms, whatever that means. Further movement in that direction could well have a significant effect on attitudes; it depends on the degree, I think. It's one of those extremely difficult questions to answer because business attitudes are likely to be very sensitive at this time.",80
-fomc-corpus,1983,"Well, just an observation on that: There clearly is a recovery and attitudes are clearly improved, but it's more because people have seen business go downhill or be completely stalled for so long that even a modest lift from the very deep hole that they're in makes them feel a good bit better. But I think this increased optimism is very sensitive to interest rates. It seems to me that it wouldn't take much of a backup before this optimism could turn around rather sharply and even turn to some pessimism.",98
-fomc-corpus,1983,"There's nothing mild, Ed, about the increase in residential construction and the turnover of used properties, both of which have increased much more sharply than we would have expected--[more than in] previous recoveries, I think the staff has said. It might be that that would be shut off by a point rise in interest rates. I don't know. But that has been a very strong recovery to this point.",82
-fomc-corpus,1983,"Of course, that's financed by long-term money. The best way to hold that rate down is to avoid changing inflationary expectations and that gets to our discussion, I'm sure, of the rate of increase in money. Mr. Chairman, I'd like to go back, if I may, to a point you were making about the July tax cut. An area I'm curious about is what is happening at the state and local level with regard to tax increases. I keep reading that state after state is raising taxes because of deficits, so I guess a big deficit there is changing to a lower deficit, which is going to take something out of the spending stream. Have we any figures on that from the staff?",140
-fomc-corpus,1983,"I don't think we have. There is a cumulative tax increase of note going on. It's probably several billion dollars this year in total, which doesn't loom large necessarily against the kind of tax cut that's going to occur at the federal level, but it is substantial. Clearly, many state governments have run through all of the surplus funds they had and are having a drain in spending as well as an increase in their taxes, so that we're getting an unusually weak cyclical contribution from the state and local sector in this forecast.",103
-fomc-corpus,1983,"The state and local [situation] is even worse than the numbers suggest because, for example, a large number of states don't even have their state pension plans anywhere near fully funded. They've been living off that to the tune of billions of dollars. And at some point they not only have to raise taxes but one way or another have to replenish those pension arrangements, and I would imagine for the 50 states as a group we're talking about an enormous sum of money there.",95
-fomc-corpus,1983,Do we have any overall information about what is going on in state and local government employee compensation trends?,20
-fomc-corpus,1983,On wage rates do you mean?,7
-fomc-corpus,1983,"Well, we have some information from the results of the surveys that we do for the setting of compensation levels in the Federal Reserve Banks. In some of those surveys state and local compensation is included.",39
-fomc-corpus,1983,That's pretty fragmentary.,5
-fomc-corpus,1983,"That's pretty fragmentary, yes.",7
-fomc-corpus,1983,"The BLS does collect state and local data--with a fair lag, but still the data are available. Unfortunately, I'm not really familiar with what they've been showing recently.",35
-fomc-corpus,1983,Back on interest rates: I noted in that fairly new survey of commercial bank pricing of their various deposits a 25 basis point backing up in the rate on money market deposit accounts. Is that unexpected? Is there some particular factor that caused that turnaround in the pricing of that instrument?,56
-fomc-corpus,1983,"This is news to me, I must confess. It could simply be sampling errors.",17
-fomc-corpus,1983,What's this--a higher rate on money market accounts?,11
-fomc-corpus,1983,It's up 25 basis points.,7
-fomc-corpus,1983,I see that some [depository institutions] in New York are getting more aggressive again. They're paying 9.50 percent.,26
-fomc-corpus,1983,Why is it a sampling error when it goes up and it's just good information when it goes down?,20
-fomc-corpus,1983,A 25 basis point change might not be something significant in terms of the aggregate.,17
-fomc-corpus,1983,"Well, it seems to be going up according to the newspapers in New York. Is there any sense that it's going up elsewhere?",26
-fomc-corpus,1983,"Yes, the national survey, which is a very large sample stratified by bank size, had a 25 basis point backup. That is the reason I'm questioning it.",34
-fomc-corpus,1983,Is this our survey?,5
-fomc-corpus,1983,"No, the Money Market Monitor, or whatever that new commercial--",13
-fomc-corpus,1983,It has it by sections of the country.,9
-fomc-corpus,1983,"It has it by sections of the country. It doesn't look like very hard data but, anyway, it did go up.",25
-fomc-corpus,1983,You've seen that?,4
-fomc-corpus,1983,"Yes, I've seen it.",6
-fomc-corpus,1983,It has pretty good figures.,6
-fomc-corpus,1983,"Yes, it's up 25 points.",8
-fomc-corpus,1983,"It's a rather large sample, as a matter of fact.",12
-fomc-corpus,1983,It's a large sample.,5
-fomc-corpus,1983,They're doing it keyed to something like what the money funds pay; that has crept up a bit as market rates have come up.,27
-fomc-corpus,1983,We're looking at 7-3/4 percent versus 7-1/4 or 7-1/2 percent a couple of weeks ago. But it's not close to 10 percent.,40
-fomc-corpus,1983,For the money market accounts?,6
-fomc-corpus,1983,Money market deposit accounts.,5
-fomc-corpus,1983,But it's up a little.,6
-fomc-corpus,1983,The question is--,4
-fomc-corpus,1983,[Unintelligible.],6
-fomc-corpus,1983,That would be less than market rates in general.,10
-fomc-corpus,1983,"Yes, rates in the market have been moving up.",11
-fomc-corpus,1983,Either that or I'm in the wrong bank.,9
-fomc-corpus,1983,"Well, who has a case they want to make for a markedly different business forecast?",17
-fomc-corpus,1983,"I won't make the case, but--",8
-fomc-corpus,1983,"Oh, wait minute. Mr Guffey was ahead of you.",14
-fomc-corpus,1983,"Well, I'm not sure I'm going to respond to that; I don't want to make a markedly different case. I just would like to observe perhaps the obvious that has already been touched on. What we have seen and have described as a recovery is largely driven by the two interest-sensitive sectors of our economy, autos and housing. And to the extent that interest rates move up appreciably from this level, that quite likely could kill off the recovery. In other words, the recovery that's being projected is very fragile. I just note that one of the comments made concerning the outlook was that [the staff] expects business spending on equipment and exports to increase to sustain this recovery, and each of those areas is as fragile or as uncertain as anything we can tie it to. I really think this is a very fragile recovery. There's no question of recovery, but [in] autos and housing it's the rundown of inventories that has made the numbers look pretty good in the last 2 months or perhaps 3 months. That can go away pretty quickly with any increase in rates--maybe even to the levels that we're now experiencing. The reported increase in the fed funds rate, for example, and the upward pressure that may exert--the prime could go up--could be very devastating in my view to this recovery.",260
-fomc-corpus,1983,Mr. Corrigan.,5
-fomc-corpus,1983,I'm not about to make the case myself but I will at least report that at our board of directors meeting last week I think I can fairly say that our directors were more bullish than they have been at any point since I've been at the Bank.,49
-fomc-corpus,1983,That's not a--,4
-fomc-corpus,1983,2-1/2 years.,7
-fomc-corpus,1983,It's been pretty bad the whole time you've been there.,11
-fomc-corpus,1983,"Clearly, their comments [conveyed] a tremendously different atmosphere. Some of that does reflect what Mr. Boehne spoke about--just the fact that it was so bad that if things begin to look at all better it sounds a lot better than that. But I think housing has an awful lot to do with it. The thinness of inventories in the retail sector in particular is something that people cite, and to some extent there's a little glimmer of hope in the agricultural sector because livestock prices are a little better and people are feeling a lot better because of the PIC program, even though it's recognized that that's not going to mean much until well down the road. The other thing that is more or less compatible with that is that a significant body of my colleagues in my research department also take the view that the economy is in fact a lot stronger than some of the numbers now suggest at current interest rates. I think they pretty much take the view that if long-term interest rates in particular were to go up at all, the fragility that Mr. Guffey speaks of could be manifested in a hurry. But in the framework of current long-term interest rates, a number of those people are really quite bullish. I myself have not quite bought into all of that yet, but I do think in the framework of roughly the current level of rates that the prospects for the economy performing along the lines of the staff's forecast or maybe even a little above it are quite good. But, again, I certainly would agree that any number of things could unravel that in a hurry.",317
-fomc-corpus,1983,Governor Gramley.,4
-fomc-corpus,1983,"I don't know that I would want to argue that my own thinking is radically different from that of the staff's, but I think the time has come when we have to wonder whether or not this recovery might not be gathering more steam than we've realized up to this point. I can make a case for a significantly higher rate of increase in GNP, I think, along lines like this. If we look back at the past two quarters, in the fourth quarter to the first quarter we see an increase of private final purchases on the order of 3-1/2 percent at an annual rate--a little less in the first than in the fourth quarter--and this is just in the process of going into recovery. That's what we are getting before we have the effects of the tax cut hitting in the second half of the year and before we have the beginnings of a pickup in business fixed investment, which we all expect to happen at some point or other. Now, the staff forecast doesn't have a sustaining of the recent pace of advance in private final purchases, partly because it's expected that we're going to get a big drop in net exports in real terms and also because residential construction is not going to contribute as much as it has in the recent past. The staff may be right. But there is a tendency, I think, for final sales to gain momentum as a recovery proceeds; and that could happen again. The second fact is that I'm very, very much uncertain about what we ought to be forecasting for inventory acceleration during the course of this year. When I talk to people out in the field they tell me: Boy, those shelves are just bare so that if you get a dollar's worth of orders at the consumer level it just goes right back through to an order for a manufactured good because there's nothing [on the shelf] to sell. In fact, if you look at the statistics, you'll find that in real terms we've had the biggest drop absolutely in inventories in this recession than in any since 1949. And that tends to confirm the bareness of the shelves argument that we hear from qualitative comments. We don't have what I would consider a normative ratio of inventory investment to GNP in real terms until we get out to about the end or the middle of 1984, when we get inventory investment up to about 1 percent of GNP. It could happen sooner than that. We could easily get an increase of as much as 1 percentage point in real terms above what the staff is forecasting at present levels of interest rates for 1983. If that happened, the momentum is going to build still further. I don't know whether this is really going to happen or not, but my guess would be--and we talked about this at the Board meeting this morning--that the risks at this juncture are more on the high side than they are on the low side of our staff forecast.",583
-fomc-corpus,1983,"Mr. Chairman, I think it's a little too early to have any convictions as to how strong this expansion is going to be. We have two sets of numbers, January and February. The January numbers at face value looked very good, but probably the seasonal factors made them look better than they were. The February numbers in general were quite disappointing. If we're talking about triggering order books, they weren't triggered in February; the orders numbers in February were really quite disappointing. Again, that may reflect the fact that the January numbers were inflated. But certainly, the range of numbers for February on retail sales, on personal income, and on new orders would have to be viewed as on the disappointing side. I think we need another month of data to shake this out; I'd like to see a little more of that inadequate inventory phenomenon showing through in the orders. It's not there yet.",175
-fomc-corpus,1983,Governor Wallich.,4
-fomc-corpus,1983,"It seems to me that fragility is almost inherent in this kind of expansion and one should not be too surprised to see that. The sectors that can move up at a time like this typically are interest-sensitive; that is, housing and automobiles typically start up at this time since they've become very much a matter of interest rates. So, to find that those are the areas that have been moving the economy more strongly than others is not surprising. It doesn't seem to me to suggest that it is fragile in any sense other than that other previous expansions have been fragile. If we had all the other factors moving right now--if consumption were moving forward on a broad base, if we weren't losing from exports, and if inventories were turning around strongly--we would have a very booming situation and that wouldn't be conducive to sustainability. So I think as far as we've gone, with rather limited impulses, we've done quite well. We should be concerned about the possibility of excess [spending] as well as the possibility that it might weaken. I don't think fragility is a particular warning at this time.",218
-fomc-corpus,1983,"Certainly, Henry, in terms of the financial structure, we have a greater fragility than we've ever had before. That is one area, and a very important area, where we have more vulnerability built into the system than we've had before.",48
-fomc-corpus,1983,Are you talking about the thrifts or the international situation?,12
-fomc-corpus,1983,"I'm talking about the quality of debt, domestic and international. If we do abort this recovery, I think we would end up with financial strains of a sort that we would find very difficult to handle.",40
-fomc-corpus,1983,"I might just assert, on that point, that I don't think the international strains are getting any less and they are a little more disguised. They will get worse. Basically, there are more countries unable to pay--I'm looking for a polite term. And the ones that have been attempting adjustment for some period of time --I think with the exception potentially of Mexico which has now been hit by the oil situation--have not yet shown a turnaround. There is no confidence returning to that picture in a basic sense. Mr. Black.",106
-fomc-corpus,1983,"Mr. Chairman, I always feel very uncomfortable when I make a forecast on anything. This whole Committee ought to feel uncomfortable because I think if you look at our Humphrey-Hawkins testimonies, most of the time the majority has been wrong. There is usually somebody who is right each time, but--",62
-fomc-corpus,1983,You managed to get right outside the range a good part of the time.,15
-fomc-corpus,1983,--the one who is right usually differs from meeting to meeting.,13
-fomc-corpus,1983,That's the trouble.,4
-fomc-corpus,1983,"That's right. And that's why I feel very uncomfortable. I hasten to add that that is why I have less and less sympathy for discretionary monetary policy too, but that's another issue. But I'm very much in sympathy with the points that Lyle made; my guess would be that this is going to be front-end loaded a little more than the staff has projected. It does follow a deep recession, and historically deep recessions usually have been followed by relatively fast recoveries. We've also put out a lot of liquidity in the economy. It's also at this stage historically that most people have underpredicted the amount of economic growth. And I think the swing toward optimism, though certainly it may well be fragile, has been the most abrupt swing that I can remember. It may be because people were so fearful it wouldn't come at all, but it seems to me to have been more abrupt than it has been in the past. I think businesses are unusually lean now and if we do get any kind of pickup, profits ought to rise more rapidly than most people think and again ought to help the outlook. So, my guess would be that growth is going to be a little faster. Like Lyle, I think the error may be on the side of [the staff forecast] being slightly lower than what really will occur.",264
-fomc-corpus,1983,Mr. Keehn.,5
-fomc-corpus,1983,"I can even report a better attitude on the part of the Chicago directors at our meeting about 10 days ago. They were more positive in their outlook than they've been since I've been there, and it's really a very surprising change. A lot of it comes from the agricultural side through the PIC program, in which the participation is becoming very heavy. I think that has changed the attitude in the agricultural sector very dramatically.",83
-fomc-corpus,1983,A little inflation makes people feel better!,8
-fomc-corpus,1983,"In fact, whereas our original guess was that the PIC program wouldn't have any effect [until] 1984, we now have the feeling that we will see some effect from PIC this year. On the cautionary side, though, it may be darkest before the dawn but the people I talked to still say that the capital goods side is very, very sick and they don't see any near-term outlook for an improvement. That is why I asked the question about capital goods. On the inflation side, I have just a word of caution there: We are beginning to see increases in prices of some of the basic commodities like steel and nonferrous building materials. It's not so much that the prices themselves are going up, but the discounts that had been offered very broadly as we were going through a difficult period are beginning to be eliminated. So, I think we can expect to see some increase on the price front as we get into this recovery.",189
-fomc-corpus,1983,Governor Partee.,4
-fomc-corpus,1983,"I want to make a case for the staff forecast as a good working premise for the Committee. I think it's possible, as Lyle suggests, that we could have a little stronger recovery, probably led by housing. That could give us maybe a half point or even a point more in the real GNP increase, but it's still certainly well within manageable territory. But I also am impressed that it could be a little weaker than the staff forecast because the financial fragility is really pretty deep and it could affect our export numbers if in fact the Latin Americans buy very little from us in the course of this next year. It also could affect, more adversely than the staff has forecast, the commercial construction projection because I do think there's a very serious overbuilding problem occurring, particularly in office buildings, but to some extent in shopping center and hotel/motel complexes and things of that sort too. Now, the thing about office buildings and big commercial centers that they share in common with foreign situations is that they involve an awful lot of debt; and in both cases an awful lot of the debt is held by banks. It seems to me that we may have a very conservative lending attitude on the part of financial institutions for more forthcoming deals for the next year or so and that could hold back the recovery some. So, I could see the outcome being below the staff projection by as much as a point and I can see it being above the staff projection by as much as a point. Therefore, I think the staff projection is a good working document.",307
-fomc-corpus,1983,How much are our exports to Mexico down percentage wise in the past year?,15
-fomc-corpus,1983,"Oh, it's more than 100 percent.",9
-fomc-corpus,1983,It can't be down more than 100 percent.,10
-fomc-corpus,1983,It depends on which number I use as a base. Exports to Mexico in the fourth quarter of last year were at an annual rate of $6.8 billion dollars and in the fourth quarter of 1981 they were at an annual rate of $17.6 billion. So it's more than $10 billion.,64
-fomc-corpus,1983,Two-thirds.,3
-fomc-corpus,1983,More than one-half.,5
-fomc-corpus,1983,That's a lot.,4
-fomc-corpus,1983,"Well, I was talking to a Mexican central banker and I was beginning to think I didn't hear him correctly. He said their exports in the first quarter were 15 percent of what they were a year ago.",42
-fomc-corpus,1983,"That is possible, yes.",6
-fomc-corpus,1983,Exports or imports?,4
-fomc-corpus,1983,Imports. I'm sorry.,5
-fomc-corpus,1983,I began thinking afterwards that he had said 50 but maybe he did say 15.,18
-fomc-corpus,1983,"Is that from us, Mr. Chairman, or all imports?",13
-fomc-corpus,1983,"It's their total imports, but they get a big--",11
-fomc-corpus,1983,"I was thinking that probably the right number is 50 percent of the imports of a year ago. The first quarter a year ago our exports to Mexico were $15 billion. So, something on the order of $7-1/2 billion at annual rate is probably right.",56
-fomc-corpus,1983,"That says, though, that it went up from [the fourth quarter].",15
-fomc-corpus,1983,Slightly.,4
-fomc-corpus,1983,"It's not possible, I wouldn't think.",8
-fomc-corpus,1983,"Well, the fourth quarter had October, November, and December in it. I'm almost surprised that they were in [unintelligible] in the fourth quarter of last year.",36
-fomc-corpus,1983,Financed?,3
-fomc-corpus,1983,We financed $700 million in that quarter; half of it would have been CCC-related in the fourth quarter of last year.,25
-fomc-corpus,1983,"What about other South American countries, Ted?",9
-fomc-corpus,1983,"I don't have that with me here as such, but for other developing countries our exports dropped by $3 billion on the same fourth quarter-to-fourth quarter basis.",33
-fomc-corpus,1983,How many billion?,4
-fomc-corpus,1983,$3 billion.,4
-fomc-corpus,1983,I don't think any of them have tightened up the way Mexico has in this time period. That may still lie ahead but they haven't done it yet.,30
-fomc-corpus,1983,Exports to Mexico were essentially financially constrained; they weren't letting in anything in that period.,17
-fomc-corpus,1983,They weren't in the first quarter either.,8
-fomc-corpus,1983,They probably were somewhat more in the first quarter than they were in the fourth quarter.,17
-fomc-corpus,1983,Governor Martin.,3
-fomc-corpus,1983,"I'm not surprised at the numerous positive comments in the Redbook or those that we've been sharing with each other. As far as the businessman's attitude is concerned, I think we need to separate his or her little burst of optimism here from the probabilities of their obtaining the results they're talking about. Partly their attitudes are those of survivors. And as survivors they're looking at ways to increase their market share over the competition and they have good probabilities of doing that. I think we may be discounting a little in the forecast the shape of the curve that we have reviewed with regard to profitability. The increase in profitability projected a few quarters from now and for next year is very great indeed and that, of course, not only affects the external financing of the business sector but gets good old Keynesian animal spirits going again. And once the profits begin to come rolling in with some modest recovery, with the middle management cutbacks and the layoffs and so forth that have trimmed some of these organizations down, you get a positive effect on inventories, you finally get a positive effect on the computer-related or so-called tech kind of purchases in the equipment area. But I think we have to keep our eye on the probability of these attitudes not materializing. In housing, I am at a point of eating my words. I was hopeful that the mortgage lending institutions of our world, particularly the thrift institutions, finally would have learned something and as the MMDAs came in they would not put virtually all of it out in fixed rate long-term mortgages. I eat those words. I admit being overly influenced by the representatives we have on the Thrift Institutions Advisory Council; those people aren't doing that, but it looks as if everybody else is. And it's a small advisory group.",350
-fomc-corpus,1983,I even wonder about them sometimes.,7
-fomc-corpus,1983,"So here comes this flood of fixed rate long-term funds. It meets the demand of the first time home buyers. They are influenced by an improvement in their tax position and are willing to undertake these obligations. The thrift institutions are not paying off the Home Loan Banks, as we found out today. They've made real progress; they've gone from $65 billion in debt there to $62 billion! Given the flood of funds coming in, they likewise have not paid off their friendly commercial bank. So, they're carrying that credit. They didn't do that with the money market deposit funds either. On the other hand, I separate the positive implications of home buyers from the probability that it will occur in the future. Namely, these are people who despite the after tax implications of income tax [savings] are sensitive to the interest rate. These are small young families in which two people are working. They can wait if the interest rates move up some; they'll simply postpone the purchase and we could have a good deal of that impetus disappear. So, again, I separate the positive nature of profitability and equipment purchases around the corner from home-buying--in terms of the sensitivity these areas have to the interest rate.",241
-fomc-corpus,1983,"One aspect that Governor Martin did not mention, except by implication, is that unfortunately the savings and loans have gotten themselves more and more sensitive to changes in interest rates on the liability side of the balance sheet and they are even less in a position to take an increase in interest rates now than they were before.",61
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,Mr. Boykin.,5
-fomc-corpus,1983,"Mr. Chairman, we have revised our own forecast up just slightly. We tend to line up much as Governor Gramley and Mr. Black did. On balance, I rather like Governor Partee's position that the staff forecast presents a pretty good working document. We do have developments in our District that are causing some concern--certainly the energy situation and the implication that has for our banks down there. This past week most of our major bank holding companies have been making their public announcements about decreased earnings and increases in loan loss reserves. And unemployment picked up in February from 8.2 to 8.8 percent, which by our standards at least seems awfully high. In Houston, where nothing can go wrong, unemployment went from 9.1 up to 9.7 percent in February.",162
-fomc-corpus,1983,Those people are all from Michigan!,7
-fomc-corpus,1983,"That doesn't sound too high by national standards, but if you remember it was just half that a year ago. I was told last week that in Houston there are 30 million square feet of office space in commercial real estate construction that either is completed or is in the process of starting. I'm also told by one of the large developers that an estimated 65 percent of the office space in Houston is energy-related in some way. So, with what is happening in energy, that raises a question. We have an overbuilt situation in Dallas for commercial office buildings. We just started a 70-story building last week to cure that! The people in the energy business who feel that they're in it to stay, and we find fewer of those, say that stability in price is probably more important than the actual price level--that is, within a reasonable [range] of, say, somewhere between $25 and $29 per barrel. They would not get overly upset if it just stabilized, because [the instability] causes them difficulties in doing their planning. We know that the supervisory and regulatory groups are quite concerned about energy portfolios. There are some special [examinations] going on, as I understand it, in the major energy-lending banks just to take a look at the energy portfolio. So, being that close to what is a drag [on the economy] tends to color my thinking somewhat. But we still have some positives in areas that have already been mentioned, such as housing. On balance, for the economy as a whole I feel relatively optimistic that growth will be somewhere in the 4 to 5 percent range. That sounds reasonable.",331
-fomc-corpus,1983,"On the [energy industry] forecast, can you be more specific? Suppose the energy price stayed close to where it is now. Would the number of rigs hold up? Would you continue to get the current amount of drilling?",45
-fomc-corpus,1983,"I don't think we would, Mr. Chairman. I would not anticipate a great deal of added activity. There are those engaged in that business who say that we will probably see drilling pick up again in the latter half of the year. Some of it is for tax purposes if for no other reason. I was talking to a pipe supplier to the energy business who says he basically is not doing anything but in talking to the majors--and these are the people he supplies primarily --they tell him just to hold still and that come summer and on into the rest of the year they have their budgets planned and they will spend that; he will get the orders. At that same meeting there was an independent oil man who has a pretty big business and he said that is the difference between the independents and the majors. The independents are not going to be going in.",173
-fomc-corpus,1983,"It's a lot cheaper to drill now, isn't it?",11
-fomc-corpus,1983,"Oh, yes.",4
-fomc-corpus,1983,It must be more cheap to drill than the reduction in the oil price.,15
-fomc-corpus,1983,"It is; it's a lot cheaper to drill. But also the price is lower and there are a lot of rigs laid over. There is a question of whether one wants to wear that rig out right now on relatively cheap oil because some think that this may turn around next year. So, they're hedging their bet and figure they are better off keeping the rig down rather than pulling it up and wearing it out.",83
-fomc-corpus,1983,It's cheaper to drill because the interest rates are down?,11
-fomc-corpus,1983,Yes. The cost of labor and all of the cost components are substantially--,15
-fomc-corpus,1983,The cost of the rigs?,6
-fomc-corpus,1983,"Yes, you can get a rig at a really cheap price. I might even have one or two before too long!",24
-fomc-corpus,1983,"If you don't have one now, you soon will. Mr. Ford.",15
-fomc-corpus,1983,My next door neighbor is one of those independents who is a millionaire a number of times over. He told me there has never been a better time to buy rigs and leases--that right now is the time to get in. I always wondered--,50
-fomc-corpus,1983,Is he buying them?,5
-fomc-corpus,1983,He's doing it.,4
-fomc-corpus,1983,"If I could just tack on, Bill, I got a report from one of our major banks that they are seriously putting a group together to bring up some REITs in the not too distant future.",41
-fomc-corpus,1983,What's that--a rig equity investment trust?,9
-fomc-corpus,1983,"Not in rigs, but in office buildings--they believe that there are some really good deals out there.",21
-fomc-corpus,1983,"Mr. Chairman, on the general economic outlook that we've been talking about, I come down on the side of Lyle Gramley and Preston Martin. When you look at the major sectors of the economy, the only thing I see to worry about is the one that has been noted; export growth is likely to be weak for the reasons we're all aware of, namely, that the buyers abroad are financially strapped and can't afford to buy. But if you take all the other sectors of the economy, in government spending, for example, the surge is just starting to hit in our part of the country and spending is going to come down like manna from heaven as far as the military buildup and the other sectors of government are concerned. It looks as if federal spending is just starting to surge through as a stimulant to the economy. I agree that there will be a sharp inventory turnaround; there almost has to be. All of the businessmen I've talked with in our area are saying that the [inventory] pipelines are dry. The orders are starting to pick up in our area. It's also showing up, as was noted, in sensitive commodity prices; virtually everything except oil and precious metals is surging. The BLS 22 commodity spot market index has been up 14 weeks in a row. Scrap steel, lumber, aluminum, wheat, corn, soy bean, cattle, cotton--everything--is going up and going up fast, which is a further indicator that the pipelines are rather dry as prices get bid up. The big thing that we have to watch for, though, which will determine which of these polar forecasts is right, is exactly what the consumer does. When you look at the consumer's potential, the consumer really hasn't hit the market at all and he's in excellent condition to do it. The only thing that consumers are buying is new homes; and there's a little more resale house business. We haven't yet seen it feed through to the related industries in the consumer durables sector other than autos. I think that's bound to come with the employment picture brightening; the consumer's balance sheet certainly allows it. Then there is the profits surge that allows business to finance the inventory buildup. So, when you go through the different sectors--and the internal arguments we have at the Atlanta Fed have been on how vigorous and how quickly the surge is coming and so far I'm ahead--I think it's going to be a vigorous spring and summer for us. And I'm worried about what will happen at the end of the year and early next year--whether it's sustainable, given what we're doing with the monetary aggregates while this deficit spending is going on. I'm worried that we'll have a vigorous recovery and a drop through the floor about a year from now or maybe sooner. That's where I come out on it. I'm not worried about the next few months. I think we're going to be--",574
-fomc-corpus,1983,Where does this drop through the floor come from against that background?,13
-fomc-corpus,1983,"I think what is going to happen is that when we do raise the rates, and I think we are going to raise the rates within a year for the reasons others have given, we're going to put the economy back in the tank. And it will come when we finally pay for all the monetary expansion that has been going on. We are going to have to pay for what we're doing now; we can't put off the day of reckoning forever. We can put it off for another 6 to 9 months and then we will pay. One way or another--",114
-fomc-corpus,1983,What do you mean we will pay?,8
-fomc-corpus,1983,"We will pay when all this borrowing in the private sector that has to come in order to continue the expansion much beyond a few months comes into conflict with government [borrowing]. Then we are going to have to blow the whistle on it. And when we do, we're going to drive up rates and put the economy back down.",66
-fomc-corpus,1983,"You really do have a different pattern, Bill.",10
-fomc-corpus,1983,"Yes, I see a vigorous recovery.",8
-fomc-corpus,1983,You have a pretty aggressive recovery and then a turn.,11
-fomc-corpus,1983,Another surge and then a drop-off. MR. ROBERTS(?). He has a boom/bust.,22
-fomc-corpus,1983,That's my forecast: boom/bust.,8
-fomc-corpus,1983,Because private credit demands are colliding with government credit demands?,12
-fomc-corpus,1983,"Yes. So far it has been rather moderate as far as the private sector tapping the market. But it has to come, don't you think?",29
-fomc-corpus,1983,"Well, I can see that very clearly. I don't see the connection quite so clearly with the money supply. It seems to me you said we'd avoid this by getting a much lower private credit expansion now.",41
-fomc-corpus,1983,Get if off now.,5
-fomc-corpus,1983,Have a lower economy now.,6
-fomc-corpus,1983,Have no boom.,4
-fomc-corpus,1983,I don't--,3
-fomc-corpus,1983,What I'm suggesting is that the thing to do is to think in terms of moderating a boom now so that we don't have to come down as heavily about 9 months to a year from now.,40
-fomc-corpus,1983,Mr. Roberts.,4
-fomc-corpus,1983,"I have just a couple of comments. Our staff has consistently been optimistic and is looking for about a 5 percent fourth-quarter real growth and we think that the first quarter is probably running ahead of expectations in terms of the numbers that will come out. I went around to all my branches recently, as part of an introductory thing, and I met with the boards and heard their summaries of what they thought about the economy. I would say in reference to what someone said earlier that they're not euphoric at all. If anything, it's a reluctant optimism; but there's definitely unanimity of optimism. In the wood products area, for example, one fellow was cautioning about interpreting the February seasonally adjusted number and yet he concluded that [business is] really booming and prices are up 60 percent from the bottom. He said his lumber prices are still below his costs, but that with the sharply rising prices we had to look out in terms of what that would do to housing. But there was a reluctant optimism--",203
-fomc-corpus,1983,That was lumber you said was up?,8
-fomc-corpus,1983,Lumber was up 60 percent since October.,10
-fomc-corpus,1983,Lumber or some [wood] products?,9
-fomc-corpus,1983,"The figures don't show that generally, but they're up sharply; there's no question.",16
-fomc-corpus,1983,This chap heads the and he said prices had really taken off and he was getting similar reports from people on the West Coast.,25
-fomc-corpus,1983,They have gone up sharply in price.,8
-fomc-corpus,1983,"My attitude is colored a little by the fact that I just contracted to buy a house in the weak St. Louis market where I found the seller is very, very firm and the price is not weak at all. Housing is very strong, has a large consumer oriented company--shoes and recreational products and so on --and he said he's seeing expansion in unit sales across the country for the first time; the expansion is concealed a little by the lower prices. But he really is doing better than when he had higher prices and the units weren't moving. So, all in all--",116
-fomc-corpus,1983,Now he can convince a few other people of that!,11
-fomc-corpus,1983,"I might add that his profits are up very substantially with this type of development, so it's very constructive. All in all, there is pretty solid and widespread optimism but nothing in terms of a soaring economy.",41
-fomc-corpus,1983,What is your staff projecting in regard to inflation?,10
-fomc-corpus,1983,"On inflation I believe we had 5 percent. My own feeling is that we're probably overestimating inflation. With the good control over compensation per manhour, the good productivity figures, I think a low increase in prices is in the bag for '83. I'm more concerned about '84 in terms of this sharp buildup in liquidity.",67
-fomc-corpus,1983,"I have run through my list. Does anybody else want to say anything? I think at this stage we might as well wait and begin with Mr. Axilrod first thing tomorrow morning. How long do you plan to talk, Mr. Axilrod? If people want to stay 5 minutes and get this introduction tonight. I'm at your--",70
-fomc-corpus,1983,He said 10 minutes.,6
-fomc-corpus,1983,Would you rather stay or go?,7
-fomc-corpus,1983,How about doing half of it?,7
-fomc-corpus,1983,Can't do it.,4
-fomc-corpus,1983,"To facilitate discussion, I think it's better if it is fresh in our minds.",16
-fomc-corpus,1983,"Okay. You'd rather have it fresh in your minds than think about it. That shows you something, Mr. Axilrod.",27
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,[Unintelligible] given a lot of room. Who would like to comment?,18
-fomc-corpus,1983,Mr. Chairman?,4
-fomc-corpus,1983,Governor Rice.,3
-fomc-corpus,1983,"I'd first like to compliment Steve on what I think was an unusually clear analysis of the kinds of issues we face. The policy preference course today seems to depend more than usually on how one sees the current performance of the economy and how one sees the economy developing in the near term. If one sees the economy as fragile and the economic recovery as vulnerable and much weaker than usual--and, of course, sees the inflation rate very low and, therefore, not a major concern--one obviously then would be pushed in the direction of alternative A and perhaps even a further relaxation. On the other hand, if one sees that the economy is strengthening rapidly and indeed appears to have a boom momentum and there is a strong fear of the uncertainties of inflation, then obviously one might be pushed in the direction of alternative C or even more restraint. I would agree with Governor Partee's statement yesterday in support of the staff analysis and the staff forecast, which he found to be in the middle. And I would agree when he says that over the rest of the year the real GNP could come in 1 percent higher or 1 percent lower. But the staff forecast is in the middle. I would agree also with Frank Morris when he says that we need more data and a little more time before we can be confident about the nature of this recovery. Readily accepting that inventories are lean, that shelves are bare, and that defense spending is strong and rising, it seems to me that one must make some heroic assumptions with regard to consumer expenditures and consumers' willingness to take on debt in large quantities, given the level of real interest rates. Also [it takes] some expansive assumptions with respect to residential construction in order to see that the economy is recovering strongly and in danger of causing a boom. I think the worry that the economy is strengthening too quickly would ignore what is best [not] minimized. There are drags on the economy at the present time: the drag effects of capital spending and the probable composition of that spending when it turns around and begins to expand, and the drag effects of state and local expenditures as well. While I would agree, as I said, that we need more time and more data to feel confident about the nature of the recovery, at this point I'm persuaded that the economy still needs nurturing and at the very least does not need any restraining influence resulting from a more restrictive monetary policy. Now, I would agree that there may have been considerable stimulation in the sense that the underlying rate of growth of the aggregates may well have been very strong. But I think that we have to see stimulation in relative terms, and we have to see that stimulation in a situation when real interest rates are negative [and] not quite as sensitive as stimulation in the context of highly positive real rates of interest. So, I would come out in favor of a position somewhat between alternative A and alternative B--that is, somewhat of a holding position until the economic picture becomes clear. And instead of sending up interest rates, I would tend to err slightly on the side of a downward [nudge]. I think that's what the outlook calls for at the present time.",632
-fomc-corpus,1983,Mr. Solomon.,4
-fomc-corpus,1983,"I think that a strong case can be made for continuing with a money market directive for the time being. I'm not sure but that it'd be premature to return to targeting even M2 and M3 in the short run of the intermeeting period. With a money market directive we could implement an extremely modest tightening, which I think would be indicated under the situation for reasons Emmett talked about; I doubt that we would respond in a mechanistic way to the short-run targets. So, therefore, we could achieve the same substantive effect anyway with a money market directive. I'm not saying that there won't be a point when we would want to return to targeting the aggregates, but at the moment I have an instinct, and I think that's all I can actually call it, that a strong case could be made that it's somewhat premature to do so. It could put us back in that situation we were in earlier. I'm a little concerned about the market impression of our going in that direction. Paul made one casual remark in one sentence in answering a question about Ml growth, namely that it was looking strong, and the market very strongly overreacted and people were looking at Ml for quite a few weeks. If they see us now moving back to monetary aggregates targeting, then I think they might draw more conclusions from that than would be justified. I don't think that they would recognize the heavy degree of judgmental decision components that I assume will go into our policy moves. Even though it may make some sense to target M2 and M3 --although I think M3 would be more reliable for the next period and we might consider just targeting M3 for this short period while we're still seeing the substantial movement of funds going on--I still think a case can be made for a money market directive being continued.",359
-fomc-corpus,1983,Governor Wallich.,4
-fomc-corpus,1983,"I think that Steve has posed the issue very correctly. We have the evidence of a very strong monetary expansion. On the other side is a high real interest rate. Which of the two is what really drives the economy? Now, if I were to follow through the monetary implications of the recent monetary upsurge, I would have to say that the monetarist view is that half a year later the real sector would begin to move strongly. If that were to be the case, then we'd see something stirring now and certainly have very strong second and third quarters, which we don't seem to expect, and a couple of years later prices would begin to expand. This is an empirical finding. There is no logical reason why that should happen unless over two years we reach a level of unemployment at which prices do begin to react to a continued monetary expansion. So, the analysis of what this bulge in the money supply is likely to do does not seem to me to be very plausible at the present time. We don't see the real sector effect before us now. And the price effect farther down the road would occur, it seems to me, if by that time unemployment had come down to an inflationary level. But that is not very likely, even over two years. So the bulge in the money supply to me seems to be less persuasive as a predictor of what is going to happen than is the level of real interest rates. The level of real interest rates does seem to be high. It may not be as high as present indexes indicate. I think people like to think of long-term inflation as well above 5 percent, maybe 6 or maybe 7 percent. That seems to be the findings of the Bache-Prudential survey. So, real rates may not be as high as they seem on the basis of present indexes, but they are still substantial. And that, I think, is what dominates the situation and is giving us probably a moderate recovery. Why it is that we're experiencing these great increases in the aggregates is something I don't understand. [I don't know] why the model predicts so differently what shifts may be taking place. But it doesn't seem to me to be the kind of thing that is likely to generate the usual future consequences of high money growth. So, I don't see an immediate need to bring down the growth of the aggregates sharply to within their ranges. On the other hand, I like the idea of going back to a money supply target even though I recognize we can do exactly the same thing with an interest rate target. We can have a money supply target if we qualify the money supply target adequately. The way the [staff's draft wording] is formulated in the square brackets does seem to qualify the money supply targets in a very complete form. That is to say: If we undershoot, resist that; if we overshoot, let it run. One could not be more accommodative than I interpret that formulation. But I would prefer going back to the aggregates because I feel very uneasy with interest rate pegging just on general principles. It has been an unfortunate thing in the past. Tony may have confidence that we can shift gears in a timely way--and I take it that that's your ultimate intention--but interest rate targeting has had a bad history. It will not look good in the record and is I think in the long run surely inflationary. So, I'd rather get away from it as soon as I can.",696
-fomc-corpus,1983,"[Unintelligible] I'm not sure. At least you can make a plausible explanation, which Steve touched upon, as to what is going on in the broader aggregates. I'm not sure you can in the narrow ones. But it's a fairly straightforward story, if I understand it and if the figures are right, which they may not be. If the credit figure is as low as the estimators now think it is, and that's subject to considerable uncertainty, we have no great credit expansion: this figure is about in line with nominal GNP, which is what one would expect.",117
-fomc-corpus,1983,It seems to be.,5
-fomc-corpus,1983,"What we have is a lot more intermediation through depository institutions when they are aggressively paying higher rates relative to credit market instruments, which is I guess what one would expect of that. The amount of deposit growth among individuals is very large in the first quarter and the amount of credit market instrument growth is very small relative to what it has been; that's consistent at least with different pricing. Now, that doesn't explain Ml, but it's a reasonably consistent story for M2 and M3, to the extent that M3 is high at all.",109
-fomc-corpus,1983,"For the depository institutions, we don't put the money funds in there, so--",17
-fomc-corpus,1983,Governor Partee.,4
-fomc-corpus,1983,"Well, I think you put the right slant on it just now, Paul. It's a situation where the broader the aggregate the less egregious the situation looks; that's the result. But apparently total bank credit is well within--in fact, slightly below--the range we've specified and well within expectations or even on the weak side so far, if the figures are at all right. Growth of M3 shown here on page 2 of the Bluebook for the fourth to the first quarter is 9.8 percent; for the fourth quarter to March it is 9.7 percent. And [that's about] the way it has been running for some considerable period of time. M2 is very large because of the shifts to MMDAs principally, I think, but there could be a little more underlying strength in there. M1 is impossible to explain. Ml is just extraordinarily strong and has been for a considerable amount of time. And rather than trailing off, it got stronger in February and March. That's the one, of course, that the market is beginning to look at, even though we haven't targeted it as one of our principal variables. And that's the one that gives us all kinds of difficulty. I don't know; it may be that one component after all now pays 5-1/4 percent--the NOW accounts. That's about 3 points below the market but 3 points on an after-tax basis is not much and might lead people to keep excess liquidity in NOW accounts. The other component, Super NOWs, is presumably right on the market if one allows for the cost of handling the transactions activity in an account. And there is no reason at all, assuming that you have a reasonable deal and need some money for transactions, not to keep your money there rather than in the market. Perhaps that's much of the explanation. I might remind the Committee that this is also a very volatile series and that we sometimes have periods of very large increases and then we have periods of small increases or declines. It may be that we're getting here some kind of a bump in this and that it subsequently will have a low rate of growth. In fact, I'm inclined to think that's what is going to happen. So, I guess I agree with Emmett: I don't see anything in the economy nor in the credit picture nor in the inflation picture to lead one to say that we need to react with great alarm because of these aggregates. And, therefore, we should not do so. I don't think it's a time to return [to the old operating technique]. I don't quite understand this discussion of money market versus aggregates. After all, we do target the aggregates. If we stop targeting them, we've got to tell Congress we are going to stop targeting them.",557
-fomc-corpus,1983,We didn't target them at the last meeting in terms of the short-run targeting.,16
-fomc-corpus,1983,"Yes, but we specified target rates of growth for M2 and M3, bank credit and--",20
-fomc-corpus,1983,Only indirectly in the last [directive].,8
-fomc-corpus,1983,"I don't think we should say we're going to stop targeting these things. On the other hand, I don't agree with Henry that we ought to run our policy on the basis of a presumed path relative to targets. I think we ought to continue to do about what we've been doing because I don't think, Henry, that we should change back to proximate targeting on the aggregates when we still have this inexplicable decline in velocity. It seems to me that as soon as we can see something in terms of a move to a more normative relationship, then we ought to return strictly to monetary targeting, but not now. We have no more reason now than we had last time or in the fourth quarter, since we're still getting sizable declines in velocity by all evidence. I don't think that we have to go back to the nonborrowed reserve path targeting that we had before; rather we ought to stay with the presumption of a net reserve--",187
-fomc-corpus,1983,Let me try to develop the semantics--,8
-fomc-corpus,1983,"No, I got a little confused there.",9
-fomc-corpus,1983,"--in an acceptable manner. We have two alternatives here. There obviously are more alternatives, but we have two in front of us, which some of the comments have been directed to. I don't think the first alternative has no targets in it but they are depressed a bit. It says ""paths implied by the long-term ranges;"" it has some coloration of a short-term mechanistic following of the targets, I think. But the only reference to targeting is to the longer-range paths. The second one is set out in more traditional quarterly targets. But I don't read that as necessarily implying as much as you were suggesting, Chuck, that it is necessarily returning to the operating technique [of recent years]. And I'm not sure Henry was suggesting that.",149
-fomc-corpus,1983,That's right. We have flexibility.,7
-fomc-corpus,1983,"I think these do reflect to some extent different degrees of emphasis, but I--",16
-fomc-corpus,1983,"Well, I misunderstood Henry. I wanted to argue against returning to the operating technique.",17
-fomc-corpus,1983,"Well, that's a substantive issue. But I don't read alternative II as necessarily implying that. Nor does alternative I imply that we don't look at the targets at all.",33
-fomc-corpus,1983,"I see. Well, I come out that we ought to hold about where we are again for a period, until we can get some of Frank's new numbers and get some sense of what is occurring and perhaps understand the aggregates a little better than we do now. So, I don't feel that because of market sensitivity we are justified in pushing rates down. I think that would cause considerable alarm at this point. Nor do I think we ought to return to the old operating technique. I guess that's about alternative B.",103
-fomc-corpus,1983,I'm anxious to get to Mr. Morris' new numbers. I don't know what they are.,19
-fomc-corpus,1983,I meant new monthly numbers. He said we didn't have enough information yet to know where the economy is.,21
-fomc-corpus,1983,The numbers that will come out next month.,9
-fomc-corpus,1983,"Oh, okay. I thought I was missing something again! Mr. Corrigan.",17
-fomc-corpus,1983,"Mr. Chairman, let me start by making a couple of observations about Ml, because I do think in the eyes of the financial markets that Ml is the aggregate that is causing the most problems in terms of expectations right now. We've done a little look behind some of the numbers and I must say it leads me to the view that the shifting phenomenon as it relates to Super NOW accounts in particular is having an impact that I think at this point clearly works in the direction of overstating Ml. We looked at a sample of about 20 banks outside of the Twin Cities in terms of what is going on with Super NOW accounts, and it's rather revealing because we find that the average balance in household Super NOW accounts runs in the range of $15,000 to $20,000, which is 3 or 4 times the balance in conventional NOW accounts. In addition, we have found a number of instances that involve very, very sizable Super NOW account balances--balances associated with institutions, state and local governments, hospitals, and so on. This is a very limited sample, of course, but in some cases we have seen average balances in individual institutions as high as several hundred thousand dollars in Super NOW accounts. And we're led to believe from some limited discussions that those balances, in particular, were not M1 balances before. Both of those phenomena, to the extent that they represent anything close to a pattern--and obviously I can't draw that conclusion from 20 banks--do suggest to me that the measured growth of Ml may be more affected than perhaps we've been thinking. I'm not saying this is right analytically, but if you assume that the difference in the average balance size in the Super NOW household account as opposed to a conventional NOW account, is a proxy for the additional savings component that's reflected in these NOW accounts and you make any kind of adjustment for the measured growth rate in M1 over the first quarter for that, it's not very hard to find yourself looking at a situation where shift-adjusted growth in M1 is in fact within the ranges that we're talking about for the year. But again, that is highly speculative and based on a very limited sample. In any event, I am persuaded from this limited exercise that we may have more of a problem in terms of what Ml is really doing than perhaps we have recognized up until now. Obviously, to the extent that is right, it could have quite a bearing in terms of market psychology itself. Just one other quick point on money: I mentioned yesterday in the context of some of our directors' comments about the economy being pretty strong that one of the very interesting things that they reported was a tremendous increase in the use of currency for financing retail transactions in size--not toothpaste transactions, but fairly sizable transactions being paid for with the currency of the realm. Surprisingly, one person brought it up and several others immediately said that they--",577
-fomc-corpus,1983,These were bankers?,4
-fomc-corpus,1983,The trade people?,4
-fomc-corpus,1983,"It was both bankers and trade people, as I recall. But it was interesting because once one person mentioned it several others chimed right in and said that they had seen exactly the same thing.",39
-fomc-corpus,1983,Did they have an explanation for that?,8
-fomc-corpus,1983,Nope.,3
-fomc-corpus,1983,"Currency or checks, Jerry?",6
-fomc-corpus,1983,Currency.,2
-fomc-corpus,1983,"Let me just interject here, for anybody who has not been observing the figures, that we have three months in a row of very high currency growth figures. I think if you go back 20 years you can't find another three months like this. It seems to be quite general and nobody has an explanation.",62
-fomc-corpus,1983,"I was really astonished by these comments. As I said, they were seeing currency being used to pay for retail transactions of size. Again, I'm not talking about a tube of toothpaste or a can of peas.",43
-fomc-corpus,1983,Have we ever gotten down how much currency is going to Latin American countries?,15
-fomc-corpus,1983,"We've looked to see whether there is anything unusual for which we have any specific evidence. They tell me we have no evidence. Now, that doesn't tell us how many Latin Americans may be holding money in the United States in a safe deposit vault, but we haven't any evidence of it flowing in. Maybe it is, but we have no evidence. It's a very surprising development. I don't know why it would go in that direction; I can understand Latin Americans buying dollars, but we haven't any specific evidence of that. I don't know why they should be doing what Mr. Corrigan says. All I know is that the [currency growth] figures show a big bulge.",135
-fomc-corpus,1983,Maybe the recovery in the underground economy is stronger than--,11
-fomc-corpus,1983,A very radical difference.,5
-fomc-corpus,1983,That won't even show up in Frank's statistics.,10
-fomc-corpus,1983,"Just thinking about it in terms of a priori logic, with real interest rates coming down, I don't see that the cost of holding cash has changed that much in favor of using more cash. So that wouldn't be a [reason].",46
-fomc-corpus,1983,"Well, it's not low relative to what it has been in the past when currency wasn't going up this rapidly.",22
-fomc-corpus,1983,"One thing we have noticed in Miami is the cash flowing into the Miami branch. We had a big surplus of cash flowing in versus payouts, on the order of a $6 billion differential in '81. I forget [the exact amount]--I wish I had brought the figures--but I did notice in reviewing the [more recent] Miami currency report that we're getting a slower inflow and Miami is less of a net cash generator for our big branch down there. Paul, one possible explanation would be that Venezuela, for example, has just put on exchange controls. France is putting on limits as to how much cash one can carry out and Mexico is putting on limits. I'm just thinking aloud: Could it be that to the extent that dollars show up in these economies through the underground economy, or however they used to remit them back when there was no limit on carrying money in and out of Venezuela, they're stashing more cash down there?",189
-fomc-corpus,1983,"Well, it is conceivable. But we don't find any evidence of real cash shipments down there. You would think it might be tied in with this international financial and economic disturbance, but we just can't find direct evidence for it.",45
-fomc-corpus,1983,"Yes, but if you buy the fact that the cash has been flowing that way--for example, into Columbia and Venezuela as a result of the black market--the cash was going in and then it would come back and end up in our banks and end up in the Miami branch.",57
-fomc-corpus,1983,"It might be. I don't say you're wrong; I just don't know how to find it directly. That kind of explanation sounds more plausible to me than Mr. Corrigan's, but the other thing is that it seems to be happening all over the country. You read that Federal Reserve notes in all the Federal Reserve Banks are going up. It's a strange phenomenon and I don't know how to approach finding more information. Just in line with Mr. Corrigan's earlier comments, I think it's worth scratching our heads harder and expending some resources in trying to work on what's going on in Ml in general in terms of behavior patterns, particularly Super NOWs.",131
-fomc-corpus,1983,One idea we had--I don't know that it has any merit or not--is that with the new discounts for cash payment in gasoline stations people are having a tendency to pay in cash rather than using a credit card and may be carrying higher balances than they used to in order to get the discount.,60
-fomc-corpus,1983,"Frank, I have a son who works in a gas station. They net between $20 and $40 a day because people don't pick up their cash discount.",32
-fomc-corpus,1983,You mean they charge it still?,7
-fomc-corpus,1983,"They are charged the credit price and paying cash and [the attendants] have to figure out what the discount is, and people don't wait to get it.",31
-fomc-corpus,1983,"I don't know what the credit card growth is, but another possible explanation is that the credit card companies all are charging on a day-of-purchase basis an interest rate something between 18 and 22 percent: that makes the cost of holding cash much less at these current interest rates.",57
-fomc-corpus,1983,"If you look at it that way, using cash--",11
-fomc-corpus,1983,You're just substituting cash for credit card purchasing.,10
-fomc-corpus,1983,"Well, we're not going to resolve it at the table this morning, but I think we ought to devote some further imagination to trying to figure out what is going on there. But I don't think you were finished, Mr. Corrigan.",48
-fomc-corpus,1983,"On policy itself, for reasons that have already been stated, I would come out somewhere along the lines of alternative B in the Bluebook. I do have a preference for the alternative II language in the directive as well, for the reasons cited by both Governor Partee and Governor Wallich. I think they were saying the same thing; if they were. I agree with both of them.",78
-fomc-corpus,1983,Chuck was saying stay with the existing language.,9
-fomc-corpus,1983,"I thought I was a little closer to Tony, actually, than to Henry.",16
-fomc-corpus,1983,Are you talking about alternative I or II?,9
-fomc-corpus,1983,I'm talking about alternative B in the directive language.,10
-fomc-corpus,1983,"Yes, but I mean in terms of alternative [wording].",13
-fomc-corpus,1983,You're talking about directive II?,6
-fomc-corpus,1983,"Alternative II, I think.",6
-fomc-corpus,1983,"Yes, right. Well, in the Bluebook it's alternatives I and II and in the draft that was handed out it's alternatives A and B. I'm talking about the second one. The case for staying more or less where we are in policy both tactically and operationally makes a lot of sense to me. The only other point I would add is that, looking out from where we are, it really does strike me that we're approaching a situation where analytically each of these money supply measures is just a horse of a totally different color. I must say I am not at all sure what that is going to mean for the evolution of monetary policy over a long period of time both in terms of operating procedures, definitions, and all the rest. I think the day may be at hand when the Committee and the staff have to start to explore some of these questions on a more fundamental basis because the point will come when we're going to have to have a better mouse trap. And I just don't know what it's going to be at this point.",208
-fomc-corpus,1983,Mr. Black.,4
-fomc-corpus,1983,"Mr. Chairman, we continue to be concerned about the growth of Ml. It seems clear to us that the reported growth has not been inflated. Jerry raised some interesting points. If we look at the money market deposit accounts, in our analysis that provides a big offset, which suggests the shift-adjusted figure is really bigger. And Steve's group has suggested that it's probably largely unaffected, which is probably the most reasonable of all because I'm sure they've looked at it much more extensively than the rest of us have. If there has been this upward shift in the demand for money, it seems likely to me that we've pretty well accommodated, if not more than accommodated, the overshoots that we've had. I continue to have a lot of difficulty in understanding why we're placing our main emphasis on M2, which is the aggregate that seems to be most distorted by these new accounts and one over which we have very little control while Ml in contrast is now generally thought to be the one least affected. And it's the one that's most controllable. All the empirical studies to me suggest that Ml has the best past record for predicting inflation and nominal GNP. Of course, that may change; it certainly is a different instrument now. But my feeling would be that the burden of proof ought to be on those who think it's going to change that much, though I realize it certainly can. So, with these points in mind, I feel very strongly that we ought to move back toward the old operating procedures, as far as we can persuade the Committee to do so, that we were using before last October. And in particular, I think we ought to allow the borrowed reserve target and the federal funds rate to vary in reaction to any overshoots or undershoots above or below the stated path that we have. Now, it might well cause the federal funds rate to rise a little in the short run, but I think it's unlikely that a moderate increase of that sort would seriously undermine the recovery since it seems to me to be pretty firmly [entrenched]. The real issue, as I see it, is that if we fail to act now, we may have to take a lot stronger action later when business confidence and the bond markets may be a lot weaker. And they may be weaker because I think we'll have a revival of the inflationary expectations--even more so than we have now. So, I lean toward the C alternative and, for obvious reasons, prefer the language of alternative II as shown in the Bluebook and alternative B as shown in the handout. I would like to eliminate the wording in that first bracket there; I think that's really unnecessary. And, obviously, I would like equal if not more importance attached to M1.",550
-fomc-corpus,1983,Governor Gramley.,4
-fomc-corpus,1983,"Well, Mr. Chairman, we're getting some indications of a divergence of views among the Committee members as to where the economy is going, and I think that's understandable. This is, after all, a recovery that's only just beginning. The evidence on where we're going is still fragmentary. And each of us, I think, tends to seize upon a particular number that tends to support his own view. Not by way of singling out Frank, but Frank for example mentioned that durable goods orders had fallen in February and that was disappointing. I could come back and say, yes, now we only have a 34 percent annual rate of rise in durable goods orders from the fourth quarter to February. You can take either side of this issue and make something of it if you want. I think we ought to recognize that there are a lot of uncertainties and that means to me among other things that we ought to be cautious. Whatever we do we don't want to go back to a situation in which inadvertently we either let interest rates drop a ton or increase a ton. If they move in either direction, we're likely to find ourselves far from where we want to. The second thing I want to say is that I agree entirely with Jerry Corrigan, not just on Ml, but on the Ms generally. I just don't know what they mean. Now, it is true that M1 in the past has proven to be our faithful friend--more predictable in terms of its relationship with GNP and maybe more controllable. I also would want to remind everybody that since the fourth quarter of 1981 the growth of M1 has just baffled us. We've had a movement of velocity we do not understand. In mid to late 1981 and early in 1982 I think we reacted in an overly restrictive direction to the growth of OCDs. We got an economy that was a lot sicker in 1982 as a consequence thereof. To say that somehow these recent increases in Ml. despite five quarters of very, very puzzling velocity, are going to generate inflation right around the corner is a very, very dangerous line of thinking. For the moment, I think we ought to try to look at other things. I agree with Bob that we need to start positioning ourselves for where we want to be in the future. I have come to the conclusion that real interest rates may well need to be moved up to keep this recovery from strengthening [too much]. I'm very much impressed by the fact that the cost of capital, if you take into account the rise of stock prices, has dropped a lot. And we've added a half a trillion dollars of wealth. Now, this affects consumption spending, through the cost of capital, as well as the outlook for business fixed investment. But I would want to proceed very slowly and very gradually. I'm inclined, therefore, to think that we ought to go somewhere between ""B"" and ""C."" I'm not quite sure what I want by way of initial borrowing, but I wouldn't mind at all if the federal funds rate were nudged up to 9 percent or maybe a little over. As to the alternatives, I don't really care whether we go with I or II. I'd feel a bit more comfortable if we begin moving back in the direction of something other than a strict money market directive. But I can go with either one of those.",677
-fomc-corpus,1983,Ms. Teeters.,5
-fomc-corpus,1983,"I guess I will counterpoint Lyle. I think it would be a disaster for interest rates to go up. We are at 68-1/2 percent capacity utilization and we have 10.4 percent unemployment. We have just the beginnings--at most three months--of signs of recovery. If we abort it, we will have major problems not only in terms of what it will do to the economy because rising interest rates can only force capacity utilization lower and the unemployment rate higher--I think the economic consequences of starting to tighten from that particular position are too severe--but I think the political consequences are even worse. If you look at the structure of both our domestic and international institutions, again, rising interest rates could be very difficult to cope with and could only exacerbate problems that are out there. I've noticed that we have eleven institutions on extended borrowing. That's the highest number that I remember seeing; it may have been higher at other times.",192
-fomc-corpus,1983,"They are all banks too, aren't they?",9
-fomc-corpus,1983,"Yes, they are all banks. We're going to increase the strains in the economy by increasing interest rates. And, if anything, I think we ought to be aiming to lower them. In fact, I am very much against this. If snugging went on--however that term got into the public press--I am opposed to it. I think the rates, if anything, should have been drifting lower and not higher over the intermeeting period. And [the funds rate] certainly should not have been above the discount rate. I also am cautious. I want more information. We're running on highly seasonally adjusted numbers at this point and sometimes [the final numbers] don't turn out that way. I think we do have a backlog in housing and we're probably catching up on it. But we could destroy any recovery in housing if the mortgage rate goes up above 13 percent again. So, I would be with Emmett. I would like to see the [funds] rate come back down to at least 8-1/2 percent and, if anything, fluctuate between 8 and 8-1/2 percent rather than between 8-1/2 and 9 percent. The real interest rate is extraordinarily high. And I don't think that we can get a sustained recovery, particularly with the high interest rates that we're dealing with at the present time. On the other hand, I realize that there is still a booming federal deficit out there. And I think there is some movement in Congress to do something about it. But if we give up too soon, they won't do it. So, I would like to wait for more information. I certainly am opposed to any increase in rates and would like to see them return to where they were at the time of the last meeting. I would go for ""A"" or ""B"" and I don't think the language makes a lot of difference. If I had to be pushed one way or the other, I'd go for alternative I, but I don't think that's what we're operating on, frankly.",414
-fomc-corpus,1983,Mrs. Horn.,4
-fomc-corpus,1983,"I would like eventually to get back to targeting the aggregates and to the previous operating procedures. The way I'd like to do that is in some long-run sense--saying that by year-end we'd like to be at such and such a point relative to the ranges. And I'd like to be able to say that with regard to M1 particularly because of its controllability and its historic relationship with GNP. I'm uncomfortable with the rate of growth in M1. I am interested in pursuing your analysis further, Jerry, but with the information I had coming into the meeting I am uncomfortable with the growth rates in M1. However, two problems I see as being very severe at this meeting are: (1) the velocity problems of Ml; and (2) the great uncertainties in the economic outlook. I agree with the staff forecast on the economy but I see a lot of downside risks. Of course, in the Fourth Federal Reserve District we continue to have pretty dreary reports. So, I'm not ready to argue today for a return to the operating techniques that were previously used. I come out for alternative B because of the tremendous uncertainties. I come out for directive language II because I think it's one step toward returning at what I hope would be an early date to the old operating procedures or to some modification of the operating procedures. That would cause, perhaps, a slower adjustment to the long-run paths, but I do see that as very definitely the direction that we need to go and hopefully will be able to go sooner rather than later. I'd like to end with a question to Peter, if I might, with regard to the term structure of interest rates. Could you just elaborate on the remarks you made in a couple of sentences yesterday about short rates versus long rates and so forth? Could you elaborate on how you feel the market might react to, say, a slight increase in the fed funds rate?",381
-fomc-corpus,1983,"What I said yesterday, President Horn, is that I sense a great feeling of uncertainty in the market. As to what kind of reaction there would be, on some occasions I've gotten the sense that the intermediate and longer end of the market would take quite comfortably--in some cases even welcome--a firming in short rates as evidence that the Fed was still actively concerned with inflation and wanting to put a lid on monetary growth. But there also have been other occasions when the whole market has reacted. Last Friday when Kaufman's report came out--and maybe it was a little exaggerated when it hit the ticker--the whole rate structure moved a bit, both short and long rates. In the preceding week there had been a rather different picture, with short rates edging up but nothing at all happening on the longer rates. I think there was a sense among some people who took a somewhat longer, broader view that the higher short rates would not have to impact, even temporarily, on the longer end. So, I'm left in a bit of a quandary on just how the market is reacting.",217
-fomc-corpus,1983,Isn't there some basis for reconciling the two different reactions in terms of the fact that Kaufman was talking about a very substantial move in short-term rates whereas the earlier impression in the market was that it was just what they called a snugging up--20 to 30 basis points? I think that may account for part of the difference in the reaction in the long end of the markets.,80
-fomc-corpus,1983,That could be.,4
-fomc-corpus,1983,Mr. Keehn.,5
-fomc-corpus,1983,"I certainly am in agreement that the recovery is in place but I tend to be much more on the cautious side than other people as to just how strong a literal recovery we have. It seems to me that so far the growth has been entirely on the interest sensitive side of the economy and so far it has been uneven. The capital goods sector continues to be very weak and, therefore, at this point I think we just couldn't run the risk of having rates go up significantly. By that I mean that I think the upper end of the fed funds range in alternative C would be unacceptably high. I think we can continue to sustain the recovery if we have fed funds broadly in the area of where they are now, in the 8-1/2 to 8-3/4 percent area or something like that. On the other side, I do think there's an awful lot of noise, and I'm suitably confused by the level of noise in the aggregate numbers. But there is rather compelling evidence that we have been through a period of pretty rapid expansion and I think we have to begin to set the stage to react to that at some point lest we let it get out of control. So, I think we ought to become a little more directed in our language as to what we're going to do. I would be in favor of alternative II. Having said that, though, with regard to the directive under alternative II, I'd leave in both parenthetical expressions. I would be in favor of [the specifications of] alternative B, but I would tend to let the initial borrowing level go up to, say, $300 million, or broadly about where it is now. That seems to me to be an acceptable course given the circumstances.",349
-fomc-corpus,1983,Mr. Guffey.,6
-fomc-corpus,1983,"Thank you, Mr. Chairman. It probably will not come as any surprise that I would join those who would not want to see interest rates rise any further. For clarity purposes, because of the statement I made yesterday, I would agree generally with the staff's forecast. Then turning to the percentage chance that it's right or wrong, I think the risk is on the down side rather than on the up side. That's particularly true in view of the experience we've had with two recessions in the last 3 years. I think we would be taking a very great risk if we [slow] this recovery down so that the psychological impact on the public is such as to perhaps push us into another recession. So, I think the risk is on the down side. Thus, I would opt for a policy that would ensure that we would not increase interest rates above the present level. Just as a guide, I would think that anything in the range of 9 percent or over in the federal funds rate increases that risk very measurably and we should not take that risk. I should also say that if you believe in the staff's forecast in the Bluebook, for those who are interested in returning to the targeted ranges of the aggregates that were established for the year as a whole, you will find that alternative B would return both M2 and M3 to within those ranges by midyear. And for M3 I bet it would be before that. I think that's a pretty good track record, considering the uncertainty that we're facing today. With regard to the directive, I would like to move back to the targeting of the aggregates sometime in the future. And I would just observe that what we're doing today is setting policy for the second quarter as a whole and that this directive will not become public until after the next meeting. As a result, it seems to me that alternative II as a directive would be an appropriate policy.",384
-fomc-corpus,1983,Inappropriate?,3
-fomc-corpus,1983,"It would be an appropriate policy. I would opt for alternative B--for aggregate targeting and a move to alternative II. I would keep the first parenthetical phrase. To emphasize my feeling about interest rates and that they not move up, I would even opt for a 5 to 9 percent federal funds rate range to ensure that the rate doesn't go above 9 percent, although I don't think that's necessary if there's some reasonable agreement around the table as to what policy should be with respect to interest rates going up. On the point about how the market will react to higher interest rates, it seems to me that the earlier episode in which the market reacted to a little snugging up if you will, in which long rates came down and short rates went up, reestablished the Fed's credibility with regard to inflation. I don't think we ought to do it again. [Laughter] So, I would opt for alternative B with a borrowing level at $200 to $250 million, simply based upon the history of the last 5 weeks of borrowing. A level of $200 million would be acceptable; $250 million would be acceptable. To go above that, I think we would be holding the funds rate in the 8-3/4 percent or above range, and I'd feel uncomfortable about that.",263
-fomc-corpus,1983,Mr. Morris.,4
-fomc-corpus,1983,"Well, Mr. Chairman, I agree with Roger that the major risk in the present situation is on the down side. It's a risk of possibly aborting the expansion, and the risk of reigniting double-digit inflation is considerably farther down the road. I think the broader aggregates do not confirm the proposition that our current policy is too expansionary. They suggest that it ought to be adequate to a produce a sustained upturn, but they are not indicating an excessively expansionary policy. I've been persuaded by Jim Duesenberry that the very rapid rate of M1 growth can be explained by the very sharp reduction in short-term money rates--that is, the cost of holding money in the form of a NOW account is now relatively low whereas a year or so ago it was extremely high and, therefore--",161
-fomc-corpus,1983,You say you've been persuaded by Mr. Duesenberry?,13
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,I have to ask what equation Mr. Duesenberry has; our equation doesn't show it.,20
-fomc-corpus,1983,"Well, I think it does. Doesn't our equation indicate that you would expect that, given the sharp decline in rates? And one other thing--",29
-fomc-corpus,1983,"It goes in that direction, but it just doesn't go above--",13
-fomc-corpus,1983,"It doesn't have as big an effect. If it were to explain what happened, the rate effect would have to be bigger than in fact is built into the equation at the present time.",37
-fomc-corpus,1983,But I wonder about the equation since it was based on historical relationships. We've never had such a major decline in rates before.,25
-fomc-corpus,1983,"The deficiency in our equations, or the ones that fit through 1974, is rather obvious. The staff experimentally has been dealing with one fit through 1981, which tries to track OCDs separately. So far we haven't been able to get a variable in there that reflects the saving behavior very much. It has a sort of technical assumption that it behaves like a transaction account and I don't think it's working quite right. I have some sympathy for what you're saying. Our equation doesn't quite give that result yet; maybe it should, but it doesn't yet. So, we have to explain this as a demand shift.",124
-fomc-corpus,1983,"Well, so much for Ml. I'm still uncomfortable with having an M2 target at this juncture because the second-quarter targets here are based on assumptions as to how rapidly the adjustment to the money market demand account is going to be completed. The assumption may be good or it may not be good. It seems to me that in this period of transition the case for having an M2 target is not very strong any more. It seems to me we'd be better off with simply an M3 target, as Tony has suggested I think. Until we get some further evidence to tell us how strong the expansion is going to be--and we should get that in the next couple of weeks when we get March employment numbers, which ought to be a pretty good indicator--it seems reasonable to hold to the present level of interest rates. But I would agree with Nancy in the sense that I would urge the Manager, when he has to make a choice, to err on the side of a little more ease. Lately we seem to have be erring on the side of a little more restraint, which I don't think is particularly appropriate at this juncture. I would keep the existing directive language. I don't think we're ready yet to move to a strict aggregates targeting approach.",253
-fomc-corpus,1983,We've run out of volunteers. Mr. Boykin.,11
-fomc-corpus,1983,"Well, Mr. Chairman, I certainly share all of the uncertainties about trying to decipher what information we have. But emotionally, in giving my view of the economic forecast, I tend to agree with Lyle Gramley and Bob Black that somewhere between ""B"" and ""C"" is the more appropriate posture to be in. I recognize the risks that have been pointed out, but what we have done over the last several weeks seems appropriate. If I were going to err, I would err a bit on the restraint side at this point. So, ""B"" or somewhere between ""B"" and ""C"" is where I would come out. On the directive, I would go to Roman numeral II or alternative B, primarily as an indication, as Karen would say, that we are trying to move back in that direction.",166
-fomc-corpus,1983,Governor Martin.,3
-fomc-corpus,1983,"Mr. Chairman, I would join those who are weighing the downside risks more heavily than pleasant surprises. I do not believe the consumer has returned to the counter, except to the counter in the commercial bank branch to obtain currency! And, therefore, until he or she does return to the retailer's counter, I think the fragility of the financial system, domestic and international, and the flow of bad news that is going to make footprints through the reports of commercial banks--[unintelligible] Mexico, and the report of International Harvester, and the series of bad news that has not yet shown through--are not going to add to the confidence of the consumer or the depositor. On the other hand, in terms of the operating procedures, I would leave the language alone. There's enough confusion out there in the financial markets for us--in the Chairman's speeches or in the ex post review of directives--to look as though we have deemphasized M2 at this meeting, just as the rate of growth of that aggregate begins to come down. I would not favor--",218
-fomc-corpus,1983,I'm not sure what you mean by leave the language unchanged; we need more than that.,18
-fomc-corpus,1983,"I would leave the directive language, sir.",9
-fomc-corpus,1983,Meaning alternative I?,4
-fomc-corpus,1983,"Yes. I would join Governor Wallich in terms of the passthrough, if you will, from large growth rates in M1 and even M2 through the employment effects and prices. I think the good old lead/lag relationship of a year or two from the Ms to prices is highly complicated now because unemployment is not a function of [lax] aggregate demand, but rather reflects very significantly the structural changes in our economy, the more effective international competition, and the changing demographics. I think there are a lot of reasons why the good old correlation is going to have a wider band [of uncertainty] around it now. On these bases, I think alternative C is too dangerous. I remind the Committee again that the sample of 200 banks shows the MMDA rate actually rising 25 basis points to 8.47 percent on a national basis. There's no geographic difference; it's across the country that there is a firming of rates on that instrument. It's across size classes; it doesn't matter how big or how small the banks are. The sample--admittedly it's only 200--shows a firming of those rates. It shows the Super NOW rate at 7.30 percent. Also, this is occurring simultaneously with the reduction in [the rate on] Merrill Lynch's CMA account, which is a transaction account, of over 50 basis points. Back to the consumer: I don't think the consumer believes that the Social Security system is safe any more. We all have reviewed the technicalities and the funding and assumptions there and have reached one conclusion; I don't think the ordinary consumer believes it. I concede that it might be useful in terms of fiscal policy for us to firm rates further, because in my conversations with a few people in the Congress, both in the Senate and the House, it looks as though there's a good deal of pessimism as to any short-run action by the Congress now that the so-called Social Security restructuring has taken place. It might be useful for us to firm rates and, therefore, put pressure on Congress, but I don't think that's appropriate in terms of the downside risk that is out there; the price is too high on a benefits/costs basis. I would go, therefore, for alternative B and having a good deal of flexibility, which it shows, in the fed funds rate. There may be times when we want to put a little upward pressure on rates, but not such as to threaten this fragile recovery.",496
-fomc-corpus,1983,Mr. Roberts.,4
-fomc-corpus,1983,"Mr. Chairman, first, I have 3 comments--on distortion, velocity, and real rates. My staff looked at the reference to the Board's survey on the effects of MMDAs, which was reported in The Wall Street Journal, that said 3 percent came from Ml components and 25 percent of the Super NOWS came from nontransaction balances. And taking just nonseasonally adjusted measures, we conclude from that that the effect--if there has been any distortion at all, it's very modest--has been to increase the rate of growth in Ml, either measured from July to February or from December to February. I don't think the distortion is significant on Ml. Secondly, with respect to velocity, I think a question we ought to ask ourselves is: What is the rapid growth of money having to do with the collapse of velocity and will that be corrected by a slowing in the rate of growth? As to real rates, I think Steve made the point that real rates are a function of what prices people are looking at: historical, current, and prospective. And someone made the point that prospective rates in the minds of the public were still pretty high, so maybe real rates aren't really that high. I don't know what they will turn out to be eventually, but I believe we've had long periods of time when real rates were high and economic recovery and expansion occurred. The 1920s is an example. I've always thought the goal of the System is having sustainable economic expansion without undue inflation. And I think that's what we ought to try to do rather than control interest rates. Interest rates often go down in an economic expansion and it's not unusual that they will fluctuate in the process. I believe the economic recovery is well under way and is spreading. I saw an excellent indication of confidence in yesterday's paper where I noted that a bankrupt company, Chrysler, in a highly cyclical mature industry, sold $400 million worth of stock. That seems to me to indicate there is some confidence around. I think the big risk is a resumption of inflation. And if we keep money growing at the pace that it's growing now, particularly as measured by Ml, we are certain--not in '83 but in '84 and '85--to have excessive price inflation. And if we're really interested in holding interest rates down, the way to do that is to avoid the expansion in money that will lead to higher prices and that will lead to higher mortgage rates and long-term bond rates. So, my view would be that we need to start slowing the growth of the monetary aggregates, particularly Ml since that's the one that's least distorted and most related, with respect to its predictive value, to the economy. I think we have the [growth] rates so high that it would be wrong to jerk them down to a low rate; my view would be that we ought to move gradually to the middle of our 4 to 8 percent [Ml] target by the fourth quarter. I would like to see us move to about a 7 percent level for this quarter and come on down gradually from there over the balance of the year. I'd like to see language in the directive showing a return to emphasis on Ml. And I think we should, by all means, avoid interest rate targeting or just something called judgment with no standards, because that I think will create a situation in the market that would be the reverse of what we would like to have.",691
-fomc-corpus,1983,"Which alternative would that put you on, ""B plus""?",12
-fomc-corpus,1983,"""A.""",2
-fomc-corpus,1983,You're looking for something around 7 percent?,9
-fomc-corpus,1983,"Right, but for the quarter.",7
-fomc-corpus,1983,"I'm not sure that does it, but that's March to June at 7-1/2 percent.",21
-fomc-corpus,1983,Which one would give you 7 percent?,9
-fomc-corpus,1983,"Well, ""A"" is indicated at 7-1/2 percent.",16
-fomc-corpus,1983,"You're talking about March to June, I take it, when you say the quarter.",17
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,Mr. Boehne.,6
-fomc-corpus,1983,"Someone--it may have been Lyle--said that in this kind of environment one can find evidence to support almost any position, and I think that's right. That always happens in periods of uncertainty. People rely on their basic instincts when there is a lot of uncertainty and in this specific situation I think it comes down to how much faith one has in Ml--how comfortable one is with judgment overriding the rules that have served us reasonably well. It seems to me that if there ever was a strong case for using judgment in overriding these Ml rules, it's now. All the reasons have been ticked off: the massive redistribution of funds; the almost unprecedented continuous decline in velocity--on the broader aggregates, the broader one goes the less of a problem one sees--the high real costs; and the very moderate recovery. So, it seems to me that judgment leads one rather persuasively for not tightening. On the other hand, there is a great deal of sensitivity in the market. I think that argues for not loosening. So, I fall into the group that comes out for about no change. It does seem to me that the snugging up did prove a point. But I would prefer to see the Desk make these decisions a little more evenhandedly in the coming period and not bias them on the side of tightening up. I would not want to see the funds rate rise to 9 percent. I think a rate somewhere in a range of 8-1/2 to 8-3/4 percent would be satisfactory. On the wording of the directive, I don't have strong feelings between I and II; I could live with either one. I have some preference for alternative I at this point, largely because I think that we're heading into a period where ultimately we're going to have to wean the markets from their devotion to Ml. Jerry's comment that we need a new mouse trap is an apt one. I think we're moving into a period when we do need that and I would not want to make that job more difficult. That would lean me toward alternative I.",419
-fomc-corpus,1983,Mr. Ford.,4
-fomc-corpus,1983,"I agree with the people who see problems in velocity, but as Mr. Roberts put it, we have to be careful how we interpret what is going on with velocity. In the last 7 months we've had double-digit growth in Ml in every month except January, when it was 9.8 percent. The average is 13 to 14 percent. With regard to velocity, when money is increasing at that rate I don't see how we could expect the economy instantly or in a very short period to expand with a positive velocity on top of that. The point is that just that rapid growth in money itself is driving the velocity down in the near term. And the question is: Will we pay later? Now, being fair to the other side of this argument and looking at the reduced-form models that attempt to predict that, even over a few months or quarters with the normal velocity trend Ml does seem to be overpredicting the growth of the nominal GNP. But I think we have to be awfully careful in assuming that this will go on and especially in overinterpreting the relationship. For instance, in February we had a 21.2 percent growth rate of Ml; we have to expect velocity to go down on a current basis when we're expanding the money supply like that. With regard to the other thing that everyone is so concerned about, namely the shift in the composition of the aggregates, I'd like to make two points. If you just review what we've said at these meetings about distortions, I recall that back in September or October we were saying that we knew we were going to have trouble with M1 because of all savers certificates. There were $50 or $60 billion of those out there and most of them were coming due in October. Therefore, we expected M1 to go up more sharply than usual in October for structural reasons. It came in at 14.2 percent. But most of that money was back in by November, and in November we still had vigorous growth of 13.6 percent in Ml. Then we said that when the MMDAs started we expected them to draw money out of Ml and, if anything, to give us some moderation in M1. That did not happen. Ml continued to expand in spite of it. Now we're saying, based on Jerry's argument, that we have yet a third argument about what is happening structurally--namely, that the Super NOWs are more super than we thought and, therefore, this will be a good reason not to be concerned about further double-digit growth in Ml. I just think month by month we're coming up with some story explaining what it is. Honestly, I think we are kidding ourselves. If you go to the reserve base to see what we're doing to reserves--and I don't want to be too deferential to St. Louis, but I think it's the right base to use because it takes account of the shift in the composition of deposits--on that basis the reserve base has been going through the roof. And we just keep accommodating all the demands at the window and allowing for reserve expansion that's very rapid. So, I think the risk is on the side of our paying later for allowing ourselves to be too persuaded by the velocity argument and the composition of deposits argument. The risk is that we will get a return toward normal velocity. It doesn't have to be much when we're talking about these kinds of growth rates of money; any drift back to normal velocity could just boom the economy right out into the stratosphere. So, as concerned as I am about unemployment, housing, the fragility in the international markets, and all the other things we've said, I think we also have to worry about the other side of it. Unlike Mr. Roberts--I don't know how he comes out with exactly this line of reasoning and then comes down on ""A""--this brings me to a policy of gradual snugging. I would emphasize what he says: that an abrupt change from where we are now would be disastrous. A gradual snugging is called for and a move back toward [aggregates] targeting is called for. I would come down somewhere in the ""B"" to ""C"" range to allow for some gradual snugging. According to what I read in the Bluebook, that wouldn't necessarily imply any dramatic upward change in interest rates, unless we went all the way to ""C."" And even that only talks about a moderate increase in short rates, the way I read it. So, I'd go for a policy of ""B"" toward ""C,"" gradually reining in growth and version number II of the statement, which moves back toward using the traditional methods of targeting rather than the pure discretion that we have now. If you look at the changes, we are targeting interest rates so clearly that it's just amazing how steady it is. The standard deviation of the weekly average of the daily fed funds rate has come down by 60 percent since October. It's now down from 1/2 to 3/4 of a percent weekly fluctuation to less than 1/4 percent, so we're just perfect. We're just shooting right at an interest rate target. That's what we're doing. And the market is starting to see that. And I think it's a mistake to go to interest rate targeting, especially in that narrow a band. It's incredible how much we are targeting interest rates. We're back to it; it got us in trouble last time; and we ought to start leading ourselves away from it. That's the argument I would make on where to go from here.",1123
-fomc-corpus,1983,"Steve, a question: These March-to-June rates are annual rates, are they not?",19
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,So M1 at 7-1/2 percent is an annual rate of growth during the quarter.,21
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"So, that would be dropping from 24 percent in February or from 6 months of growth at 14 or 15 percent, which would be a very substantial decline in the rate of growth.",40
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,I think we have some coffee out there.,9
-fomc-corpus,1983,"Well, we've been all over in the various comments. I'm not sure anybody is suggesting anything all that radical, but we've certainly explored every side of the issue. My own feeling is that this is not the time for anything too radical or anything radical at all pending a little [more] evidence, as some people have said, both about the aggregates and about the economy. We have a set of projections; I don't know what weight you put on them--not too much, I guess. The projections for the aggregates look beautiful, but they often look more beautiful than the reality. I just don't know what weight to give them, but if it all came out within the ranges of any of these projections we'd be looking not too bad so far as the aggregates are concerned. It would be interesting to know what will happen on some of the latest economic data. I'm sure it always is interesting, but it may be a little more so than usual. I come away with a rather strong feeling that whatever we do, we probably ought to be meeting again before May 24th. I would plan to have a telephone meeting or something, anyway. Maybe we won't do anything, but at least 3 or 4 weeks from now perhaps we should reexamine the situation against the context of, I presume, not doing anything very striking right now. But if we got a combination, let's say, of high aggregates and a strong economy, maybe we would have to be a little more decisive than anything I have heard discussed this morning. We could have the aggregates coming out as projected and the economy not doing much, and then it would look quite different. So, I would assume that we can meet again before too long, presumably via the telephone. I do not think we're in any position--and only one or two people suggested it--to go back to a more rigid operating technique right now. I think there are a few more fundamental questions for the future if these aggregates don't straighten themselves out relative to business activity in the coming months. But we're not going to resolve that question this morning. In the preliminary comments we had a perfect split, as near as I can see, between those who like alternative I and alternative II as a matter of presentation. There were about the same number in favor of one as the other, with some straddling in the middle. But if one looks at the central tendency of the comments, assuming we use alternative II--I don't want to foreclose that question [unintelligible]--something like alternative B seems to come closest to the center of gravity. There may be a bit of shading on the up side, depending upon whether you look at the [views of] Committee members or the others. There was a feeling that was not unanimous, nor did everybody comment on it--. To put it in a slightly different form, there was a reluctance to precipitate a general change in interest rates, including the prime rate and everything else. Well, we're on the margin of that right now, I suppose. So, leaving a bit open the question of which way to phrase it in the directive--although I would assume that maybe a little more straightforward way is to use the alternative II formulation--let me suggest, whichever formulation, something like alternative B with the same federal funds rate range that we've been using and, just to throw out a number, a borrowings figure around $250 million.",689
-fomc-corpus,1983,"We had $200 million in the last one, didn't we?",13
-fomc-corpus,1983,"Yes, but in fact we've been running above it. We've been running above that partly because the excess reserves are much larger than I at least was assuming at the time of the last meeting. I assumed that $200 million borrowing level with $300 or $300 plus million excess reserves and implied small free reserves. That's what we were talking about at the last meeting. In fact, we had a higher borrowing level but also a higher free reserve level than I assumed we were talking about. How those two things balance out, I'm not quite sure. I think it's fair to say that in the last few weeks, anyway, we've been a little more concerned about supplying too many reserves rather than supplying too few, particularly given the excess reserves we had earlier in the period. That can be changed, but that's the way I think it's fair to say we were leaning to make the errors--not to aim for errors but to have more assurance against excessive excess reserves than the reverse.",194
-fomc-corpus,1983,"Nancy, the $250 million borrowing assumption is more likely to result in the present 8-3/4 percent [funds rate] than 8-1/2 percent.",37
-fomc-corpus,1983,That's what I realized. I would much prefer a $175 to $200 million figure in free reserves and then on the basis of that take account of the excess as we're doing it.,37
-fomc-corpus,1983,$175 to $200 million in free reserves?,10
-fomc-corpus,1983,"No, it would be a negative free reserve figure of $175 to $200 million.",18
-fomc-corpus,1983,You don't want a negative figure there.,8
-fomc-corpus,1983,"No, I don't want a negative figure.",9
-fomc-corpus,1983,"I don't think we want [to target on] free reserves in principle, whether positive or negative, because they really reach far back into the Federal Reserve's past and are associated with some outstanding misconceptions.",40
-fomc-corpus,1983,It wasn't too bad of a past: 4 percent real growth and little inflation.,17
-fomc-corpus,1983,Back in the good old days!,7
-fomc-corpus,1983,[I would prefer] whatever level of reserves is consistent with an 8-1/2 percent funds rate.,22
-fomc-corpus,1983,I take $250 million to be reaffirming an 8-3/4 to 9 percent funds rate and I think that's too tight.,29
-fomc-corpus,1983,"Governor Teeters, if I may: I don't know if Mr. Sternlight agrees or not, but I would assume given our past experience that if $250 million were attained, and assuming excess reserves came in on a somewhat normal track, that it is more likely than not that the funds rate would edge back down from this recent level. It might not get below 8-1/2 percent, but I would think it'd be more likely to be edging to an 8-1/2 to 8-3/4 percent range or somewhere in there. I don't think that would tend to confirm recent experience as much as, say, $300 to $350 million would. Maybe Mr. Sternlight can--",145
-fomc-corpus,1983,I'd say just about that: that $250 million in borrowing would tend to give you a funds rate of 8-1/2 to 8-3/4 percent.,36
-fomc-corpus,1983,"Well, it depends again on what one looks at. If you look at the last 4 weeks, we had borrowings of $415, $331, $568, and $295 million; we've been above, as I said, all along. But we've also been above on the excess reserve side by an even more substantial margin. So we had significant free reserves during all that period except one week when we made a mistake--we didn't make a mistake but on the last day of the week we had a big shortfall. We had practically zero free reserves last week: they were minus one. It was the week that we had the shortfall [unintelligible].",137
-fomc-corpus,1983,"The only plausible explanation I've heard for the high level of excess reserves is that some banks are being slow to adjust their planning and their operations to take account of the fact that some of their funds, such as the MMDAs, moved to their reserve free situation. And then there have been other changes in reserve requirements. Some banks are slower than others. If that's true, then over a period of time we ought to see a trending downward of this tendency toward large excess reserves.",96
-fomc-corpus,1983,"Well, last week they were just about $300 million, which somehow I have in my mind is normal; it hasn't been very normal recently. If you go back to February, there were a couple of weeks that it was $300 million. Well, how satisfactory or unsatisfactory is that?",59
-fomc-corpus,1983,"Do you want a show of hands, or what?",11
-fomc-corpus,1983,I don't know whether I want a show of hands just yet. Who has a violent [objection]? We have to figure out the wording of the directive and any modification of the--,37
-fomc-corpus,1983,"Well, I think that $250 million is confirming the snugging. It means that we've added 25 and perhaps 50 basis points to the federal funds rate [and it is] above the discount rate now. I am opposed to that and I think we should be easing slightly.",57
-fomc-corpus,1983,"I think that level of borrowing is quite all right. I would note particularly that, although short-term rates are a little higher than they were at the time of the last FOMC meeting, longer-term rates--the important ones--are in fact down. So, I think we've not had any additional tightening in any meaningful sense.",67
-fomc-corpus,1983,"Is the assumption that, if the borrowing level is maintained at that level and credit demands rise, we simply accommodate them to hold the interest rates and expand reserves?",32
-fomc-corpus,1983,"That depends upon how much they rise. It might be. If the aggregates were running decisively high, obviously, there is some implication that we're going to snug up--to use that term. But we don't use an absolutely mechanical formula to do it. If they were lower, with probably some lapse--if it continued to be confirmed over a few weeks--we would move lower. We would take account of all other evidence we had in that process and, as I said, we will meet again in a month or so. We wouldn't be terribly quick to change but, yes, we would change though not be mechanical about it. We wouldn't change next week because they were high for one week.",140
-fomc-corpus,1983,But you would avoid a 9 percent funds rate?,11
-fomc-corpus,1983,"Well, you say avoid it. It could come along with this. I don't think it would probably stay there, but again, if we were absolutely at this borrowing number and if we raised it because the aggregates were coming in high and the economy was strong, it would certainly be there. But it might be there for days, or a week or something. I would not think that that would be likely in the short run, but I can't say it absolutely wouldn't happen. I would think more like Steve: that, if anything, it would come down to 8-1/2 percent or a little higher.",124
-fomc-corpus,1983,"Is this your interpretation of the qualifications in alternative II: that is, that somewhat faster monetary growth would be tolerated?",23
-fomc-corpus,1983,"Well, that's not really my interpretation of that sentence. I'm not saying that at this point. I don't know what those continuing distortions would be right now. We can always have an unusual demand for liquidity. But I would say, yes, we would expect M2 to run higher than any of these numbers that we're talking about if this new money market deposit account continued to grow at a great rate of speed--significantly beyond what we're projecting now. I think this sentence was carried over from a period when there were more distortions than now and I'm not sure it's quite as--",118
-fomc-corpus,1983,But I think if you go--,7
-fomc-corpus,1983,"All I would say is that I think we ought to have some qualitative words that suggest we're not following the target mechanically, assuming that we use alternative B.",31
-fomc-corpus,1983,Maybe you ought to have a show of hands on alternative I versus alternative II because I think alternative I avoids certain of these problems.,26
-fomc-corpus,1983,"I'm afraid the show of hands as to sheer preference would show an even split, unless somebody has changed his mind. I don't know if anybody who has expressed a preference one way or the other feels strongly about it, because I think it's a question of how strongly people feel. If somebody feels strongly about either alternative I or II and wants to reiterate a position or change a position, they ought to say it. Unless people have changed their minds the sheer preference will be 5, 5, and 2.",104
-fomc-corpus,1983,What you've described sounds a lot more like alternative A than it does alternative B.,16
-fomc-corpus,1983,Alternative I.,3
-fomc-corpus,1983,"Yes, that's right.",5
-fomc-corpus,1983,"We can blend the two by saying ""For the more immediate future""--or in the short run or something--""the Committee seeks to maintain roughly the existing degree of restraint on reserve positions, expecting that would be consistent with....""",46
-fomc-corpus,1983,"Now, that's better. I like it. It's more accurate.",13
-fomc-corpus,1983,"Were you going to say ""expecting it would be consistent with the long-range targets""?",18
-fomc-corpus,1983,"No, I was expecting it would be consistent with--and I'd put in--the alternative B [specifications] or whatever.",26
-fomc-corpus,1983,"Well, I could go along with that.",9
-fomc-corpus,1983,"That makes them virtually the same except it puts in the ""existing degree of"" words. It tells you what restraint there is a little more explicitly.",30
-fomc-corpus,1983,"To me alternative B sounds as if it's being driven by growth of M2 and M3 and alternative A sounds as if it's going on regardless of Ml, M2 or M3. This says that we have an expectation. It means we start off with the existing reserve conditions and have an expectation--which may be wrong--that there will be this performance in M2 and M3. And then if we're wrong about the expectation, it seems to me there would be a basis for reconsidering.",100
-fomc-corpus,1983,That is true.,4
-fomc-corpus,1983,"So, I think the blending is literally a more accurate representation of what is being proposed here.",19
-fomc-corpus,1983,"It avoids getting us committed to annual rates of 9 and 8 percent, respectively.",18
-fomc-corpus,1983,Whether we committed any--,5
-fomc-corpus,1983,Committed in the sense that we let it drive the reserves.,12
-fomc-corpus,1983,We're proposing exceptions to that.,6
-fomc-corpus,1983,"One can always reason that even with alternative language, he who seeks may not find.",17
-fomc-corpus,1983,"I don't see anything the matter particularly with saying the existing degree of reserve restraint would be appropriate. ""The Committee seeks to maintain the existing degree of restraint""--or roughly the existing degree of restraint or generally maybe--""anticipating that restraint would be consistent with a slowing in the growth of M2 and M3 to annual rates of ___ and ___ percent, respectively. The Committee also anticipates that Ml growth...."" It's a rather straightforward blending of the two.",92
-fomc-corpus,1983,"And would those rates, Paul, be the rates out of alternatives A and B and so on?",20
-fomc-corpus,1983,"Yes. That's what I am tentatively proposing, anyway.",12
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"""A"" and ""B"" or--",8
-fomc-corpus,1983,"They'd be 9, 8, and 6 percent, I guess, for ""B.""",21
-fomc-corpus,1983,"Well, that depends upon what you want to put down, whether it's ""B"" or some blending of ""A"" and ""B"" or some blending of ""B"" and ""C."" Other people want some blending of ""B"" and ""C,"" which seems too low to me. Why do we say ""for the more immediate future""?",70
-fomc-corpus,1983,"That had grown out of the previous paragraph, which discusses the long-run targets.",16
-fomc-corpus,1983,Is that previous paragraph going to be in here?,10
-fomc-corpus,1983,It's still there.,4
-fomc-corpus,1983,"Yes, it's still there. But I think ""in the short run"" fits very well also. That had just grown out of the previous language.",30
-fomc-corpus,1983,"I would say: ""For the short run the Committee seeks to maintain generally the existing degree of restraint on reserve positions, anticipating....""",27
-fomc-corpus,1983,"Why don't you make that ""expecting"" so we don't repeat ""anticipating""?",17
-fomc-corpus,1983,Where do we have that?,6
-fomc-corpus,1983,"It's in the next sentence on Ml. ""The Committee anticipates"" is in the next sentence.",20
-fomc-corpus,1983,Either way.,3
-fomc-corpus,1983,"Oh yes, we could do it either way.",10
-fomc-corpus,1983,"Let's put anticipating in here; anticipating is a little stronger word. ""...anticipating that would be consistent with a slowing from March to June in growth of M2 and M3 to annual rates of 9 and 8 percent, respectively"" is what ""B"" says. Then ""The Committee expects that Ml growth at an annual rate of about percent would be consistent with its objectives....""",78
-fomc-corpus,1983,"Do you want to use the word ""objectives"" there?",13
-fomc-corpus,1983,"Then we could leave the next sentence. I'm assuming now that we have the Ml sentence just by changing ""anticipates"" to ""expects.""",28
-fomc-corpus,1983,"Why don't we say ""The Committee makes a guess....""",12
-fomc-corpus,1983,The whole thing is a guess.,7
-fomc-corpus,1983,"""Speculating wildly, the Committee...""!",9
-fomc-corpus,1983,"Why do we need anything about Ml at all, since we're not using it as a target?",19
-fomc-corpus,1983,Unbelievable is a 6 percent number!,10
-fomc-corpus,1983,"You wouldn't abandon your old friend so completely would you, Frank?",13
-fomc-corpus,1983,"Since that's the only thing we control, it would be nice to keep it in there.",18
-fomc-corpus,1983,"Well, back to Ml: I think it's fair to say, whatever we say, that it has had an influence on our operations. I don't mind it being there. If Ml had been coming in at half the rate that it was in fact coming in, I suspect we would have been easier with some confidence. It's not a very fine judgment, but--",72
-fomc-corpus,1983,"How about 6 to 7-1/2 percent, combining ""B"" and ""A,"" if we're going to specify M1 at all?",31
-fomc-corpus,1983,"Yes, I would say--",6
-fomc-corpus,1983,I would make it 6 to 7 percent.,11
-fomc-corpus,1983,"Well, 6 to 7 or 6 to 8 percent is okay. I just don't like the half percents.",26
-fomc-corpus,1983,But not just 6 percent.,7
-fomc-corpus,1983,I don't know about it being 6 to 7 or 6 to 8 percent.,19
-fomc-corpus,1983,6 to 8.,5
-fomc-corpus,1983,"The wider we can make it, the safer we're going to be.",14
-fomc-corpus,1983,"I'm afraid on any of these things that we have no forecasting record that suggests with any confidence that we're going to come within 2 percent, even. But it makes it sound a little less precise.",40
-fomc-corpus,1983,6 to 8 percent is getting a little high.,11
-fomc-corpus,1983,"6 to 7 percent, I mean.",9
-fomc-corpus,1983,"6 to 7-1/2 percent is in ""A.""",14
-fomc-corpus,1983,The 7-1/2 connotes a precision that--,13
-fomc-corpus,1983,5-1/2 to 7-1/2.,13
-fomc-corpus,1983,I think we should use 6 to 8.,11
-fomc-corpus,1983,I second that.,4
-fomc-corpus,1983,It's more than I like.,6
-fomc-corpus,1983,You didn't like 7-1/2.,10
-fomc-corpus,1983,"Are you going to leave ""about"" in? I think I would make it ""about 6 to 7 percent.""",25
-fomc-corpus,1983,[About] 6 to 7 percent is all right.,13
-fomc-corpus,1983,"And that gives you 5-1/2 to 7-1/2 percent easily. They're all ""about.""",25
-fomc-corpus,1983,"And then do we leave in that next sentence on lesser restraint? We probably have to say ""in the context of a more appreciable slowing"" or ""a greater slowing"" or something.",38
-fomc-corpus,1983,"It says ""a more pronounced slowing.""",8
-fomc-corpus,1983,"Yes, ""a more pronounced slowing"" or ""greater"" or something. I think that word ""appreciable"" ought to be changed in there. How about ""still more pronounced""?",38
-fomc-corpus,1983,"Well, it hasn't been overwhelming.",7
-fomc-corpus,1983,"No, this is all based upon a projection, I think, at this point.",17
-fomc-corpus,1983,"Or we can say ""a further appreciable....""",11
-fomc-corpus,1983,Are you reading from alternative II?,7
-fomc-corpus,1983,"You're reading from ""A,"" aren't you?",9
-fomc-corpus,1983,I'm reading the second sentence in alternative I as it's written.,12
-fomc-corpus,1983,It's the same as this part; that's in the parenthesis in alternative II.,16
-fomc-corpus,1983,A narrative sentence.,4
-fomc-corpus,1983,"If you take the sentence from alternative II instead, you don't have to worry about it because it says ""a more pronounced slowing.""",26
-fomc-corpus,1983,More pronounced than projected.,5
-fomc-corpus,1983,"Well, what about the second part? I rather like leaving the ""relative to the paths implied by the long-term ranges."" I don't think it has any substance, as opposed to the other wording, but it ties it back to the long-term ranges.",51
-fomc-corpus,1983,"Instead of saying ""appreciable slowing"" why not take the ""more pronounced slowing""?",18
-fomc-corpus,1983,"Well, put ""Lesser restraint would be acceptable in the context of more pronounced slowing of growth in the monetary aggregates relative to the paths implied by the long-term ranges."" We could put ""or indications of a weakening in the pace of economic recovery,"" as somebody suggested to me at one point.",59
-fomc-corpus,1983,Very common sense.,4
-fomc-corpus,1983,"We're not going to have much evidence. It will be mixed, and depending on which figure one likes to emphasize--",23
-fomc-corpus,1983,"The more we put in, the more likely we'll be wrong. That's why I don't like short-term targets there associated with operations. We're more likely--",30
-fomc-corpus,1983,Let me leave aside the borrowing level at the moment.,11
-fomc-corpus,1983,I'm not sure I know where you are on the language.,12
-fomc-corpus,1983,"Let me just repeat where I am on the language: ""For the short run, the Committee seeks to maintain generally the existing degree of restraint on reserve positions, anticipating that would consistent with a slowing from March to June in growth of M2 and M3 to annual rates of about 9 and 8 percent, respectively. The Committee expects that M1 growth at an annual rate of about 6 to 7 percent would be consistent with its objectives for the broader aggregates. Lesser restraint would be acceptable in the context of more pronounced slowing of growth in the monetary aggregates relative to the paths implied by the long-term ranges (taking account of the distortions relating to the introduction of new accounts), or indications of a weakening in the pace of economic recovery."" And then the last sentence remains as it is.",160
-fomc-corpus,1983,Would you read the first sentence over again?,9
-fomc-corpus,1983,"""For the short run the Committee seeks to maintain generally the existing degree of restraint on reserve positions, anticipating that would be consistent with a slowing from March to June in growth of M2 and M3 to annual rates of about 9 and 8 percent, respectively.""",53
-fomc-corpus,1983,You have discarded the first parenthetical sentence in alternative II and you have tried to incorporate an additional sentence. But wouldn't it be better to keep that first parenthetical sentence simply to maintain flexibility because of the uncertainty we're looking at in the aggregates?,48
-fomc-corpus,1983,"Well, just looking at the structure of this, I think we would have to make the point in the discussion that these projections of 9 and 8 percent, and indeed the Ml projection, assume relatively little distortion--basically none in Ml and whatever we're assuming for M2.",57
-fomc-corpus,1983,Only about 1 percent.,6
-fomc-corpus,1983,"So, it would be clear that if indeed that assumption were wrong--let's say particularly for M2--and we had some reasonably clear evidence that it was wrong, the 9 percent wouldn't be relevant. It would have to be adjusted; that's implied by the sentence I left in, instead of on the other side. We can make a more complicated sentence by saying that would be consistent with a slowing from March to June in growth of M2 and M3 to these figures and assumes that the distortions aren't going to be very great. We could add a sentence on there.",117
-fomc-corpus,1983,"That brings it up and highlights the uncertainty and grants to the Committee and to the Desk the flexibility that we may need in this period, which is a full quarter.",33
-fomc-corpus,1983,"Of course, the first thing we're doing, Roger, is specifying the degree of reserve restraint. That's the basic instruction, as I see it, to the Desk. Then it says we expect that that's going to be consistent with those M2 and M3 numbers. But our expectations could wrong. They could be wrong in part because we still haven't allowed for the distortions. So it seems to me that at that point we could say we haven't allowed for the distortions; even though they are high, we're not going to change this direction to the Manager.",112
-fomc-corpus,1983,"The fact of the matter is that the only real purpose this directive is going to serve is for public consumption. If I understand what the Chairman said earlier, we're not going to change our operating regime in the intermeeting period and I think that's appropriate. This is going to become public on May 25 or some such date. And to the extent that we have done something that deviated from what we think we're doing today and from what we hope will happen in the period ahead, then the flexibility that's built into the statement requires less explanation after it becomes public. That's my only point.",117
-fomc-corpus,1983,"I think you're right about the operating technique in a narrow sense. But I would assume by putting this in the directive that, if these aggregates came in significantly higher without a clear explanation in terms of distortions, the first part of the first sentence might well be overridden.",54
-fomc-corpus,1983,I think that's right if there is no explanation.,10
-fomc-corpus,1983,"If that amounts to anything, I assume we would have a Committee meeting. But we are expressing a presumption here that with a Committee consultation presumably, if [the growth of the aggregates] were significantly above or at all pronounced, our [general] inclination would be to go in that direction.",59
-fomc-corpus,1983,Regardless of what is going on elsewhere?,8
-fomc-corpus,1983,"Well, as I say, with a Committee consultation.",11
-fomc-corpus,1983,"Basically you're scrapping the [notion of] unusual demands for liquidity, which gives us complete flexibility on anything. That comes with every possible situation.",30
-fomc-corpus,1983,"I think Chuck is right: that the first part of the sentence is ""maintain generally the existing degree of restraint,"" so we wouldn't change it very much without a consultation. But the whole indication is that we would change with a consultation if growth were appreciably above. It can always be overridden later, but that's the bias on it.",68
-fomc-corpus,1983,Or appreciably below.,5
-fomc-corpus,1983,"Well, if it's below, we'd need less consultation, I suppose.",14
-fomc-corpus,1983,"Yes, I think that's right: Less consultation if we had some news that it's lower and that the economy is suddenly weakening or something.",27
-fomc-corpus,1983,"That's a much easier decision, I suspect. If it's really low and the economy is low, we're going to move.",24
-fomc-corpus,1983,I would favor something that points in the direction of consultation rather than automaticity if the case arises.,20
-fomc-corpus,1983,"This does, implicitly, doesn't it?",8
-fomc-corpus,1983,Yes. That's what it does and why I favor it.,12
-fomc-corpus,1983,"Then we can put some language in the policy record write up. Is this generally acceptable? Do I interpret the silence in that direction? If the language is all right, let's come back to the numbers.",41
-fomc-corpus,1983,This language would include the sentence on fed funds at the bottom?,13
-fomc-corpus,1983,"Yes, that's just standard language.",7
-fomc-corpus,1983,That would be 6 to 10 percent?,10
-fomc-corpus,1983,"Yes, the clear implication is that it would be 6 to 10 percent. Is that right? Let me check what I assume is the easy number first; 6 to 10 percent is what we've had. But we still have to decide what numbers to put in there for M2 and M3 and for M1 and decide on the borrowing assumption. Basically, if we operated off alternative B, it's going to be 9 and 8 percent and 6 to 7 percent, as we just discussed.",105
-fomc-corpus,1983,Put 6 to 7 percent for Ml.,10
-fomc-corpus,1983,"Is that all right? It's 9, 8, and 6 to 7 percent. We're down to the borrowing number.",27
-fomc-corpus,1983,I find $250 million acceptable.,7
-fomc-corpus,1983,"I could live with $250 million, but I would prefer to err in the direction 8-1/4 percent rather than 8-3/4 percent on the funds rate.",38
-fomc-corpus,1983,I would be in the same position.,8
-fomc-corpus,1983,I would go the other direction.,7
-fomc-corpus,1983,So would I.,4
-fomc-corpus,1983,"We've been at about $250 million for a long time, so it doesn't hurt much.",18
-fomc-corpus,1983,"I know, but we've also been pushing 8-3/4 and 8-7/8 percent.",23
-fomc-corpus,1983,The problem with $250 million is that unless one makes an assumption that there has been a distortion that's been pushing the growth of the aggregates--and that doesn't appear to be the case with M1--$250 million does not come anywhere near the growth path that we're talking about.,56
-fomc-corpus,1983,"Well, according to the staff projection it does. It's an entirely different question what weight you put on the staff projection. The staff projection says $200 million will come in with that growth path. Let me refine it a bit: If we have to have an assumption, let me presume the assumption is roughly $250 million. But I will tell you, when you're sitting there [and have to make a decision], the mechanical assumption is sometimes not as helpful as it might be because you have to guess where the errors might be or whether you should delay today or go ahead tomorrow. It seems to me the obvious point is that--if we said $250 million, for instance, and it was running a little high--consistent with no consultation or anything else, as these figures come out we'd err on the side of it being a little more than $250 million. If [money] is coming in low, we'd err on the side of it being below $250 million. The ""erring on the side of"" doesn't say that's where it's going to come out. You can get two errors. But in calculating how the Desk leans to minimize being off course, the Manager leans a bit toward being slightly tighter if the figure is coming in high and slightly lower if it's coming in low. And that's all encompassed by the words ""generally maintain the existing degree of restraint.""",277
-fomc-corpus,1983,But the focus is how they're coming in and not on the level of interest rates per se?,19
-fomc-corpus,1983,"Well, I would like to focus on the level of interest rates per se. I don't want to see them go up. And if we focus on $200 million in borrowing, I think there's less chance that we'll have rising short-term interest rates than falling short-term interest rates.",56
-fomc-corpus,1983,But in reality I think it is fair to say that the fed funds rate gives us a bit of a clue as to whether our guesses on the reserve situation are erring in one direction or the other. It's one sign of how tight the situation is.,51
-fomc-corpus,1983,"It's a sign, but also if we accommodate a level regardless--if we keep the borrowings down--we'll provide more money.",27
-fomc-corpus,1983,"We're stuck in the short run with the fact that in implementing this from week-to-week the federal funds rate has a life of its own. It goes where the market expects that it might go. In the space of 3 weeks or something like that we can change that; but if the market is in the mood to fear that it's going to go up, it will go up. And if they're anticipating it will go down, it's going to go down. I would say right now it's in the mood of thinking the risk is that it's going to go up, which is why it's where it is.",121
-fomc-corpus,1983,"And if the prime moves up here shortly, we probably shouldn't try to prevent the funds rate from moving up a little also. MR. MARTIN(?). It's your [unintelligible] they'll average.",42
-fomc-corpus,1983,"Well, my modification is that we're somewhere between $200 and $300 million, depending basically on how strong the aggregates are coming in and whatever qualitative evidence we have. That's a relatively big range but, in fact, we've been all around that range in the recent past.",54
-fomc-corpus,1983,I think $250 million is a reasonable compromise.,10
-fomc-corpus,1983,I agree.,3
-fomc-corpus,1983,Me too.,3
-fomc-corpus,1983,With that kind of gloss I put on it?,10
-fomc-corpus,1983,You're talking $200 to $300 million; I would support $250 million.,16
-fomc-corpus,1983,"Does anybody else have any comments? In the absence thereof, do we know what we're voting on? If so, we're going to vote. Should I read it again?",34
-fomc-corpus,1983,I would like to hear at least the previously bracketed sentences.,13
-fomc-corpus,1983,"The previously bracketed sentences? I'm assuming this is a change in alternative I and am working from there. What I have there now, just to repeat that sentence is: ""Lesser restraint would be acceptable in the context of more pronounced slowing of growth in the monetary aggregates relative to the paths implied by the long-term ranges (taking account of the distortions relating to the introduction of new accounts), or indications of a weakening in the pace of economic recovery.""",91
-fomc-corpus,1983,Is the economic recovery part within the parentheses?,9
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,Okay.,2
-fomc-corpus,1983,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey Yes President Keehn Yes Governor Martin Yes President Morris Yes Governor Partee Yes Governor Rice Yes President Roberts Yes Governor Teeters Yes Governor Wallich Yes,46
-fomc-corpus,1983,Do we have anything else on the agenda?,9
-fomc-corpus,1983,"Not on the FOMC agenda, no.",10
-fomc-corpus,1983,"I think we would plan in any event to get together in a few weeks by telephone, even if nothing is going on. But certainly, if any pronounced change is in the wind, we would meet in advance of that.  So, the Open Market Committee meeting is over.",56
-fomc-corpus,1983,Open to questions.,4
-fomc-corpus,1983,"I have a broader question than just exchange rate conditions. I detect among bankers in my District a rising level of nervousness about these [foreign] debt problems, with talk of moratorium and things like that. Is there anything you can share with us about that?",53
-fomc-corpus,1983,"Well, I don't know what I could say that's very meaningful. I agree with you. There is a rising sense of nervousness underneath the surface and I think a lot of it is related to a perception that Brazil is not doing very well. That perception has some foundation; I certainly [don't have] any confidence in the Brazilian situation. If they need more money, they are out of compliance with the [Fund requirements. They] must be able to make a Fund drawing on May 31 and aren't going to be able to make it through [unintelligible] and the question is [unintelligible]. There is some feeling that the Brazilians may not be the most avid people in the world in following through on the strong program. I think that's a lot of it. But it's also true that Venezuela is stumbling around doing nothing [about] their big problems. Other countries in Latin America pretty generally have a problem. On the more positive side, Mexican payments are proceeding on schedule. One sees reports that they're going to need some more money. I don't see any indication of that, assuming that the oil price doesn't go down again. And while I think production is still declining in Mexico, there is a possibility that they have a little money in the bank and may begin to bring in some more and we may begin seeing some improvement before long. There seems to be a little more confidence in exchange markets in the Mexican situation doing a little better.",293
-fomc-corpus,1983,I think part of the better Mexican performance is due to the enormous disorganization. The agencies have not been spending the money. In the second half of the year [Finance Minister] Silva Herzog is expecting that they're going to be under more pressure and it's going to be much harder for them to hit the Fund targets on the public [sector and public expenditures].,71
-fomc-corpus,1983,"Well, we shall see. But at the moment if there is any room for confidence, it's in the Mexican situation; for the rest of them the situation is deteriorating. Yugoslavia is not doing all that well. And, obviously, the interest rate level in the United States [unintelligible] with all our debts is one factor [unintelligible] the situation. Brazil is the focus of concern at the moment.",89
-fomc-corpus,1983,"Sam, I didn't quite follow on the swaps. Are you talking about the special swaps with the extension to August 23? This is not our regular swap.",32
-fomc-corpus,1983,"No. This is a special swap, which is a part of the BIS-U.S. facility including [the Federal Reserve] and the U.S. Treasury.",32
-fomc-corpus,1983,Our maturity date is supposed to be the 23rd of August?,14
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,The indications are that they can meet that; they may need a little help in August because they do have to make up each payment they didn't make in August. How big is [the payment] in August?,42
-fomc-corpus,1983,It's $1.85 billion less what they pay next week. It would be $1.5 billion.,22
-fomc-corpus,1983,They have another drawing on the Fund at that time too. It's about $1.2 billion over and above what they have [unintelligible] in the meantime.,35
-fomc-corpus,1983,Lloyds Bank had indicated a substantial cutback in their overseas committing process. Is that shared by National Westminster or other British or European banks? That's a pretty big bank.,35
-fomc-corpus,1983,"I wasn't sure how to interpret that report. In fact, I was told the report indicated that they were cutting back not in Latin America but in other parts of the world, including North America. [Unintelligible] it's relatively small. A 25 percent cut isn't going [unintelligible]. It applies to new lending but I think that includes rollovers, so it includes as new lending what would in effect replace loans that have matured on the bank's books. Put against the context of the fact that new lending to developing countries in 1982 meant [decreases] in lending--[loans to] developing countries in 1982 dropped by 50 percent--that cut is a pretty modest cut. That comforts me.",150
-fomc-corpus,1983,"[Unintelligible]. Unless there is some objection, we will roll over the [swaps] as needed in the context that Mr. Cross described. We haven't anything other than that, do we?",42
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,Mr. Sternlight.,5
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,Questions?,2
-fomc-corpus,1983,You refer to variations in the level of borrowing and in the demand for excess [reserves]. Can you say what the market tends to think is our present target? Do they think it is any part of the money supply or do they think it's the funds rate or the level of borrowing or free reserves?,61
-fomc-corpus,1983,"I tend to believe that they think of it as a free reserve target, Governor Wallich. And they probably think of it as centering around zero or very slightly plus.",35
-fomc-corpus,1983,"So they attach more importance, apparently, to excess reserves than the FOMC technique seems to give them.",22
-fomc-corpus,1983,"Well, in fact, they do. Yes.",10
-fomc-corpus,1983,"Peter, why don't they think it's a federal funds rate target?",13
-fomc-corpus,1983,"Well, I don't think they regard it as a federal funds target in the sense of pre-October 1979. I think they would feel, with some reason, that if we are aiming at free reserves or borrowing we are aiming at something that has a likely range of variation in the federal funds rate but not a federal funds target in that very narrow sense where the Desk pin-pointed within 1/8 point or so a particular funds level and intervened every time that there was ever so little a variation from that.",106
-fomc-corpus,1983,"But, given the variation in the apparent borrowing target every time the federal funds rate threatened to deviate, I am beginning to think that we are putting more emphasis on the federal funds rate than on anything else.",42
-fomc-corpus,1983,I think they see it as a federal funds range [once removed] but not a tight target.,20
-fomc-corpus,1983,"Yes, I can see that distinction: that they wouldn't think it was as tight as it was before October 1979. I am rather surprised by the answer.",33
-fomc-corpus,1983,When is this debt ceiling [issue] supposed to be cleared up?,14
-fomc-corpus,1983,The Senate should be taking it up in the Finance Committee today. I think the Treasury desperately needs them to finish and then Congress can finish action by the end of this week. They will literally run out of money early next week.,46
-fomc-corpus,1983,Then we are going to get a whole bunch of offerings.,12
-fomc-corpus,1983,"Then we could get a whole bunch, yes.",10
-fomc-corpus,1983,Any other question?,4
-fomc-corpus,1983,I have just one minor question on the [repayment of] the German marks. Was that under the debt ceiling?,24
-fomc-corpus,1983,"The Carter bonds. Yes, I think they were.",11
-fomc-corpus,1983,We need to ratify the transactions. [Without objection.],12
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,"Mr. Chairman, Bill Ford and I both happen to have the same question, we just found out. Jerry, you referred to the fixed weight deflator. The Board staff forecast officially, at least in the version I see here, uses the implicit deflator. Just referring to the first quarter of the year, with that implicit deflator rising to a 5.8 percent annual rate and the CPI and the WPI either flat or declining, we are getting major different signals now on what is really happening on the inflation front. So, our technical question to the staff, Jerry, is: Which of these different indicators of price movements do you consider to be the more meaningful?",137
-fomc-corpus,1983,"Well, the lower one, always the lower one! The deflator for the first quarter was distorted by very sharp swings in net exports, particularly the importation of fuels, which was down sharply. We expect that figure to move back into line in the second quarter. We think the CPI and the fixed weight price index are a better measure of what was happening to fundamental price movements in the first quarter. And those were quite good indeed; they were in the 2 to 3 percent range.",100
-fomc-corpus,1983,What about military procurement prices? Procurement is picking up. Is that captured in any of the other indexes or is this the only one that really captures what the government is paying for all this defense [spending]?,42
-fomc-corpus,1983,"Theoretically, both capture it.",8
-fomc-corpus,1983,The WPI ought to capture some of it.,10
-fomc-corpus,1983,"Yes, it should. The attempt certainly is made to capture the actual increases in prices. The deflator is a bit more sensitive to shifts in weights. The rising increases in the proportion of defense spending would affect that index somewhat more. But actually over the last half year or so defense spending has lagged. There has been no increase since the third quarter of last year, and we are rather expecting a surge in outlays because this was supposed to be the big year for procurement.",97
-fomc-corpus,1983,What I'm hearing is that the government is really paying up for spare parts and things like that because capacity to produce has been run down in a lot of specialized activities. Do you hear anything like that--that now's the time to be selling nuts and bolts to the government?,55
-fomc-corpus,1983,It seems sad that when capacity is way up prices run up sharply and when capacity is down prices run up sharply. It sounds like a Catch-22 situation. I hadn't heard that particular argument.,39
-fomc-corpus,1983,"I don't have any fundamental disagreement with Jerry's forecast. He has done his usual good job; however, it does seem to me that there has been at least a subtle shift in the direction of how the errors might be. At the last meeting I would have agreed with the Greenbook, but I was thinking that if the Greenbook were wrong, perhaps there would be less growth. But it seems to me now that the risks have shifted. I think the Greenbook is right but if it is wrong, then there will probably be more growth. There comes a particular point in a recovery where the dynamics of a recovery set in and it's somewhat greater than the individual sectors of housing, consumption, etc. I get the sense that these dynamics are now at work. One sign that I look for in a recovery is when business people stop complaining about high [interest] rates and they start saying: Why don't you just keep things the way they are? When they start saying that, it means things are getting better and they don't want anybody to rock the boat. And that has been the dominant theme of what I've been hearing. I think we are in that period where the dynamics really are beginning to take hold.",242
-fomc-corpus,1983,"Jerry, I think I heard you say that the expansion over the next year and a half through 1984 would be [at a rate] just below the median for previous expansions. Would you still say, in light of the present data that we have, that the strength of the recovery so far is below the postwar average significantly?",68
-fomc-corpus,1983,Yes. The first year is when we get a major kick in output and our projections fall short of the average for the first year of recovery; it's about 70 percent or so. Our projections make it up in a sense in the second year when on average recoveries begin to lose some of their steam and we are maintaining the same rate of increase in the second year as in the first. We have increases of 4-3/4 percent in both the first and second year of the recovery.,101
-fomc-corpus,1983,That's through the year that you're talking about. I thought we saw some pictures yesterday that said the recovery so far is about average.,26
-fomc-corpus,1983,"Well, we have [only] the first quarter; I'm addressing myself to our projections of the first year.",22
-fomc-corpus,1983,"Suppose you address yourself to the first six months, recognizing your projections?",15
-fomc-corpus,1983,"The only thing we have to date, Mr. Chairman, is the first quarter and that was a rather modest increase of 2-1/2 percent, which is well below the typical rate.",40
-fomc-corpus,1983,You have industrial production and you have auto sales figures.,11
-fomc-corpus,1983,Incorporating the first and second quarters together probably brings us fairly close to the average.,18
-fomc-corpus,1983,"Those monthly figures, you remember Jerry, were plotted against a shaded area. We were more or less in the middle.",24
-fomc-corpus,1983,For industrial production and employment--the figures for which we have monthly data--that's correct. They're really quite consistent with the average recovery at this point.,30
-fomc-corpus,1983,"Jerry, if you exclude the CCC payments from the fourth quarter and also from the first quarter so that you get final demand of roughly the same magnitude in both quarters and make some allowance for the point that John Balles made about the possible overstatement of that implicit price deflator, wouldn't it look a good deal stronger? It would look somewhat stronger than average if it looked about average before you made those adjustments, wouldn't it?",85
-fomc-corpus,1983,"As I recall, excluding the CCC gets you something in the neighborhood of 3 to 3-1/2 percent for the last couple of quarters. I don't have GNP excluding CCC; I have the final sales excluding CCC. That was 3.3 percent in the fourth quarter, 3 percent in the first quarter, and we're [estimating] 2.7 percent in the second quarter.",83
-fomc-corpus,1983,"But if in fact the point that John raised has some validity, as we're inclined to think it does, and you made those adjustments, I would think real final sales may well be higher in the first quarter than they were in the fourth quarter.",49
-fomc-corpus,1983,"Well, final sales certainly are stronger in the first quarter when one makes that adjustment and certainly weaker in the fourth quarter because CCC outlays were enormously high in the fourth quarter. So, you get a somewhat more stable pattern. Final sales trail off a bit in our projection in the second quarter largely because of the net export situation. Basically it's a situation, depending on what you take out, where we seem to get a pattern that's reasonably stable, excluding CCC, at around 3 percent over the last several quarters.",103
-fomc-corpus,1983,"Jerry, part of your forecast beyond the second quarter is premised on the weakness of the dollar. What kind of factors are you taking into consideration to project that the dollar will indeed weaken later in 1983 and 1984?",47
-fomc-corpus,1983,I think I'll let Mr. Truman answer; it's his forecast.,13
-fomc-corpus,1983,"I'd say right up front, Mr. Guffey, that there is clearly room for some skepticism about that element of the forecast. We are forecasting for the year a current account deficit of $35 billion, which would be more than twice the rate we've ever had before, and by the end of the year a current account deficit of $60 billion, which would be four times the [highest] annual rate we've ever had before. And our sense is that the market will look at numbers of that sort, which will start coming out in the latter part of the year, with trade deficits of over $70 billion per month at an annual rate, and say that that will be unsustainable and that there will have to be some corrections. We do not predicate this on much, by the way, in terms of trade in the United States falling relative to abroad or otherwise. One can argue that these kinds of forecasts, while they are high relative to market forecasts and to conventional forecasts, are not out of the range of what people talk about. The Administration has relatively similar forecasts and they have more or less made them public. Our sense in talking to people in the market, although they know that some economists are forecasting these numbers, is that they're not going to react to them until they in some sense see them. And as Sam noted in his report, the fact that the current account moved back not toward zero but something like $7 billion at an annual rate from something over $20 billion in the second half of 1982, largely because of oil which in many respects is a spurious factor, is one reason why the dollar at least in the short run has stayed quite strong. That factor has, if anything, moved in the other direction in the short run. I would make one other comment. Much of the change in net exports in the second quarter is the resumption of oil imports and, in fact, the two surprising things about the first quarter were the decline in oil imports, which we obviously did not fully anticipate, and the remarkable growth in non-oil imports. If you look at those numbers, which are really big numbers--and [sparked] by oil, which dropped to $20 billion at an annual rate--if anything, the outlook that we have now is more pessimistic for the current account than it was two months ago.",474
-fomc-corpus,1983,I don't understand why the market is not anticipating this.,11
-fomc-corpus,1983,"Well, if you talk to traders, they say: ""Of course, our economists are forecasting X, Y, and Z (and those tend to be numbers that are smaller than ours) but I never listen to our economists anyhow.""",47
-fomc-corpus,1983,You have imports rising by $60 billion between the first and fourth quarters of this year. How much of that is oil?,25
-fomc-corpus,1983,"Between the first quarter and the fourth quarter? Twenty-five billion or so. Of the increase from [$313] to [$373] billion, a little less than half of that is oil, which is a rebound. The price is there. You just add them up, price-adjusted a little lower than you would [otherwise] think in the second half. But most of it is a rebound in quantity as we had a mild winter and in addition they were running down inventory, if you believe the API number that reports a rebounding already in April.",111
-fomc-corpus,1983,"My question has been taken care of by Roger. I just have a lot of skepticism about that projected decline in the dollar, if one assumes interest rates stay in this range, given the enormous interests on the part of foreigners in our securities markets and less confidence in European securities. A lot of the European bankers we spoke with talked in terms of a very high percentage of their portfolios staying in U.S. securities. Combined with the interest rate spread outlook and the safety haven aspects, we may very well see next year the same kind of disappointment with regard to the dollar value that we expected in the last year. The bulk of the market had expected a decline in the dollar in the last 12 months and it didn't materialize. Nobody can say for certain; it's just that I personally have some skepticism that we should count on any decline with any degree of certainty.",172
-fomc-corpus,1983,"Tony, how much of that is flowing into Treasury securities?",12
-fomc-corpus,1983,"Not very much, because central banks have not been adding to their holdings. And [private] foreigners don't tend to hold a very large portion of U.S. Treasuries.",36
-fomc-corpus,1983,We've had some Middle Eastern sales.,7
-fomc-corpus,1983,"Yes, putting it all together, there was some reduction in some of the central accounts. Some of the OPEC countries have a big reduction. Of course, in France's holding, that famous surplus, it is not very clear where it is anyway. As I think Chairman Volcker said last week, our biggest trading partner is ""errors and omissions.""",71
-fomc-corpus,1983,"I'd like to join Tony in that caveat by adding the awareness I'm sure we all have of the continued interest in American companies by European and other investors who feel that either a stake in an American company or the acquisition itself has some great advantages, particularly when they buy in below book or at reasonable multiples of earnings. That's another factor, despite the strong dollar.",72
-fomc-corpus,1983,"Foreign purchases of U.S. Treasury securities in volume at present are quite small, although they have been larger than usual recently. They were almost $6-1/2 billion net last year and in fact they were about $3 billion net in the first quarter of this year.",56
-fomc-corpus,1983,"It's really a question, isn't it, Ted, of how easy it is to finance the deficit from abroad? There can't be much question that there's going to be a large trade deficit and the longer the dollar stays high the larger the trade deficit will be. But what we don't know is how forthcoming the funds from abroad will be to finance this deficit. If they are very, very eager to come here, maybe we don't need a lower price.",89
-fomc-corpus,1983,"For the last year we had an $8 billion current account deficit and that's a coincidence. But in the second half of the year when that turned into a $20 billion current account deficit, annual rate, we had some weakening of the dollar. I started out my answer to President Guffey by saying that obviously there is room for skepticism on this point. The other side, though, as you said Governor Partee, is that if the dollar doesn't go down, then everything else being equal [unintelligible] the growth forecast will be considerably less ebullient than we have it now, by something on the order of 1/2 percent, as Jerry said in his briefing.",140
-fomc-corpus,1983,"I might make a general comment that some of you will not agree with, I'm sure. I think that one of the most disruptive forces in this whole question of a world recovery is the strength of the dollar. The LDCs are paying their interest on dollar-denominated debt in dollar interest rates while they earn in weaker currencies. It adds to their problem. For commodity prices, including oil, it's the same kind of situation. And I think it will continue to be a drag on our economy in terms of exports. It's certainly a drag on the other industrialized countries. We tend to be very asymmetrical in our view of monetary policy with regard to the exchange rate. We are perfectly willing to tighten monetary policy when the exchange rate is down to a point that concerns us and disturbs us. But for some reason, we have what I would perceive as a large measure of indifference to using monetary policy to restrain what is clearly a very damaging rise in the level of the exchange rate. This is a view, of course, that is common abroad. And I find probably a greater gulf in intellectual thinking between the foreigners and ourselves in this area than in almost any other area.",238
-fomc-corpus,1983,"I think one needs to factor into the exchange rate situation the possibility at least of another boiling up of the international situation and the impact on the banks. As things are developing, our banks are likely to be more vulnerable if something like that were to happen, partly because of the heavy involvement in Latin America and partly because they seem to have made less preparation in provisioning against losses than some European banks. So there might be deposit withdrawals in such a case. Now, whether that means also withdrawals out of the dollar into another currency or just a move into U.S. Treasury bills, that is what one has to try to think through as one tries to anticipate the effects of such a crisis.",137
-fomc-corpus,1983,"On the domestic side I can confirm that the good news is even arriving in the Middle West but with one caution. The capital goods side is still exceptionally weak. The people I talk to who are in the very heavy side of capital goods see no improvement now and they really are very discouraged about the outlook, particularly with low operating ratios. Some of the people who have never really been concerned about exports before--never relied on those markets--see this as an opportunity. And because of the exchange rate, they feel that they are precluded from any relief on that side. So, the people in heavy capital goods are still pretty discouraged about the outlook. But other than that, I think the general environment in the Middle West is significantly better than the last time we met.",154
-fomc-corpus,1983,"I just wanted to ask a question about inventory change. My understanding is that the first quarter still had a significant drag from inventory liquidation. I see your numbers here change dramatically from the first quarter of 1983 on to, say, the fourth quarter 1984--$64 billion. If we took out the inventory reduction in the first quarter--to kind of pursue Bob Black's analysis--you'd have a still stronger picture there contrasting with the fourth quarter. And in view of your forecasted elimination of the liquidation of inventories, that suggests a lot of strength. Is that a valid assumption? Are you fairly confident about the change in inventories that you are projecting?",134
-fomc-corpus,1983,"One can never be confident about a sector like inventories because there is so much of the visceral in it. What is a reasonable level of stock is very much in the eyes of the businessman and his expectations about the outlook. We are assuming a reasonably conservative inventory posture over the next year and a half, largely because we feel businessmen first of all have been badly burned in their inventory policies recently, and secondly because the cost of holding inventories remains relatively high given our assumptions about interest rates. Essentially, we're saying that inventory investment is not going to be a big force for expansion. The behavior of inventories recently, as typically, has been the major factor turning the economy around. We've had a rather typical deceleration of inventory liquidation, which gives us an increase in GNP. That was a big factor in the first quarter. Excluding inventory liquidation--that is, looking at final sales--it was a 1.3 percent increase. We now are assuming that inventories will stabilize beyond the second quarter and start rising but at a relatively moderate rate.",208
-fomc-corpus,1983,"I'd just like to complete a thought that led to the question to Jerry with regard to the dollar. There is a potential that we will have just an inventory liquidation/consumer spending recovery without the capital expenditures coming on stream. Traditionally, I understand, those have been very short cycles. With the [possibility] that there isn't any strength that might come from exports, I just want to raise a note of caution about all the euphoria and the good numbers that have come out in the last 30 days. The potential for this being an inventory liquidation/consumer spending recovery that lasts only through the third or fourth quarter perhaps is a real potential. I don't think we should become all that euphoric yet that this is a sustainable recovery through 1984. I'm a little concerned and not as sanguine about the numbers that we've seen.",168
-fomc-corpus,1983,"I would agree more with Ed Boehne than anybody else who has spoken up to now. On inventories, Ted, I think we can't say precisely what path the inventory change is going to follow quarter-by-quarter, but it seems extremely likely that it's going to move up from a large negative number to zero or a small plus, and that's a big algebraic change in the GNP when it occurs. It might occur this quarter or it might occur next quarter; it's hard to know what the pattern will be, but it's ahead of us for sure. And it seems to me that consumer spending just has to be pretty strong, with the increase in the value of financial assets that consumers hold--it's hundreds of billions of dollars in improvement there--with the change in sentiment, which is one of the biggest that we've seen in years in the surveys, and with the tax cut coming on in another five weeks, which adds another $30 billion to the hopper. It seems to me all that has to mean a pretty strong consumer sector. I'm surprised the retail sales data are as poor as they are. Indeed, when you read the Redbook, where almost all of [the Reserve Banks] commented on retail sales, things don't look anywhere near as weak as the national statistics. That is, the year-over-year increases range from a low of 6 percent, as I recall, to up in the 13 to 14 percent area. I don't know quite what's wrong, but in any event I think there's bound to be that increase in consumer spending and the inventory improvement. And with those I think some capital spending will come along. That comes late in cycles anyway, Roger; it isn't one of the things that appears early. And by the end of the year I think we may be looking at a much improved capital spending situation. Maybe it won't help the Midwest so much because it seems to be in high tech and automated equipment and so forth. Nevertheless, if anything, I think our staff has been surprised by the strength in capital spending this early on. But it hasn't been a [heavy capital] goods kind; it has been computers and the like. So, I think the outlook is really quite good and I agree with Ed that whereas I might have been inclined to say the risks were on the low side of the staff forecast last time, I think they're probably now on the high side of the staff forecast.",484
-fomc-corpus,1983,"I would agree with Chuck and Ed too. I think what we are getting now are some of the typical internal dynamics of the business cycle process, with dynamism in one sector reviving confidence in another and the whole thing building up into a more cumulative cyclical process. And in this connection, I was interested in Jerry's comment in speaking of 1984. I don't think I can quote him exactly but he said something like this: That present high levels of real interest rates, which are assumed to be a consequence of the monetary policy we're pursuing, will be a major restraint on private demand. Another way of stating the whole idea is that if we follow a policy which keeps interest rates from rising during the course of the dynamic cyclical process and that's fed by additional fiscal stimulus as time goes on, we may well be fueling a much larger economic expansion than anybody is forecasting now. Those are two different statements, looking at the same phenomenon in a different way. None of us knows for sure whether we ought to regard present real interest rates as a major restraint on private demand or as a level of interest rates that will accommodate a substantial increase in private demand. And I think as one looks at what has been going on in the past six months one is inclined--or at least I'm inclined--to the latter view rather than the former. We are getting a very, very dynamic response, particularly in those areas that are most credit sensitive like housing. So, we may be seeing a revival here of the usual cyclical process, which will give us a much bigger increase at present levels of real interest rates over the next two years than we're now forecasting.",331
-fomc-corpus,1983,Governor Wallich.,4
-fomc-corpus,1983,I share the view that the risks this time are for excessive boominess to the economy. I just want to make a very small point. In the Redbook--,33
-fomc-corpus,1983,I haven't heard that word for a while!,9
-fomc-corpus,1983,I didn't exactly say that.,6
-fomc-corpus,1983,"Well, I interpret this as a getting into the 5, 6, 7 percent range at some point and I would think that would be excessive. Now, what I wanted to ask is: The Redbook contains a special exercise on the construction industry. To me it showed the enormous diversity of conditions and how much of an artificial number, essentially, the average of all these different local conditions is. I was wondering whether it had been of any use to the staff.",96
-fomc-corpus,1983,Don't push them!,4
-fomc-corpus,1983,You don't have to answer that question.,8
-fomc-corpus,1983,"I will. I think it was of use in the sense that while a diversity of opinions was represented, one did get a central tendency both about the residential construction activity and housing starts. The forecasts that were quoted appeared to range very closely to our own expectations for 1983 in terms of housing starts. And we got some confirming indication about expectations for commercial and industrial construction--that is, that they were turning down and that expectations were rather weak. We found them generally useful.",96
-fomc-corpus,1983,"Henry, let me comment on that, if I may. If we had gotten a different response from the disparate remarks District-by-District and metropolitan area-by-metropolitan area, we almost would have had to reject the survey results because housing markets nationally are a mosaic of little markets and submarkets. You must get this kind of result or someone is not doing his homework. This is a typical analysis and response of varying markets around the country with varying backed-up demand, different migration patterns, and different local economic base conditions. I found it quite a valid survey.",112
-fomc-corpus,1983,Mr. Black.,4
-fomc-corpus,1983,"Mr. Chairman, I've been skeptical for some time that this upturn was going to be as modest as I think most people were assuming, for a couple of very basic reasons. One is that a sharp downturn like we've had is typically followed by a pretty sharp upswing. And then we've added so much to the money supply that even if one assumes a pretty significant increase in demand for money, it seems to me that there is enough liquidity out there to finance a pretty good pickup. Chuck and Ed and Lyle and Henry touched on the recent burst of statistics, which lends further support to that. So, I am in agreement with them about the strength of the economy. I think the staff has made the revisions in the correct direction by raising the projections. Specifically, I think the second quarter may even be significantly higher than they're projecting. But the main concern that I would have is that if we're right in our supposition that this is a strong recovery, we may well find that those projections of price increase in 1984 are unduly optimistic.",211
-fomc-corpus,1983,Mr. Morris.,4
-fomc-corpus,1983,"Well, Mr. Chairman, I'm impressed at the breadth of the expansion that is underway. I'm not depressed about it, as Henry seems to be. I think we have plenty of room to get an awful lot of unused capacity on the scene; that decline in unused capacity is a very positive phenomenon. But in reference to capital goods, I think we've overlooked the fact that in the months of March and April machinery orders exceeded the level of shipments, which I think is rather unusual for this early in the cycle. As I read the numbers, I think the capital goods sector is doing better for this stage of the cycle than I would have expected.",129
-fomc-corpus,1983,Mr. Boykin. How is your capital spending doing down in the oil fields?,17
-fomc-corpus,1983,"In a general sense, we pretty well agree with the Board staff's forecast. Also, I think the risk is that it might be slightly low. Attitudinally I'm hearing much of what Ed Boehne said. In general there's a better feeling, but we still have a bit of a mixed picture. If you look at the middle corridor of our District--that is, through Dallas, Austin, and San Antonio--it looks pretty good. But if you get a little to the west or a little to the east, where you encounter the energy or energy-related activities, you still see the concerns on the coast in petrochemicals and refineries. While there is some improvement, there still are a lot of expensive rigs sitting there in the Sabine River. If you get out in the west Texas area, I think they have some very significant special problems and that is still going on. Of course, along the border of the Rio Grande, it's still pretty depressed, with unemployment up 25 to 30 percent and that sort of thing. But in spite of the special problems, I do feel that we are seeing a recovery. Part of our problem is that we find ourselves in a little different situation than we're used to. We're usually feeling good about everything. But I think energy is tempering our judgment a little.",268
-fomc-corpus,1983,I thought people always felt bad about west Texas!,10
-fomc-corpus,1983,Governor Martin.,3
-fomc-corpus,1983,"This discussion is so different from our previous one. It certainly is gratifying to hear what I think is a well founded positive outlook. I won't call it optimism because it has some aspects to it that I don't think apply. So, let me be Dr. Doom here for a minute and remind everyone that Wachovia has raised its prime rate, that Bankers Trust has raised its broker loan rate, and that while one must allow for a good deal of difficulty the Treasury is experiencing because of Congressional inaction--if that's the correct term--on the debt ceiling, nevertheless, over the last few days there has been some upward pressure in the markets. Maybe this is very transitory as far as interest rates are concerned. But if we look at the LDC debt question vis-a-vis these firming rates and assume anything like even a 75 or 80 or 90 basis point increase in that burden, we are looking at countries with $90 billion or $84 billion or $40 billion or whatever projections you'd like to use by the end of 1983. If we consider how much of that debt is nonsovereign debt but is private debt, how much of it is carried by our banks and how much is carried on a variable rate basis, [we see the impact] of the drift in rates on additional funds being advanced in those giant workout situations. If we consider the vulnerability of those countries who are oil exporters--to shift my ground here a little--if prices decline on the petroleum products substantially more, these countries are paying on a weighted average basis higher interest rates. Yes, that certainly is offset to some degree by our ability to absorb some imports in some cases. The IMF constraints, as the Chairman and others commented earlier in this meeting, [impose] great difficulties on some of the countries--even those who are taking them seriously and attempting to comply. And then, of course, finally there are the political implications of compliance and the political implications of higher rates on the variable portion of the debt. It comes out to be quite cumulative. So, while I share the positive outlook with regard to our own economy--I have some reservations still in the housing area but share generally the outlook--I think we must inject into our discussions here, and we already have, the extreme complications and extreme sensitivities and vulnerabilities on the international side.",473
-fomc-corpus,1983,Mr. Solomon.,4
-fomc-corpus,1983,"Well, I think there's a good deal in what Preston says. We are not expecting, even without a financial shock in the international area, boom conditions. Certainly the second quarter growth may run as much as 5 percent or more, but we still would look for something more in the neighborhood of 4-1/2 percent growth over this year and well into the next year under the best of circumstances. Even though we're not getting into monetary policy discussions now, I want to take issue with what Bob Black said. I don't see that the money supply has increased that much. M2 and M3 are either in their cones or a little below. The credit aggregates, both narrow and broad, are in their target areas. The fact that M1 is behaving in the screwy way that we all expected and that there seems to be a permanent shift toward holding a large savings component in Ml balances in NOWs and Super NOWs should not [lead us to] generalize that there has been that big an increase in the money supply. I had the feeling that for good and rational and sufficient reasons we deemphasized Ml. And now our psychology and our thinking as well as that of the markets seems to be creeping back to a situation where everybody is paying attention to Ml and these weekly numbers. I would just take exception to the generalization that, in terms of a stimulus to the economy, the money supply has increased that much.",289
-fomc-corpus,1983,Mr. Corrigan.,5
-fomc-corpus,1983,"Mr. Chairman, with regard to the near term, I'm inclined to the view that we'll probably do better than the staff forecast in terms of real growth and maybe even in terms of inflation. But I'm not nearly as sanguine about 1984, certainly. I think for some of the reasons Mr. Martin and Mr. Solomon suggested on the international front, we're by no means out of the woods there. But in addition to that, I must say in looking at the budget process and the body language that it is associated with, it doesn't seem to me that any real progress has been made on the so-called structural deficit--maybe some, but certainly nothing to write home about. But on top of that I do think we have to recognize that there is a lot of pent up pressure out there to raise prices. I think we're going to be able to avoid a manifestation of that pressure, perhaps for a period of time, simply because the productivity/unit labor cost phenomenon is working almost perfectly right now. That's not going to last forever. So, as I say, the near term looks fine, but I'm just not sure about 1984. And, looking at the staff's implied forecast, it gets a little hard for me to imagine out in 1984 how we really can keep those interest rates where they have them with underlying conditions what they are.",273
-fomc-corpus,1983,Mr. Roberts.,4
-fomc-corpus,1983,I think I'll wait for the monetary discussion. I want to respond to Tony. I disagree with him about 100 percent.,25
-fomc-corpus,1983,Anybody else? Mr. Balles.,8
-fomc-corpus,1983,"One more question, Mr. Chairman. I certainly share the feeling around the table here that the business outlook is clearly better this time than at the time of the last meeting. It's certainly true in the West. I'm getting a little concerned, though, about the inflation outlook and whether it will be as favorable as the staff forecast has it. I'd like to turn to you again, Jerry, on that one. Our staff is not as optimistic as your people are. I hope you're right. I understand that your forecast for the deflator as we get out into the balance of this year is dependent on some improvement in productivity which seems to be fairly significant--about 3 percent growth, if I remember the figures correctly.",144
-fomc-corpus,1983,About 3-1/2 percent.,9
-fomc-corpus,1983,"3-1/2 percent. Also, if my recollection is correct, that's pretty high in the range of historical experience; if not, tell me so. I'd like to know what makes you so confident that we're going to get this good accomplishment in productivity; I hope we do, but it's apparently essential to getting this good outcome on the inflation front that you people are predicting.",77
-fomc-corpus,1983,"The productivity performance over this year--I think it's 3.6 percent that we are forecasting--is really a cyclical rebound in productivity that reflects the more efficient use of both capital and labor as output increases. And it's not an unusual performance. The underlying trend productivity that we have is not really much better than what we had been having recently. We've jacked up our trend productivity just a bit. We've been using a figure of about 3/4 of a point--a very, very poor productivity trend--until fairly recently. The underlying figures seem to suggest a little improvement. Now we're using something like one percent; that's really not very much better. And our forecast does not assume a large productivity increase in 1984. We get back down toward the trend of about 1-1/4 to 1-1/2 percent toward 1984. So, we're really not leaning on any very significant improvement in our fundamental productivity trend to get our inflation forecast. It's really a function more of the fact that we have a weak labor market, which we project will continue through the entire forecast period. We have had very good price performance. Wage negotiations have a tendency to be backward-looking and they are now looking back at very small increases in the cost of living. And we think that will be helping the overall performance of wages and, therefore, labor costs and prices over this period. In addition, of course, we have been and still are benefiting from the strength of the dollar and its implications for both imports and the competition of those imports with domestic producers. So, we have had a lot of things going for us and they are still going for us. And we think the inflation outlook is really very good, at least through this year, and we're assuming no deterioration in 1984 but no further improvement either. We stabilized our price projection at 3-1/4 percent in 1984 as well.",389
-fomc-corpus,1983,I think you have a rather pessimistic productivity increase for next year.,14
-fomc-corpus,1983,I think so too.,5
-fomc-corpus,1983,"It's back fairly close to the long-term trend, which is a relatively poor trend performance. I hope you're right.",23
-fomc-corpus,1983,Mr. Ford.,4
-fomc-corpus,1983,"I'll very quickly report on our region. We are fairly optimistic about the near term. I come out with an overall feeling much like Jerry Corrigan's that the next two or three quarters look fairly decent. Current performance is pretty positive all the way around on employment. Most people are starting to notice that we are really getting into a very heavy wholesale buying center role down in Atlanta. All the merchants for hundreds of miles around come down to our merchandise mart operation and buy, and one can really see what is going to happen in the next few months. At least the sentiment of the buyers is up; the buying of clothing for fall and winter and spring is way up over last year. And our taxable retail sales [gains] are well up into the double digit range, contrary to the national figures. As somebody said earlier, and I agree with it, the Redbook doesn't seem to agree with the national figures at all. Our District certainly doesn't. Two areas of great concern to us are the area that's adjacent to Bob's territory, which until the oil bloom came off was always one of our greatly optimistic areas and now that has reversed. There the drilling came down and all the people in oil and energy-related activities are very deeply concerned about the decline of drilling, defaults on the loans, etc. Relating to that is the banking stability picture. Most of the concern expressed around the table has been about the international concerns. We are still experiencing very severe difficulty. Governor Partee, I don't know why you're smiling up there.",307
-fomc-corpus,1983,You have a couple of big ones coming up.,10
-fomc-corpus,1983,"Yes. You should all be aware of the fact that there is to be more excitement in Tennessee in the next few days, as Governor Partee and some of you may know, because the Tennessee banking situation really is quite desperate. There is a substantial number of banks--even a few beyond the Butcher bank empire--that look pretty shaky to us. And when you look at the national figures for banking--! We've just finished looking at the FDIC summary of the whole industry and I was amazed to see something like a 72 percent increase in write-offs in 1982. Write-offs for the whole industry net of recoveries went up from under $4 billion to $6-1/2 or $7 billion. I don't know whether any of the staff people really follow these numbers but usually the huge increase is the year after the recession. So, I'm beginning to wonder what the poor bankers are going to have to write off in 1983--if they had to go up from under $4 billion in write-offs to almost $7 billion in 1982--with the lags in recognition, if they are forced with all that's going on in the international area to put in bigger provisions for any of the Latin American and Eastern European [loans].",255
-fomc-corpus,1983,"German banks wrote off $4 billion and that's probably not including Luxembourg. Now, that's a [banking] system about 1/4 the size of ours.",33
-fomc-corpus,1983,"Yes. From the reports I've been hearing from Dresdner, Commerce, and so on, it sounds as if they feel that they've taken the heavy hit and really worked hard at cleaning up their books.",41
-fomc-corpus,1983,Most of that is for domestic [loans]; 1/5 is for international and 4/5 for domestic.,25
-fomc-corpus,1983,"So, I'm as concerned about the condition of some of our banks as the rest of you are concerned about the condition of the international banks. I'm not sure [about the latter]. In the macro picture I come out where Jerry does. The next few quarters look pretty good to me. The big question is the one we were raising about whether the staff will be right. I've never wanted to pray harder that they're right. But I must say I share some of the skepticism that has been voiced about whether we can continue to keep inflation down as well as they say we will. I hope they're right, but that forecast is hard to visualize against the monetary and fiscal backdrop that we have right now. May I ask one question? Someone was talking about counting on a $30 billion tax boost. Where is this fiscal [legislation]? Is that tax reduction in the bag now or is somebody talking about trying to recapture some of it?",187
-fomc-corpus,1983,"Well, that's the third stage of the--",9
-fomc-corpus,1983,I know what it is. The question is--,10
-fomc-corpus,1983,"Yes, the tax reduction. There have been discussions of capping it or removing it and so on. It seems rather late at this point to accomplish very much.",33
-fomc-corpus,1983,I assume the new withholding schedules have gone out to corporations.,12
-fomc-corpus,1983,The new withholdings schedules went out a few days ago.,13
-fomc-corpus,1983,So it is in the bag.,7
-fomc-corpus,1983,"Well, I would say certainly 90 to 95 percent.",13
-fomc-corpus,1983,"So, it's the indexing that's up for grabs now, the way you read it.",17
-fomc-corpus,1983,That's certainly one fairly large source of additional funds that is up for discussion. I think there will be some attempt possibly to replace the withholding of interest and dividends with some other kind of increase in taxes and so--,42
-fomc-corpus,1983,Part of the banks--,5
-fomc-corpus,1983,I think we have to move on here a little. Mr. Rice.,15
-fomc-corpus,1983,"Mr. Chairman, I don't have any additional insights to put on the table. I just want to say that I come out very much in the middle of this discussion that we've had so far. I'm impressed with the vitality that the economy has shown recently. And if things go the way they should go, I would expect that the expansion will continue at a healthy clip for the reasons pointed out by Chuck and Lyle and others around the table. It seems to me that that's the best bet for the present time. But I think that we ought to be prepared to be disappointed. The consumer it seems to me has every reason to be expanding his expenditures, but the consumption sector may not perform the way we would expect at the present time. We've been disappointed by the consumer before--surprised on both the up side and the down side, as a matter of fact. And I think we should remember that the consumer did not respond to last summer's tax cut the way we expected. Also, while I agree that it's too early to expect a big boom in the capital goods sector, the outlook for the capital goods sector is worrisome to me. I recognize that the most recent figures for capital equipment spending have been very encouraging, stronger than anybody expected. But we haven't seen any indication that capital expenditures for heavy equipment and so forth are going to perk up, and I'm just not convinced that they will. Also, we have to keep in mind the possibility that the dollar will not decline and that exports will not expand--the scenario emphasized by Roger and Pres and Tony. So, in short, I think we have to be prepared for the downside outcome. But I have to say that I come out in the middle and, therefore, I would tend to go along pretty much with the staff's forecast.",363
-fomc-corpus,1983,I guess we can turn to Mr. Axilrod quickly for an interim review of the long-run objectives.,22
-fomc-corpus,1983,"Thank you, Mr. Chairman. I really can be very brief and give a short summary of where the evidence seems to lead. It's very hard to come to any conclusion that M1 is behaving more consistently with historical patterns than it has been in the past. We feel that it is very probable that the so-called interest rate responsiveness of M1 has gone up, largely because of the increasing role of NOW accounts, which have a savings component and probably a bit more interest sensitivity in relation to that savings component. But we have not seen any sign of a usual cyclical increase in the velocity of Ml; and in fact we are thinking, of course, that in the second quarter we are still seeing a decline in that velocity. Looking at the range itself, the odds seem to favor Ml not coming in within that range. I would suggest that it may be a little premature, if the Committee were inclined to change the range, to do so. There will be a full review in July and a lot may depend on where we happen to come out in June--whether in fact we get a huge reversal of this May upsurge or whether it's beginning to tell us that we really are on a much higher track than we expect. With respect to M2, it seems to me that the assumptions that the Committee made when it established the February-March base have held up. The bulk of the shifts do seem to be well behind us, though the increases in MMDAs recently have been running a little higher than we had assumed. But, of course, they are very far below the pace of January-February and even below the March pace. In some sense, the oddity in M2 now is the weakness of the non-transaction component. But assuming that does return to something closer to normal, there would seem to be little problem at this point in the longer-term M2 range. Thus, that too looks as if it is certainly sustainable pending the full-scale review that the Committee will be making in July.",406
-fomc-corpus,1983,You didn't say anything about M3 and credit.,10
-fomc-corpus,1983,"Well, it's hard to read that [unintelligible], Mr. Chairman, which pertains particularly to Ml and M2. So we had interpreted that as the Committee's main focus of attention. M3 and credit are running well within the ranges. We wouldn't see any particular problems at this point with those ranges.",64
-fomc-corpus,1983,"Well, I would interpret your comments as saying that at least for technical reasons there is no need to review the M2, M3, and credit aggregates. There may be some reason to review the Ml aggregate but you're saying it's a little premature. I would say implicit in our activity so far is that Ml is getting relatively less emphasis; that does not mean no emphasis. I suppose we remain someplace in that vague area. That is what I am proposing. I see no strong need to change it [unintelligible] being consistent with that emphasis before the next meeting if you want. Maybe we can just leave it at that--that we don't change anything--unless there's some strong feeling otherwise. People are going to look at Ml and we're going to look at it, but it doesn't get the same mechanical emphasis that it had 6 months or 9 months ago or whenever it was.",180
-fomc-corpus,1983,I don't think we ought to make any commitments to look at it even next time.,17
-fomc-corpus,1983,"Well, we will look at it automatically next time. And we don't need--",16
-fomc-corpus,1983,"I know it's the midyear review, but--",10
-fomc-corpus,1983,I don't mean we'd necessarily change it.,8
-fomc-corpus,1983,But I don't think we need to look at it with a [predisposition] toward changing it at this time.,24
-fomc-corpus,1983,The comment has to do with both the range and the weight.,13
-fomc-corpus,1983,We may not--,4
-fomc-corpus,1983,"That is, there is no need to change the range right now and no need for a [predisposition] to change the weight. That's what you're saying. That seems to be the staff's view.",42
-fomc-corpus,1983,"Yes. We have not seen any return to normal historical patterns yet, which is one of the Committee's criteria for giving it more weight.",28
-fomc-corpus,1983,We're not likely to have any additional information on which to base a change.,15
-fomc-corpus,1983,"Well, I don't know. It will have to be judged at the next meeting.",17
-fomc-corpus,1983,It's hard to [imagine] what new we could know about M1 between now and then.,20
-fomc-corpus,1983,"I don't really disagree with what has just been said, Paul, but I am a little concerned--and I'd like to hear your view--about what the market's reaction is going to be if we in fact come in this month with a 24 percent increase in Ml, as the Bluebook suggests. We're going to have a hard time convincing markets that we're not off to the races and an overexpansion of money. I think, Paul, that we will have to do something more than just sit.",102
-fomc-corpus,1983,"Oh, I'm not prejudging what our short-run decision will be. All I'm saying is that Ml does have the same weight that it had before and that we not bother to change the range now. It doesn't mean no weight. We have to decide that after the coffee break. If there is no strong objection to that, maybe we can just go along and [hear Mr. Axilrod's comments regarding our] immediate decision and then we'll have the coffee break.",94
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,"I don't know about the wording in the directive; we can worry about that later. I would only add one comment, for what it's worth. We had illustrated for us here the other day by some staff something that has been going on for some time. With the exception of Japan, the experience in almost all leading foreign countries looks like ours: rapid growth in M1 for the last 6 or 9 months, particularly rapid growth in currency for some reason or another, and relatively slow growth in broader aggregates. It's very strange. You could almost lay these sheets of paper on top of each other. Of course, other countries have had a different kind of business picture; it vaguely resembles ours, but they don't have a strong recovery.",148
-fomc-corpus,1983,These are countries that aren't having all this deregulation business. So it's--,15
-fomc-corpus,1983,"Well, some of that is going on elsewhere too, but I don't think at the rate of speed it's going on around here.",26
-fomc-corpus,1983,That's primarily only in Canada.,6
-fomc-corpus,1983,"It's a very strange picture. They all look alike, although the figures aren't exactly alike.",18
-fomc-corpus,1983,Do you have a guess as to why?,9
-fomc-corpus,1983,"I guess any speculation one makes about the United States can be pushed off on M2, the disinflation process, relatively higher real interest rates--",30
-fomc-corpus,1983,"What do you make of it? I infer from what you've said that except in Canada it's not due to deregulation, so that would mean that the staffs of other central banks can't be telling them what ours is telling us about it all being due to shifts and stock adjustments, etc.",57
-fomc-corpus,1983,The staff doesn't say that with regard to Ml. And Ml growth in Germany is 14.7 percent; in Switzerland it's 14.9 percent; and in the United Kingdom it's 12-1/2 percent.,45
-fomc-corpus,1983,"Yes, but my question is: How are they explaining it? We're explaining it away as shifts in demand.",22
-fomc-corpus,1983,"I can only say what [unintelligible] for the future. If we don't have a great explosion of inflation in the next year around the world, the monetarists had better run for cover. If we do,--",46
-fomc-corpus,1983,"If we do, there will be other people then heading for cover.",14
-fomc-corpus,1983,At least nominal GNP ought to go up very sharply around the world.,15
-fomc-corpus,1983,But there has been a substantial amount of intervention by central banks.,13
-fomc-corpus,1983,The Germans--,3
-fomc-corpus,1983,"The Germans, EMS countries. And that does tend, depending on how they--usually they don't sterilize--[unintelligible].",28
-fomc-corpus,1983,"Well, the Germans think that that's part of the reason, but I'm not sure you can explain it that way in Canada or the United Kingdom or Switzerland. I don't know whether we have the low countries in here.",43
-fomc-corpus,1983,"One thought we had in reference to President Ford's question was that as you get into a noninflationary period or you become convinced that inflation is down, cash in some sense becomes more valuable. It's not going to lose its value as fast. And in any event, interest rates come down and the opportunity cost of holding it [declines]. And that would affect Ml. On the broader aggregates, what I was trying to say here--and it may hold in Europe, though I haven't examined it closely--is that we could also begin to see people moving into longer-term assets before their rates drop too rapidly.",124
-fomc-corpus,1983,One of the really curious things about this to me is why currency is going up around the world. That one little component has had a very strange experience here and [abroad].,36
-fomc-corpus,1983,There's more anxiety.,4
-fomc-corpus,1983,"Well, currency could be explained partly by anxiety about banks.",12
-fomc-corpus,1983,"Steve, isn't the interest return on M1-type accounts in most European countries still very low?",19
-fomc-corpus,1983,Oh yes.,3
-fomc-corpus,1983,They haven't changed the way we have.,8
-fomc-corpus,1983,"I'm not sure, but I think that's right.",10
-fomc-corpus,1983,Only in the United Kingdom is there an interest return on Ml. The other countries don't have that.,20
-fomc-corpus,1983,Ours is 5 percent or 5-1/4 percent on NOW accounts. I was not assuming Super NOWs as a very important factor.,31
-fomc-corpus,1983,"Well, let's have a break.",7
-fomc-corpus,1983,"[Unintelligible] discussion, I have a feeling that it is time to do something about the excessive rate of growth in Ml, which I happen to feel is still an important measure of what is happening in the economy. I believe, based on the contacts I have in the marketplace, which I am sure are not as extensive as others, that the market is quite conscious and sensitive to this excessive rate of expansion. As I look at the situation, we have M2 conveniently within a band only because we conveniently redefined the base. It might be interesting to redefine the base for Ml and thereby get it in the band and growing at about a moderate pace from here on out. That probably would be appropriate in view of the strength of this economy that we all have commented on. I just think that if we have to face some modest adjustment here in interest rates, we ought to face up to it earlier rather than later. We have an economy that is walking along very well through the so-called real interest rates that are believed to be too high; I don't think that some modest adjustment here would be bad. And if it begins to contain some of the excessive rate of expansion in Ml, I think that probably would be productive as we look ahead for either holding the interest rates in the long term or leading us to some reduction, as against having to face up to this a few months later after short-term interest rates have already gone up with the rise in the private sector and long-term rates have gone up perhaps because of changes in inflationary expectations.",312
-fomc-corpus,1983,"Let me make one preliminary comment and then ask you a question relative to others. I don't think these numbers on page 8 [in the Bluebook] mean a great deal, except as a forecast, in terms of the operative decision as to what we are going to do in open market operations. It is now May 24th. Whatever numbers come out, growth is pretty much in the bag now for May and June. I think we ought to keep that in mind so that we don't put undue emphasis on a number a half percentage point higher or lower than another number used.",117
-fomc-corpus,1983,June is projected at a very low rate; it may not be in the bag.,17
-fomc-corpus,1983,I don't mean that we know what it is. I just mean it is going to be what it is.,22
-fomc-corpus,1983,We can't change it at this point. Yes.,10
-fomc-corpus,1983,"I don't mean at all that we know what it is. I know that the staff has projected a low number in June. And I would just remind you, looking at the quarterly figures, that what we set forth the last time, reading down, was 9, 8, and 6 to 7 percent. We're below for M2 and M3 [and above for] Ml. Credit, as near as we know is running around 9-1/2 percent; we didn't have a quarterly target for it but it's within the annual target as nearly as we know anything about credit. Now, having said that, do you want to quantify your comment in whatever way you want to quantify it? As I say, I don't attach much significance to a half percentage point difference in these numbers, but are you talking about some borrowing level or--",172
-fomc-corpus,1983,"I would like to see us raise the borrowing level from $250 million to something like $500 to $750 million, if that would be the amount that would curtail the rate of growth in bank reserves that's accommodating this big expansion in Ml. And if that raised the fed funds rate to 9 percent, I don't think that would be anything that would prevent this economy from continuing to expand at a sustainable pace.",83
-fomc-corpus,1983,"Just to inject a quick comment, I think that probably would raise the federal funds rate just above 9 percent. At what point would you be happy, if I now ask you to quantify it the other way? If [growth] got below that in alternative C, would you not go that strongly?",61
-fomc-corpus,1983,"Alternative C is about right, as I see it. I am thinking in terms of about 6 or 7 percent incremental money growth from this point forward.",32
-fomc-corpus,1983,"I'll make one other comment and then I'll go to Mr. Morris. I am not sure that it is quite right to say we redefined the M2 base. Obviously, we did in a technical sense but I think that it's largely an element of judgment. If you put in the January-February base for M2, with the kind of adjustments that the staff took a stab at, you wouldn't get a much different trend for M2 during January and February than you got in the surrounding periods.",100
-fomc-corpus,1983,"It would be a little higher if you went from the fourth quarter. It would really be within a 6 to 9 percent range; I think it is somewhere around 8 or 8-1/2 percent. If you went from QIV to May making those adjustments [rather than from] January-February, it would be a bit higher.",72
-fomc-corpus,1983,Mr. Morris.,4
-fomc-corpus,1983,"Well, Mr. Chairman, you may not find it surprising that Mr. Roberts and I differ rather dramatically.",22
-fomc-corpus,1983,We're establishing the outer limits!,6
-fomc-corpus,1983,"I think the staff paper on the behavior of M1 was very good in that it pointed out that not only is the velocity of M1 not currently predictable but we have no basis for assuming that it will be predictable in the foreseeable future, because we have had a changed concept--one which blends transactions balances with savings balances in unknown proportions. And I think our current posture of telling the market that we are not targeting Ml but are watching it is creating instability in the marketplace, which is counterproductive to our objectives. I think we have seen responses in the marketplace to M1 numbers which, while they are not of the magnitude of earlier years, are certainly not very productive. And it seems to me that the time has come to tell the market that, at least for the foreseeable future, we don't have any basis for confidence that we can predict the velocity of M1 and, therefore, we are abandoning Ml and are not going to watch it. We will publish it weekly for historical interest only. It seems to me that the time is right. I thought it was right in February to get rid of Ml but it seems to me that the evidence since February should lend some weight to my case that we ought to start moving away from consideration of Ml as a target or as something that we watch--whatever that means.",264
-fomc-corpus,1983,"Well, we have a difference of opinion. You say it's high, so abandon it; other people say it's high, so we better give it some weight. What would you do operationally?",39
-fomc-corpus,1983,"Operationally, we have target ranges for M2 and M3 and we can operate on those.",20
-fomc-corpus,1983,What would you do on borrowings?,8
-fomc-corpus,1983,"At the last meeting I didn't have any confidence that the current level of interest rates would support a broad-based expansion but I think the evidence of the last month or so is that, at least for the time being, we can produce an expansion at the current rates. I would design the instructions to the Manager to say maintain the current level of interest rates. And if the $250 million borrowing level is what the staff says [would do that], I would accept that.",94
-fomc-corpus,1983,Mr. Wallich.,5
-fomc-corpus,1983,"I think we have to distinguish between giving different weights to the different aggregates and watching them. If we give different weights, we say that each of them is potentially misleading. So we give more weight at the present time to M2 and M3, put a little weight on Ml and, therefore, are saying that we are not going to trust M2 and M3 and the debt variable fully either. They are all slightly wrong and the most likely right number seems to lie somewhere in the weighted average. This doesn't seem to me a very logical procedure when you have specific reasons to distrust one of the aggregates such as we have, I think, to distrust Ml. There are reasons why people will hold more of their money [in Ml], whether in demand deposits and currency or even in NOW accounts, than they would at much higher rates of interest and higher rates of inflation. And I would be willing, while watching Ml and not ignoring it, nevertheless not to give it any weight.",197
-fomc-corpus,1983,That's a semantic distinction.,5
-fomc-corpus,1983,"No. I think the time may come when the argument that now leads to ignoring Ml loses some of its strength; and then if Ml still continues strong, one would have to say one had made a mistake and that there was something to it. But at the present time I think that the more reasonable argument is that there is something amiss with Ml and that therefore, while watching it, one is not acting on its signals. The strongest reason for proceeding that way, it seems to me, is the high level of real interest rates. If Ml were effective in the usual way of generating expansion, it would be by driving down interest rates. It hasn't done so. So I conclude that the usual transmission mechanism from Ml to aggregate demand somehow is not operative at this time. There is a further very minor point to be made on that same side. The divisia aggregates, which compute money on the basis of the moneyness of the aggregates rather than just adding up demand deposits and savings deposits and calling it all money, in the last few months universally seem to have shown a lower rate of growth than the unadjusted regular aggregates. I have no particular faith in this technique, but it is an interesting device in that, since it seems to support what I think reasonable for other reasons, it is something worth factoring into this.",267
-fomc-corpus,1983,What would you do operationally?,7
-fomc-corpus,1983,"At the present time I would follow Bill Poole's old rule that when the aggregates are not very clear follow interest rates. That rule, of course, leaves open the question of which interest rate--the one that happens to prevail or a different one. At the present time I wouldn't change interest rates, so I would go with the same borrowing assumption.",71
-fomc-corpus,1983,Ms. Horn.,4
-fomc-corpus,1983,"I want to start with M2. M2 is growing quite in line with a number of our expectations and with my expectations, and if it is growing a bit slowly, I think that has to do with the precautionary components [unintelligible]. So the signal that I read from M2 is a fairly good one for staying on the current course. However, I do read Ml, although I can't explain why it is doing what it is, as giving a signal. [It influences] the direction of my uncertainties in dealing with policy matters so, because of the signal we might be getting from Ml, I would like to see a little tightening up from the current position. I suppose, although I am not willing to argue over $50 million, that takes me from $250 to $300 million [on borrowing]. But the point I want to make is more that that is the direction in which I think we should be erring because of what Ml might be telling us.",199
-fomc-corpus,1983,Mr. Gramley.,5
-fomc-corpus,1983,"Well, I come out somewhere near Karen, although I start at a different place. I don't know what in heaven's name to make of these money supply numbers. I have read the staff document with great interest and I think it does point out an important reason why we have had so much growth in M1 here--that is, we have a much higher interest elasticity of [money] demand, almost twice as high as the model suggested for the period 1959 to 1974. So, I assume from that that we aren't anywhere near as expansive as the 9, 10, or 11 percent growth rates in Ml would indicate over the past year or so. But I don't know how much expansion we have had on the basis of the money numbers, so I tend to retreat to basics under uncertainty of this kind. I start with the proposition that if I could shape the recovery in any way that I would want to, I would like to have economic growth come out just the way the staff thinks it's going to, at somewhere between 4 and 5 percent both this year and next. If we get that, we will have improvement on the employment front, we will reduce excess capacity, we will get an investment process started but we will have, I think, continuing progress on inflation. My worry is that we are going to get more than that for reasons I have already indicated. And I add one more factor, and that is that I think fiscal policy is much more likely to be more stimulative than we are now talking about rather than less. I think we are not going to get a budget resolution; we are going to end up with lots of appropriation bills and they are not going to be easy to veto. But I am in a horrible dilemma, in terms of deciding what we ought to do as regards policy. I think that the international debt situation argues very, very strongly for not letting interest rates rise. Unfortunately, that international debt situation is still going to be here a year from now. And so, if I am right and at some point down the line we will need to think about raising interest rates, I guess it would be easier to raise them a little now, rather than to let the internal dynamics of the cycle begin to take hold and then raise them a lot more later. So, in terms of operational procedures for the moment, I would be inclined to argue for something like ""B minus""--I think ""C"" is much too tight--with initial borrowings at maybe $350 to $400 million or somewhere around there. I don't care whether the federal funds rate range is 6 to 10 percent or 7 to 11 percent. And I would continue to use M2 as our principal target.",556
-fomc-corpus,1983,Governor Teeters.,4
-fomc-corpus,1983,"I would tend to go along with $250 million in borrowings, which presumably would keep the interest rate where it is. I have many of the [worries] that have been expressed, particularly in the international scene. And I don't think we can get a sustained recovery with 8-1/2 percent rates of interest and 10-1/2 per cent in long-term rates. I think rates should be lowered in order to sustain the recovery; I can stay where we are at least until July, but my presumption is that sometime over the next several months we are going to have to lower the rates in order to keep the economy going. The other thing that I think is probably going to happen is that with the reduction in the first-quarter GNP we are going to have a quarter--probably the second or third, as Chuck said--in which the inventories will go in the other direction, and we could get a very strong one-quarter [expansion]. If that happens, I hope that we won't panic and then raise the rates in order to offset something which is a perfectly natural development. If anything, I would like to see the borrowings around $200 million rather than $250 million.",245
-fomc-corpus,1983,Governor Partee.,4
-fomc-corpus,1983,"Well, to give my conclusions first, I would lean toward snugging up a bit now. I also think that we are going to have a couple of good quarters in GNP; the dynamics are such that I don't know what might come from that in terms of later on and, therefore, I think a little precautionary snugging would be in order. I would also point out that Ml is very much a fact, whether we want to look at it or not. The only way that we can really deal with this would be to stop publishing Ml--suppress the numbers on the basis that Ml has no information content--and I don't think anybody would propose doing that. It is something that people look at. I am also impressed by this world-wide increase in M1 that has occurred over the last six months and it may be telling us something after all, as Ml was telling us something three or four months ago about a recovery that was stronger than almost anybody expected. Now, it didn't come in anything like as strong as normal relationships would have predicted, but in fact the economy acted more like Ml would have suggested than most judgmental forecasters would have expected three, four, or five months ago. And this may be now a world-wide event. I also have a problem because I don't trust any of the other aggregates. M2, I think, is very much affected by the IRA/Keogh accounts, which are a direct substitution in the short run for tax-exempt savings balances. M3 reflects the pattern of demand on the markets, and I think it is a simple reflection of the fact that corporations are trying to do some restructuring. I have always been more comfortable with total credit but what I am not comfortable with about total credit is our estimates. Just a couple of months ago we were told that, by golly, total credit is running very low--well below the lower end of our range. Now, somehow, in the last six weeks, we learn that no it isn't; it is 9-1/2 percent, which is up in the range. And by the time we get another iteration of that, when the July national income numbers come out, we may find that it is at the top of the range. It is a very unstable figure from the standpoint of estimation even though it is a pretty stable figure from the point of view of its relationship to the economy. So, I don't think we can disregard Ml and I don't think we can disregard the fact that the economy seems to be pretty strong under foot. Therefore, I would snug up without changing operating procedures--which I think is what Ted Roberts was really proposing in taking Ml [into account] as a driver on providing reserves again. I'd snug up to maybe $300 million [on borrowings] and try to come in on the low side of alternative B on the aggregates.",579
-fomc-corpus,1983,Mr. Solomon.,4
-fomc-corpus,1983,"I would keep the borrowing level at $250 million, for what it is worth. It isn't worth very much, obviously. I would use the M2 and M3 targets under alternative A; in fact, if I had my druthers, I would round them on the up side and make them 8 and 7 percent. We have a strange situation where we are running short of our March-to-June targets by about 2 points and we have not been offered an alternative that comes closer to returning to the original targets. For March to June we had put M2 and M3 at 9 and 8 percent, [respectively].",132
-fomc-corpus,1983,They're running lower.,4
-fomc-corpus,1983,"I can't [bring] myself to pay that much attention to M1, as I believe some of you do, when I contrast that monetary aggregate, whose meaning we all seem to agree we don't understand these days, with the reality of the international situation that we're living with. I think it's just sheer irresponsibility on our part [to use] crystal ball wizardry to have our decision influenced so significantly by what is happening to this famous Ml. I come out quite clearly for no tightening, no snugging up, and staying where we are in terms of borrowing levels. I do not see any evidence yet that a boom is going to materialize where we would have to say: Well, it's a question either of tightening now or tightening three or six months from now. I don't see that the choice is between them.",164
-fomc-corpus,1983,Mr. Boehne.,6
-fomc-corpus,1983,"I think we are getting ahead of ourselves on the case for snugging up. It just seems to me that that is entirely too premature. The only real argument for doing it is what we are seeing for Ml and that does seem to me an awfully thin reed on which to base snugging up. Our sentiments have changed about the economy. It does look better than six weeks ago, but there is considerable room for it to look better without our worrying that we have a boom. We still have lots of unused capacity even if one allows for all the structural problems; we are still in the very early phases of the recovery. It is broader-based, but I don't see any evidence that it is running away from us in any way that is going to prove to be a problem. Add to that the international situation, which I think if anything argues for lower rates. Even though there may be a case down the road where we would have to raise rates for domestic reasons, it seems to me that we would want to be pressed to do that rather than anticipate it. If we look at the various measures of monetary policy that we have--real interest rates, M2, M3, and credit--and add all those up, everything is on the side it seems to me for at least staying where we are. The only thing that is on the other side, for snugging up, is Ml and that just isn't much to base it on. So, I come down for staying where we are. Operationally, I would keep borrowings at about $250 million; I would carry forward in about the way that we have been conducting policy in the last several weeks.",336
-fomc-corpus,1983,A comment on the case for snugging up: It probably is [unintelligible] rest on Ml alone. Mr. Corrigan.,29
-fomc-corpus,1983,"Mr. Chairman, I started out where a lot of people are. Internationally, the case is overwhelming that we would be better off with lower interest rates and a lower exchange rate. But looking at this domestically, I must say that I do get some sense that there may well be a case for some snugging up or whatever you want to call it. I would lean in that direction not because of M1 as much as I would because of the economy. I do think that the risks are on the side of the economy being stronger rather than weaker than the staff's forecast. And I am very much inclined to the view that a more moderate and balanced recovery right now works in the direction of making that recovery more durable and more sustainable, partly because I do think it works in the direction of minimizing the risks that some of those pent up pressures on prices, that I at least sense are there, could be unleashed. In some very practical ways the question that we face right now is: If we do snug up a bit, does that assist in [achieving] our longer-range objectives for the economy? In part I try to answer that by asking myself the question: What will happen to bond rates if we do snug up a little, recognizing that they have already increased 50 basis points in the last two weeks? On the other hand, what would happen to bond rates if we didn't do anything? In some ways I think that is the $64 question. My instinct is that in the current circumstances a gentle move in the direction of snugging might well produce the result of helping to stabilize long-term interest rates; and we have had experience in the past to suggest that some increase in short-term interest rates early on in a business recovery can be reversed. I think that happened in the mid-1970s in a way that did not inhibit the early phases of recovery. So, I would come out in the direction of, say, putting borrowings around $400 million in the expectation that the federal funds rate might move up toward the 9 percent range--again, not because I'm paranoid about Ml but because of the way I'm looking at the economy and the way that over time I think that might help us rather than hurt us in terms of our long-term objectives for the economy.",462
-fomc-corpus,1983,"I would be in substantial agreement with what Jerry has said. It seems to me the last time we established the directive based on a reasonably uncertain economic environment--though the news looked good at the time--and since then it certainly has gotten a lot better. I think we now have a reasonably broad-based economic recovery in place, with certain cautions, and on top of that we have a highly stimulative fiscal policy that's going to get more stimulative as the year goes along. Certainly that will be the case next year as we get closer to the election. And though all the papers I've read support the thought that Ml has changed, nonetheless, nothing persuades me that it is no longer useful in any way. I think we have to begin to establish a framework in which we are focusing slightly more attention on that. I'd be in favor of some modest snugging up, and alternative B or B+ in terms of the percentages would be reasonable. But I would be inclined to establish a borrowing level of, say, $400-$450 million as a way of establishing a higher level of focus on it and beginning to snug up a bit.",229
-fomc-corpus,1983,"Mr. Chairman, I take alternative B with a $250 million borrowing level as being maintenance of the current conditions. And although I recognize the concern of some about Ml, it seems clear, at least to me, that the informational content of Ml gives very little guidance for policy in the period ahead. That does not suggest that I want to join Frank Morris to bury Ml; rather, I think it will become an important guide sometime in the future, but certainly not between now and July. Having said that, I still have a concern about the sustainability of this recovery over the long haul and I think the international situation suggests somewhat lower interest rates. Neither of those [considerations] seems to me to be persuasive enough to ease in the period ahead. Thus, I come out with a $250 million borrowing level from now until July and I hope that we get some more good news that we can react to in July. I'd like to say that I have some real questions about what kind of directive we may adopt, but I guess that's for later in this discussion.",213
-fomc-corpus,1983,"Just operationally, Mr. Chairman, I agree with everything that Roger just said. I would support alternative B and a borrowing level of $250 million, and I take that to be consistent with maintaining the situation substantially as it is at the present. I would not want to take any action that would have the effect of raising interest rates at the present time. I think it's too early to start pushing up interest rates.",84
-fomc-corpus,1983,"I think the case for a touch of snugging up has been pretty well set forth here already by, among others, Chuck and Jerry. And I won't take the time to repeat those arguments. I do fear that if we let this upswing in the economy get too far ahead of us in terms of regenerating inflationary pressures or expectations, we will live to regret it. I don't think we've ever made mistakes, or many mistakes at least, in the past by being too easy during recessions. I think our mistake historically has been to hang on to ease too long after the upturn is underway. I would be concerned about just plain market reactions to the announcement of a 24 percent increase in M1 in May; I think we might get a bigger case of bond yields rising than we did after that little flurry following last Friday's announcement. We may not think that there is much content in M1 but I'm afraid the market may not be as convinced as we are. That's one of the psychological problems we're dealing with. And for those who are hasty to condemn Ml as having no informational content, I would raise the same question about M2. It too is a different animal than we used to have and we'd be ill advised to forget that. Coming down to the bottom line, my snugging would be defined in terms of perhaps a borrowing assumption of $300 to $350 million, just leaning a bit in the direction of ""B minus"" but certainly doing nothing very drastic.",301
-fomc-corpus,1983,"I'm with the group that wants to snug moderately for one reason: I'll confess to paranoia about Ml, especially when it's happening on a global scale and in countries which don't have the institutional problems that we have to explain it away. I do think the worldwide expansion of money as conventionally measured is of enough significance to warrant conservative action on the part of our central bank. With regard to the timing, I think we have to remember the lags related to what we do now. If we wait until we can see the real economy exploding in front of us, then we're doing what we always do--we're too late. What we do today basically affects what will happen in the economy one year into the recovery. And that's why we should do it now, not later. So, I'm for a slight snugging, with perhaps a borrowing requirement of somewhere around $400 million--enough to let short-term rates go up to give a signal to the market that we are not going to ignore completely all of what is going on in the monetary area and in the real economy.",215
-fomc-corpus,1983,"I would join those who would oppose abandoning Ml. I don't believe the market makers will abandon that measure. I don't think they'll take it off the tape in their offices because we say we are abandoning it. Even it they were convinced we were abandoning it, they may not abandon it. Some Wall Street types think they are a good deal smarter than we are anyway. I don't think the commentators will abandon discussion [of Ml] in the media. Once a newspaper reporter learns something--and they only learn a very limited number of somethings--he or she will continue to work that story or alleged story of what will be seen as a conflict between the monetarists' analysis of markets and whatever analysis prevailed within these walls. I myself feel we should give Ml some weight aside from the media considerations. When it varies as much as it is now, I don't think we can ignore it; a 24 percent growth rate in May is pretty hard to ignore. One comment I would like to make with regard to the recovery: I am just as encouraged as anyone else. I am a natural born optimist, but I did pick up on Jerry's comment that we are talking about a percentage increase and we started at a very low level. Those bankruptcies that occurred in the recession--the four-year recession or whatever it is being called--are rather permanent removals from the business population. If we seem to be forthcoming with regard to recognizing that a sustainable recovery requires lower long-term rates and we continue to express our view with regard to irresponsible fiscal policy, it seems to me that we can make a reasonable case for actions in the direction of less accommodation now, if these are modest moves. The kind of move I would support is perhaps raising borrowings to a $350 million level; I am a ""B minus"" type here. If we indicate that we recognize that long-term rates may be positively affected thereby, if we admit our awareness that autos, housing, and consumer credit are all vulnerable to high rates, knowing that consumer credit rates have been so sticky in coming down, and if we couple that with public statements that our longer-run goal is to avoid overcreating credit or money, however measured, at this time, it seems to me that a modest move in this direction might be salutary in terms of long-term rates and in terms of our credibility out there in the market.",479
-fomc-corpus,1983,Mr. Boykin.,5
-fomc-corpus,1983,"Mr. Chairman, I came to the meeting pretty well convinced that the policy should be steady as it goes. I will have to confess that I have had a change in attitude in listening to the debate. I think those who are arguing for some snugging or some leaning against what is happening probably make sense. And having come some distance, I would continue on that line and I would argue for about $400 million on the borrowing assumption rather than $300 million.",93
-fomc-corpus,1983,Mr. Black.,4
-fomc-corpus,1983,"Mr. Chairman, I deliberately waited until Bob Boykin had spoken before I made a statement, because not very long ago he made a glowing compliment about my statement by saying he would have agreed with it all until he heard you speak. And that sort of wiped me out, so I thought I would wait this time! I suppose it won't come as a real surprise to anyone that I think we ought to continue to give greater emphasis to Ml. One of the reasons we abandoned Ml is that we felt MMDAs and Super NOW accounts would affect Ml; I think that was proper. But the growth rate has fallen off pretty sharply in recent weeks and the original reason for shifting away from Ml to M2 seems to me to have largely dissipated. There remains the argument that the demand for Ml balances may have increased because the OCDs introduced an element of elasticity in the demand and also an element of savings. I think there is some substance to that, but we are not really going to know the answer to that for many, many months down the road. And there's a risk that it might not have changed that significantly. In view of that, I think we have to weigh the risks in deciding what policy ought to do. To me there is some risk that if we do not move somewhat now, we may have some unwinding of this good effect we have had on inflation. And I would be particularly concerned about the adverse effect on long-term debt markets. So, I would favor going back to the old procedure, of course, where we adjusted our borrowing target automatically as Ml varied off the target. But I know we are not going to get that. I would next fall back to ""C,"" which I also know we are not going to get. So, if I were voting, I guess you all would probably push me up to maybe ""B minus."" But I definitely think we ought to make some move now.",387
-fomc-corpus,1983,"Well, we obviously have a difference of opinion, but for the most part the difference of opinion is not numerically huge. I am impressed, domestically, by the actual and potential strength [of the economy]. It's moving pretty fast now, with inventory still negative in the last figures; I don't know whether they were negative in April or May, but we've had a lot of inventory liquidation and some increase in final demand. We'll get a shift in inventories at some point and consumers are very confident, if one believes these surveys at all. Ordinarily, I don't give them much weight, but they surely are going through the roof right now with a tax cut of some size coming up in thirty-six or thirty-seven days. The conflict is quite clear in all the comments people have made. I don't think there's much question about the short-term outlook, which I take to be six months or so, for the economy. There's a question of its sustainability or certainly its balance. There are questions about investments and questions about exports, which are very real. And I think that's partly a reflection of the budgetary problem. We have a straight-out conflict between the domestic and international considerations. I don't know that we could have much more of a pronounced conflict there. That is clearly fed by the budgetary situation. We cannot control the budgetary situation; therefore, we have no satisfactory policy by monetary policy alone. We have problems in the credit structure that have been mentioned and would be eased by easier money, but that also creates a conflict. I am left with no answer in monetary policy except a compromise in an unsatisfactory situation. I am not so bothered by this Ml; whether we count it or not, I think we weigh it a little--more than a little. I don't ignore it myself; I don't know that I'm pulled by it. But when the movement gets large enough, I don't see how we can totally ignore it. It lends a little weight to whatever decision we make. I come out on the side of a little snugging up, which we should be prepared to reverse if things come out satisfactorily in terms of the aggregates or if there are any real signs that it is intolerably--that is a strong word--or even less than intolerably aggravating the international situation, or the business situation looks as if it has much less momentum than it appears to have at the moment. I don't know how to quantify that. But if we do anything, we have to go to $350 million, I suppose; we've practically been there recently by accident and $250 million is rather a minimal level of borrowing. I think all we are talking about is putting some very marginal pressure on the market. How the markets will react, I don't know. The danger is that they will overreact. Rather, that is a danger but there's a danger in the other direction, as Mr. Corrigan mentioned. I would suggest that we just compromise somehow.",593
-fomc-corpus,1983,"Peter, what kind of funds rate do you expect to be associated with a persistent $350 million of borrowing--if the borrowings were put up to $350 million and kept there rather than just accidentally being there?",43
-fomc-corpus,1983,"Well, as you said, we've been there but to be aiming at it [is a distinction]. Whereas I felt aiming at $250 million was associated with funds of 8-1/2 to 8-3/4 percent, I'd expect to see funds trading more toward the 8-3/4 percent side and maybe edging above that on occasion.",73
-fomc-corpus,1983,Funds have been up to 9 percent. I don't know if you directly associate it with--,19
-fomc-corpus,1983,"They were only up to 9 per cent, I think, during the statement period.",18
-fomc-corpus,1983,"Well, for a weekly average, it only got up there in the week in early April when there were those special end-of-quarter pressures. Other than that, I think the highest it recently reached was 8.80 percent.",46
-fomc-corpus,1983,And that was associated with the temporary movement to $350 million?,13
-fomc-corpus,1983,"I think the borrowing was all fouled up there; it was much higher, wasn't it? We had the statement date and the aftermath of the statement date.",32
-fomc-corpus,1983,"The funds rate/borrowing relationships have been quite variable. One week in late April we had borrowing of $678 million and the funds rate averaging 8.58 percent; the next week we had lower borrowing, of $435 million, and the funds rate was averaging 8.80 percent. And then last week we had $550 million borrowing and a funds rate averaging 8.59 percent.",81
-fomc-corpus,1983,I didn't realize the borrowing levels had been quite that high.,12
-fomc-corpus,1983,It doesn't help to snug up.,7
-fomc-corpus,1983,"Well, there have been lower weeks of borrowing. To make it a complete story, Mr. Chairman, we had $232 million of borrowing with a funds rate of 8-3/4 percent and $252 million with funds at 8.70 percent.",53
-fomc-corpus,1983,A perfect inverse correlation!,5
-fomc-corpus,1983,"What interest rate are you aiming for? If you snug up, where do you want the rate to go?",22
-fomc-corpus,1983,Maximum 9-1/2 percent.,9
-fomc-corpus,1983,That's too much.,4
-fomc-corpus,1983,I think it would be unlikely to go that high and stay that high with the kind of borrowing we're talking about. I wouldn't say it wouldn't touch there on occasion but I think we're talking more 8-3/4 to 9 percent. But I don't have any particular objective in mind. I don't want to shock the market.,67
-fomc-corpus,1983,"Mr. Chairman, I would object to a directive that would get the funds rate in the 9 percent range. I'd go to 8-3/4 percent maybe--ranging above and below 8-3/4 percent. That's a pretty small range, obviously. But when it touches 9 percent, there is some magic to it, it seems to me, particularly if it touches 9 percent and remains there for any period of time.",92
-fomc-corpus,1983,"Yes, the market might understand what you're trying to do if it got to 9 percent! Seriously, isn't it slicing the bologna a little thin to say we're going to snug up 1/4 percentage point or less than 1/4 point if we average it?",56
-fomc-corpus,1983,"There was a time when we used to do it in 1/8 point [increments], Bill, as you may remember.",26
-fomc-corpus,1983,I think there's going to be a strong market reaction if the fed funds rate gets to 9 percent. The prime rate would definitely go up. There will be loud cries from abroad.,37
-fomc-corpus,1983,I'm not so sure the prime rate would go up with a funds rate of 9 percent.,19
-fomc-corpus,1983,The prime rate may be going up anyway.,9
-fomc-corpus,1983,"Well, I don't know that Wachovia--SEVERAL. [Unintelligible.]",19
-fomc-corpus,1983,It was a half point lower?,7
-fomc-corpus,1983,"I thought the $250 million was associated with 8-3/4 percent. You're definitely pushing it over 8-3/4 percent, it seems to me.",35
-fomc-corpus,1983,"You're back to adjusting by eighths, Mr. Volcker.",13
-fomc-corpus,1983,"I don't know exactly what it will be. Mr. Axilrod just gave you a swing of one half percentage point, which seemed to be inversely correlated with the level of borrowing.",38
-fomc-corpus,1983,"Well, borrowing in the week to date is averaging $350 million and funds are trading at 8-5/8 to 8-3/4 percent generally. Who knows? The relationship to borrowings has been quite variable, so I don't think one can really be extremely precise.",58
-fomc-corpus,1983,"Even though the numbers are small, we should not ignore the fact that there will be significant reaction, I think, in the dollar exchange market. There may or may not be some reaction in the bond or stock markets; I don't know about those. One can't be 100 percent certain, but the probabilities are that the prime rate would go up if the funds rate is moved up as much as half a point, and it just seems to me that we're going much too far.",96
-fomc-corpus,1983,"What are the expectations in the markets about what the Committee is going to do, Peter--snug up or stay the same?",26
-fomc-corpus,1983,"Well, I think they're debating that very point with probably a majority thinking no change. But there would be some who would expect some snugging.",29
-fomc-corpus,1983,"The market seems to be expecting no change at all. I think Tony put his finger on the main risk. When the market senses that we are snugging up, they will help us; they will conclude that that is what we want and will add impetus to it. We're going to get an upward bias, which I think is the wrong thing at the present time.",74
-fomc-corpus,1983,I don't think one can say the market expects no change. A straightforward reading of the market says they already anticipate it.,24
-fomc-corpus,1983,"And with respect to the exchange rate, it has been going up while rates have been going down.",20
-fomc-corpus,1983,Henry Kaufman put out the word: No change.,11
-fomc-corpus,1983,"I would think that a prime rate increase that could be linked, rightly or wrongly, with a snugging up by the Fed would have a definite detrimental effect on these expectations of good things to happen. I think things are sort of at an even keel and if business and mortgage markets thought that the low rates were over and that rates not only were not going to stay about where they are but were going to back up, that would have a major negative impact on psychology.",94
-fomc-corpus,1983,"It doesn't follow that the prime would automatically go up, though, because there has been a big swing away from negotiable CDs to money market deposit accounts as a source of money. The spread can change between the funds rate or the CD rate and the prime and in the meantime business loan demand is very soft.",62
-fomc-corpus,1983,Where is the CD rate this morning?,8
-fomc-corpus,1983,"It was at 8.80 percent yesterday. It's on this sheet; I'll give it to you in a second. It's 8-3/4 percent, roughly.",35
-fomc-corpus,1983,Is that 9ish reserve adjusted?,8
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"So, it's [a spread of] 150 basis points. That's not uncommon.",17
-fomc-corpus,1983,"Mr. Chairman, as a technical comment on market reaction--and, of course, no one can assess market reaction with any precision--if $350 million were where the Committee wanted to put borrowing, I'm not sure that would be noticeable at all in the market. We've been running very close to it. We hit it exactly. The free reserves number that's implied after you take out seasonal borrowing, which the markets tend to do, is slightly positive. [Unintelligible.] The odds on missing it on the high side are somewhat lower than when we're working with a minimal number because with a minimal number it's hard to get below it and it's easier when we miss to be on the high side because banks' borrowing tends to be higher. So, technically, I'm not sure with $350 million that hardly anything would be noticed.",166
-fomc-corpus,1983,Then what's the point in doing it?,8
-fomc-corpus,1983,That's why we should go to $400 million.,10
-fomc-corpus,1983,I doubt that we ought to be easing right in the face of all this.,16
-fomc-corpus,1983,"Well, the real issue is what level of the funds rate we should be shooting for.",18
-fomc-corpus,1983,Sure.,2
-fomc-corpus,1983,"Given the instability in the relationship between the funds rate and borrowing, that's the issue. That's where the action is going to come from in the marketplace.",30
-fomc-corpus,1983,I'd certainly hate to go to Williamsburg after snugging up!,12
-fomc-corpus,1983,They didn't invite you!,5
-fomc-corpus,1983,You don't have to go!,6
-fomc-corpus,1983,"I don't know, but there might be some who would view this snugging up as a way of either heading off further increases in long-term rates or helping to bring them down. That has to be the key thing. Let's not kid ourselves that the funds rate is going to make or break the economy. What's going to make it or break it is the trend of long-term rates.",77
-fomc-corpus,1983,Which are going up now.,6
-fomc-corpus,1983,It depends on what you think--,7
-fomc-corpus,1983,That affects foreign borrowing--the whole business.,9
-fomc-corpus,1983,"We're going to be perceived as going against the consensus view of all the governments, including our own, to encourage a worldwide recovery, because people judge that the inflationary problem is considerably reduced--that there's no immediate prospect for that in the near-term future. We are also going to be perceived as discouraging recovery because of the impact on the international debt burden. And I just think the symbolism of this is wrong. It's out of all proportion, I would admit, for a lousy $100 million difference in the borrowing level.",105
-fomc-corpus,1983,There's a certain inconsistency between saying we want to snug up because the economy is strong and then saying moreover that that's going to hold down the long-term rate or bring it down. That isn't going to slow the economy that needs slowing.,47
-fomc-corpus,1983,"I don't view it as inconsistent, Henry, because I happen to believe that long-term rates are heavily influenced by expectations of future inflation.",27
-fomc-corpus,1983,It could be perfectly consistent.,6
-fomc-corpus,1983,"Well, I'm afraid Mr. Axilrod is correct that if it's below $350 million, it will be perceived as an easing.",27
-fomc-corpus,1983,"I would want my own prescription in that case to be reinterpreted as pushing a level of initial borrowing that would get the funds rate up to somewhere in the 8-3/4 or 9 percent range. I'd like the market to notice it. I can certainly understand why people who look at the present unemployment rate, excess capacity, and so on are saying: No, this is not the time to do it. And I can understand Tony's concerns. But I think we're going to be faced with these same concerns a month from now, 3 months from now, and 6 months from now; and they're going to be worse then they are now.",135
-fomc-corpus,1983,"Well, we have to write a directive. I'm not crazy about the one that's in here.",19
-fomc-corpus,1983,"I really think we ought to look at alternative II, Paul. It has more promise.",18
-fomc-corpus,1983,"I agree with that but I don't like alternative II either. I wrote something here but I don't know whether people will like it: ""The Committee seeks in the short run to increase slightly the degree of reserve restraint, recognizing that while M2 and M3 are expected to remain somewhat below the rates of growth of 9 and 8 percent established for the quarter and within their long-run ranges, transactions balances have been increasing substantially more rapidly than desirable. The action was taken against the background of evidence of some acceleration in the rate of business recovery.""",109
-fomc-corpus,1983,"Excellent statement, Mr. Chairman.",7
-fomc-corpus,1983,I like it.,4
-fomc-corpus,1983,I do too.,4
-fomc-corpus,1983,I think it has two serious problems.,8
-fomc-corpus,1983,"[You think] the ""increase"" should be ""decrease.""",14
-fomc-corpus,1983,[It] puts more importance on the fact that we're giving attention to Ml.,16
-fomc-corpus,1983,"Well, how could we fail to--",8
-fomc-corpus,1983,You go out of your way to comment on transactions money. And you're making Ml respectable again.,19
-fomc-corpus,1983,"It's never been otherwise in the market, Tony.",10
-fomc-corpus,1983,"Look, after Paul's initial Humphrey-Hawkins testimony, the market reaction was that they were paying a heck of a lot less attention to the Ml figures. That changed when Paul made a couple of remarks that gave the impression that we were paying more attention to M1 than the market thought. And that attitude has now come back. It is completely controllable by what Chairman Volcker says and the way he articulates his view on transactions money or Ml.",92
-fomc-corpus,1983,"That may or may not be true. The recent behavior, the very large increases, may overwhelm comments.",21
-fomc-corpus,1983,But this won't get published for 45 days and meanwhile he can bail us out.,17
-fomc-corpus,1983,I think he's going in another direction.,8
-fomc-corpus,1983,"I think it's reasonable to assume the elasticity of demand for Ml may have increased to some extent and the demand for M1 also may have increased. But it strains credibility, it seems to me, to assume that that can explain all the burst. It's just too large for me to think that it could be all of it.",65
-fomc-corpus,1983,"I think the use of ""transactions balances"" as you proposed is misleading in the sense that it assumes we can measure transactions balances. Part of the problem with Ml is that it's now a blurring of transactions balances and savings accounts. And how do we know transaction balances are up?",56
-fomc-corpus,1983,We can refer to Ml.,6
-fomc-corpus,1983,Sure. Say that because that's what you mean.,10
-fomc-corpus,1983,"I find it troublesome to chase a number that we can't have confidence in. It seems to me the weight should be on real interest rates. If the inflation continues to come down, real rates are going up anyway at constant [nominal] interest rates. And to have a rise in interest rates at a time when the whole world hangs on whether these rates can be kept down I think really incurs a very large international risk.",85
-fomc-corpus,1983,"Well, there's no question that there's an international risk. The question is whether it's more now or later. We get more international risk if the economy gets a bit out of hand on the up side.",40
-fomc-corpus,1983,"Then we really will have to deal with it, which will mean significantly higher rates.",17
-fomc-corpus,1983,The risk that the economy is going to get out of hand immediately is not--,16
-fomc-corpus,1983,"Well, I agree with Lyle when he says the problem with Brazil, Mexico, and so forth is going to be with us a year from now just like it is now.",36
-fomc-corpus,1983,"Yes, but if we can get through 1983, there's going to be a big difference. I don't see why a slightly stronger recovery, if it's accompanied by continued low inflation, is going to cause us to raise interest rates later in the year.",51
-fomc-corpus,1983,"If it's slightly stronger and accompanied by continuing good news on inflation, it won't. Maybe interest rates will come down.",23
-fomc-corpus,1983,I think you're pushing them up a quarter at a time.,12
-fomc-corpus,1983,They're not going to come down if the Fed is tightening.,12
-fomc-corpus,1983,"Well, we're talking about what we're doing over the next three or four weeks.",16
-fomc-corpus,1983,We will not be lowering interest rates in the next three to six weeks no matter what happens.,19
-fomc-corpus,1983,"If we tighten now, I doubt if we're going to end up changing our position six weeks from now or whenever the next FOMC meeting is. We'd have to see some major change in the economy, a weakening, which we're not going to see.",51
-fomc-corpus,1983,Sure.,2
-fomc-corpus,1983,"Insofar as the economy is influenced by these increases in interest rates or the absence thereof, it'll give a little more stimulation to the rest of the world if we keep rates where they are, and to that extent the international situation is eased a little.",51
-fomc-corpus,1983,"I think there will be a lot of reaction. It will look as though we're trying to spoil the recovery basically. It will be out of proportion to the modest amount of rise. If there's a clear perception that we are snugging up, people are just not going to understand.",56
-fomc-corpus,1983,"The long rates already have started to rise without our snugging. My guess would be that snugging would be positively interpreted, particularly in the long markets, and that we would more likely get a decline in rates than an increase.",46
-fomc-corpus,1983,I have never seen the short-term rates go up without the long-term rates going up. I've heard your argument many times around this table and it has never happened.,33
-fomc-corpus,1983,"Well, for the short run, I think they move together. But then we see that after the short rate has been established at some level, long rates may be drifting down; we've had quite a bit of that.",44
-fomc-corpus,1983,"If we want the long rate down at this point in time, we need to lower the federal funds rate, not increase it.",26
-fomc-corpus,1983,"It seems to me we may be taking a risk reacting to the May Ml figures. If we look at the pattern of April at minus 3 percent and May at 24 percent and June projected--whether right or wrong--at only less than 5 percent, we're talking about snugging up in reaction to one month of very high Ml numbers. And we're not certain of what they mean.",79
-fomc-corpus,1983,"Roger, the staff says 24 percent for May but if I'm not mistaken, that assumes no further growth in M1 during May. Doesn't it, Steve?",32
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"And if we have a reasonable amount of growth, it might well be above 30 percent.",19
-fomc-corpus,1983,"Well, looking at the projection, I see [Ml growth of] 4.7 percent for June.",22
-fomc-corpus,1983,I think whether May is 24 or 30 percent is irrelevant.,14
-fomc-corpus,1983,I do too.,4
-fomc-corpus,1983,The fact is that it comes after six months of very high growth that we thought might be slowing down and there is some doubt that it's slowing down.,30
-fomc-corpus,1983,"It makes April look like the aberration. Before we were thinking that maybe April was establishing a new course, and now it doesn't look that way.",30
-fomc-corpus,1983,"April was clearly the aberration. It's not 6 months; it's 8 months. Since last August we've had double digit growth every month except January, which was 9.8 percent and April which was -3.1 percent. So, the trend is clear for Ml. You can't say [May] is a one-month observation. You could say you don't believe in Ml, but you can't say there has only been one month of abnormal growth. We've had essentially 9 months with one [exception]; if anything, April is the freak month.",112
-fomc-corpus,1983,But it is coming down.,6
-fomc-corpus,1983,"I think the key thing, Roger, is how one reads the economy rather than how one reads Ml.",21
-fomc-corpus,1983,That is correct.,4
-fomc-corpus,1983,But I read the economic numbers and I was pleased. Apparently some of you were displeased. You have the idea the economy is roaring ahead in such an uncontrolled--,33
-fomc-corpus,1983,That's a bit of an exaggeration.,8
-fomc-corpus,1983,"It's out of hand, though.",7
-fomc-corpus,1983,So you're really making a move based on Ml; you're not making a move based on--,18
-fomc-corpus,1983,"No, that's wrong.",5
-fomc-corpus,1983,"That's not fair. That's not fair at all. The argument that I think people are laying out here is that we now have a good cyclical recovery underway. It's not out of hand at the moment. But I think past cyclical processes strongly suggest that recoveries tend to gain momentum as time goes on. That's not what the staff has forecast, but I think Jerry would agree that the risks at this point are on the up side and not on the down side.",94
-fomc-corpus,1983,"But we want it to gain some momentum, don't we?",12
-fomc-corpus,1983,It depends on how much we want it to gain. And the question is--,16
-fomc-corpus,1983,We have more slack than we've had since the 1930s.,14
-fomc-corpus,1983,Everybody recognizes that too.,5
-fomc-corpus,1983,I'd like to see us use up some of that slack for--,13
-fomc-corpus,1983,"Frank, I wasn't here; you were. But I have a hunch that exactly this same discussion probably took place sometime around 1976. And I think it's very apparent where we came out, partly on the grounds that we didn't have to worry about inflation.",53
-fomc-corpus,1983,I think that's pretty unfair.,6
-fomc-corpus,1983,"I think that's really an unfair conclusion. Lyle, let's accept the fact that there is some possibility that a stronger recovery than what we want may materialize later. At the moment you say it's going along on track okay but you're worried that later on it may materialize. Does that mean that you anticipate that now, given the situation? It can only--",72
-fomc-corpus,1983,"I always think that monetary policy has to work on a forecast, Tony. I don't believe that we operate just on what we see in the past 3 months or past 1 month on Ml or anything else. You have to ask yourself where you want to go and where you think the economy is going. If I thought the economy were falling off a cliff now, I'd want to drop interest rates a ton. But I don't. I think the evidence has been accumulating month-by-month that this recovery is gaining a lot of strength. Let's cite some numbers. The industrial production index has gone up at a 17 percent annual rate since December.",129
-fomc-corpus,1983,In the midst of a lot of inventory reduction.,10
-fomc-corpus,1983,"That's right. We had private final purchases, residential construction plus personal consumption plus business fixed investment, going up at a 5-1/4 percent rate in the first quarter. This is not a weak recovery. We've had an increase in new orders for total durable goods at a 24 percent annual rate since December and at a 39 percent annual rate of increase for nondefense capital goods. Now, this is a recovery that's gaining momentum. I grant you that if we could be assured that we're going to get 4 to 5 percent growth and no more for the next two years, then I would be happy just to sit right where we are. But I don't think that's the outcome that is going to happen, so I think we need to take the precautionary move now. And if we go up 1/4 percentage point or 1/2 percentage point on the fed funds rate, it isn't going to end the world. It's not going to be the fact that dumps Brazil off the edge of the precipice. If we have to go up 200 basis points next September because we didn't go up 50 basis points now, Brazil is going to have a lot worse time of it. Obviously, there are risks in going in either direction. But I think the cautious and prudent thing to do now is to snug up just a tiny bit.",275
-fomc-corpus,1983,"I strongly support Lyle's diagnosis, which I think is first-rate. We do have internal dynamics of a business expansion going on here; and part of the history is that when that goes on, we get price movements associated directly with it. And that's my fear--that we may be in the process of getting a greater inflation rate than the Board staff has forecast, even though they have a lot of logic and plausibility on their side. History would argue the other way. And that's what I would like to see us heading off at the pass by a little snugging up starting now.",119
-fomc-corpus,1983,I think the analogy Jerry drew of 1976-77 is far from correct. We are now in the middle of 1975 in terms of that.,32
-fomc-corpus,1983,We snugged up in the spring of '75.,11
-fomc-corpus,1983,That's right. And by September it was going down in the other direction and interest rates were going down for a few months and the economy was rising.,30
-fomc-corpus,1983,"But we also had an inflation rate of 7 percent in the CPI in March of '75. In other words, we were then starting at an inflation rate that was much higher than where we are in this recovery.",44
-fomc-corpus,1983,"Well, if you want to make a snugging gesture, make it $300 million.",18
-fomc-corpus,1983,How about $500 million?,6
-fomc-corpus,1983,[Unintelligible] going on.,9
-fomc-corpus,1983,I could live with that; any more I couldn't.,11
-fomc-corpus,1983,"Well, I'm disturbed by the fact that we're probably already de facto, by the results, at $350 million. If we literally came out below that, it will look as if the economy is getting better and Ml is going through the roof and we're easing up.",53
-fomc-corpus,1983,"In the interest of conciliation, after Tony's offer, I'll come down from $600 to $500 million.",23
-fomc-corpus,1983,You're all heart!,4
-fomc-corpus,1983,"Well, it may depend on how we word the directive. I don't know whether anybody has any better idea on how to word the directive. I look at mine and it says ""increase slightly"" and we haven't had that small an increase in which we--. How about ""The Committee decided in the short run to increase reserve restraint invisibly.""",69
-fomc-corpus,1983,I'll go for that.,5
-fomc-corpus,1983,I'll go for that too; it's not saying--,10
-fomc-corpus,1983,By a statistically deviant amount!,7
-fomc-corpus,1983,We could say that we will keep it at the level at which on average it has been in the last few weeks.,24
-fomc-corpus,1983,"No, we don't want to do that. At one point it was $1-1/2 billion.",22
-fomc-corpus,1983,On average.,3
-fomc-corpus,1983,It still would average out well above where we are now.,12
-fomc-corpus,1983,I haven't heard any promising suggestions.,7
-fomc-corpus,1983,Stick to your guns.,5
-fomc-corpus,1983,"I think the ""increase slightly"" is what the majority of the Committee is inclined to do. In fact, some would favor a little more than slightly, I gather. It sounds reasonable to me. I like your whole paragraph, Paul.",48
-fomc-corpus,1983,"Including the ""transactions"" [part]?",8
-fomc-corpus,1983,"Yes, I think it's time to recognize them.",10
-fomc-corpus,1983,"Well, I think it's important for us to keep a facade up that we're using all the monetary aggregates.",21
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"I don't want us to say we're deliberately pushing up interest rates. That's not the kind of indication that's going to be easy to deal with later on. So, I'd like to use that Ml as a cover.",42
-fomc-corpus,1983,"Yes, but that's--",5
-fomc-corpus,1983,And he has the stronger business--,7
-fomc-corpus,1983,"Yes, but I don't understand. You argued very strongly that the reason for your position is not Ml.",21
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"It's the strength of the economy. Why not say so, if that's the majority view here?",19
-fomc-corpus,1983,"Oh, I would want to.",7
-fomc-corpus,1983,"I can dissent. But if that's the majority view here, then why not say so?",18
-fomc-corpus,1983,"Well, his statement does that.",7
-fomc-corpus,1983,It doesn't say that. He emphasized transactions balances.,10
-fomc-corpus,1983,It says both. It says that the action was taken against the background of evidence of some acceleration in the rate of business recovery.,26
-fomc-corpus,1983,And what's the rest of it?,7
-fomc-corpus,1983,The second sentence?,4
-fomc-corpus,1983,That is the second sentence.,6
-fomc-corpus,1983,What's the first one?,5
-fomc-corpus,1983,What's the part about the transactions [balances]? We don't have copies of it; we can't see it.,21
-fomc-corpus,1983,I'd take out the last phrase.,7
-fomc-corpus,1983,"""Some acceleration"" seems to me a little weak, a bit of the wrong tone.",18
-fomc-corpus,1983,Don't forget they keep revising the GNP down.,11
-fomc-corpus,1983,"""Evidence of a strengthening in the rate of business recovery.""",12
-fomc-corpus,1983,We can't really say transactions balances because we don't know what is in Ml.,15
-fomc-corpus,1983,"I have no problem with changing that to Ml, if that makes people feel happy. I don't like the word ""Ml.""",25
-fomc-corpus,1983,"""Narrow money stock.""",5
-fomc-corpus,1983,It just may not be in Ml.,8
-fomc-corpus,1983,There may be some way of writing this to put more emphasis on the fact that M2 and M3 are expected to remain--,26
-fomc-corpus,1983,"Well, if they are expected to remain somewhat below their rates, why are we raising interest rates?",20
-fomc-corpus,1983,Because M1 has been increasing substantially more rapidly and because of the business [picture].,17
-fomc-corpus,1983,Aren't you elevating Ml to a target again?,12
-fomc-corpus,1983,"Yes, we are.",5
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Gosh, I hope so.",7
-fomc-corpus,1983,I think there's no danger that the market will think that's what we're doing now when we adjust the rate by 1/8 or 1/4 of a percentage point.,35
-fomc-corpus,1983,Do we really want to convey the notion that M1 is re-elevated and also that somehow it's not good that it looks like the business recovery is getting in line with the average of postwar expansions and that we ought to raise interest rates because of the business recovery? Somehow that doesn't have a good ring to me.,65
-fomc-corpus,1983,I would leave out that part about the average postwar expansion.,13
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,Right.,2
-fomc-corpus,1983,Do I have a notion that the--,8
-fomc-corpus,1983,I put that in there to answer Mr. Moynihan.,13
-fomc-corpus,1983,I think we ought to have--,7
-fomc-corpus,1983,There is no indication here of going back again if these things drop or the economy dropped. I don't know how we get that thought in very simply.,30
-fomc-corpus,1983,Is there any comment on federal funds?,8
-fomc-corpus,1983,I would leave in the boiler plate.,8
-fomc-corpus,1983,"The way I would write the directive would be ""The Committee, recognizing that M2 and M3 are expected to remain somewhat below the rates of growth of 9 and 8 percent established for the quarter but recognizing that this is in the context of a somewhat stronger economic picture, decided to maintain roughly the degree of existing reserve restraint but permitting some modest changes.""",72
-fomc-corpus,1983,In either direction.,4
-fomc-corpus,1983,That you're offering in the spirit of compromise?,9
-fomc-corpus,1983,"We don't have to have a money market directive; we can go back to an M2, M3 target. I think, though, that we wouldn't begin to agree on the numbers for the rest of this period.",44
-fomc-corpus,1983,Is this upsetting to you?,6
-fomc-corpus,1983,"What if we move up ""the evidence of some acceleration in the rate of business recovery"" to replace ""transactions balances have been increasing"" And then the last sentence would be ""The action was also taken against a background of substantially more rapid growth in Ml."" That would seem to be more consistent with recent directives.",62
-fomc-corpus,1983,"What if we put the two together? ""The action was taken against the background of evidence of some acceleration in the rate of business recovery and continued rapid growth of Ml.""",34
-fomc-corpus,1983,That gets the business recovery first.,7
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,Which is where we all put it.,8
-fomc-corpus,1983,Right; that's the point.,6
-fomc-corpus,1983,Not the Ml first.,5
-fomc-corpus,1983,That's what I'm trying to get at.,8
-fomc-corpus,1983,"A surge in Ml, to which we don't pay much attention--",13
-fomc-corpus,1983,"Well, we say we don't pay much attention.",10
-fomc-corpus,1983,We're very close to targeting on real growth.,9
-fomc-corpus,1983,And we don't want to--,6
-fomc-corpus,1983,Which we say we don't want to do.,9
-fomc-corpus,1983,"Mr. Axilrod is pointing out to me, in the area of truth in packaging, that in the last 6 weeks borrowing has averaged $392 million. This is a terrific snugging up we're talking about!",44
-fomc-corpus,1983,"At $350 million, it's minus $42 million; at $400 million, it's plus $8 million.",22
-fomc-corpus,1983,But in part of that period the funds rate was 9 percent or thereabouts.,17
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Well, I don't think it's the actual level of borrowings that matters at all. It's what happens--",21
-fomc-corpus,1983,"It's time for me to have--CHAIRMAN VOLCKER. The federal funds rate was above 9 percent the week of April 6, which Mr. Axilrod left out of this tabulation. The federal funds rate averaged in no week above 8.80 percent during [the rest of] the period.",65
-fomc-corpus,1983,"If you put in the first week of April, the funds rate averages out to exactly 8.75 percent. And if you put in the borrowing--",31
-fomc-corpus,1983,In the first week of April the borrowings were $1.4 billion.,16
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"If we increase the borrowing assumption $100 million, we are still reducing the nonborrowed reserve path by $100 million and it depends simply on banks' variable holdings of excess reserves. We still are snugging up in intention. Whether it's manifested or not would depend on the excess reserves level.",59
-fomc-corpus,1983,"Mr. Chairman, even leaving out that week of April 6 that had the $1.4 billion borrowing, that average that you cite is still affected by a couple of weeks where we had a wire breakdown or some special event that pulled that average up. Aiming at $250 million, there's just more room for misses on the up side than the down side and I think that's the result that emerges.",82
-fomc-corpus,1983,"Well, it seems that we maintained a higher level of restraint than we were aware of or than we decided last time. Why can't we say that we accept the level of restraint that has developed for the last few weeks?",44
-fomc-corpus,1983,I think that's a good suggestion.,7
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,It's also offered in the spirit of compromise.,9
-fomc-corpus,1983,Our error has worked out better than we thought!,10
-fomc-corpus,1983,"Well, Mr. Axilrod is suggesting that we go back to the language somehow or another that he suggested in the first place--I'm not crazy about it--about anticipating that growth rates of M2 and M3 will accelerate. That's not very meaningful to me when they are below where we said we were satisfied before. That's--",67
-fomc-corpus,1983,"I was mainly trying to change your Ml to an ""anticipation"" instead of ""desirable.""",20
-fomc-corpus,1983,"Well, that's an easy change, changing ""desirable"" on Ml to ""anticipating,"" but I--",22
-fomc-corpus,1983,I think he's right. I think alternative II comes closer--,12
-fomc-corpus,1983,"Certainly ""anticipation"" takes a bit of the weight away from Ml. Rather than say we've done it because Ml is running higher to say we anticipate Ml to have certain behavior takes a little--",39
-fomc-corpus,1983,"Well, what is his first sentence in alternative II? What's the verb, ""maintain"" generally or ""increase"" or ""decrease""?",29
-fomc-corpus,1983,"Oh, I'd suggest ""increase slightly."" We can change it but I think the operative question, however we explain it, is whether we say ""increase slightly"" or whether somebody else has some other words.",41
-fomc-corpus,1983,"The alternative is what appears: ""the existing degree of restraint.""",13
-fomc-corpus,1983,"Yes, that's the argument.",6
-fomc-corpus,1983,"And if $350 million is what we have, I think that's a little high. The existing degree of restraint is what we have and what we maintain.",31
-fomc-corpus,1983,"Well, the question is whether ""existing"" means what we decided last time or what we actually have.",21
-fomc-corpus,1983,"In the context of reading these things, it reads--whether we aim at something a little tighter than last time or not and can't make it--",29
-fomc-corpus,1983,Why don't we just say--,6
-fomc-corpus,1983,The changes have been so modest that--,8
-fomc-corpus,1983,"Well, where are you going to start our arguing: between increase or existing? Isn't that just--",20
-fomc-corpus,1983,"I think that's right. We can explain it differently but that's the substantive thing. [Unintelligible] and in my mind what this is missing is any recognition, if this is what you want to put in there, that if these aggregates came in low we might reverse it, or if business came in less than we were anticipating, we might be inclined to reverse it.",76
-fomc-corpus,1983,"That's in alternative I, Paul, if you just want to borrow the language in the middle sentence there. It's the part in brackets.",27
-fomc-corpus,1983,"I don't mean to press it, Mr. Chairman, but there is some advantage to having the expectation of a pickup, or some such wording, because then if it doesn't occur, we could say it implies something.",43
-fomc-corpus,1983,But the M2 and the M3 which are referred to in alternative I are running low now.,20
-fomc-corpus,1983,It would have to be still lower.,8
-fomc-corpus,1983,"The advantage of the alternative II draft, I think, is that the sentence on Ml is handled better than in what you read earlier, Paul.",29
-fomc-corpus,1983,That I agree with. We're really--,8
-fomc-corpus,1983,It doesn't have to read that we put Ml back on a pedestal or as a target.,18
-fomc-corpus,1983,"Well, it's forward looking rather than ex post.",10
-fomc-corpus,1983,And it still bases the action on accelerating M2 and M3.,14
-fomc-corpus,1983,"Yes, but I think it's ridiculous when you look at it. It says we're going to tighten up because M2 and M3 are going to be more than 3 percent in the next two months.",41
-fomc-corpus,1983,And it doesn't have the strength in the economy.,10
-fomc-corpus,1983,"It seems to me that if we take your language and move the business conditions comment ahead of the Ml comment and add that ""lesser restraint will be acceptable in the context of..."" we at least begin to have something to work with. It's not completely consistent; now we've got to reconcile--",58
-fomc-corpus,1983,That might be the way to do it.,9
-fomc-corpus,1983,"Well, I don't quite have that operatively. What are you suggesting?",15
-fomc-corpus,1983,"After the language in your draft ""for the quarter and within the longer-run ranges,"" why not move up ""and against the background of evidence of some acceleration in the rate of the recovery."" Then make your comment with regard to transactions balances in the anticipatory way that it's done in alternative II. And then close with the lesser restraint sentence. That is, we would have: ""The Committee anticipates that Ml would remain above its long-run range,"" as in the alternative II language, ""but that its growth would be substantially reduced in the period immediately ahead."" And then close with ""Lesser restraint would be acceptable...."" Now, that isn't completely consistent; it needs a little editing once you tack it all together like that.",146
-fomc-corpus,1983,"Well, my problem is that I lose sight of just how it--. I understand adding this other sentence; I don't think there's any great problem with that.",32
-fomc-corpus,1983,The lesser restraint?,4
-fomc-corpus,1983,Yes. The fact is we haven't got much restraint.,11
-fomc-corpus,1983,"Well, the case for adding that increases, I think, as we shift to increasing the degree of restraint.",22
-fomc-corpus,1983,"The only problem with that sentence ""Lesser restraint would be acceptable in the context of more pronounced slowing of growth in the monetary aggregates relative to the paths...."" is that it's fine for M2 and M3 but it's hard to pronounce a slowing of growth in M1 relative to the path.",59
-fomc-corpus,1983,"You're right. So it should be ""M2 and M3"" instead of ""monetary aggregates.""",22
-fomc-corpus,1983,Maybe we could just do that.,7
-fomc-corpus,1983,"That's a rather unusual construction no matter what, if we have lesser restraint if M2 and M3 slow further but we don't say what we're going to do if M1 slows.",36
-fomc-corpus,1983,That's the beauty of it.,6
-fomc-corpus,1983,"I think there's a very serious problem with your formulation, Paul, which is not true of alternative II, which is this: In effect what you're saying in the first sentence of your formulation is that while M2 and M3 on the one hand are growing below the rates established, since transactions balances have been increasing substantially more rapidly than desirable we therefore are increasing slightly the degree of reserve restraint. In effect you are telling the market that Ml is now more important than M2 and M3. Do you really want to go that far?",107
-fomc-corpus,1983,I don't think it says that. It says that Ml is increasing at a rate of 24 percent and I give it some weight.,27
-fomc-corpus,1983,It doesn't say that. It says that Ml is more important than M2 and M3 in terms of the bottom line.,25
-fomc-corpus,1983,I don't think it says that. That's your reading of it; it's not my reading of it.,20
-fomc-corpus,1983,Two are going down; one is going up strongly.,11
-fomc-corpus,1983,"That's right. And there comes a point when the one going up strongly outweighs the two. When the two are 1 percentage point below where they should be and the other is 18 percentage points above where it should be, my weighting says, yes.",52
-fomc-corpus,1983,So here we are to the central bank money as the German--,13
-fomc-corpus,1983,"Well, that's not my view of deemphasis.",10
-fomc-corpus,1983,"[It is] straightforward. I'm not sure it's going to solve any of these problems; I'm perfectly happy to try it out. ""The Committee seeks to increase slightly the degree of...""--I don't know about that ""seeks to""--""taking account of expectations that growth of M2 and M3 will remain within their longer-run ranges, recognizing the recent strength of Ml, and against the background of evidence of some acceleration in the rate of business recovery. Lesser restraint would be acceptable in the context of....""",103
-fomc-corpus,1983,String them altogether.,4
-fomc-corpus,1983,"What's missing here, but I hate to say it, is that the Committee seeks to increase only slightly.",21
-fomc-corpus,1983,"Well, if you put in the reversal language, you'll get some of the members.",17
-fomc-corpus,1983,I think your first draft is better than any of these suggestions.,13
-fomc-corpus,1983,"Well, I'm not sure if I read anything that people are going to like better.",17
-fomc-corpus,1983,"To be clear, Mr. Chairman, I would join Tony Solomon in opting for alternative II and lifting the bracketed language out of alternative I with respect to the downside risk on M2 and M3. It seems to me we're really adopting a money market conditions directive and the initial borrowing level is the important factor. If that's $350 million, that's consistent with what we've had in the past. And I don't see any reason to include language in a directive that will be made public after the next meeting, 6 weeks from now, which says we're going to snug up slightly or we're going to have slightly greater restraint or any other such language. I don't see where we [gain] anything from it. It seems to me that $300 million or the $250 to $350 million range of borrowing is what we ought to be focusing on without any language about snugging up. Alternative II, with the lifting of the language on the down side, seems to me to do that. And it doesn't elevate Ml to some target level for the Desk to shoot at.",213
-fomc-corpus,1983,"I suppose it will make nobody happy to say: ""The Committee seeks in the short run to increase""--or maybe to increase only slightly--""the degree of reserve restraint, recognizing that, while Ml has been increasing substantially more rapidly than anticipated, M2 and M3 are expected to remain below the rates...."" That explains why it's only slightly.",70
-fomc-corpus,1983,I can accept it.,5
-fomc-corpus,1983,Would you add the lesser restraint?,7
-fomc-corpus,1983,We're talking about such narrow ranges.,7
-fomc-corpus,1983,[Unintelligible.],6
-fomc-corpus,1983,But you would add the sentence on business?,9
-fomc-corpus,1983,"Yes, I'm not quite sure what I said. All right, let's try this: ""The Committee seeks in the short run to increase slightly""--I'd put in ""only"" before that but it sounds a little [unintelligible]--""the degree of reserve restraint, recognizing that, while Ml has been increasing substantially more rapidly than anticipated, M2 and M3 are expected to remain below the rates of growth of 9 and 8 percent established earlier and within their longer-run ranges. The action was taken against the background of evidence of some acceleration in the rate of business recovery. Lesser restraint would be acceptable in the context of more pronounced slowing of growth in the broader monetary aggregates relative to the paths implied by the long-term ranges and a deceleration of Ml or indications of a little weakening in the pace of economic recovery.""",167
-fomc-corpus,1983,That sounds good.,4
-fomc-corpus,1983,That's a lot of words for $100 million.,10
-fomc-corpus,1983,"May I ask you, Mr. Chairman, what you believe to be the advantages of making public 5 or 6 weeks from now the language ""to increase slightly the degree of restraint""? What advantage enures to the System by publishing that language after the next meeting?",54
-fomc-corpus,1983,I guess that question is not on the top of my mind. My first [objective] would be to try to say something that halfway accurately reflects what we think we're doing.,35
-fomc-corpus,1983,"If I may be so bold, Mr. Chairman, to answer that question: You may not agree with it, but let's not forget, Roger, that this directive will be released right after our July meeting but before the Chairman's testimony and hence the Fed watchers will be really studying that directive to see what nuances they can draw from it. I think it's a particularly important statement.",76
-fomc-corpus,1983,"Well, I don't tend to agree with you, obviously.",12
-fomc-corpus,1983,It's a suggestion that we're not oblivious to what is going on.,14
-fomc-corpus,1983,"On the other hand, you've also incorporated in this that we want to increase interest rates, or restraint if you will, because the economy has just come out of an episode where we had two recessions in three years.",44
-fomc-corpus,1983,But it suggests we are moving in a way that would avoid the excesses that sometimes have characterized a certain stage of the recovery and overcreating the--,30
-fomc-corpus,1983,And it also place more emphasis on Ml than on M2 and M3.,16
-fomc-corpus,1983,"No, I disagree with that. I just think that is a plain misreading. It says here we're placing some emphasis on it; we are not ignoring Ml when it's huge. We've never said anything different.",42
-fomc-corpus,1983,"What you're saying is that even though we have deemphasized Ml, when it's this large we have to take it into consideration.",26
-fomc-corpus,1983,I think that's precisely what we're saying.,8
-fomc-corpus,1983,I don't agree with that.,6
-fomc-corpus,1983,I don't know how you can read it any other way.,12
-fomc-corpus,1983,For one month.,4
-fomc-corpus,1983,"Well, we're increasing reserve restraint when M2 and M3 are falling below their--",17
-fomc-corpus,1983,That's right. They're falling 1 percent below. They're expected to fall 1 percentage point below and Ml is growing 10 percentage points above.,29
-fomc-corpus,1983,"I don't see, unless you don't want to snug at all, how we can snug with any less vigor than that statement. If I had a girlfriend that snuggled like that, I'd fire her!",41
-fomc-corpus,1983,I think that is an empirically correct statement.,10
-fomc-corpus,1983,"Well, I think it read all right.",9
-fomc-corpus,1983,"To me, the only thing we could debate here is whether we put in the word ""only"" before slightly. It just sounds a little--",29
-fomc-corpus,1983,"No, I don't think so, because to snug only slightly in the short run suggests that a little later you're going to do more. ""In the short run we will increase only slightly"" seems to have a little trend.",45
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"Or we could take out the words ""in the short run.""",13
-fomc-corpus,1983,"You'd have to take out ""in the short run.""",12
-fomc-corpus,1983,"Well, let me read it once again and see whether I've got it straight and see whether anybody can do any better.",24
-fomc-corpus,1983,Don't give them a chance at it!,8
-fomc-corpus,1983,"""The Committee seeks in the short run to increase slightly the degree of reserve restraint, recognizing that, while M1 has been increasing substantially more rapidly than anticipated, M2 and M3 are expected to remain below the rates of growth of 9 and 8 percent established earlier within the longer-run ranges. The action""--we could say the modest action--""was taken against the background of evidence of some acceleration in the rate of business recovery. Lesser restraint would be appropriate....""",95
-fomc-corpus,1983,We seem to be saying that we're tightening because M2 and M3 are expected to remain below the rates--,22
-fomc-corpus,1983,That's why the word only would help in that context.,11
-fomc-corpus,1983,It seem to be putting all the weight there on Ml.,12
-fomc-corpus,1983,"Well, you could say marginally, so you avoid Chuck Partee's--",16
-fomc-corpus,1983,Slightly marginally?,6
-fomc-corpus,1983,"Could we put a phrase before M2 and M3 there and say ""in the context in which M2 and M3 are only slightly below their...""",31
-fomc-corpus,1983,"I think we'd need to drop the ""while,"" though. The Chairman's point is correct. The argument seems backwards--",24
-fomc-corpus,1983,It is backwards.,4
-fomc-corpus,1983,"--if we say we're doing this while Ml [is high] although M2 and M3 are falling below. We ought to drop the ""while recognizing that.""",33
-fomc-corpus,1983,Like the way I said it originally.,8
-fomc-corpus,1983,"Or leave the order the way it is but take out the word ""while"" and just say ""recognizing that [Ml] growth...even though M2 and M3 are below.""",38
-fomc-corpus,1983,"I think the result of that is that it gives a little more emphasis on Ml, but I--",20
-fomc-corpus,1983,A more honest directive would say that.,8
-fomc-corpus,1983,It's pretty honest as near as I can see.,10
-fomc-corpus,1983,"I don't think it is. I think a more honest directive would say we are worrying about too strong a recovery and even though we don't pay too much attention to Ml, when it gets to be this big we would pay some attention to it.",49
-fomc-corpus,1983,That's what we're saying.,5
-fomc-corpus,1983,That's all it says.,5
-fomc-corpus,1983,We're going to take a little precautionary snugging.,11
-fomc-corpus,1983,That's comes as close to saying that as I can devise.,12
-fomc-corpus,1983,"Well, I'll be glad to back off.",9
-fomc-corpus,1983,A more honest way of saying it is when the economy shows some--,14
-fomc-corpus,1983,I don't see anything dishonest about this. It says as plainly as I can say it what I think we're going to do. I just reject that entirely. It can't be much more straightforward.,38
-fomc-corpus,1983,What level of borrowing are we talking about?,9
-fomc-corpus,1983,"Well, that's a nice question. I'm assuming we're talking about $350 million.",16
-fomc-corpus,1983,"Well, I thought that you had assumed before that that's the existing degree of restraint.",17
-fomc-corpus,1983,"I think it is about that, de facto.",10
-fomc-corpus,1983,Then the statement is dishonest in the sense that we are not going to snug.,16
-fomc-corpus,1983,"We're going to try for it this time, though.",11
-fomc-corpus,1983,Hitting it intentionally is snugging from hitting it accidentally.,12
-fomc-corpus,1983,"If we went to $400 million, I think that would represent an $8 million snugging, which is fairly modest.",25
-fomc-corpus,1983,"Do you think we ought to put that ""only"" in there?",14
-fomc-corpus,1983,Why aren't we talking about increasing the funds rate to 8-3/4 to 9 percent? Isn't that really the issue?,27
-fomc-corpus,1983,That's what we're really talking about; that's right.,10
-fomc-corpus,1983,We usually don't say it that boldly.,8
-fomc-corpus,1983,"Yes, but that's the understanding. That's what we're voting for.",13
-fomc-corpus,1983,That is a 1/2 point increase in the funds rate over what we thought we had.,20
-fomc-corpus,1983,"I continue to welcome any suggestions as to how to word this, but I do not think the issue is honesty.",23
-fomc-corpus,1983,It's to snug or not to snug.,8
-fomc-corpus,1983,It's under 9 percent or--,7
-fomc-corpus,1983,"What we're trying to say here, assuming we snug however infinitesimally, is that, yes, we'll give a little weight to Ml when it's way above and we'll give some weight to the economy looking stronger.",43
-fomc-corpus,1983,I think it's as close as you're going to get.,11
-fomc-corpus,1983,But the decision is whether to raise the interest rate or not.,13
-fomc-corpus,1983,The decision is where to put the borrowing level.,10
-fomc-corpus,1983,That's raising the interest rate.,6
-fomc-corpus,1983,In a sense the snugging is already behind us. We're now going to aim at what we accidentally hit.,22
-fomc-corpus,1983,I think what the market--,6
-fomc-corpus,1983,"Henry, it was clear last time--",8
-fomc-corpus,1983,Not in this directive.,5
-fomc-corpus,1983,--that we were to go to an 8-3/4 percent interest rate. We made that decision 6 weeks ago; now we're going to go to 9 percent.,37
-fomc-corpus,1983,Not if we keep borrowings at $350 million.,11
-fomc-corpus,1983,"Would that language you have there, Mr. Chairman, perhaps be a bit more acceptable if it said ""...increase slightly the degree of restraint. The action was taken in the context in which M2 and M3 were slightly below their paths for the quarter but Ml was well above and the economy was stronger."" Does that help at all in terms of how--?",72
-fomc-corpus,1983,I think it helps the syntax of it.,9
-fomc-corpus,1983,I think that's what we're trying to say. It's very close to what I said originally.,18
-fomc-corpus,1983,"Well, I think it pushes M1 a little further off into the wilderness.",16
-fomc-corpus,1983,"But interest rates went up. If the two of them are below and we raise interest rates because they're below, and when one goes up we raise interest rates--",32
-fomc-corpus,1983,"Well, it's saying two things. It's saying M2 and M3 are just in a statistically insignificant way below where we want them to be and, on the other hand, Ml is very strong and the economy appears to be strong.",47
-fomc-corpus,1983,So we raise the interest rates.,7
-fomc-corpus,1983,"Yes, but I think it says it in a slightly different way than the way it's there now. It pushes M1 further into the background than it is now.",33
-fomc-corpus,1983,Not much.,3
-fomc-corpus,1983,Not very much further.,5
-fomc-corpus,1983,I myself would be willing to put it on the economy but that gets us into the trap of saying we're going to run policy more generally on the economy. I'm not ready for that either. VICE CHAIRMAN SOLOMON(?). You're going to frustrate the Administration and Congress for the rest of the year?,63
-fomc-corpus,1983,The Administration [unintelligible] frustrate the Congress and not the economy. You could drop them both and frustrate both.,27
-fomc-corpus,1983,Did Regan say 6 percent for Ml?,10
-fomc-corpus,1983,He won. Poole said 5 percent; we can't get them to agree on how far down.,21
-fomc-corpus,1983,"For the year, you mean.",7
-fomc-corpus,1983,Anyone who names this Ml number should mention the associated funds rate.,13
-fomc-corpus,1983,"To Poole, the lower the money number the lower the funds rate, I think.",18
-fomc-corpus,1983,In the long run. MR. GRAMLEY [Unintelligible] talk about Poole?,21
-fomc-corpus,1983,"What did you suggest for Ml, Mr. Corrigan?",12
-fomc-corpus,1983,"Well, it's--",4
-fomc-corpus,1983,Statistically insignificant.,4
-fomc-corpus,1983,Statistically insignificant.,4
-fomc-corpus,1983,Basically I said you have the operative sentence--,9
-fomc-corpus,1983,I understand that part.,5
-fomc-corpus,1983,"""This action was taken against the background in which M2 and M3 were slightly below their targets for the quarter, while at the same time M1 was growing very rapidly and the economy appeared to be picking up.""",43
-fomc-corpus,1983,That will eliminate the dangling participle too.,9
-fomc-corpus,1983,"If there is one thing we've got to do it's eliminate the participle, even if it--",19
-fomc-corpus,1983,"Well, only slightly below--",6
-fomc-corpus,1983,"Couldn't we say ""While Ml, which we normally deemphasize, was growing unusually rapidly""?",19
-fomc-corpus,1983,"""And the economy, which we pay no attention to, was strengthening""!",14
-fomc-corpus,1983,"""The Committee seeks in the short run to increase slightly the degree of reserve restraint."" I think at this point I'd be inclined to put in ""only slightly."" ""The action was taken against the background of M2 and M3 remaining slightly below the rates of growth of 9 and 8 percent respectively established earlier for the quarter and within their long-term ranges, M1 growing well above the anticipated levels for some time, and evidence of some acceleration in the rate of business recovery. Lesser restraint would be appropriate in the context of more pronounced slowing in growth of the broader monetary aggregates relative to the paths implied by the long-term ranges and a sharp deceleration of Ml.""",133
-fomc-corpus,1983,Why put in that last part about deceleration of Ml? That again is raising its importance.,19
-fomc-corpus,1983,You have to put it in because that's the only reason we're talking about snugging.,17
-fomc-corpus,1983,No it isn't.,4
-fomc-corpus,1983,"Oh, no!",4
-fomc-corpus,1983,But then we have a lot of--,8
-fomc-corpus,1983,You've muddied the waters.,6
-fomc-corpus,1983,Making him another God.,5
-fomc-corpus,1983,"Does anybody like ""marginally"" better?",11
-fomc-corpus,1983,"To seek ""marginally"" instead of ""slightly""?",14
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"""Increase only marginally the degree of reserve restraint.""",11
-fomc-corpus,1983,I'd put the word only in. I guess we're as close as we're going to get.,18
-fomc-corpus,1983,We have to put something in now that says the action was taken because the Committee was getting hungry!,20
-fomc-corpus,1983,"The first question will be what the borrowing level is and the second question will be the directive. ""The Committee seeks in the short run to increase only slightly the degree of reserve restraint. The action was taken against the background of M2 and M3 remaining slightly below the rates of growth of 9 and 8 percent, respectively, established earlier for the quarter and within their long-term ranges, M1 growing well above anticipated levels for some time, and evidence of some acceleration in the rate of business recovery. Lesser restraint would be appropriate in the context of more pronounced slowing of growth of the broader monetary aggregates relative to the paths implied by the long-term ranges and deceleration of Ml""--",137
-fomc-corpus,1983,I think you contradicted yourself in the last sentence.,11
-fomc-corpus,1983,I don't think so.,5
-fomc-corpus,1983,"Would it be sufficient in the last sentence, Paul, simply to say ""slowing of the aggregates"" and not say anything about the broader aggregates or deceleration of Ml?",35
-fomc-corpus,1983,"Well, we can't say ""more pronounced slowing of Ml."" What it says now is ""relative to the paths implied by the long-term ranges [and deceleration of] Ml.""",36
-fomc-corpus,1983,It sounds as if you're heading for the bottom of the range.,13
-fomc-corpus,1983,Let me go to the borrowing level. How many people want to hold it at $350 million?,20
-fomc-corpus,1983,I'll buy $350 million.,6
-fomc-corpus,1983,It's $392 million.,5
-fomc-corpus,1983,"I'd prefer $400 million, but I'll buy $350 million. I'm getting hungry too!",18
-fomc-corpus,1983,"One, two, three, four. We didn't get six votes for $350 million.",18
-fomc-corpus,1983,[Unintelligible.] I'm not sure we're going to have six votes for anything.,18
-fomc-corpus,1983,I don't know where all the missing votes are.,10
-fomc-corpus,1983,I'd be willing to vote for one that won't hold.,11
-fomc-corpus,1983,$400 million?,4
-fomc-corpus,1983,Do we pick up any [votes] at $400 million?,13
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,"No, we didn't.",5
-fomc-corpus,1983,Now try $300 million.,6
-fomc-corpus,1983,$300 million isn't going to have enough votes here.,11
-fomc-corpus,1983,You can't vote twice!,5
-fomc-corpus,1983,Sure you can. Put your right arm up.,10
-fomc-corpus,1983,You just did; now we're getting ready.,9
-fomc-corpus,1983,At least use the left hand and the right hand.,11
-fomc-corpus,1983,"Well, in some ways $350 million is the weighted average.",13
-fomc-corpus,1983,It's pretty obvious: $350 million is the weighted average. We have to reach a decision. I'll promote $350 million again. Any votes?,29
-fomc-corpus,1983,You've got $250 million over here.,8
-fomc-corpus,1983,$350 million again?,5
-fomc-corpus,1983,Again as a consensus.,5
-fomc-corpus,1983,"One, two, three, four, five, six. It would be nice to have another, but I guess it doesn't make any difference. We'll have dissents on both sides.",37
-fomc-corpus,1983,Are you counting yourself?,5
-fomc-corpus,1983,We've got to get a ruling from the chair.,10
-fomc-corpus,1983,"In a split, do we have any change from the last policy?",14
-fomc-corpus,1983,"Mr. Chairman, I would go for $350 million if we're talking about a [funds rate] level of approximately 8-3/4 percent.",32
-fomc-corpus,1983,I don't think anybody can predict [the funds rate] that precisely. It will probably be 8-3/4 percent sometimes and above that sometimes and--,32
-fomc-corpus,1983,"I understand, but I--",6
-fomc-corpus,1983,It sure isn't much different from where we are. And I can't promise you it wouldn't go to 9 percent.,23
-fomc-corpus,1983,We can operate policy so it won't go to 9 percent in the intermeeting period if that's the consensus of this Committee.,25
-fomc-corpus,1983,You get lots of chances to consult.,8
-fomc-corpus,1983,Did we have six for $400 million?,9
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,We had six for $350 million.,8
-fomc-corpus,1983,Can those who are not voting not be starved into submission?,13
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,Sorry.,2
-fomc-corpus,1983,It's one of the disadvantages of attending!,8
-fomc-corpus,1983,The thing for you to do is go for $350 million and then dissent.,16
-fomc-corpus,1983,"Well, let's go for $350 million and see where we come out. Let's have a vote.",20
-fomc-corpus,1983,Chairman Volcker Yes Vice Chairman Solomon No Governor Gramley Yes President Guffey No President Keehn Yes Governor Martin Yes President Morris No Governor Partee Yes Governor Rice No President Roberts No Governor Teeters No Governor Wallich Yes Six to six.,50
-fomc-corpus,1983,"Well, someone's going to have to change the vote. We're going to have to go with a split vote, since there apparently are people on either side.",31
-fomc-corpus,1983,I don't think so; there's only one on the other side.,13
-fomc-corpus,1983,"I don't see how--. Well, it only takes one to [unintelligible]. There's no higher number of votes for any other alternative that I see.",33
-fomc-corpus,1983,"Would you vote for [$350] million, Ted? It's better than the alternative.",17
-fomc-corpus,1983,At least there's a focus on Ml.,8
-fomc-corpus,1983,I'll verify that you're a snugger.,8
-fomc-corpus,1983,I'll put a sentence in every one of my talks!,11
-fomc-corpus,1983,[Unintelligible] get you to vote on $300 million?,15
-fomc-corpus,1983,"I don't know what that means. If it means we start out at $350 million, it's all right with me.",24
-fomc-corpus,1983,The legal counsel is--,5
-fomc-corpus,1983,Six [to six] leaves it where it was the last time.,14
-fomc-corpus,1983,"You know, for a $50 million difference, it's ridiculous.",13
-fomc-corpus,1983,That's not what [I'm] against. That's not what we're voting for; we're voting to raise the interest rates or not to raise them.,28
-fomc-corpus,1983,"Well, I'll convert my statement; if you think there's a great relationship, you're voting for an eighth of a percentage point on the federal funds rate.",30
-fomc-corpus,1983,That's what you told me last time too.,9
-fomc-corpus,1983,"Well, we will sit here until somebody has a better idea.",13
-fomc-corpus,1983,"Okay, Mr. Chairman, I give in. I prefer a higher number but if we can't get any more, I'll go with the $350 million reluctantly.",32
-fomc-corpus,1983,"So we know what it is, we will vote for a directive that says ""The Committee seeks in the short run to increase only slightly the degree of reserve restraint."" We're going to have seven votes for this. ""The action was taken against the background of M2 and M3 remaining slightly below the rates of growth of 9 and 8 percent, respectively, established earlier for the quarter and within their long-term ranges, Ml growing well above anticipated levels for some time, and evidence of some acceleration in the rate of business recovery. Lesser restraint would be appropriate in the context of more pronounced slowing of growth in the broader monetary aggregates relative to the paths implied by the long-term ranges and deceleration of Ml, or indications of a weakening in the pace of economic recovery.""",154
-fomc-corpus,1983,Chairman Volcker Yes Vice Chairman Solomon No Governor Gramley Yes President Guffey No President Keehn Yes Governor Martin Yes President Morris No Governor Partee Yes Governor Rice No President Roberts Yes Governor Teeters No Governor Wallich Yes,46
-fomc-corpus,1983,"Now we can go eat, if we don't have any other business.",14
-fomc-corpus,1983,"Let me say now to the assembled group, with a certain amount of sadness, that we just had a little discussion about a problem that has become all too recurrent: either leaks or gossip to the press about our meetings. I think we're going to have to establish some firmer guidelines, which we will discuss at the next meeting. But for the time being I'm afraid that I want to return, reluctantly, to the practice that we adopted a few meetings ago of, in effect, having executive sessions or quasi-executive sessions for the policy discussion. So, during the meeting itself, at the appropriate time we will have a smaller group. Let me just say one thing further about this while the whole group is here. I find this most distasteful and destructive to the mission of the Federal Reserve. I don't think we can operate effectively if we get conflicting, inaccurate, or on some occasions even accurate stories in the press that are not appropriately timed and don't have the appropriate imprimatur of officially designated Committee statements. Through the years I think there has been a good deal of appreciation of this within the Federal Reserve System. In some sense we are probably under quite a lot more pressure currently in terms of the interest in our behavior and decisions, both in market terms and I suppose in political terms. In my opinion, it puts a very large burden on all of us, if we're going to operate effectively, to preserve the confidentiality of what we do and make our statements in the appropriate setting. It is obviously a consideration that wider participation rather than limited participation is desirable. I understand that. But I have to balance these considerations. The wider participation is fully appropriate when I have a reasonable degree of confidence that the confidentiality will be preserved. Obviously, this has nothing to do with particular individuals. I made the point earlier that a lot of this may come from people who aren't even in this room but who have some sense subsequently, accurately or inaccurately, of what went on and may not feel the same degree of restraint. So, it is a problem of the whole organization in that sense. But if we can't be at these meetings with a feeling of security and respect, I think it's damaging and ultimately damaging to the policy-making process. Now I will ask for approval of the minutes.",456
-fomc-corpus,1983,Moved.,2
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,We'll turn to the staff report on the economic situation.,11
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,Do you have budgetary projections beyond 1984?,11
-fomc-corpus,1983,"No, we have not done that. We did some of those exercises in February, but we have not done anything later than that. As you remember, those exercises did provide for a decline in the actual budget deficit as the economy recovered but a rise in the structural deficit to levels well over $100 billion. We have not updated those figures; I presume they would roughly be the same.",78
-fomc-corpus,1983,"Our figures show a projected fiscal deficit in 1984 of $225 billion, significantly higher than yours. And then there are some moderate increases in the few years thereafter.",34
-fomc-corpus,1983,Assuming continued growth in the two years there?,10
-fomc-corpus,1983,Assuming 4 percent growth.,7
-fomc-corpus,1983,"Jim, when does the indexing start?",8
-fomc-corpus,1983,1985.,3
-fomc-corpus,1983,And how much does that take out of revenue?,10
-fomc-corpus,1983,"There are lots of things I remember, but that I don't remember. I'm sorry. It obviously hinges on one's inflation projection. If we were to run with very mild inflation projections--that is, in the 4 to 5 percent range--it would not be large early on. As you recognize, that cumulates over time in terms of substantial losses. But I would presume that with small rates of inflation, as we could conceivably have for 1985, it would not be huge. This is the last year. That is, the July tax cut [unintelligible] but the full effect of it will be felt in the 1984 fiscal year. I'm sorry, but I don't have a dollar estimate.",148
-fomc-corpus,1983,"I'd like to ask a question. I'm sure this has something to do with statistical intricacies. On the contribution of selected components to real GNP, as I understand it, even though there is a deteriorating export performance you show a positive contribution of net exports in 1984 as contrasted to 1983. Could you explain that to me?",70
-fomc-corpus,1983,That's when it stops getting worse.,7
-fomc-corpus,1983,"No, it does get some--",7
-fomc-corpus,1983,"It goes slightly positive, President Solomon.",8
-fomc-corpus,1983,But why?,3
-fomc-corpus,1983,What he's saying is that the current account estimate shows it worse.,13
-fomc-corpus,1983,"Yes, because that's the effect of the price change. We have a [terms of] trade loss, so the import prices rise much more rapidly than the export prices. That's why imports are larger to begin with. So in real terms the net export position improves in 1984, as shown in Jerry's figures, but in nominal terms it gets worse because of the terms of trade loss. The latter adds to our nominal current account dollar deficit; it doesn't add to our net exports.",98
-fomc-corpus,1983,Did you say this assumes a 15 percent or a 10 percent depreciation of the dollar?,19
-fomc-corpus,1983,It's 15 percent by the end of 1984.,12
-fomc-corpus,1983,"In the state and local area, that chart that shows surpluses of the state and local governments struck me as being at odds with what one normally perceives [the situation] to be. In my area of New Jersey and Pennsylvania it's quite the contrary; the state and local deficits are quite large. I just have an impression from the national press that there are problems nationwide yet the chart shows a surplus and the surplus is getting bigger. I'm sure you have to be right, but I wonder if you could [explain it].",107
-fomc-corpus,1983,"It's pension plans, which are carried in a state's budget as an expense.",15
-fomc-corpus,1983,"These are the operating budgets, taking out those retirement plans. I think what has happened in many locales--New York City, for example--is that the financial situation has improved much more rapidly than had been expected. Of course, there have been sizable tax increases; in the aggregate I think they're on the order of $5 to $6 billion. And the cumulative effect of all this has been a significant swing into what is a relatively sizable operating surplus, according to the data we have.",98
-fomc-corpus,1983,"All of the quarters in 1982 on that basis were deficit quarters, but the current figures show they were in surplus in the first quarter [of 1983] and the second quarter as well.",41
-fomc-corpus,1983,These are national income accounting figures?,7
-fomc-corpus,1983,Correct.,2
-fomc-corpus,1983,"Jim, I wonder if you could enlighten me a little with regard to the interest rate assumptions consistent with the [Greenbook GNP projection] as shown in Appendix I in the Bluebook. It seems to me that the projected increase in interest rates, particularly for the Aaa utilities and the fixed rate mortgages, is rather modest. It's an increase of 5/8 point or 60 basis points or something of that sort. That seems to me to be a relatively low threshold for these rates to achieve. Can you help me understand why you have such low ceilings as your--?",118
-fomc-corpus,1983,"Well, as you can appreciate, things have been happening since we put this forecast together. When I looked at this chart on interest rates, as a matter of fact, I had in mind that interest rates would be moving up about a percentage point. But as of yesterday it was about forty-five basis points for the bill rate because that rate already had taken a 50 basis point increase along the way. So, part of the answer is that just in the last few weeks market rates, indeed, have been moving up. The numbers that we have in the forecast are the ones shown in Appendix I. Some of those rates in long markets and the mortgage market in particular clearly have been moving up. They are almost to the levels we had envisaged as an average rate for the third quarter. So, implicitly, what we are thinking is that the rate moves that would be encompassed in this forecast would allow room for some further rise in rates but not a great deal.",195
-fomc-corpus,1983,"So, indeed, if the structure has a higher threshold than you've shown, wouldn't that cast some doubt over the housing forecast and particularly the less creditworthy bank borrowers who resort to the commercial bank window as you've indicated they will be pushing to do in 1984? And that perhaps would affect the volume of consumer borrowing. It's all on the negative side.",71
-fomc-corpus,1983,"I must say, though, that if you look back over the performance of the last six months, we clearly have raised our [forecast of] real GNP and we have raised our view on the Ms as well as the interest rates that go with the forecast. We did not have a clear interpretation of what rate levels or changes in rates would be consistent with activity in the first half. It turned out that they were consistent with much stronger activity. So, we believe that that will be at work in the future. But one of the arguments for a moderation in growth of economic activity late this year, and especially in 1984, comes from the financial side. The explanation is that those rates, in our view, should be high enough to damp activity a bit.",155
-fomc-corpus,1983,You mentioned a revision in manufacturing capacity. Could you comment on that?,14
-fomc-corpus,1983,"I think Jerry mentioned it, so we'll let him comment.",12
-fomc-corpus,1983,"Thank you. This is part of a series of such adjustments that have occurred over the years, periodically. We will be bringing the new numbers out later this month. They involve an adjustment in capital and capacity utilization figures, utilizing all sorts of data that we can put our hands on: industry data, survey data from McGraw-Hill, data from our own Census Bureau survey, and so on. It involves a revision of capital stock, which raises the capacity utilization rate by 1-2/3 percentage points at the current time. There are substantially larger increases in some industries, particularly some hard goods industries, but on balance it really doesn't change the situation dramatically. I might say that we've had to be rather conservative in the way we approach these adjustments, particularly in the middle of a contraction phase of the cycle, because what firms say they are putting out of production today they may change their minds on six months down the line if production increases considerably. So, we tend to be rather cautious about it. But, generally, that is the nature of the adjustment.",214
-fomc-corpus,1983,How much are you reducing the capacity of the steel industry?,12
-fomc-corpus,1983,"I think the capacity utilization rate changes 5 percentage points. But, of course, it remains relatively low, so that [the reduction] doesn't have any particular significance for pressures on that industry.",39
-fomc-corpus,1983,"Jim, I'd like to ask a question, if I may, on the federal government share of total credit flows, which was [depicted in] the lower half of the first chart that Mike Prell referred to. I believe that has quite a bearing on the outlook for interest rates, real and nominal. My question specifically, Mike, is: Do you have anything in here other than the unified budget deficit? That is, have you included off-budget deficits and mortgage pools and guaranteed loans? Just what is in this measurement?",106
-fomc-corpus,1983,"This measurement is borrowing by the U.S. Treasury, which covers both the unified deficit and the off-budget deficit. It does not include government guaranteed or sponsored agency issues.",34
-fomc-corpus,1983,"All right, thank you.",6
-fomc-corpus,1983,"When I look at your chart on GNP prices and unit labor costs, they've been moving closely together since 1977 and that suggests that there's a basis for your declining inflation projection. But there are many other forecasters who have a projection of rising inflation. Do they have different assumptions as to unit labor costs that are necessary in [arriving at] such forecasts?",74
-fomc-corpus,1983,"I don't think it's a fundamental [difference in] unit labor costs trends, although there are differences in the views of productivity trends. We may be a little more optimistic in our view of productivity than some, but not a great deal because we remain rather conservative. Our view is that long-term productivity growth at this point is just a little over 1 percent, up about a half point from where it was assumed to be but certainly nothing like the kinds of productivity [trends] that we had earlier. I think it's more a function of a reading of the implications of the speed of recovery and its effect on wage adjustments and pricing performance. I must say that our staff, in evaluating past performance and utilizing whatever quantitative tools we have available, tends to come out with rather optimistic results about the inflation outlook--somewhat more optimistic, in fact, than we have incorporated here.",175
-fomc-corpus,1983,"Jerry, you have non-oil import prices here. What assumption do you have on imported oil prices?",21
-fomc-corpus,1983,I think those are relatively stable in real terms.,10
-fomc-corpus,1983,"No, they are stable in nominal terms, as I mentioned. Essentially, the assumption underlying the forecast is that oil prices will be unchanged throughout the projection [period]; we have built in a small adjustment for the very slight rise of something like 50 cents a barrel from currently recorded figures, but that [reflects] a tightening of spot [prices].",71
-fomc-corpus,1983,"Coming back to Governor Wallich's point: Most forecasters are projecting a higher rate of inflation than we are. Certainly, that's the feeling in the financial community; they are looking toward inflation of 5 to 6 percent instead of around 4 percent. Is it that their assumptions and models are different or is it that they are factoring in, in an intangible way, psychological expectations, commodity prices, etcetera, and are not basing it primarily on unit labor costs? How does the CEA come out with a higher inflation [projection]?",110
-fomc-corpus,1983,"Well, that one is easy to answer. That tracks right into the budget numbers that one is going to display. In developing the Administration forecast, a number of the participants argued for lower rates in their belief that there will be a better inflation [outcome], but that of course drives up the budget deficit. I think the answer is that a number things are important in influencing expectations. One is the dollar and one is the notion of [the economy] growing rapidly; there will be speed limit effects and we will have lessened slack by 1984. It's very difficult to use past experience and come up with a substantial acceleration in wage rates in the future. If you want to argue the case, you could say that a lot of the good performance we've had recently represents concessions and that as soon as profits pick up that's going to disappear. That may be the case. But we've just seen in the second quarter more companies added to the list of those still [getting] concessions and three-year contracts with no wage increases. We have a view that, yes, there are cyclical effects here but that we will have enough slack, judged in terms of the level of underutilized resources, to keep putting downward pressure on wage rates. We view that as a fundamental.",255
-fomc-corpus,1983,Have you fed back in Ted Truman's 15 percent depreciation of the dollar?,16
-fomc-corpus,1983,"Yes. He's causing us difficulty, obviously. Without Ted Truman we would have lower rates of inflation! We do believe that to be a very important argument for 1985. That is one thing I should note: The partial dollar impact that we have on domestic prices in 1984 would build in 1985 and would have a larger effect.",70
-fomc-corpus,1983,That's the reason why we had that alternative chart there.,11
-fomc-corpus,1983,"We all have been assuming a depreciation of the dollar and factoring it in for the last year, and it hasn't come about.",25
-fomc-corpus,1983,You're showing in 1984 a drop of 0.8 in the unemployment rate associated with a 4.2 percent real growth rate. My staff suggests that that is a rather large drop in the unemployment rate historically for a 4.2 percent real growth rate. Are you assuming labor force growth is dropping off sharply or what is it?,70
-fomc-corpus,1983,"No, labor force growth doesn't drop off sharply; actually, it increases quite a bit. We feel that a 4-1/4 percent increase in GNP is close to 2 percent above capacity growth and that this decline in the unemployment rate of about 3/4 of a point is historically reasonable using something like an Okun's law calculation.",72
-fomc-corpus,1983,"Really? As a matter of fact, our staff thinks it's high.",14
-fomc-corpus,1983,"You have a very low productivity growth in 1984 compared to historical cyclical experience, don't you?",21
-fomc-corpus,1983,"Our productivity is low, certainly based on earlier postwar experience, [such as] in the '60s when productivity was rising [unintelligible] percent or so. It is now in the [1-1/4] percent range. But it is higher than it was running in the 1970s; it is twice as high, and that of course plays a role. That is, in fact, relatively low productivity. But incorporating that productivity trend into the calculation--if one wants to take this kind of mechanical, that is, purely the Okun's law approach--I think does give us a decline of something like that magnitude for a rate of [GNP] increase of 4-1/4 percent.",150
-fomc-corpus,1983,"In mechanical terms, if we move above the cyclical trend in the early part of recovery, as the recovery matures we are going to have a period when productivity growth is somewhat below the trend rate of growth so as to return to the trend line.",51
-fomc-corpus,1983,Haven't we begun to see that already? In recent months hasn't productivity declined?,17
-fomc-corpus,1983,"No, I don't think so. We still have fairly vigorous productivity gains. In manufacturing, productivity is rising certainly 4 percent or [even] above that.",32
-fomc-corpus,1983,May I go back to capacity utilization? You show a reasonably good increase in capacity utilization in 1983 and 1984. The capital expenditure line looks awfully steep. Do you have a pretty good confidence factor on that?,46
-fomc-corpus,1983,"The growth in capital outlays? Well, the only thing we have hard evidence on at the moment is new orders for nondefense capital equipment, which shows a pretty vigorous turnaround. Now, that doesn't tell us much about what is going to happen in 1984 but it tends to be a reasonably good lead indicator for the near term.",69
-fomc-corpus,1983,Where are those new orders in relation to sales?,10
-fomc-corpus,1983,Are unfilled orders rising or falling at this point?,11
-fomc-corpus,1983,"I think they have started to fall. Excuse me, they have turned around.",17
-fomc-corpus,1983,Just by a little. Aren't the new orders barely above sales?,14
-fomc-corpus,1983,"Yes, but they were running the other way and there is a hint that we have reached the bottom and there is a turn where new orders--",29
-fomc-corpus,1983,"Now, if you want to be pessimistic, you can say this order increase is necessary to maintain the current level of sales.",26
-fomc-corpus,1983,"Yes, you can. Our forecasts for capital spending are based upon relationships with real output and the multiple effects of demand on capital outlays. And in this case they are pretty much in line with past performance.",42
-fomc-corpus,1983,Your confidence factor is pretty high?,7
-fomc-corpus,1983,"Yes, given interest rates now. In answer to your question, there are some things going on behind this that we try to take into account. One is that we have petroleum drilling, which gets wrapped up in these numbers, rising but not a lot because we think that market is going to be rather depressed given the oil price situation. We do think that in many areas of the country a major collapse is underway in certain commercial and office building construction, and that is likely to be negative going into 1984 for some time. In the past what has happened, however, is that equipment purchases have been the first to pick up and we have seen a good deal of that. Now, early on, the [sales of] autos collapsed and they were [selling] at a discount. And they get wrapped up in these numbers. But office equipment, computer-related products, have been very strong. So, that is the sustaining force early on. But [our forecast] is conservative, I think, in the sense that most of the models say--and certainly the cyclical experience says--that we're running a little below what has happened in past cycles.",232
-fomc-corpus,1983,This new orders figure is for plant as well as equipment?,12
-fomc-corpus,1983,"No, the new orders figure is for nondefense equipment alone.",14
-fomc-corpus,1983,"I have one other question, which I will insert. You have credit growth rising more rapidly than GNP and you say that is contrary to usual cyclical experience. Why?",35
-fomc-corpus,1983,"We go through this on a sector-by-sector basis, as well as looking at it in the aggregate. Taking existing balance sheet positions as a start, trying to maintain reasonable levels of liquidity in the business sector and building up all these flows, this is what we come up with. Going back and then looking at that again and asking whether we are comfortable with this, I guess we've suggested before that we don't have any great theory of credit aggregate behavior. What we're left with is the feeling that given the size of the federal deficit and the kind of spending and borrowing relationships that might come from that, this relatively rapid growth of debt is sensible. I would note that we were expecting a somewhat bigger gap than seems to be materializing this year. But there is, nonetheless, this gap. We don't see the development thus far this year of what would be a normal pattern where, on average, credit growth is falling short of GNP growth by a couple percentage points in the first year of recovery. We think it probably has something to do with this very large government borrowing.",214
-fomc-corpus,1983,"That could be a result of government borrowing not being as stimulative as private borrowing. That could be because it's mainly receipts reduction. And it could have a flow-through effect on savings, although the saving rate is awfully low in your forecast, which was the point I was going to make. It seems to me that you have a rather low saving rate for the next 6 quarters compared to historical experience. There is no evidence whatsoever of savings being stimulated by tax incentives and so forth, from what I can see.",104
-fomc-corpus,1983,"Well, it could be that there is something going on in the disinflationary process, for example, that makes people want to hold more financial assets relative to income than had been true previously. Essentially, we had a very big accumulation of financial assets relative to income last year. There's an enormous gap, and we're carrying this through; it's not going away. We have in our forecast a continuing moderate inflation picture; we have regulatory changes that make some forms of financial assets more attractive on the whole.",101
-fomc-corpus,1983,You're taking a position that all this liquidity isn't going to be reflected in a higher GNP.,19
-fomc-corpus,1983,Implicitly--in the same way that we don't have a tremendous reversal of the velocity behavior of the last year.,23
-fomc-corpus,1983,"I'd like to ask Jim another question or two about the first page of his charts, the lower panel that dealt with interest rates. Do you care to share with us, Jim, your explanation, or rationale if you have one, of the underlying cause of this rise in interest rates shown for midyear up to the fourth quarter and then a decline by the fourth quarter of next year? That's a tough one.",82
-fomc-corpus,1983,"Well, for one, it has something to do with monetary policy assumptions. That's a place one might start. It also has something to do, obviously, with our view that at the present time we have strong underlying demands for spending and credit and that the combination of those things, given our monetary policy assumption, will likely result in some upward drift [in rates]. I noted before that these charts may give one the feeling that there is more movement here than is in fact in store, because some of it already has occurred. The 1984 projection on interest rates comes out of a considered judgment and a great deal of thought and hope on our part. But I'm not so sure I can say more than that. What has influenced us, particularly on long rates, is the feeling that we are most likely to see a much better inflation performance than markets generally anticipate and that, as each month goes by and we see low rates of inflation, double digit long rates indeed will look pretty attractive so that there is room [for some decline] in 1984. In addition, we think the higher rate levels that have occurred now will lead to some maturing of the expansion and to some slowing and thus take a little of the pressure off of the credit markets. But I would not wish to stake all of what we said this morning on the basis of these interest rate forecasts for that year. That's a central area.",283
-fomc-corpus,1983,"I appreciate your sharing those thoughts with us. I gather, based on your remarks, that you share to some extent the view that long rates are influenced considerably by inflation expectations. And yet the pattern that we see both in your chart as well as in Appendix I in the Bluebook shows short rates and long rates generally moving up and down together. If you look back a few years, the [unintelligible] doctrine was that if we could convince markets that we were going to pursue anti-inflationary policies on into the future, we would reduce inflation expectations and have downward pressure on long rates. The thing I'm agonizing about the most, and I guess a lot of people around the table are, is: What in the heck has caused this serious increase in long rates since the middle of May or for about 2 months now? Have inflation expectations worsened or are we in a new era where if short rates go up, the arbitrage effects are going to cause long rates to go up right along with them irrespective of any changes or lack thereof in inflation expectations?",217
-fomc-corpus,1983,"Well, I could say something, but maybe Steve or Paul would want to comment on their interpretation of the markets in terms of what has happened in the very short run.",34
-fomc-corpus,1983,"President Balles, even some years ago short rates and long rates tended to move together in differing degrees. In the very recent period, actually, long rates have moved up about as much as short rates. I myself think it's somewhat surprising, and I think that [reflects] an anticipation or fear of further monetary tightening. I would dare say that if the short rates went down in a sustained way, there would be a very sharp drop in long rates. I don't think at this very moment that this is reflecting a change in inflationary expectations. Now, the level of long rates--being high in real terms--might have something to do with the budget deficit and the fact that you need higher real rates when the government is the propelling force than you do when private expenditures are the propelling force, with the same level of real GNP. At least most of our big models would give that result. So, private spending wouldn't be so high at this level of real rates, independently, without the government stimulus.",205
-fomc-corpus,1983,"I'd just add one market factor, which is that the Treasury in the third quarter, for example, will be selling about $60 billion of coupon issues to replace approximately $23 billion that mature. We're really getting a lot of supply and the markets are having trouble finding a widening circle of buyers for that supply.",62
-fomc-corpus,1983,"Well, that's right. And it comes back to a point made in that first chart that Mike Prell showed: that the percent of total credit flows being taken by the federal government, as projected forward a year to the fourth quarter of 1984, apparently isn't going to come down nearly as much as it usually does following an economic recovery. We have this new structural deficit in there that's keeping that share up. Is that the way you'd interpret it, Mike? And that, in turn, could have an effect of keeping interest rates up, I guess.",112
-fomc-corpus,1983,Why wouldn't that argue for higher rates in 1984 rather than lower rates?,16
-fomc-corpus,1983,"Well, the GNP increase is not all that large in 1984, if you look at it. They have 4-1/4 percent real and around 8 percent nominal. If, in the abstract, somebody said there was going to be an 8 percent increase in nominal GNP, I don't think you'd be talking about higher rates.",72
-fomc-corpus,1983,I think the market thinks you're talking about higher rates.,11
-fomc-corpus,1983,I think I have on my desk a study from the Treasury saying that government deficits don't have any influence on interest rates. I haven't read the study yet; I just read the newspaper reports earlier. I now have the study. Have you seen that?,50
-fomc-corpus,1983,"Yes, we got it last evening. I've had a lot to read in the last few days. I'm not sure it quite says that. I think what it says is that pure theory can't give you an answer--that one can construct alternative views of the world in which government deficits have no impact on interest rates or inflation. It also says that under certain assumptions those are quite reasonable, but it does not come to any definitive conclusion and to some extent depends on rather extreme assumptions. One critical one, for example--a hypothesis that has been floating around for some time--says interest rates are invariant no matter what level of deficit you have. That proposition is simply that individuals see through this veil of government debt financing and know that in their lifetime or their children's lifetimes somebody will have to repay it, so they will simply increase their saving to exactly offset it--deficit saving.",177
-fomc-corpus,1983,That's why the saving rate goes down!,8
-fomc-corpus,1983,This is not an econometric study?,8
-fomc-corpus,1983,"No, it's not.",5
-fomc-corpus,1983,"Well, one of the problems is that our huge deficits have always occurred in recessions. If they took periods of time in which there were large deficits and high utilization, I think they'd find a different result.",42
-fomc-corpus,1983,Exactly.,2
-fomc-corpus,1983,"As Jim was saying, it's largely an analytical study as opposed to an econometric one.",18
-fomc-corpus,1983,"If one does a sufficiently poor job of taking out the cycle, one would find that the high deficits are associated with low interest rates. If you take out the cycle properly, I don't believe you get that result.",43
-fomc-corpus,1983,You have a chart on deficits which shows the current cycle against the median of previous postwar cycles. What would it look like in 1975 and the subsequent expansion?,34
-fomc-corpus,1983,"Well, I don't believe I have the individual cycle data with me. No, I don't. But as I remember, the rebate came early in the spring of 1975, so we would have had an actual budget deficit decline at that time but then economic activity continued to rise. As I remember, the 1975 cycle does indeed approximate this upper line; it's below the black line for the median of previous cycles, but the first quarter into the cycle there is this plunge when we had the $50 rebate or whatever, and then it goes back on track--that is, it's going toward a surplus.",123
-fomc-corpus,1983,"The earlier period is shown in this other chart, isn't it, Jim?",15
-fomc-corpus,1983,That shows a proportion of credit.,7
-fomc-corpus,1983,It's going down; you're correct.,7
-fomc-corpus,1983,My question has already been answered.,7
-fomc-corpus,1983,"Well, we have had all the specific questions and we have all the projections, so presumably we have a statistical analysis of what everybody thinks. Those should be looked at again for any changes you want to make subsequent to our decisions. You have to send in any revisions you want to make in a hurry so we can prepare the [Humphrey-Hawkins report]. I just glanced at these, and there may be some obvious explanation, but I think the Board members are in a relatively narrow range of 5 to 6 percent, fourth quarter-to-fourth quarter, but with half the year over they are 3 to 5 percent on the annual average. It doesn't seem mathematically consistent to me somehow.",144
-fomc-corpus,1983,I didn't provide an annual average because I didn't have the resources to figure it out.,17
-fomc-corpus,1983,"Did they put you in as zero? Is that what brought the average down? Something there looks [wrong]; people may want to examine the consistency. Maybe I'm wrong and there is some obvious statistical explanation, but with half the year gone and a similar range for fourth quarter-to-fourth quarter, I don't know how it comes up so differently on the annual average.",73
-fomc-corpus,1983,A 3-1/4 percent annual average is consistent with the 5-1/2 percent.,22
-fomc-corpus,1983,The problem is the 5 percent.,8
-fomc-corpus,1983,It depends so much on the quarterly pattern one has.,11
-fomc-corpus,1983,"I think it might be useful, after all these specific questions, for people to express any views they have--and there must be some that affect one's judgment--as to either a difference of opinion in general or whether the risks lie on the up side or the down side and how that relates to monetary policy.",62
-fomc-corpus,1983,"Let me say that I think the projection of 7.1 percent real GNP for the third quarter is a bit on the high side, or at least that the risk is that it won't be that strong. It seems very high with the bulk of the inventory adjustment being completed in the second quarter.",61
-fomc-corpus,1983,"Well, of course, we have the tax cut.",11
-fomc-corpus,1983,"Obviously, we really don't have a great deal to go on, but we had some data for June employment and related production data. They already indicated that we're coming into the third quarter with a very considerable degree of momentum. We ran through some arithmetic exercises making rather conservative assumptions about the next couple of months. They provide the basis for, I think, a conservative estimate of the GNP increase or at least an increase in non-agricultural output of this general magnitude.",94
-fomc-corpus,1983,"Let me ask a longer-range question. Many people have expressed the thought, including me upon occasion, that given these interest rates--and you have essentially flat interest rates--it proved fine in the early stages of recovery that you and everybody else overestimated the restraining effect. We have pent up demand for housing and we have an inventory reversal that comes along early in the recovery; but once we get through that, which may be after the third or fourth quarter, the economy cannot continue to expand at this rate of speed at those interest rates.",109
-fomc-corpus,1983,"I think that's a relevant concern. In addressing that, I think we have to ask ourselves the question ""Why did we miss over the last couple of quarters?"" Is it because we underestimated the effect of a change in interest rates and that the level is still biting? Is it just that we had some pent up demands and that a change in rates permitted some things to be accomplished, particularly in the housing market and consumer durables, but the level is still binding so that the effect of an interest rate decline wears out and we're going to find that the recovery slows rather sharply? That's the way we had thought about it. We tried to put one foot on each side. We think that probably we underestimated the restraining effect of the level and underestimated as well the effects of the rate of change. So, for 1984 we have a smaller rate of increase in real GNP now than we did previously, but we have a higher level of activity because we have allowed 1983 to show through in terms of this higher level. I would say that there is a serious question on that rate effect, particularly in interest-sensitive sectors, which is where I might tend to put the downside risks; housing is one of those. On the other hand, there are a lot of things one can point to that could be potential offsets. But if you begin to think in terms of changing attitudes, we now are entering a period after four very lean years in consumer spending and lots of other things. It seems to me that there is the potential for substantial spending in a variety of sectors, particularly those that are less interest-sensitive.",324
-fomc-corpus,1983,Any other comments or observations?,6
-fomc-corpus,1983,"I would say that I think this is a reasonable working hypothesis. To me, the most important feature of the projection is the slowing rate of increase that you are speaking of that sets in by the fourth quarter. I think that's terribly important to us from the standpoint of conducting monetary policy because it could be argued that this is an explosive and self-building recovery that will accelerate longer than that and create real pressures. But this doesn't have it. I would have been inclined to slow the rate of increase a little more, just along the lines you have been discussing, Paul. Also, the export market is an awfully important variable here, and there is an important and so far incorrect expectation of a sharply declining dollar. That's important to getting that second half of 1984 still to show a good increase, and I'm not at all sure that will occur. So, I would have put that a little lower. But I agree with the basic premise that what we are seeing right now is a second-quarter inventory upsurge and a third-quarter carrying through of the income effects on spending of that and of the tax cut and that there will be a slowing in the rate of increase later on. The levels of the markets that have been mentioned, I would point out, are not notably high. Housing starts are up nicely but they are a half million below what they were in previous booms. Car sales are up nicely but we used to talk about 11 million cars a year and this is well below 11 million cars at its best point. I guess that's an expression of the high real interest rate, which is offset in the aggregate statistics by the effect of the stimulus of the government deficit. I think it's pretty reasonable. One other comment I might make, just to be complete about it, is that on balance I would be inclined to feel a little less optimistic about the price outlook in 1984 than the staff. I think something could break here in agriculture; with all these efforts to raise farm prices, they might actually manage to do it and we might get more inflation in that area. I also am concerned, if we do get a decline in the dollar, about the effects on domestic pricing that a decline in the dollar would make possible; that is, higher import prices would make it possible, in terms of retaliation efforts, for businesses here to restore margins. So, I would come in with a little higher price increase than the staff has. But the general profile, I think, is really quite reasonable. And I can't detect whether the major risk is that we might have more expansion or less expansion than shown here.",526
-fomc-corpus,1983,"I agree with much of what Chuck has said. It seems to me that the risk of a runaway boom is very small. We may have a little more growth or we may have a little less. The prospects of a runaway boom strike me as being very low, largely because of the restraint of interest rates. I don't think it would take very much of an increase in rates to cut housing down sharply. We've already seen in some areas an increase of 100 basis points or so in mortgage rates. I'm told that on a typical $60,000 mortgage, 100 basis points is $45 or $50 a month on a monthly payment, which is a substantial amount in a tight consumer budget. We've seen how sensitive auto sales are to interest rates. We're certainly not at boom levels there. I think it would not take much of an increase in interest rates to cut substantially into that whole psychological area of consumer attitudes. The improvement of business attitudes, I think, has been conditioned to a great extent on the drop in interest rates. A reversal of that to any significant degree over a year's horizon, let's say, would quickly damp that. So, I think it is a reasonable forecast. And I put a very low probability [on the prospect] that we will have to be concerned here about a runaway boom.",263
-fomc-corpus,1983,"""Runaway boom"" is pretty extreme. Moderating the wording ""runaway boom,"" is there agreement with that proposition?",25
-fomc-corpus,1983,I would agree with that proposition.,7
-fomc-corpus,1983,"An ""accelerating recovery.""",6
-fomc-corpus,1983,I'm about to fall asleep; I wanted to use a little more--,14
-fomc-corpus,1983,One newspaper article I saw that I thought was rather interesting talked about the second quarter as the strongest quarter we've had since the first quarter of 1981--not that I'm suggesting the second quarter is going to be similar. But it seems to me that the risks of aborting the recovery are still pretty high.,62
-fomc-corpus,1983,"I would like to come in on the other side. As much as I believe that monetary policy is effective, with a $200 billion deficit and no increase in savings I don't see how we could help but get a very strong economy.",47
-fomc-corpus,1983,We've had a certain amount of monetary growth too.,10
-fomc-corpus,1983,"I agree with the staff's forecast for this year, and I don't think we're looking at a runaway boom. I would think the case for some deceleration of growth in 1984 is a strong one, given the net export picture we're looking at. The question is how much deceleration. And I think the area where the staff may have underestimated the amount of strength is in the business fixed investment area where the magnitude of the increase over the four quarters of next year is 7-3/4 percent. That's rather weak relative to what we typically see. I know one can make a case for it in terms of the weakness in the nonresidential construction area. But to turn to your question about interest rates, this is why I think you're really going to have to look harder. The survey of inflation expectations that we get from this guy Hoey came in today; we get a copy of it.",183
-fomc-corpus,1983,I haven't seen it.,5
-fomc-corpus,1983,"It turns out that in the last quarter inflationary expectations worsened somewhat over every time horizon, and the 5- and 10-year expectations of inflation are in the range of 6-1/2 to 7 percent. If you take today's interest rates on corporate bonds and put them on an after-tax basis to compare with that kind of inflation expectation, you don't have any positive real interest rate at all. The corporate bonds are forecast at [unintelligible] after taxes. So, I'm not inclined to the view that the economy is going to stop in its tracks at the present level of interest rates. I think there is a case that could be made that we may have somewhat more of a buildup of business fixed investment plans this year than the staff has forecast.",157
-fomc-corpus,1983,"Of course, most corporate bonds are bought by pension funds that don't pay any taxes.",17
-fomc-corpus,1983,I was looking at it from the borrower's viewpoint in thinking about this.,15
-fomc-corpus,1983,I think that's a tricky concept. A borrower's income is taxable too [unintelligible] corporation. We're not getting into that today. Mr. Corrigan.,34
-fomc-corpus,1983,"Twelve percent drops to seven, say, with the rate of inflation at 6.35 percent or whatever we have for the ten years. You get very little positive--",35
-fomc-corpus,1983,Matching it against the return from a new investment [unintelligible] to do it after taxes. Mr. Corrigan.,26
-fomc-corpus,1983,"Well, Mr. Chairman, I look at the situation as a Catch-22. By way of a preparatory remark, I don't have a great deal of problem with the staff's forecast in terms of real economic activity. I'm also somewhat influenced by what Mr. Prell said earlier about this tremendous buildup in liquid asset holdings of the public; whether they're in the form of things we count in Ml or ""M21,"" they're all there. Against that background, a lot has been said about the deficit. I don't know about this Treasury paper, but it seems to me that we unambiguously have a situation in which the structural deficit is increasing when most of us were hoping a year or two ago that it would be decreasing. Now, there are a lot of ways to measure it, but one interesting way that I came across, which somebody on my staff [worked out], was to use the CBO estimates all the way out to 1988. And what is interesting about that is that they have the unemployment rate in 1988 basically the same as it was in 1980, about 7.4 percent, but they have the deficit in 1988 at 5.6 percent of GNP as opposed to the 2.3 percent in 1980. That's at least one measure of where things stand with regard to the deficit. I also am inclined to think that a number of people, including the Chairman, have done such a good job of educating people about at least a potential for crowding out that, Treasury studies notwithstanding, the [perceptions] of crowding out and the implications for interest rates are very, very real. I don't have an answer for that quandary, but clearly the potential for anything being done about the deficit for at least 18 months is slim to none. I had felt that we had some breathing room in regard to how much pressure that deficit was going to put on the financial markets and interest rates over the forecast period, but I am no longer sure of that. I don't know how you look at it, Mike, but I observe that private credit demands right now are rising in this cycle as fast as they have in postwar cycles as a whole. And if that continues for any period of time when we have the Treasury borrowing where it is, my hope that we had some room there becomes rather diminished.",479
-fomc-corpus,1983,"If that fact is true, I'd like to know about it by the time I have to appear in public.",22
-fomc-corpus,1983,"We did it on one of those trough-to-cycle peaks, Mike. We took the average for the postwar recoveries, and I think it's true that the lines are pretty close together. Well, that's part of my Catch-22. The other part is that even in the context of the staff forecast, which is very much like my own, I am worried about the potential for some adverse developments on the up side with regard to inflation. I also think it's true that taking the postwar cycles as a group we have a situation in this recovery where raw industrial prices and foodstuff prices are actually rising faster than they did in the postwar recoveries even though crude materials are rising a bit more slowly. We have rapid money growth. The staff is assuming, among other things, that we can hold compensation costs to 5 percent. Maybe we can, but maybe we can't. We're going to get a tremendous burst in profits in this quarter and next quarter and how durable that more moderate rate of wage increases is going to prove to be is a big question. More generally, again looking back at history for what it tells us, we find that in the second year of recoveries the spread of price increases over unit labor costs tends to be about 2 percent, roughly. Again, the staff forecast and my own forecast essentially assume that that spread is close to zero in 1984. What that implies about pressures on the part of corporations that raise prices is a good question. It seems to me that the only real hope in terms of mitigating some of those pressures is that we may get productivity behavior that's a good deal stronger than what is implied in the staff's forecast, recognizing that it has its own tradeoffs with regard to how fast unemployment can come down. Now, my concern about those considerations is fundamentally based in a deeper concern that I have, and that is that looking out to 1984 in the context in which the deficit situation and the financing requirements of the Treasury are what they are, it seems to me that there is at least a risk, however small, that if inflation started to move up, it could jump up rather sharply. Instead of getting the nice little modest 1/2 point or 1 point acceleration in inflation, we could get something well in excess of that in a context in which we would already have enormous pressures on interest rates and in a situation in which financial deregulation has made it almost an absolute necessity that banks and other financial intermediaries pass through the full cost of higher interest rates onto the borrowers who, in turn, pass them onto the consumer through their products. I don't equate that, to take Mr. Boehne's phrase, with the potential for a runaway boom--",548
-fomc-corpus,1983,That sounds the opposite of a runaway boom to me.,11
-fomc-corpus,1983,"In more professional language, an accelerating recovery.",9
-fomc-corpus,1983,"Well, in the short run, it's a situation that to me holds the potential for a heck of a collision out there, to put it mildly. That's why I look at it as a Catch-22, because even in the context of the staff's forecast I can see where we could run into some very, very nasty problems.",67
-fomc-corpus,1983,"Well, we always can run into problems on either side. You said no matter how low the probability. Are you saying that the probability of a sudden pickup in inflation is low?",36
-fomc-corpus,1983,"I'm not saying it's 50-50, but I'm not saying it's 90-10, either.",21
-fomc-corpus,1983,"I would echo the comments that have been made with regard to the staff forecast for the balance of this year. But in answer to your question, Mr. Chairman, I have some problems with the projection for '84 in specific areas. As far as housing is concerned, it seems to me that this sector is as usual very vulnerable to the level of rates [rising] 25 or 50 basis points [as shown in the Bluebook] in Appendix I. So far as the housing boom--and that's what it has been, conceding it started from very low levels--almost half of it has been a function of the first-time home buyer. And it has been fueled particularly by the fixed rate, fixed term mortgage, whose use the various housing financial agencies are now attempting to decrease as strongly as they can--I take it without much attention to what it might do to the total economy, but hoping that it will solve some problems that the thrift institutions have. Given a slightly higher set of interest rate assumptions, we can recall the already red figures for the thrift industry; that sort of impact, of course, is itself a downside factor. Moving on from housing, we have not talked extensively about the [interest rate] implications for export markets. Indeed, if the interest rate projections here are on the low side, that would reflect a considerably higher interest burden on both our trading partners on the one hand and the developing countries' potentials on the other. The impact of these rates on business borrowing I have alluded to before. If you take the Aaa figures here and increase them some, that has employment implications which, in turn, obviously have other potential downside effects. What I'm getting at is that if it is true that small business firms are the source of much of the increase in employment, which is to say the decrease in the unemployment rate, then somewhat higher rates than these admittedly increased rates have both business investment implications--as far as the smaller firms are concerned there will be less of that--and employment implications with regard to '84, not '83. In other words, it seems to me that we do face a dilemma here in that the interest-sensitive areas are carrying the increase in economic activity and, therefore, a substantial increase in economic recovery does indeed have a very low probability, and we have some downside implications that I think we need to be very aware of as we examine the alternatives for monetary policy for 1984. If we together choose one of the alternatives that is going to push up rates, I think we need to be fully aware of the implications--the social costs, if you will, or at least the costs in an economic sense that we will pay in terms of housing, small business, export industries, and other interest-sensitive areas.",557
-fomc-corpus,1983,On this debt figure: You have an enormous current account deficit projected. Is debt in those figures when it's held by foreigners?,25
-fomc-corpus,1983,Payment of interest on them?,6
-fomc-corpus,1983,"No, these outstanding credit figures that we have.",10
-fomc-corpus,1983,The credit aggregate excludes foreign borrowing.,7
-fomc-corpus,1983,"So you already have a high figure for credit, excluding that $75 billion or whatever it is of foreign holdings.",23
-fomc-corpus,1983,That excludes foreign borrowing; it doesn't exclude foreign investment.,11
-fomc-corpus,1983,"No, it doesn't. Indeed, part of the counterpart in the current account deficit will have to be a substantial flow of funds into the U.S. Treasury.",32
-fomc-corpus,1983,Is that included in those credit figures? That's what I'm asking.,13
-fomc-corpus,1983,"Well, it's the supply side, and--",9
-fomc-corpus,1983,The credit figures are built up from the debtor not from the creditor. It says domestic.,18
-fomc-corpus,1983,"Yes, domestic borrowing.",5
-fomc-corpus,1983,Regardless of who holds the debt.,7
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"Mr. Chairman, we have been for some time more bullish than the staff and we still are a tad more bullish for 1983. It seems to me that every time we get a wave of new statistics they suggest that there is more strength out there than we had previously assumed. So, we end up with a slightly larger real GNP for 1983 and a bit more inflation, although as the days go by and the [inflation] figures have come in better than I thought, I have less confidence in that for the short run. We do not have significant differences in 1983 but when we move into 1984 we begin to show many more differences because we believe we're going to have to pay the piper somewhere along the way for the large growth in Ml. So, we end up with approximately the same kind of real growth but a larger implicit deflator. I don't know really how to answer [the question of] what is most likely until we deal with this policy problem. We're assuming certain things in regard to the behavior of the aggregates and we also assume more or less a return to normal velocity behavior, which may or may not occur. Until we know the answer to that, I don't think we're going to know the answer to where we will end up. But so far as the implications for policy that you asked us to address earlier, the implication I draw from that is that we're going to have to move to some degree against this burst in Ml that we have had.",303
-fomc-corpus,1983,"I came out with almost exactly what the staff did for the calendar year 1983 but I am lower for 1984 because I think the level of interest rates will bite once [unintelligible] accommodated. Consequently, I think interest rates will have to go down if we're going to keep [the recovery] going. However, I think the most important assumption here on inflation is the constant level of oil prices. I think it's a reasonable assumption because of the excess capacity that's available in the world and the conservation that has occurred over these 4 or 5 years. If oil prices break loose for whatever reason, then all of our forecasts are going to be wrong. And that has been the major source of much of the inflation in the past 10 years. So, I can accept the staff's forecast, but I do think there's more of a problem of slower growth in the year 1984 than they are currently forecasting.",189
-fomc-corpus,1983,"Well, if that concludes the comments that people want to make, we can turn to Mr. Axilrod and we can have technical questions anyway on his proposals and comments. We'll quit at 5 o'clock.",43
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,I'm not sure I understood that next to the last sentence.,12
-fomc-corpus,1983,"Well, there is some question, at least in my mind, that the rate of real growth might not be as high as we have projected.",29
-fomc-corpus,1983,You say that inflation might then be higher?,9
-fomc-corpus,1983,To lower the level of real rates--,8
-fomc-corpus,1983,Suppose velocity were lower?,6
-fomc-corpus,1983,"If velocity were lower? Well, I think velocity then would be higher, if we have higher price increases.",22
-fomc-corpus,1983,Suppose we don't have higher prices but lower; that could be some funny kind of outlook if we got lower real growth and more inflation.,28
-fomc-corpus,1983,Lower real growth than projected and more inflation than projected.,11
-fomc-corpus,1983,"You're assuming you know what nominal GNP is, I guess.",13
-fomc-corpus,1983,"No, I was making an assumption that the real interest rates in our forecast and the real GNP in our forecast might be inconsistent and that to make them consistent I would have to lower the real interest rates. I could lower them in one of two ways: either by raising prices, which might be a very reasonable outcome, or by lowering the level of nominal interest rates to make this level of real GNP more sustainable if prices are indeed as low as projected.",93
-fomc-corpus,1983,You raise a great many questions about velocity. Let's maybe take the next 5 or 10 minutes for hearing what anybody has to say about it.,30
-fomc-corpus,1983,I'd like to ask a question. What specifically do you assume for Ml velocity for the latter half of this year?,23
-fomc-corpus,1983,That was in Mr. Lindsey's [memo]; let me just track it down. It's an average of around 2-1/2 percent.,30
-fomc-corpus,1983,I got a little shaky when I read his number.,11
-fomc-corpus,1983,Compared to a cyclical [average] of 5 or 6 percent?,16
-fomc-corpus,1983,"Oh yes, it's much lower, but it's still a lot stronger than in the first half of this year.",22
-fomc-corpus,1983,I thought I saw a number that said 5.,11
-fomc-corpus,1983,You did; for the fourth quarter you saw a 5.,13
-fomc-corpus,1983,"So, you have a zero in the third quarter and a 5 in the fourth quarter.",19
-fomc-corpus,1983,"Yes. And I would say, if anything, that would tend to be high. That assumes a very low growth rate in the fourth quarter and assumes some considerable responsiveness to somewhat higher interest rates, which is built into our forecast.",46
-fomc-corpus,1983,"Steve, excuse me, but are you saying that you think the velocity forecast may be a little higher than you really believe?",25
-fomc-corpus,1983,"Well, I think the fourth quarter, which Governor Gramley was focusing on, may be a little high.",22
-fomc-corpus,1983,"I admire the consistent and persistent courage of the staff in trying to forecast velocity of circulation of Ml. I suppose they have to do it here. The swings are so enormous and so arbitrary and there's so little predictability that I shudder at the thought that we're really going to come out with monetary policy conclusions--specifically, targets for M1--based on velocity of circulation or something.",78
-fomc-corpus,1983,Are you suggesting that the velocity of M2 is more stable?,13
-fomc-corpus,1983,"Oh, definitely. I'm not going back over 20 years. I looked at the 20-year average too, but if you look at it in terms of the last few years and the current situation, M2 and M3 are running at pretty much zero velocity--exact relationships to nominal GNP.",61
-fomc-corpus,1983,"There was a decline of 5 to 6 percent last year, as I recall, in M2 velocity.",23
-fomc-corpus,1983,"President Solomon, we don't really project nominal GNP by making assumptions about velocity and tying that into money. We tend to do it somewhat more judgmentally and then see what velocity results we have and see if that makes a certain sense to us. We have a large range of tolerance around the variations of velocity.",62
-fomc-corpus,1983,"Mr. Chairman, I'm having a hard time trying to reconcile what I thought were the central conclusions of the staff studies made here at the Board plus staff studies at our Banks with what I think I am hearing from Steve and some of the skepticism about how much reliance we can have on Ml--whether or not we should reinstitute it as a target for monetary policy and return to giving it equal weight. I just wonder if I could raise a few questions to [assemble] some facts or at least some judgments, Steve. Am I wrong in thinking that your findings pretty definitely show, now that we have the history of this period since the introduction of MMDAs and Super NOWs behind us, that on balance M1 has not been distorted--that the ins and outs just about offset each other, contrary to what most of us thought would happen a year ago? So, if I'm right on this, we can no longer take the position that one of the reasons we should deemphasize M1 is that it is being influenced by these institutional developments and new accounts. That's the first question.",219
-fomc-corpus,1983,"Well, on balance, we don't think the measured level of Ml has been distorted by the Super NOWs and MMDAs. We think there generally have been offsetting flows in that respect. We think that M1 was distorted by the introduction of regular NOW accounts at the beginning of 1981 on a nationwide basis; they introduced a savings character to Ml that it didn't have before. And seemingly, so far as we can judge from the past year's behavior, that has made Ml in technical jargon more interest elastic. The reason it has made it more interest elastic is that unlike demand deposits, these accounts have a 5-1/4 or 5-1/2 percent explicit interest rate, so the fall in market rates from 20 to 8 percent has reduced the opportunity cost of holding these to, say, at the low end, 3 percent--[the difference] between 8 and 5 percent. So, they have moved more sensitively than they would have if they had a zero explicit interest rate; one would have had a much bigger loss involved if one had held [demand deposits]. Now, what I don't know is what happens on the reverse side of this. If interest rates begin going up, do we get a fast move out of these accounts just as we got a fast move into them? If we do, then we would have some hope of NOW account growth slowing and money growth slowing. The second thing that has been a problem in Ml is that we simply have not forecast or made the judgment that demand deposits would grow as strongly as they have. Demand deposits have grown very strongly and steadily since late last year, except in January and February. I cannot offer the Committee a very strong explanation for that. In large part, it might be compensating balances; and it also might be a foreshadowing of some transactions needs. So, there is a large element of uncertainty about Ml because it is a new animal. That's why I sound somewhat ambivalent about whether the Committee should or shouldn't go back to it as strongly as before.",419
-fomc-corpus,1983,"Steve, if your interest elasticity theory is correct and you have a big exodus from M1 as interest rates rise, doesn't that just transfer the more rapid rate of growth to M2?",38
-fomc-corpus,1983,"Well, it depends on where it goes. If it goes into market instruments, no; if it goes into other accounts that are in M2, it's sort of a wash. You're just left with M2--",43
-fomc-corpus,1983,"If it goes into other accounts, then the answer is yes.",13
-fomc-corpus,1983,"No, not if it goes into other accounts in M2. It's neutral; it's reducing Ml.",20
-fomc-corpus,1983,"Neutral? If it goes in the market, it will reduce M2, too.",17
-fomc-corpus,1983,"[That] reduces M2; if it goes into other accounts in M2, it has no effect on M2.",25
-fomc-corpus,1983,But you're not saying that the demand curve has shifted. You're saying the demand curve probably has a different configuration.,22
-fomc-corpus,1983,"Well, that get's into higher metaphysics in some sense.",13
-fomc-corpus,1983,We're pretty high in metaphysics already!,8
-fomc-corpus,1983,"I happen to think that the demand curve has changed its slope and that maybe we're moving down the slope of a different demand curve. Whether that's a shift or not, I don't know.",37
-fomc-corpus,1983,It's not a shift.,5
-fomc-corpus,1983,"Did you have further questions, Mr. Balles?",11
-fomc-corpus,1983,"Well, I think Preston asked the question I had in mind. In other words, your conclusion--it is mine and if you disagree, Steve, I hope you would say so--is that what we have seen is the surge of money responding to the drop in interest rates, and that's not a shift in demand for money but a moving along a given demand function. If that is true, based on the experimental Board models that you unveiled for us at the last FOMC meeting and on work that we've been doing at our Bank, I end up judgmentally concluding that the demand for money has not really shifted in any basic sense relative to income and interest rates in the last couple of years. If that's true, then I am forced to conclude that from this point on we need to put more emphasis on the growth rate of Ml. Now, if that is wrong, tell me why you think it's wrong.",183
-fomc-corpus,1983,"Whether or not one would tend to put more weight on Ml, I happen to think that it's different from the way it was before 1981. I think it's probably more interest sensitive than it was before. I would not conclude from that that I could use that same interest sensitivity in making my judgments in the future because Super NOWs have become more important. And I have a vague feeling in my gut that when interest rates go up, people, once they have these NOW accounts, are not going to move as rapidly to get out of them as they did to get in. Now, that's just a gut feeling. But that, too, would affect these interest rate/money relationships.",138
-fomc-corpus,1983,"If we're approaching gut feelings, we're going to stop soon! We have Mr. Morris and then Mr. Corrigan.",24
-fomc-corpus,1983,"Mr. Chairman, I think there's something new on the horizon as far as the aggregates are concerned, and that is the 5 percent capital limitation on large banks and the impact that may have once we get back to an era where we see strong demand for business loans occurring again at the large banks. I think we will find a number of banks running into this limitation and doing what they did in 1969--packaging these loans and moving them out into the market. So, what will happen is that we will get a slower rate of growth of bank liabilities and a larger rate of growth in market instruments, which might impact both M1 and M2 and have some relevance to the usefulness of M3 as a target. Have you given any thought to this?",154
-fomc-corpus,1983,"No, not in exactly those terms, President Morris.",11
-fomc-corpus,1983,But would you agree that there is a further potential here for a different kind of bank behavior?,19
-fomc-corpus,1983,"Well, you're right that the M2 measure does cover a large variety of financial institutions, including money market funds. If they are packaging those loans and happen to be selling them to instrumentalities other than those covered by M2, we wouldn't particularly get it. My mind is working in other ways. I would think that they might be doing that; but if the capital controls were of real concern, we might at the margin get a little more rationing and a little less interest rate pressures. I know that's not a popular view, but that is not exactly impossible if the capital controls are very effective.",121
-fomc-corpus,1983,"Yes, but in 1969, when we had a similar situation whereby the large banks were constrained by Regulation Q, we saw a big ballooning in open market borrowing by the corporate sector.",39
-fomc-corpus,1983,"But they were constrained week-by-week by Regulation Q. This capital ratio is going to be imposed periodically. The first thing I think I would do if I were a big bank would be to be over until the time of the calculation of the ratio and I could adapt and bring it down. I think it would take a while to catch up with that. I agree with you as to the direction, but I think it will be much less marked than the Regulation Q ceiling was.",96
-fomc-corpus,1983,But it could still change the percent of credit raised through the banking system as against the open market.,20
-fomc-corpus,1983,"One could have argued in that period, equally convincingly, that it was the control of Ml also--it went to almost no growth--that got interest rates up. As interest rates went up, what happened in the financial markets in the distribution of credit between banks and others was determined by the Reg. Q ceilings, which were an impediment to banks competing. And then that credit got pushed off into other sectors. Something like that could happen with capital controls; possibly there could be some degree of rationing there. But look, what causes the interest rates to rise? That might be a question one would have to argue about. It might be that the control of money, somehow defined, causes the interest rates to rise.",146
-fomc-corpus,1983,"I'd just make a brief comment on this Ml issue. A fellow who works for me did basically the same analysis that Mr. Lindsey did, approaching it in a completely different way, and came to the same conclusion: that he could explain the growth of Ml by interest rates and income and all the rest of it. My problem is that I don't believe either one of them. Just to approach it a slightly different way--admittedly, this is a very crude measure--we took the experience of the Ninth District on the Super NOW accounts and extrapolated it nationwide. We said: What would Ml growth look like if the average dollar value of Super NOW accounts had stayed just where the average dollar value of NOW accounts was, at roughly $5,000 as opposed to $16,000? When you do that calculation, at least on this crude extrapolation that we did, you end up with the implied Ml growth rate, excluding that marginal savings associated with the higher Super NOW account balances, of 5 or 6 percent over the first half of the year. That probably understates it too. But I just cannot believe that one can explain what we've observed in Ml by simply assuming that the new shifts into Super NOWs and into MMDAs account for all that moving around. I just can't accept it.",263
-fomc-corpus,1983,"Well, we have our estimate of the amount of money that goes into the Super NOW accounts from outside Ml. We put it most recently at about 35 percent. The latest Michigan survey, the one we have through May--and they are very variable month-by-month given that it's a small sample--[puts it at] 40 percent; the earlier ones had a lower number. So, we said somewhere around 35 percent. If you take 35 percent of something a little over $30 billion and take 3 or 4 percent of something over $300 billion, you tend to get offsetting numbers. That's how we're stuck.",129
-fomc-corpus,1983,"I have about as much faith in those numbers as you do. But even if they offset, it seems to me that you have to concede that a $15,000 average balance has substantially more of a savings component than a $5,000 balance, much less the balance of an old demand deposit. And that's why I have a great deal of difficulty with Dave's and my staff's analysis.",80
-fomc-corpus,1983,"Well, you're left thinking that 65 percent of the money shifted from regular NOWs and demand deposits and sort of skimming off the top.",29
-fomc-corpus,1983,"Yes, but that implies that the underlying--",9
-fomc-corpus,1983,I think we will have to continue this discussion at a later date and resume tomorrow at 9 a.m. in executive session.,26
-fomc-corpus,1983,"We can proceed as expeditiously as possible. When I look at these longer-term ranges, the staff has not given us much alternative for M2 and M3. If one takes that as the point of departure, in the interest of moving reasonably rapidly, first let me ask the question, just for 1983 now--and I will leave Ml until later where undoubtedly there will be some differences: What about the proposition of just keeping the same target ranges for M2, M3, and total credit? I understand that we're [near] the top of the M3 range now but within it; I don't know whether we're at the top or not but we're now basically at the top. We're at about the middle of the M2 range. The staff analysis says it's all right. Is that acceptable? Is it that simple?",168
-fomc-corpus,1983,"Yes, maybe.",4
-fomc-corpus,1983,They're wide ranges.,4
-fomc-corpus,1983,"All right. Why don't we just go to 1984, again forgetting about Ml. Here the staff has given us a massive choice, if we take them literally, of a 1/2 percentage point difference in the ranges. I take it the difference here is mainly whether, in terms of consistency, our long-term posture of pulling them down by 1/2 percentage point or whatever is worth doing or not.",85
-fomc-corpus,1983,"I think we ought to keep pulling them down first, because according to the staff nominal GNP growth is slowing and second, just as a general anti-inflationary action.",36
-fomc-corpus,1983,"That's fine, Henry, if we don't respond to them when they go over the ceiling because if we do, we're going to have to keep the interest rates up.",33
-fomc-corpus,1983,"Not theoretically, if nominal GNP growth is slowing.",11
-fomc-corpus,1983,Just as a point of fact: Doesn't M2 grow between 9 and 10 percent almost no matter what we do?,25
-fomc-corpus,1983,That has been true for the last few years; it's certainly true as an empirical observation.,18
-fomc-corpus,1983,"That [reflects] the amount of interest added. If people sit there [earning] 8 percent interest and do nothing, that's how much it grows.",32
-fomc-corpus,1983,"I think that makes sense. I think Henry is right because it would be consistent with what I'd like to see over the long run when we look at what happens out to 1986. We seem to get the best results, from the point of view of both real growth and price performance, if we slow growth in the first two years--that is, the latter part of this year and next year--and permit somewhat faster growth in the last two years. And reducing the top side of the ranges would indicate our intention to reduce money growth during this early part of the cyclical expansion.",119
-fomc-corpus,1983,What is the nominal GNP growth projected--I didn't bring those figures--for 1984?,20
-fomc-corpus,1983,The staff has 8-1/4 percent [fourth quarter-to-fourth quarter].,19
-fomc-corpus,1983,"But under the unchanged alternative [shown in the Bluebook] nominal GNP is 8.7 percent for 1984. In other words, we're giving up 1/2 point of nominal growth if we follow the configuration of reducing that aggregate.",51
-fomc-corpus,1983,"No, we had an M2 that was about in the middle of that range to begin with.",20
-fomc-corpus,1983,Which range?,3
-fomc-corpus,1983,"For M2 we have 8-1/2 percent, or in the 8 to 8-1/2 percent area for 1984.",32
-fomc-corpus,1983,The 6-1/2 to 9-1/2 percent--,16
-fomc-corpus,1983,"So, we're giving up about 1/2 point of both real growth and nominal growth if we adhere to alternative I for 1984, right?",31
-fomc-corpus,1983,"Well, I think the alternative ranges for M2 have [nearly] the same numbers, don't they? It's a matter of where you might place it in the range. Perhaps I am not--",40
-fomc-corpus,1983,"Well, we allege that the long-run ranges for alternative II are consistent with the staff's GNP projection. So, it would be a dropping of M2 roughly--",35
-fomc-corpus,1983,Roughly to the midpoint of that.,9
-fomc-corpus,1983,"The midpoint of that, we allege, is consistent with the staff's [nominal] GNP projection of 8.3 percent. As Jim was pointing out, the Committee's GNP projection is somewhat stronger than this 8.3 percent.",52
-fomc-corpus,1983,"Isn't the projection going through 1983-84 and then 1985-86 for the unchanged [alternative] 8.5 percent for M2? It seems to produce a so much better result that I think it is somewhat implausible. Doesn't that reflect the low sensitivity of the model, which throws all the weight on a reduction in real income and gives very little to a reduction in inflation?",83
-fomc-corpus,1983,"That's right, Governor Wallich. Actually, I hesitated a lot about whether to present these strategies in these quantitative terms, which are simply the model's extrapolations from a baseline forecast. I had hoped they would be useful in terms of general direction but, as we say in the text, there is not much price effect from carrying on at 8-1/2 percent [for M2]. And, possibly, the model also is underestimating the sensitivity of decisionmakers in the economy.",102
-fomc-corpus,1983,"That's an appropriate caveat but, nevertheless, for 1985 you have a real growth differential there of 100 basis points. Is that not right? Our expectation is 100 basis points--",39
-fomc-corpus,1983,"Yes, if you are comparing strategies 1 and 2.",13
-fomc-corpus,1983,The difference in the real growth of [strategies 1 and 2] is 100 basis points.,22
-fomc-corpus,1983,"Oh, sure, off the models.",8
-fomc-corpus,1983,"I'm sorry, yes.",5
-fomc-corpus,1983,"That's what we're dealing with. You might not believe it, Henry, but that's what we have; that's where we started.",25
-fomc-corpus,1983,"Well, these are model results, that's right. I didn't realize you were comparing those, Governor Martin.",21
-fomc-corpus,1983,"I'm just looking at page 11, 1985 real GNP.",15
-fomc-corpus,1983,1985?,3
-fomc-corpus,1983,"Yes, the percent increase for 1984 and 1985. Comparing the model's output, which we've been properly warned has a dispersion around it that's considerable, under the two alternatives for 1985 the model produces 4.1 percent real versus 3.1 percent--comparing [strategy] 2 with [strategy] 1. And for 1984 the model produces 4.6 percent versus 4.2 percent. Also, as Governor Wallich has pointed out, the model is showing that there's not as large an impact on the deflator as there is on the real GNP growth. And if that's quite right, we must accept the caveat that this is the output of the model.",147
-fomc-corpus,1983,"Yes, but wait a minute. If I read this right--I hate to put all this weight on these things--for 1984 there are two rows that are consistent with alternative II, right?",41
-fomc-corpus,1983,"The ones through 1984, yes.",9
-fomc-corpus,1983,"At least through 1984 you're talking about 8-1/2 percent [growth in] M2, if I understand correctly.",28
-fomc-corpus,1983,That's the one.,4
-fomc-corpus,1983,In 1984 we're talking about 8 percent for M2 and that's consistent with alternative I.,20
-fomc-corpus,1983,I thought Mr. Kichline said 8-1/2 percent.,16
-fomc-corpus,1983,"I'm sorry, Mr. Chairman.",7
-fomc-corpus,1983,"But the one row also assumes further reductions thereafter. So, it's a much more restrictive policy going out.",21
-fomc-corpus,1983,It's down 1/2 percentage point each year.,11
-fomc-corpus,1983,"Steve, in your judgment, would it be correct to say that you get these results from the model in part because of the phase of the cycle that we're in? In effect, what seems to be the outcome is that if you start to slow money growth in the expansion phase and speed money growth just before the rate of real growth begins to slow down, you get the better result.",77
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"So, if we are in a period that is just on the edge of contraction, we'd get better results if we increase the rate of money growth.",30
-fomc-corpus,1983,"Well,--",2
-fomc-corpus,1983,I'm just accepting the [model] outcome; this is not my view.,15
-fomc-corpus,1983,"Basically, Governor Rice, the problem with using the model--and what has always given me some pause at least in presenting the results the model gives to the Committee--is that the model has embedded in it a long lag in price effects and a short lag in output effects. And it's not at all clear that that is the way the world works at this very time. That's essentially why every time we present [an alternative] that says money growth is going to be stronger, [the economy] will always look better over the near-term horizon. Output will always react faster than prices. And, of course, the nearer we are to high levels of unemployment, in practice one would think that's the most sensible thing. So, that is one of the problems in presenting these results; it always looks more favorable in the near term to raise money growth. I would point out strategies 3 and 4. Strategy 3 slows M2 growth even more than any of the alternatives presented and then speeds it up in the latter part of the 4-year period. That, according to the model, has a very favorable effect on prices by 1986 relative to speeding up now and slowing later.",239
-fomc-corpus,1983,Right.,2
-fomc-corpus,1983,"And output is no worse off by the end of '86 than [under strategy 2], which was a somewhat surprising result to me.",28
-fomc-corpus,1983,"I'd like to suggest, Mr. Chairman, that the model has one basic flaw and that is that the character of M2 in 1983 and the years to come is radically different than the character in the years before. And we have no reason to think that we can anticipate how the relationship of M2 is likely to behave relative to nominal GNP. That is the thrust of Mr. Lindsey's memorandum. We could very well see a situation in which we push interest rates up and M2 responds by rising, depending on whether the banks want to fund themselves through money market accounts or large CDs. It seems to me that the model simply doesn't have any rational basis.",135
-fomc-corpus,1983,I just wonder if we're not taking this setting of the target for next year a bit too seriously here. We're talking about 1/2 percentage point on a 3 percentage point range with a variable whose linkage to GNP is rather uncertain. I think mainly what we should be concerned with is the cosmetics of this. We're not setting policy here for the next 3-1/2 years; we're setting the target for M2 for next year.,91
-fomc-corpus,1983,"Well, that is--",5
-fomc-corpus,1983,"If that is the case, don't you think we should have a declining target?",16
-fomc-corpus,1983,"I'm inclined to go in that direction, yes. I don't think the difference between 7 to 10 percent and 6-1/2 to 9-1/2 percent is going to be all that constraining in terms of the course of policy. We could change it next February if we wanted to.",64
-fomc-corpus,1983,"We never do, though.",6
-fomc-corpus,1983,"Oh, we're changing them right now as a matter of fact. That argument is quite incorrect.",19
-fomc-corpus,1983,Nancy is right; we have never increased them.,10
-fomc-corpus,1983,We did last year.,5
-fomc-corpus,1983,Last February was [unintelligible].,9
-fomc-corpus,1983,"We had a target of 6 to 9 percent and this year we have 7 to 10 percent. So, I'm reasonably sure that if we have to change it, we could change it in the future.",44
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"My thinking also is that this is tactical. No matter what we do on Ml--whether we raise it, rebase it, or suspend it--there's going to be a certain amount of unhappiness. Therefore, it's probably just as well to reduce [the M2 range] 1/2 point for next year on account of [unintelligible].",74
-fomc-corpus,1983,"Let me raise a question about total credit. We have this figure running higher than GNP--I forget by how much--at least in the projections for this year; but it's peculiar in terms of history. And we have a relatively high total credit target this year. It may be appropriate or it may not be, but we maintain that relationship next year if we only reduce that by 1/2 percentage point along with everything else, assuming we do that. Is that really appropriate? I guess I'm looking at the staff. Wouldn't you expect credit to move more in line with GNP over time?",122
-fomc-corpus,1983,Do you mean should you reduce it even [more]?,11
-fomc-corpus,1983,"Reduce it, say, by 1 point or something instead of 1/2 point.",19
-fomc-corpus,1983,"Well, in establishing the [M2] range for this year, the Committee had raised it a point from what the staff had [suggested] and the aftermath of it is that it looks rather wise to have raised it since we are running in the middle of the raised range [and above the midpoint of] what the staff originally had.",69
-fomc-corpus,1983,Either that or we've got the wrong policy.,9
-fomc-corpus,1983,"So, I personally would recommend a bit of caution and I would recommend lowering it by the same 1/2 point that you're going along [with for the other aggregates] at this point. It is running a bit strong and I have no reason to think it will drop substantially. It ought to drop some.",63
-fomc-corpus,1983,I would agree with that; I think that 11-1/2 percent is too high for 1983.,24
-fomc-corpus,1983,I agree with Paul that it ought to be a point.,12
-fomc-corpus,1983,"What do you agree with, [Frank]?",9
-fomc-corpus,1983,I agree with lowering it for 1984 to 11 percent.,14
-fomc-corpus,1983,He wasn't quite sure if you wanted to lower it a half or a full point.,17
-fomc-corpus,1983,I think a 1/2 point.,9
-fomc-corpus,1983,I agree with Paul that it ought to be a point because I think we want a smaller growth in nominal GNP.,24
-fomc-corpus,1983,"I'm delighted to hear you mention nominal GNP or something relating to the real world rather than the Ms. It seems to me that the tactical discussion has had to do with how we appear with regard to targeting on the intermediate basis of the Ms. If there is any strategic aspect through the model's output as delineated on page 11 [of the Bluebook], it is that our objectives are nominal GNP and the other general output data rather than the Ms. So, I go back again to the aggregates [relating]--however weakly in the model--to economic activity, not the Ms. And I suggest that we look again at those aggregate figures for nominal GNP.",138
-fomc-corpus,1983,"Well, my point was simply that the staff's forecast from fourth quarter-to-fourth quarter for nominal GNP is 9.6 percent this year and 8.3 percent next year. That seems like a pretty favorable outcome. In any event, that's a drop of more than a point in nominal GNP and I think there ought to be a similar reduction in the credit aggregate itself. So, I think a point [reduction] is the proper amount rather than a half point.",99
-fomc-corpus,1983,But I think we ought to give some weight to the fact that we have a very optimistic inflation forecast in '84.,24
-fomc-corpus,1983,"Well, if you thought inflation was going to be [higher], would you want to be easier or tighter?",22
-fomc-corpus,1983,"Well, I think one has to make a judgment as to whether a 4-1/2 percent real growth rate would be excessive for '84 or whether we should allow perhaps for a little less favorable result on inflation than we're forecasting.",48
-fomc-corpus,1983,"Well, I have a little less favorable forecast and it still works out with a point reduction in the credit growth.",23
-fomc-corpus,1983,"If the exercise is cosmetic, basically, I think a half point is as good as a point.",20
-fomc-corpus,1983,"Well, a point would change it from cosmetics to real policy.",13
-fomc-corpus,1983,What do you propose to do with that credit aggregate if it doesn't fall within the range? What action would that trigger? MESSRS. PARTEE and MORRIS. A change in interest rates.,40
-fomc-corpus,1983,I'd put it down to [unintelligible]; suppose it falls at the bottom annually.,19
-fomc-corpus,1983,Lower them.,3
-fomc-corpus,1983,I don't think you would.,6
-fomc-corpus,1983,"I don't think you people know what the relationship of the credit aggregate is to GNP, quite frankly.",21
-fomc-corpus,1983,I think we know a lot more about that than we do about the new M2 to GNP.,21
-fomc-corpus,1983,"That may be, but I think we know an awful lot more about [the relationship of] interest rates to GNP than we do anything else.",30
-fomc-corpus,1983,The demand for credit is directly related to the level of interest rates. The level of M2 may or may not be.,25
-fomc-corpus,1983,I don't think we know a lot about the relationship of interest rates to GNP. We didn't have a very good forecast six months ago.,28
-fomc-corpus,1983,I did.,3
-fomc-corpus,1983,You would have thought it wouldn't come out.,9
-fomc-corpus,1983,"Well, I don't think we would take any action at all on the basis of the credit aggregate alone.",21
-fomc-corpus,1983,"If we lower these targets at this point in time, we're going to give the impression that we're going to tighten next year. And I'm not sure that that's a good psychological thing to dump on this society at this point.",44
-fomc-corpus,1983,"Psychologically, I think it's a good thing.",10
-fomc-corpus,1983,"It's hard for me to believe that a more anti-inflationary posture should have a long-run effect of raising interest rates. It might have an immediate market effect, but the setting of these targets isn't really an immediate market factor.",47
-fomc-corpus,1983,"I agree with all this talk about cosmetics, but I certainly would like to see somebody say something about taking the ranges seriously, too, along the way.",31
-fomc-corpus,1983,Why don't we use the word tactical instead of cosmetic?,11
-fomc-corpus,1983,Why don't we use the word tactical and concentrate on the strategic aspects of it?,16
-fomc-corpus,1983,"Well, I don't think it's just tactical or cosmetic. It depends upon, at least to some extent, indicating one's concern about pulling these [ranges] down over time and whether we're interested in moving toward price stability or not.",45
-fomc-corpus,1983,I'd like to see a large element of that in the talk. But I do think it has a cosmetic or--,23
-fomc-corpus,1983,"We don't discuss that subject much, but I think it's going to be coming up. To what extent do we really want to get to price stability in the fullness of time?",35
-fomc-corpus,1983,"Coming back to the question of whether to lower the credit target 1/2 point or 1 point: If we are lowering the M2 and M3 ranges 1/2 point and we lower the credit target more than 1/2 point, it implies a precision and knowledge on our part whereby we can differentiate between 1/2 point and 1 point. And I'm a little worried about that.",84
-fomc-corpus,1983,I agree that that is pseudo-precision. But I think what we would say is that the credit target is a little high this year relative to its long-term trend. We did that deliberately. And it appears all right in terms of this year but we don't want it high relative to its long-term trend indefinitely. That target was temporarily high in some sense relative to the other targets and we're now putting it back more in line with what we think the long-term trend is in relation to the other targets.,101
-fomc-corpus,1983,If you feel comfortable and still [think] it is a time of--,15
-fomc-corpus,1983,"Well, it always looked a bit awkward to me. It may be right or wrong this year, but the long-term growth trends of credit and nominal GNP are pretty even, if I remember correctly. And we have a target that implies more [growth in credit than in nominal GNP]; it's high relative to the other aggregates now in terms of long-term trends, to the extent one can make any sense out of this. It's just a question of whether to say--",95
-fomc-corpus,1983,Do we know why it's high this year?,9
-fomc-corpus,1983,"Well, I asked that question yesterday. I'm not sure I got a very satisfactory answer, but--",20
-fomc-corpus,1983,Government borrowing--the deficit.,6
-fomc-corpus,1983,Easy money.,3
-fomc-corpus,1983,More intermediation and more liquidity is the answer I got.,13
-fomc-corpus,1983,"But bank lending has been pretty flat and we're still going to have the big federal borrowing next year. And I think bank lending may be stronger; the equity market may not be as strong next year. So, it may very well be that we will still tend to see [growth in] the credit aggregates slightly above that in GNP.",68
-fomc-corpus,1983,But I think the 11 percent [top of the range] will give us plenty of leeway.,21
-fomc-corpus,1983,"Yes, 11 percent is all right; even 10-1/2 percent would be.",20
-fomc-corpus,1983,"Well, we're talking about whether to make it 11 or 10-1/2 percent at this point.",23
-fomc-corpus,1983,"Our point estimate, Mr. Chairman, for what it's worth, is that credit growth fourth quarter-to-fourth quarter in 1984 --with our assumption of nominal GNP growth of 8.3 percent--will be 9-3/4 percent, which follows our estimate for this year of 10-1/8 percent. So you are right: Credit growth is continuing to run about 1 to 1-1/2 points above our nominal GNP estimate. If the Committee goes with its nominal GNP [estimate], it's much more in line.",116
-fomc-corpus,1983,"You're right, Paul: It is high relative to the ranges for M2 and M3. But that's because we are thinking about the midpoint with respect to debt and we're thinking about the target as the upper limit with respect to M2 and M3.",51
-fomc-corpus,1983,"Well, not on the staff's forecast; it depends upon what forecast we have. But I think that is true if you take the Committee's forecast. If you take the staff's forecast, it's right at the midpoint, roughly.",47
-fomc-corpus,1983,The midpoint of 7 to 10 percent is what they have?,14
-fomc-corpus,1983,They are assuming M2 growth of 8 percent.,11
-fomc-corpus,1983,8 percent in 1984.,7
-fomc-corpus,1983,Which is exactly the midpoint [of the 6-1/2 to 9-1/2 percent range of alternative II].,27
-fomc-corpus,1983,"Yes, but I think you overlook the fact that in the second year of an expansion the velocity of M2 normally drops.",25
-fomc-corpus,1983,"Well, let me divide it up. On M2 and M3 we go down by 1/2 point. At least nobody has talked about going down more than 1/2 point. The question it seems to me is unchanged or down 1/2 point for M2 and M3. Is the consensus down 1/2?",71
-fomc-corpus,1983,I'd prefer to leave [the top] at 10 percent.,13
-fomc-corpus,1983,I would too.,4
-fomc-corpus,1983,I'd prefer to see it down on the top side and not the bottom--alternative III. [Unintelligible] tactical.,26
-fomc-corpus,1983,That's a pretty good idea.,6
-fomc-corpus,1983,"Yes, it is.",5
-fomc-corpus,1983,Alternative III makes a lot of sense.,8
-fomc-corpus,1983,Nobody says it's the level of--,7
-fomc-corpus,1983,"Well, the only thing to say against that, and I don't think it's overly persuasive, is that if we narrow the range we somehow indicate that we have more confidence and more accuracy.",37
-fomc-corpus,1983,That's a little peculiar.,5
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,And it moves the midpoint only 1/4 of a point.,14
-fomc-corpus,1983,"Or [it suggests that] we're more worried about a rapid expansion so we show our interest by cutting the top end. In case we get a very rapid expansion, we indicate resistance. I think that's reasonable. I'll go with that.",47
-fomc-corpus,1983,Except that I'm not worried about a rapid expansion.,10
-fomc-corpus,1983,What would you--?,5
-fomc-corpus,1983,Some people are worried about a rapid expansion.,9
-fomc-corpus,1983,Some people.,3
-fomc-corpus,1983,Do we want to raise the bottom and leave the top the same?,14
-fomc-corpus,1983,"Well, it can be rationalized. I think it will give us a little trouble; it depends on what you think about the amount of emphasis put on this. I can see comments arising such as ""Oh, you are even more intense on these aggregates because you have the range narrower.""",58
-fomc-corpus,1983,"Mr. Chairman, in the last three expansions, in the second year of expansion the velocity of M2 declined on the average about 2.6 percent.",32
-fomc-corpus,1983,"Well, you were making the point earlier, Frank, that we had a different M2 than we did before. And, therefore, the velocity of M2 won't do what it did before.",39
-fomc-corpus,1983,"But if [the premise] is that we don't know what the velocity is today, then we shouldn't have a target for M2. And that is my position.",33
-fomc-corpus,1983,"Frank, that's going to lead you down a primrose path on Ml, to something you don't want, if you look at what it usually does.",30
-fomc-corpus,1983,"I think the main principle here is that we ought to bring the targets down and avoid fine-tuning. We don't know enough about it. [Unintelligible] the lower end and the upper end, just mechanically bringing them down.",48
-fomc-corpus,1983,"You can take the opposite point of view. If we leave them alone, it shows we're ignoring them.",21
-fomc-corpus,1983,"I heard two people say they didn't want them changed at all. Is it only two people? Well, it seems that it's only two people. And I haven't heard anybody say he or she wants the tops below 9-1/2 or 9 percent, respectively. Is that true?",59
-fomc-corpus,1983,"My position, Mr. Chairman, is that we shouldn't have a target for M2, but--",20
-fomc-corpus,1983,My position is that I don't think it makes a lot of difference.,14
-fomc-corpus,1983,I think we are between Bluebook alternatives II and III at this point. There are pluses and minuses for both of them. The idea of narrowing a range here doesn't particularly appeal to me but I guess it can be rationalized.,48
-fomc-corpus,1983,It doesn't appeal to me either for the same pseudo-precision reasoning that seems to be implied.,19
-fomc-corpus,1983,"I think we can justify it intellectually and say that we don't really conceive of it being below 7 or 6-1/2 percent, or whatever, and we're worried on the up side. But it does have this feeling of more precision. I don't feel strongly one way or the other.",60
-fomc-corpus,1983,I'd prefer to go down on both ends; there's some comfort in using the [wider] ranges.,21
-fomc-corpus,1983,"Well, if you don't have any strong preference, Paul, why don't you get a show of hands?",21
-fomc-corpus,1983,"Let's have a show of hands. Who would prefer alternative II? I'm just talking about M2 and M3--moving them both down by 1/2 point. Well, I'm not counting; I don't know whether you're counting. There seem to be quite a few hands up. How many want it down 1/2 point on the top and nothing on the bottom? That seems to be a clear minority. Now, let me turn to total credit. Nothing here is settled finally. Just forget about alternative III for the moment. For total credit, if we're consistent--well, we don't have to be completely consistent between the two, I suppose--the question is whether to go down 1/2 or 1 point.",148
-fomc-corpus,1983,"Mr. Chairman, I would reiterate the point that in evaluating this it might depend on what GNP forecast the Committee chooses to go with for 1984, because by going down 1 point the midpoint would be below the present Committee forecast for 1984.",54
-fomc-corpus,1983,"[Unintelligible] gives you 9 percent as the midpoint. I don't know how all these forecasts will come out, but we're going to publish these forecasts as modified in the next day or two along, [although there are some] people who wouldn't want to modify them. They must average about 9-5/8 percent or something like that for nominal GNP.",77
-fomc-corpus,1983,"No, that's right; I miscalculated or something.",12
-fomc-corpus,1983,"Well, if we don't lower credit by a full point, we're not lowering it relative to the other aggregates. I thought we had--",27
-fomc-corpus,1983,"I think that's the question. Do we want to lower credit relative to the other aggregates, given that in some long-term sense it's high now relative to the other aggregates?",34
-fomc-corpus,1983,"That is, I think, the logic of the situation.",12
-fomc-corpus,1983,We haven't had deficits of this size as a long-term trend before.,14
-fomc-corpus,1983,"Well, I don't know whether that's the right interpretation. It may be that these numbers are high because of the big deficit and that in a sense we're accommodating some of the consequences of the deficit. If that's the reason that they're high, then the policy question is whether we want to accommodate that.",59
-fomc-corpus,1983,"I think the analysis is that we get less kick for the debt than we ordinarily do. That is, the relation between debt and GNP is off.",31
-fomc-corpus,1983,"Also, there won't be much growth [unintelligible] next year, if we get it all this year.",24
-fomc-corpus,1983,But in any case we wouldn't want to see the rate of growth of debt exceed 11 percent in any scenario I can think of.,27
-fomc-corpus,1983,"I don't think we have enough confidence in what the future trends are going to be--not only the large deficit, but also the changing institutional arrangements in the markets. So, it seems to me that the question we again come back to is: Why do we imply that we have that much [omniscience] to differentiate an extra half point on credit?",72
-fomc-corpus,1983,"I don't think this is too big a deal. What we would say is the opposite--that we implied [omniscience] in saying credit was going to be relatively high this year, which may be right, but it's not going to continue next year.",52
-fomc-corpus,1983,"Some people think it doesn't make much difference; other people think it does. So, I think those who think it does should be allowed to set the--",31
-fomc-corpus,1983,Well into a recovery--I forget--should credit cyclically be rising faster or slower than GNP typically?,22
-fomc-corpus,1983,In the second year in the last three expansions the velocity of debt declined by 1.2 percent and then it approached zero thereafter.,27
-fomc-corpus,1983,"What happens to interest rates, of course, is critical. And it will work primarily in the areas like the mortgage market, where you can have a substantial degree of variance between the amount of borrowing and the amount of residential construction. But I think your reasoning is sound, Mr. Chairman, that the range for debt is high relative to the broader monetary aggregates and that one would expect those things to converge eventually. And, therefore, we could go a percentage point now without too much damage.",98
-fomc-corpus,1983,"Well, who wants to reduce it by a half point, the same [amount] as the others? Who wants to reduce it by one point?",30
-fomc-corpus,1983,"We have nonmembers voting here, so you're confusing--",11
-fomc-corpus,1983,I think one point would be acceptable.,8
-fomc-corpus,1983,"Well, let's leave that just for the moment and we'll get to Ml. Let me approach M1 by indirection. There's a question of what weight to put on Ml and, whether or not it's in the directive, what we would say about it in the Humphrey-Hawkins report. It may be helpful to approach it in reverse. Look at 1984 first. This proposal of essentially 4 to 8 percent again, which is what we have now and are widely exceeding, would imply unchanged or a small increase in velocity to a sizable increase in velocity but less than typical.",119
-fomc-corpus,1983,The midpoint implies plus 2 velocity.,8
-fomc-corpus,1983,"It implies plus 2 or a little more on the staff forecast. It would imply more on the Committee members' forecasts, which are somewhat higher than the staff forecast.",34
-fomc-corpus,1983,Are these numbers in the context of giving the importance to Ml that it has been given the last few months or elevating it somewhat?,27
-fomc-corpus,1983,"Well, we're going to have to discuss that, but I--",13
-fomc-corpus,1983,"The 8 percent on M1 seems to me a little high, I must say. Didn't we add to that range in order to allow for special adjustments this year?",34
-fomc-corpus,1983,I don't remember.,4
-fomc-corpus,1983,"I think we did, for Super NOWs and [unintelligible]. Well, we certainly didn't add enough. Now, we could say the relationship has changed and, therefore, we have an entirely different ball game.",45
-fomc-corpus,1983,"Well, with any of these I think we have to say the relationship has changed; we're uncertain about the degree. But even with the 8 percent we are implying a little increase in velocity. That wouldn't be unusual during this period. But I--",50
-fomc-corpus,1983,"No, it's an unusually low increase in velocity.",10
-fomc-corpus,1983,"With 8 percent, but not with 4 percent.",12
-fomc-corpus,1983,"It seems to me that under alternative I we're saying we're not going to pay attention to it because we can't get it back into the 4 to 8 percent range this year, so we have to monitor it, not target it. If we set it at 7 to 11 percent or something like that, we do something that has to be changed sharply for the following year and brought back to 4 to 8 percent or even lower, and I would prefer lower for '84. Now, wouldn't it be possible to rebase instead and not have these vast changes in targets?",118
-fomc-corpus,1983,Let's discuss it together. I guess that is one alternative. We can start out again on Ml and then have the same target for the next year that we have for this year.,36
-fomc-corpus,1983,"May I ask you a question, [Steve]? I got the impression yesterday when you were talking about the developments in Ml that you don't really expect the rate of growth to slow down very much. Rebasing would get us out of this trap, but it's not necessarily going to get us back onto a 4 percent rate of increase from this period on, given the nature of the Ml.",78
-fomc-corpus,1983,"Governor Teeters, we do expect the growth of Ml to slow down. The various models I've looked at all suggest that in varying degrees--some more rapidly than others. But we had been expecting it to slow down in May and June, so I felt somewhat cautious in light of that behavior. But the models--because the interest rate effect has worn out and there is some slight increase occurring and because nominal GNP growth is slowing--all would have slower Ml into an area reasonably [consistent] with these targets.",103
-fomc-corpus,1983,"So, rebasing would be one way of coping with the 1983 problem as well as the 1984 problem.",25
-fomc-corpus,1983,"Technically, yes.",5
-fomc-corpus,1983,"If he's right, it will all work out nicely. If he's not right, then we will have rebased and be over [the rebased range]. I think if we rebase it looks as if we're attaching more importance to it somehow.",49
-fomc-corpus,1983,"My concern is that, as we've seen in the last couple of months, the markets have once again attached enormous importance to Ml. All the speculation that the Fed is going to have to tighten is really coming from the Ml figure because even if there's a justification for some modest tightening from the broader aggregates, it's Ml that has been the discussion point, contrary to the period right after the initial Humphrey-Hawkins testimony in February. I think putting a numerical target on M1 [is unwise], whether we call it 8 to 12 percent, 7 to 11 percent, or rebase, although I would agree that rebasing may give a shade of nuance of extra [emphasis] compared to simply moving up to 7 to 11 percent. I think there's much to be said, in view of the arbitrariness and the unpredictability of what it's telling us, for suspending the target for Ml for the rest of the year and not at this time coming up with an '84 target range for Ml. We would continue to monitor Ml and when it becomes a little more predictable then come in [with a range] at that point. I don't know how one gets around that problem.",244
-fomc-corpus,1983,That's the extreme view of what we could do--not have any target for this year or next year.,21
-fomc-corpus,1983,"Well, another alternative would be to widen the range even further. We have widened it from 3 to 4 points; we could go from 4 to 5 points. I agree with you when you say that whatever we do, we are increasing the emphasis if we change it from 4 to 8 percent. If we rebase we may be increasing the emphasis beyond what we would if we went to 7 to 11 percent. Widening the range I think offsets that.",100
-fomc-corpus,1983,I think that's true.,5
-fomc-corpus,1983,"So, it's not just what we say [via] the numbers, it is what we say. We can say it's a target but we are giving it whatever weight we want to say.",38
-fomc-corpus,1983,"It seems to me that there has been some fear in the market about the need to come [down] toward the target range. Therefore, people are saying well, even if it were one or two [unintelligible] for the year. So, doing away with the notion that we're going to make up the overshoot, if that's our decision, would be a constructive thing for the market.",81
-fomc-corpus,1983,"I think that's a very good point, if I can break in and support Chuck's position on that. Moving to the alternative II range for M1 shown in the Bluebook for the balance of this year would make a lot of sense, because that range of 7 to 11 percent would accommodate about a 6 percent growth rate or a little better in Ml from June to December which, according to our San Francisco model at least, would provide sustained economic growth and no increase in inflation. We'd come in with over 5 percent real growth, based on our models, for both years. So, I would feel a lot more comfortable, and I would think we might defuse some of the market fears about what we're up to, if we were to adopt that. We realize what has gone on this year so far in Ml and we can't undo that; that would be totally unrealistic. I think we should defuse some of the market fears about what we may be doing by forthrightly coming out for a range of 7 to 11 percent, which in my view would accommodate the approximately 6 percent growth rate in M1 that we happen to think would be about optimal for the balance of this year and through 1984.",250
-fomc-corpus,1983,Just to be sure: That 7 to 11 percent implies 6 percent from now on to hit 11 percent [Ml growth] for the year?,32
-fomc-corpus,1983,"Yes, a little better than 6 percent. That's shown on page 6 in the Bluebook in the final column to the right.",28
-fomc-corpus,1983,"That's June to December, not second quarter [to fourth quarter].",13
-fomc-corpus,1983,Eleven percent for the year would allow 6-1/2 percent from June to December.,20
-fomc-corpus,1983,"What about from July, since June--. Oh, June is the base.",16
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Well, I must say that I think there's something a little unfortunate about the numbers 7 to 11. Also, it sounds awfully high. My instinct would be to rebase.",38
-fomc-corpus,1983,"I favor rebasing, not only because I think it indicates some additional emphasis on Ml, but also because it seems to me to indicate the Committee's recognition of what we've learned about velocity. It may or may not be the start of a rehabilitation of Ml in that we say we do look at Ml; we do take it seriously, but we make corrections for velocity from time to time until we're a little more sure of our velocity forecast.",88
-fomc-corpus,1983,A range of 4 to 8 percent rebased gives you about the same as 7 to 11 percent.,24
-fomc-corpus,1983,"Presumably, it's 8.1 percent on a second quarter-to-fourth quarter basis, which is exactly the--",24
-fomc-corpus,1983,"In response to Governor Gramley's comment, it depends on how you rebase. It doesn't quite [correspond] if you use Q2 to Q4 1983, because of the high growth that has already happened. The rate [of growth] from Q2 to Q4 is 8 percent--",62
-fomc-corpus,1983,With an 11 percent--?,7
-fomc-corpus,1983,"That's right. So, if you rebased and said--",12
-fomc-corpus,1983,"As I understand this, if we rebase at Q2, the 8 percent would be the same as 11 percent for the year.",29
-fomc-corpus,1983,I calculated the fourth-quarter levels using 11 percent from the fourth quarter of 1982 and 8 percent from the second quarter of 1983 and I got within $1 billion.,38
-fomc-corpus,1983,"Well, it's 8.1 percent.",9
-fomc-corpus,1983,"Mr. Chairman, I had in mind figures very similar to what John Balles mentioned, but I think the real issue is how the market will react best to what we do. My feeling is that it's better that we not rebase, although I understand fully the argument for it. Since you said you thought this would imply more emphasis on Ml, which is what we also had concluded before we came here, that does argue in favor of [rebasing] from my viewpoint. But I believe the market would react a little better if we kept what we have and you just said that we doubt that we will hit it.",125
-fomc-corpus,1983,"Well, let me try this: Suppose we rebase and use 4 to 8 percent and say that we think velocity has changed some but we don't know how much. The 8 percent would allow for very little increase in velocity, which is possible, given what has happened. The 4 percent would allow for an almost normal increase in velocity from here on out. So, we're encompassing that kind of range. We're still quite uncertain about it and--this will be the tricky part--we're not putting full weight [on Ml], certainly. Just how much weight we say we are putting on it is the fuzzy area, I suppose. We could go all the way to saying that we're monitoring [Ml] but putting very little weight on it. That's one extreme. Or we could say we have a pretty wide range and we would get concerned if [Ml growth] was too far outside that range in either direction, but we're not following it mechanically. Some place in that range of--",200
-fomc-corpus,1983,Could we have some further discussion of Bob Black's suggestion? I find myself in a strange alliance with him in favor of saying that clearly M1 growth is going to be way over our target because of velocity and not offering a rebased or raised target for this year.,54
-fomc-corpus,1983,What would you do for the next year?,9
-fomc-corpus,1983,Same thing.,3
-fomc-corpus,1983,"Well, my own feeling would be not to offer [an M1 range for 1984] at this point. But even if the majority of the Committee preferred to offer a range for next year, that doesn't mean we have to come up with a new number for this year.",57
-fomc-corpus,1983,"I have a problem with your suggestion, Tony. It's Bob's suggestion too, but I'll address this comment to you because I think Bob might like what I would see as the difficulty. What if we get a very, very low rate of money growth? It could happen. And in the context of having the 4 to 8 percent range, people would say, fine, we are getting [Ml growth] back down into the range, and yet it might be indicative of a problem developing in the economy and we might want to try to encourage a little more money growth. If we rebase, we have an opportunity to do that; if we don't rebase, people will think we're happy to see M1 growth come down into the old range.",152
-fomc-corpus,1983,"Well, I don't see that as a real constraint. We are operating, at least most of us here today, on a recognition that we have [to have] some further restraint because of the strength of the economy. We're not mechanically reacting to the [monetary growth] outcome.",58
-fomc-corpus,1983,"Oh, I understand that, but I think--",10
-fomc-corpus,1983,"And, therefore, if the Chairman keeps enough flexibility, which I think he will, we can react to nominal GNP and the real economy. It seems to me that that would not be a constraint.",41
-fomc-corpus,1983,"When we forecast I think we are slow to recognize a change in the inflection of the economy. We were slow to recognize the rate of increase that is now occurring and that we all see. We will be slow to recognize the slowing, I think, and I would like to guard against that.",60
-fomc-corpus,1983,"The more I think about this, I believe the simplest thing to do is to rebase, if we're going to have a target for next year, instead of having a complete hiatus. The key issue is what we say about the degree of weight that we give to Ml.",55
-fomc-corpus,1983,"I think that's right. And I think the market--almost regardless of what we say unless we just repudiate Ml, which I don't think is the consensus of this group--is still going to follow it, put some weight on it, and think we are putting some weight on it.",59
-fomc-corpus,1983,"We either rebase now or, if we overshoot our target, we rebase at the end of the year.",24
-fomc-corpus,1983,That's true. That's quite true.,7
-fomc-corpus,1983,We may rebase now and have to do it again at the end of the year.,18
-fomc-corpus,1983,That is correct.,4
-fomc-corpus,1983,"Mr. Chairman, a technical point, which I was struggling to say in response to Governor Gramley's comment, has to do in some sense with the psychology of rebasing: Unless it turns out that the numbers we get very soon show that July is extremely weak, if you rebase you still will be starting out well above that rebased range. You're above the one now, of course. But in any event, if you base on the second quarter and plot July, you will be well above the range already. That may or may not have some implications for the market, depending on how it's expressed and what you say in relation to it. But I think it's a factor that ought to be considered in the analysis.",145
-fomc-corpus,1983,Rebase on a shorter period.,7
-fomc-corpus,1983,"Well, you would have to rebase right on June.",12
-fomc-corpus,1983,"I'm not sure, but I think what you're saying is that if we had this 7 to 11 percent or whatever it is, we'd also be above the 11 percent.",36
-fomc-corpus,1983,That's right. It's not any different in fact; it's just the question of psychology.,17
-fomc-corpus,1983,"It wouldn't be as much above the 11 percent, I guess.",14
-fomc-corpus,1983,"But once you rebase, people will tend to look at it and think you're much more serious about it, I think.",25
-fomc-corpus,1983,"Steve, are you saying that if we rebased using the second quarter, July would come in above 8 percent?",24
-fomc-corpus,1983,"Well, we're projecting [July growth] well above that at this moment. But even if it came in around 8 percent, I think Ml would be above [the range] given the shape of the second quarter, which was very high toward the end. You are throwing yourselves into high--",59
-fomc-corpus,1983,The great unknown is what is going to happen to the velocity of M1.,16
-fomc-corpus,1983,"I think we ought to listen very carefully to the substance of what Tony is saying, in the sense that it would be a terrible mistake to impose too much restraint in the second half of this year because Ml is going up faster than we now think it might, if the staff's forecast comes out right. But also, if we seem to say that we have dismissed altogether the growth of Ml that is likely to be interpreted, given the present concerns of the market, as [meaning] that we have dismissed any concern about inflation. And that would also be unfortunate. I think we ought to find some way that avoids both of those problems.",128
-fomc-corpus,1983,"I think it's also true that while the M1 velocity has been off historically, the economy is doing a lot better than any other forecast implied except an Ml forecast.",33
-fomc-corpus,1983,Any Ml forecasts [unintelligible] would be something like 6 to 8 percentage points off on nominal GNP growth.,27
-fomc-corpus,1983,"A strict Ml forecast would have given much higher [GNP growth] than actually took place, but the fact is we are higher than other forecasts, which suggests that there's no place in [unintelligible] it.",45
-fomc-corpus,1983,"To complete my thought, what I would do is rebase and tell the market this: We are not giving Ml any more weight now than we have all year; our principal focus still is M2 because the velocity of Ml is so terribly uncertain; there is some indication of a return toward normalcy, but it is by no means clear.",69
-fomc-corpus,1983,"I would rebase and use 4 to 8 percent, but I would say to the market that we are still uncertain about velocity, though it looks as if it might be stabilizing and we're going to give [M1] some more weight.",51
-fomc-corpus,1983,Stabilizing probably around a different trend.,9
-fomc-corpus,1983,Probably. I agree with that very much.,9
-fomc-corpus,1983,"We don't know precisely, but what I'd be inclined to say is that the 3 to 4 percent increase in velocity that we counted on we no longer count on. SEVERAL. Right.",40
-fomc-corpus,1983,We know in any event that this is a function of interest rates; to keep emphasizing the velocity factor confuses the situation. We don't refer to the interest sensitivity.,33
-fomc-corpus,1983,"Let me call your attention, if I might, to the last sentence in Dave Lindsey's memo in which he says it's not clear that Vl will be less predictable over time than V2 even though Vl may take on behavioral characteristics that are different from earlier postwar years.",54
-fomc-corpus,1983,"That's faint praise, though.",6
-fomc-corpus,1983,I absolutely agree with that; I think that's just what Paul said.,14
-fomc-corpus,1983,"It has been more predictable over most of our history; it may not be in the future, but I believe the burden of proof is on those who say it won't be. That's a biased viewpoint, as you all probably can guess.",47
-fomc-corpus,1983,The arrow is nice and straight; we just don't know which way it's going.,16
-fomc-corpus,1983,"I agree with that, but the risk--",9
-fomc-corpus,1983,"The basic difference, or point of departure, is that I am somewhat--in fact, substantially--surprised that we would stick our necks out with numbers where I, at least, feel that we are not stabilizing along a particular trend. The fact that velocity was not as negative in the last couple of months as it was earlier in the year, and granted all the Ms had negative velocity last year, [does not alter the fact that] the situation is so sensitive to the changing way people hold balances. I hear people talk about it in the banks and in the markets. I don't see how we have even a pretense of a scientific basis for working with and making projections on the basis of what may be a very unpredictable velocity situation. I don't understand why we would stick our necks out because we can do enough tightening based on the movements of M2, M3, and credit and the real economy without setting out a series of projections that have better than a 50-50 chance of turning out to be wrong again. I don't really understand; I guess many of you, including maybe the staff, must have much more faith that the range of predictability is going to be substantially narrowed. I don't believe that.",251
-fomc-corpus,1983,"I just think that there is such a thing as Ml and the market watches it. And [if] we ignore it, we're losing credibility as well as probably [unintelligible].",38
-fomc-corpus,1983,The market watches it because we watch it.,9
-fomc-corpus,1983,"Exactly. Market participants watch it when they think it's influencing our behavior. Secondly, we are going to lose credibility with certain kinds of people anyway if we move to 7 to 11 percent or rebase and wipe out the past. That will be giving Ml more importance, no matter what. Of course, I'll admit there is a way. Paul could go back to the Humphrey-Hawkins February version rather than the April version. But even then I think it is going to be harder to get back to the February market reaction to Ml.",110
-fomc-corpus,1983,The February reaction to Ml was at least in part couched in terms of what was going on in the economy. Most people thought the economy was still declining in February.,34
-fomc-corpus,1983,Okay. But it is still true that when you talk to market people in New York you feel that Ml is halfway back again.,26
-fomc-corpus,1983,I think it's a combination of the economy being strong and M1 being so high. People wouldn't be so sensitive if the economy were weak and Ml were even 3 percentage points from its range.,39
-fomc-corpus,1983,"I don't think it's so much that the market says we're watching it as that they say it's something that has to be looked at if the economy is strong and Ml is growing too rapidly. Whether we're watching it or not, it has become a market influence. You talk to people, as you say; I also talk to people and I get the impression that they're concerned about what is happening to Ml whether we are concerned or not.",86
-fomc-corpus,1983,"Sure, you hear various sentiments. But those whom I believe are the more astute observers in the financial community make a point of saying that we ought to be more sensitive to the real economy than to Ml. There's a fear around also, and I have that fear, that we ourselves are going to feel--and the market will perceive us as being--more locked into M1 if we go ahead with it and dignify what has been happening with--",91
-fomc-corpus,1983,"I think the problem is that the market fears that we are getting too far away from Ml; as the economy has strengthened and as M1 has grown at too rapid a pace, that has produced fears. It's already reflected in a major change in interest rates in the market. If we were to do something to indicate that we are serious about it again, particularly if we were to rebase and have a moderate rate of growth as our target, I think we would see a constructive effect in the market.",101
-fomc-corpus,1983,"Well, there are all kinds of opinions. I think you are both overstating it. You have looked at the extremes. My view of the matter is that history shows that it's dangerous in an expansion to rely on setting the federal funds rate. We are now moving into expansion. We're talking about the next year and a half by which time we will be pretty well along in the expansion. The indication is--certainly over the 20 years that I've seen it--that the Committee is slow to change the funds rate if the funds rate is what the Committee is setting. So, I think there's a basic danger in not having something else. Now, something else might be nominal GNP; I don't think it's real GNP. Or it might be one of the Ms. And if it's one of the Ms, I think Ml still shows itself as better than any of the other Ms. It could be total credit, but on total credit our problem is that it's too hard to estimate the current numbers. We might use it for confirmation, but--",211
-fomc-corpus,1983,"Let me suggest something with great hesitancy because I'm not sure I like it visually but substantively it gives me an easy explanation: Make the range 5 to 9 percent and say that the 9 percent allows for no change in velocity during the expansion. Maybe that's the new trend of things and we want to allow for that possibility. The 5 percent allows for a fairly normal, or almost normal, cyclical change in velocity from now on. And that's precisely why we picked 5 to 9 percent, because the 9 percent allows for no change in velocity and the 5 percent allows for a sizable change in velocity. That still leaves open how much weight we put on it, but we picked 5 to 9 percent because that covers the probable range of uncertainty that we see in velocity.",164
-fomc-corpus,1983,"So, what we have in mind is a 9 percent nominal GNP, right?",18
-fomc-corpus,1983,"Yes, because it is consistent with the nominal GNP growth that we are predicting. Precisely.",20
-fomc-corpus,1983,"Is that rebased, Mr. Chairman?",9
-fomc-corpus,1983,"[Unintelligible.] That is my starting point: We are going to be presenting a forecast of roughly 9 percent or a bit more than 9 percent for nominal GNP next year, so we relate it to that.",47
-fomc-corpus,1983,"Let me ask a question. Even though I prefer 5 to 9 percent over 4 to 8 percent, certainly in terms of the immediate market effect, is it feasible to say that we're coming up with 5 to 9 percent and yet we are going to continue deemphasizing it?",61
-fomc-corpus,1983,"I don't particularly like showing this high a range and that's my reservation about it, but I can see a rather pat explanation being given--precisely: We projected, roughly, 9 percent nominal GNP growth next year, gentlemen. We think by implication that that is a satisfactory outcome. We feel that we are in the midst of velocity changes of a continuing sort that we can't quite identify--or we may say that we're not putting full weight on Ml. Based upon everything we've seen so far and assuming we're in a period of expansion, we think it's likely that the velocity pattern will not change so greatly that we would actually get a bigger increase in Ml from now on than in the nominal GNP, so that's why we picked 9 percent at the top. The 5 percent allows for a less than normal, but not all that much less than normal, increase in velocity in this particular cyclical period. So, we kind of span as best we can the range of uncertainty that we have.",202
-fomc-corpus,1983,That's a good idea.,5
-fomc-corpus,1983,That seems to say that you are accepting that the causal influence goes from GNP to M1 and that there's no counter-flow of causality.,29
-fomc-corpus,1983,"I don't think I quite said that. It may have sounded that way when I worded it. But I can word it the other way: that if there is no change in velocity, the 9 percent would be the appropriate [number]. That gets the causality the other way. And if there is a change in velocity, we would want to have a lower M1 and that's why we have the lower end [at 5 percent].",90
-fomc-corpus,1983,"But looking at this as a target, suppose M1 were growing at 9 percent but unfortunately velocity was growing at 4 percent, as it could. That is what I see as the problem of this target.",43
-fomc-corpus,1983,That would be too high.,6
-fomc-corpus,1983,I like that the real target is the nominal GNP.,12
-fomc-corpus,1983,"Yes, but what I would be saying implicitly is that if we have 4 percent velocity growth we may not know it until ex post. That's the problem. But if we thought we were getting that, the 9 percent is too high.",49
-fomc-corpus,1983,"We might know it ex post but at least it would only be 4 months ex post, not a half year or a year ex post. So, it's shortening the period of uncertainty.",38
-fomc-corpus,1983,"Paul, is this suggestion both for '83 and '84?",13
-fomc-corpus,1983,"Well, as I say, I throw it out as a suggestion. The one thing I don't like about it is that it looks pretty high on the face of it.",34
-fomc-corpus,1983,"Particularly for next year, I think.",9
-fomc-corpus,1983,But was it for both years? Is that after rebasing 1983?,16
-fomc-corpus,1983,"I'm attracted to it simply because I think it's fairly easy to explain, given the GNP forecast we have--if we think that's an appropriate GNP forecast. Actually, it's going to come out 9-1/2 percent, I guess. I don't know where the central tendency is; we have these medians here. But I'm assuming the central tendency is someplace around--8-1/2 to 9-1/2 percent would be ideal I suppose--8-3/4 to 9-3/4 percent or 8-3/4 to 9-1/2 percent or someplace in that area.",129
-fomc-corpus,1983,"Not to complicate it, but what if we use the 5 to 9 percent for this year and then suggest that if velocity begins to return to a more normal pattern as we get into 1984 we might contemplate a reduction and go back to the 4 to 8 percent?",59
-fomc-corpus,1983,That's kind of fine-tuning in an uncertain period.,11
-fomc-corpus,1983,We could just not even mention a target for 1984 and see where we are at the end of the year because we may very well have to rebase again then if [Ml growth] doesn't come down. And certainly the velocity changes are still going on.,53
-fomc-corpus,1983,"But don't we have to talk about next year, Paul?",12
-fomc-corpus,1983,"We have to talk about next year; we don't necessarily have to give an M1 target. But if we didn't give one for this year, I don't see much reason not to give one for next year. We can say we don't pay much attention to it, but--",55
-fomc-corpus,1983,"It seems to me that the principle is the one you state and then, of course, it's subject to review as more evidence comes in on what velocity is in fact doing.",35
-fomc-corpus,1983,"That 5 to 9 percent sounds nice but I don't like it partly because of where I think the risks are. If there is some strong sympathy that way, I'd rather see us rebase off June and use 4 to 8 percent, which would give the same practical result anyway. I really think that saying 5 to 9 percent in the context of everything that's going on, at least as I look at it, is very troubling.",91
-fomc-corpus,1983,"We are going to have great trouble getting a central tendency when I look at these numbers. We have a whole bunch at a high level and we have a bunch at a lower level and there's nothing in between. It worked out pretty well last time, but it ceratainly doesn't work out very well this time if my glance at these is clear. The central tendency--",75
-fomc-corpus,1983,What may explain some part of that is a different policy [assumption] or something.,18
-fomc-corpus,1983,"The central tendency on the nominal GNP will come out at 9-1/2 to 10-1/4 percent or maybe even 9-1/2 to 10 percent. We have 10 people between 9-1/2 and 10 percent, roughly, or 11 people between 9-1/2 and 10.2 percent. So, I guess we can say the central tendency is roughly 9-1/2 to 10 percent.",100
-fomc-corpus,1983,"Well, you can cut that 9 percent down to 8 percent by assuming a little pickup in velocity rather than no change.",26
-fomc-corpus,1983,I think what we would say with 4 to 8 percent in any event is that we are assuming a little increase in velocity.,27
-fomc-corpus,1983,"You could stress the point that Jerry just made a minute ago in that way, which is not an unreasonable thing to assume.",25
-fomc-corpus,1983,Actually 4 percent would give a 5-1/2 percent increase in velocity; that's pretty high even by historical standards.,26
-fomc-corpus,1983,I thought it was over 6 percent.,9
-fomc-corpus,1983,"Well, if you are talking about the second half of '83, but if you get into '84, the second year probably--",27
-fomc-corpus,1983,It's quite high.,4
-fomc-corpus,1983,I don't know. Maybe I'm beginning to like 5 to 9 percent.,16
-fomc-corpus,1983,We could go to 10 percent and assume a small drop in velocity.,15
-fomc-corpus,1983,It seems to be mainly accommodative and much less leaning against the pressures.,15
-fomc-corpus,1983,"Let's look at what we're saying with 4 to 8 percent. If we take the average of these forecasts, we're saying we expect velocity to be between plus 6 and plus 2. Do you want to adjust the 4 to 8 percent or would you say between plus 5 and plus 1? That's the difference.",68
-fomc-corpus,1983,"This could be a period of somewhat rising interest rates, possibly, and that would accelerate velocity. The cyclical pattern certainly is one of some velocity gain.",31
-fomc-corpus,1983,"Well, all of these would allow some velocity gain. The midpoint would be a plus 3 or 4 velocity gain.",25
-fomc-corpus,1983,"Mr. Chairman, when you look at velocity historically, though, I think the potential for a rise in velocity has to be related directly to the actual decline in velocity. And there are all those balances sitting there and we can't ignore them.",48
-fomc-corpus,1983,Are you saying velocity may rise more than the normal cyclical pattern?,14
-fomc-corpus,1983,"I think that is a very distinct possibility, yes. We just can't ignore all that money that's sitting there.",22
-fomc-corpus,1983,I think that is where the risks lie.,9
-fomc-corpus,1983,That's where I think they lie.,7
-fomc-corpus,1983,"When this is compared with the old range of 2-1/2 to 5-1/2 percent, people aren't going to keep in mind that this is a different Ml.",38
-fomc-corpus,1983,"Mr. Chairman, I'm starting from the point that I'd like to preserve M1 for some time when it becomes more important informationally. But this discussion has just reinforced my view that we shouldn't rebase at the moment. We shouldn't be talking about 5 to 9 percent or anything else because it gives much more credence to those numbers than anybody around this table is able to assign to them, at least by a consensus. And thus it seems to me that we should drop back and use the 7 to 11 percent, which recognizes that we had an overshoot in the first half that we can't explain and we don't know what is going to happen in the second half. An 11 percent top suggests to anybody who chooses to figure it out--and the monetarists and market people or others will do so--about a 6-1/2 increase for the remainder of this year. And in view of the uncertainty, that isn't unreasonable. As a result, I would go to the 7 to 11 percent now without rebasing and maybe talk about it sometime in the future. And [for 1984] I'd go to 4 to 8 percent, which we established in February of this year, in view of the uncertainty. The uncertainty still exists for 1984 and we will have the opportunity to change it in February of 1984. The result, it seems to me, is that we're according less precision to M1 and it's more attuned to the discussion we just had around this table. Nobody knows. So, why should we elevate it by changing it and assigning some precision to it, even with all the language that you suggested that if velocity increases at the historical rate or if it's at zero--?",353
-fomc-corpus,1983,"Oh, I think we have to say that anyway for next year. The official is less different than--",21
-fomc-corpus,1983,"To be sure, the uncertainty involved is velocity and its relationship to income. But to do the things we are talking about--one rebasing it and then establishing a 5 to 9 percent range and trying to explain it for the remainder of 1983--seems to me to be elevating it beyond the point that I'd like to see.",71
-fomc-corpus,1983,"The only difficulty with 4 to 8 percent for next year--it's not a substantive one, I guess--is that we're going to be projecting, unless these [forecasts] change, a 9-3/4 to 10 percent average nominal GNP. That projection is going to be published. And a 4 to 8 percent range says that velocity is going to increase by from 2 percent to 6 percent. Is that what we want to say?",97
-fomc-corpus,1983,"Well, as I've just suggested, in February we established a 4 to 8 percent range, describing some uncertainty. And the report to Congress had nominal GNP of [7-1/4] to 11-1/4 percent.",50
-fomc-corpus,1983,"And the average of that was 9 percent, roughly?",12
-fomc-corpus,1983,"9 percent, roughly.",5
-fomc-corpus,1983,"And we said 4 to 8 percent against the background of cyclical increases in velocity of 6 percent or more in the first year recovery. Now we're in the second year of recovery, and we've had two more quarters of low velocity.",49
-fomc-corpus,1983,"Therefore, it gives the background of saying that we'll just reestablish the 4 to 8 percent because we don't know what will happen and we'll look at it [again] in February.",39
-fomc-corpus,1983,"We have gone from an 11 percent rate of [velocity] decrease to about a 1 percent rate of decrease in that period, suggesting that it's straightening out.",34
-fomc-corpus,1983,"Well, any of these ranges allows for an increase in velocity. And they all assume that [some] degree of normality will return; it's just a question of the degree.",36
-fomc-corpus,1983,"I think there's something to what Roger says. If the conversation added up to anything around the table, it is that nobody really knows enough about M1 to be very confident. We could say for next year that the Ml range is 4 to 8 percent and that assumes a velocity of 2 to 6--and use whatever rationale you feel comfortable with to say it--and say that if that doesn't work, we'll simply have to adjust Ml again. That strikes me as conveying the notion that we have some expectation that Ml will return to a more normal path, but we're not very confident of it. And if it doesn't, we are not going to base monetary policy on something that isn't dependable.",141
-fomc-corpus,1983,Does anybody have the figures handy as to what the velocity has been historically in the second year of expansion?,21
-fomc-corpus,1983,For M1 it has been 2.7 in the last three expansions.,16
-fomc-corpus,1983,Only 2.7?,6
-fomc-corpus,1983,In the second year?,5
-fomc-corpus,1983,That's the second year. It's higher in the first year; it's 5.2 in the first year.,22
-fomc-corpus,1983,"Well, the issue here is not to agree on how much we know about Ml for this year. I don't think we know a helluva lot about either [year]. But the problem that I think we ought to avoid is having a set of targets that won't provide the opportunity to tighten up further if we have to. And if we have targets like 11 percent or even 9 percent--",79
-fomc-corpus,1983,But remember that this Ml number can be put in the context of a reduction in the targets for the broader aggregates.,23
-fomc-corpus,1983,But the broader aggregates don't really provide much of a mechanism--or they have not provided much of a mechanism--to permit this.,26
-fomc-corpus,1983,And Ml has?,4
-fomc-corpus,1983,"We can use it; we don't have to. I'm not saying we would. But as a practical matter, it does give us the opportunity to move if we think we have to move. And that's what I'm concerned about--having a set of targets that gives us the flexibility even though we may not use it.",63
-fomc-corpus,1983,"I agree with Jerry. I think we ought to rebase, but then I'm scared of the 5 to 9 percent so I'd fuzz a little on the velocity but say we are keeping it open.",41
-fomc-corpus,1983,"Would you base it on June, then?",9
-fomc-corpus,1983,Sure. I think the concept here is that what has happened has been unusual. And now we're going to be following Ml in the expectation that there will be some small rise in velocity.,37
-fomc-corpus,1983,"The whole spectrum of short-term interest rates is really behaving as though the fed funds rate were closer to 9-1/2 percent than to the 9-1/8 percent rate of the last few days. So, if we raise expectations [by] having 4 to 8 percent based on the second quarter, we are going to get even more of a reaction in the market.",80
-fomc-corpus,1983,But I said I'd base it on June.,9
-fomc-corpus,1983,Basing it on June seems awfully fussy to me.,13
-fomc-corpus,1983,"But it's basing it on where we are, which I would define as June.",17
-fomc-corpus,1983,"You get a lot by way of money growth; that's worth $10 billion in Ml, I think. The second-quarter average is $505 billion and June is $515 billion.",36
-fomc-corpus,1983,Rebasing suggests that we know more about what M1 is going to do in the future than I think anybody around the table is willing to admit.,31
-fomc-corpus,1983,"I think one can make the argument the other way around. Rebasing, depending upon how we articulate it, can be construed to say that we had this unusual period and we're recognizing that it's unusual. We are cutting the umbilical cord from it and we're going from there. That clearly leaves open the option and demonstrates our willingness to do something like that again.",73
-fomc-corpus,1983,It seems to me that the market would suggest that M1 is going to become a greater focus of policy implementation. And I'm not prepared at this moment to start looking at Ml as a policy guide because I don't think we know what is going to happen in the period ahead any more than we knew what would happen or how we can explain what happened in the last six months or nine months.,78
-fomc-corpus,1983,"That argues, though, for just ignoring Ml--don't set a target for this year or don't set one for next year.",25
-fomc-corpus,1983,"I'd just like to clarify that point. I would not want to ignore Ml totally and not set any targets at all because I think M1 has served us very well, both politically and economically in the past and it will need to do so in the future. I wouldn't want to move totally away from it. I'd like to preserve it.",68
-fomc-corpus,1983,"But if we eliminate the ranges temporarily until we have a relationship back, I think that signals the markets that we're not [focusing on Ml] even more strongly--",33
-fomc-corpus,1983,"But then when we move back to it, it will be the sole target as far as the markets are concerned. If we eliminate it and then reinstitute it when we think it has some validity again, then the markets are going to pick it up as being the sole target for monetary policy. And in my view it shouldn't have been totally the guide in the past and shouldn't be in the future. Again, I think you're according it something that I would not be prepared to do.",97
-fomc-corpus,1983,"If Ml is growing at 12 percent, I don't care if we have a target or not, the market is going to look at it and we're going to get interest rate effects. We can't wish that away. It's just not going to go away.",51
-fomc-corpus,1983,"The other approach, though, provides some flexibility to us in the period ahead when the uncertainty is still at a very high level.",26
-fomc-corpus,1983,"A lot of the reasons for that uncertainty have disappeared, Roger. It may well behave more predictably now than it has in the recent past. I hope so and I know you hope so. Of course, none of us knows.",47
-fomc-corpus,1983,What are the Administration's and CBO's projections for nominal GNP next year?,17
-fomc-corpus,1983,I don't know about [CBO]; the Administration's nominal GNP is 9.7 percent for 1984.,25
-fomc-corpus,1983,CBO is out of date. There isn't much--,11
-fomc-corpus,1983,"It sticks in my craw a bit--we're back at 9-3/4 percent. That's about where we will be. If we say 4 to 8 percent, we're saying velocity is going to increase by the normal cyclical amount even if we're in the high end of the range.",61
-fomc-corpus,1983,"If we hit it right in the middle and have a normal cyclical velocity, we're right on.",20
-fomc-corpus,1983,On 8 or technically 7--,8
-fomc-corpus,1983,"Yes, it's just as important not to pull it back too much as it is to have the right amount.",22
-fomc-corpus,1983,"That argues for 5 to 9 percent, analytically--no question about it.",18
-fomc-corpus,1983,"Well, it gets to be very close to saying that Ml has become like M2 and M3. One reason I can see for saying that is that M1 now accumulates interest as a result of interest being paid [on NOW accounts] and so it has an upward bias that it didn't used to have. Whether that is very important, I don't know. But I think there is a difference between Ml and M2 and we ought to show that in the range.",95
-fomc-corpus,1983,"The argument that I hear against 5 to 9 percent, apart from something cosmetic, is: Suppose velocity is high and we want to tighten up and we're well within the 9 percent? I guess the answer to that has to be that if that's true, M2 and M3 and credit must be running high.",65
-fomc-corpus,1983,Not necessarily.,3
-fomc-corpus,1983,I don't see that.,5
-fomc-corpus,1983,I don't think so.,5
-fomc-corpus,1983,"The argument for a big increase in velocity and slow growth in Ml is that we had this big cyclical drop in velocity, which relates to higher interest rate sensitivity in demand for NOW accounts and changes in compensating balance practices as interest rates go up. And I think the implicit argument here, which we ought to lay on the table, is that interest rates are going up a good bit more than the staff has forecast and that slows down Ml growth a lot, so we need to keep a low range for that reason. I worry about that about as much as I worry about the problem that Chuck posed earlier, which is that the economy may hit the rocks and Ml growth may slow down for that reason. I think both of those are protecting against being run over by a herd of stampeding elephants in Washington at high noon. The main problem we're going to have, I think, is that we have a fairly strong economy that's going to pull a lot of money growth out. And the question is what we want to do about that. Do we want to ignore it or not? I would be prepared to put very little weight on growth of Ml, but I don't think we ought to tell the public inadvertently that we're giving up on the fight against inflation. So, I think Jerry's suggestion of basing on June makes good sense because I don't think we ought to constrain ourselves too much. Then we can use 4 to 8 percent and it sounds better. Cosmetically, it sounds better. And I think we can finesse this business of velocity in 1984; that's no problem. No one really knows what is going to happen to velocity anyway so we just make some arguments for [the possibility that] it may go up or it may not and we'll be all right.",358
-fomc-corpus,1983,We can make some arguments that it may go up; we can't make any that it may not because then we have to--,25
-fomc-corpus,1983,"No, if we say it may not go up, we're saying in effect that we're not going to put much weight on Ml until we see normal patterns of M1/GNP relationships restored. And if, in fact, when we get to 1984, it takes 10 percent growth in Ml to have a decent economy, we're prepared to do that.",72
-fomc-corpus,1983,"I don't see that as a problem. If we're faced with the situation later this year or next year where velocity isn't growing, I think it's a fairly easy matter to make that kind of adjustment both in policy and what we say about policy. But I don't think the reverse follows. If we have a target that's 5 to 9 percent and money supply is growing at 9 percent and the economy is growing like gangbusters, how do you go up [on the Hill] and explain that we're tightening when we're within our target range? I think it's a real problem.",115
-fomc-corpus,1983,We change targets.,4
-fomc-corpus,1983,"We can do 4 to 9 percent based on the second quarter, which also is a practical way of showing the market that we're de-emphasizing M1 to some degree. They don't really believe as much as I think some of you people around here believe that we have de-emphasized Ml. I keep mentioning this point. Sure, it has been reinforced by the strength of the real economy; I understand that. But there's a revision to the old thinking more and more.",98
-fomc-corpus,1983,"Jerry, I think we go up to the Congress and tell them that we're tightening because the economy is growing above the rate anticipated and we're beginning to see the first signs of inflation. I don't think we go up and make an argument based on the Ms at all. We make an economic argument.",59
-fomc-corpus,1983,But how can we say we see the first signs of inflation? What do we point to?,19
-fomc-corpus,1983,"Well, if the economy is growing very, very [rapidly]. That was the assumption Jerry made.",21
-fomc-corpus,1983,I don't think he has a basis for saying that.,11
-fomc-corpus,1983,There's somewhat of an historical tendency to be unwilling to do that in this Committee.,16
-fomc-corpus,1983,That was his assumption.,5
-fomc-corpus,1983,If the exchange rate--,5
-fomc-corpus,1983,"I'm not talking about today. I'm talking about his scenario, Tony.",14
-fomc-corpus,1983,"The problem is that there's a reluctance to do that even in the confines of this Committee, much less to go up and tell Congress that that is what we are doing. I don't give a darn about M1 in and of itself either. My concern is simply that we formulate policy in a way that it provides us with flexibility to do what has to be done, if indeed it has to be done.",82
-fomc-corpus,1983,"Gosh, I would hate to rebase on June but--",13
-fomc-corpus,1983,"Well, take Tony's [suggestion] and make it 4 to 9 percent and base it on the second quarter.",26
-fomc-corpus,1983,I'd almost prefer to make it 8 to 12 percent for the year.,16
-fomc-corpus,1983,"Well, 7 to 11 percent puts some restraint on M1 over the last half of the year.",22
-fomc-corpus,1983,7 to 11 percent is exactly the same as [8] to 12 percent based on the second quarter.,23
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Mr. Chairman, I made some calculations when I was fiddling with this. Growth of 12 percent for the year would give you about 8 or 8-1/2 percent from June to December. That's about a 10 percent rate from Q2 to Q4.",57
-fomc-corpus,1983,Does that show July above or below the target?,10
-fomc-corpus,1983,"I would assume it's above, but I'd have to check. Oh, I'm sure it's above.",19
-fomc-corpus,1983,"Of course, if it's slow in the second quarter--",11
-fomc-corpus,1983,What has it been so far?,7
-fomc-corpus,1983,"For the year-to-date it's around 13 percent. As of June, from a fourth-quarter base it was running 13.8 percent. So, it's 5.8 percentage points above the June level.",43
-fomc-corpus,1983,June was 10 percent.,6
-fomc-corpus,1983,"I meant above the June target level. And the growth rate for Ml from the fourth quarter to the second quarter is about 13-1/4 percent. Either way it's very strong. Our projection for the third quarter, for what it's worth--",50
-fomc-corpus,1983,"If it's 13.8 percent now, we're almost at 14 percent so if we have 11 percent for the year, it has to come down to 8 percent for the rest of the year. That's simple arithmetic.",46
-fomc-corpus,1983,"You are the number one salesman on this, Mr. Chairman. What do you feel most comfortable with trying to sell?",24
-fomc-corpus,1983,"One interesting thing that makes it a little easier is that under any of these short-term alternatives, the third quarter looks fairly high in an absolute sense. Any of these short-term alternatives that we're looking at would imply a third-quarter rate that really doesn't look like much drop from the second-quarter rate. It's just pure arithmetic. If I can find the darn table--",72
-fomc-corpus,1983,Lyle's helping you.,6
-fomc-corpus,1983,"Here it is. It's on page 14 [of the Bluebook], Mr. Chairman. Under the short-term alternatives for Ml, ""A"" gives you 10.8 percent for the third quarter; ""B"" gives you 10 percent; and ""C"" gives you 9.2 percent. That may be obfuscation to a certain degree, but it is probably a more meaningful number than the rates from June to September in a sense. I don't know whether it's a wise thing to do or not, but I don't think anybody could deny that that's probably a more meaningful figure than the behavior over a particular month in the period. Any of those involves some deceleration but not what most people would think of as a terribly fast deceleration. I don't know what the fourth quarter looks like at this point.",166
-fomc-corpus,1983,That would be 2 percent.,7
-fomc-corpus,1983,That's going to be a lot less. You run into a few more problems. You assume that's within your target and then you start talking about the month-to-month--,33
-fomc-corpus,1983,"Well, you have very low fourth-quarter numbers [if you] believe that. Growth is going to have decelerate into the 4 or 5 percent area.",34
-fomc-corpus,1983,"You have faith on that, Steve. I know they would be low, but I don't have those [numbers] in front of me.",28
-fomc-corpus,1983,"With that kind of increase in the third quarter, we'd have to have, say, 5 percent for the fourth quarter.",25
-fomc-corpus,1983,It is pretty low.,5
-fomc-corpus,1983,"Yes. That's what comes out of the averaging process. If Ml growth is decelerating at the end of the third quarter and continuing to decelerate in the fourth quarter, you get very low numbers. But I would be very cautious about [assuming] that will happen.",56
-fomc-corpus,1983,That's a quarterly average?,5
-fomc-corpus,1983,"Yes, low numbers month-to-month and a low quarterly average in the fourth quarter.",17
-fomc-corpus,1983,And July looks as if it's going to be high.,11
-fomc-corpus,1983,We will get the more recent numbers shortly. At the moment it looks that way.,17
-fomc-corpus,1983,"That makes a very strong case, if we are going to rebase at all, for rebasing on June.",23
-fomc-corpus,1983,"Last year, Mr. Chairman, we thought July was going to be high and it came in weak. Remember, that was the surprise last year. And August and September came in high.",38
-fomc-corpus,1983,"Another thing on this rebasing: If we don't rebase, we are going to have a target this year of 8 to 12 percent or 7 to 11 percent or something like that and then what do we do next year? We're left having to hang out a target for next year that on the surface is going to look like it's 4 or 5 percentage points below our target for this year.",84
-fomc-corpus,1983,"Maybe if we talk long enough, you will come back to my suggestion.",15
-fomc-corpus,1983,"What, an easy money policy?",7
-fomc-corpus,1983,"The fact that we are doing some modest tightening, [which is] probably what we're going to be doing, I don't think we ought to show that. And there's enough justification in the M2 and M3 figures to justify a modest tightening.",49
-fomc-corpus,1983,"We are pretty far into the expansion and it's a very strong expansion. Interest rates have gone up very moderately. Historically [speaking], I don't think it's a very tough policy that we've had.",39
-fomc-corpus,1983,"Hopefully, we're only about 1/8th of the way.",14
-fomc-corpus,1983,Compared to what--what we've done in the past?,11
-fomc-corpus,1983,Maybe 1/16th.,7
-fomc-corpus,1983,"If we are not careful, it may not be an eighth.",13
-fomc-corpus,1983,"We don't have a typical recovery. We have a very strange world situation as you know, Henry. And yet I don't see that that whole world situation enters into our bottom line policymaking here.",39
-fomc-corpus,1983,Whether that is a very major thing [unintelligible]. I wrenched myself away from that on the grounds that we're contributing a good deal more to the world expansion by having this bigger growth rate.,42
-fomc-corpus,1983,"But the interest sensitive sectors of the domestic recovery have not had time to react to or [feel] the impact of the slightly higher rate. A month from now, six weeks from now, we will see the interest sensitive areas, especially housing, begin to level off or decline.",56
-fomc-corpus,1983,That's another reason why Ml may well slow down.,10
-fomc-corpus,1983,"Well, I would suggest that we go to the short-term ranges. The more one looks at the problems in the next quarter, it bears upon the reality of any number we put down for the rest of this year. So, let us move to the short-term ranges. We can do that by dispensing with the Managers' reports at this point, to avoid any interruption in the continuity. What do we have now for the short-run ranges?",89
-fomc-corpus,1983,"Mr. Chairman, the table on page 13 of the Bluebook summarizes the short-term ranges. Alternative A retains the federal funds rate range of 6 to 10 percent, which was in the last directive of the Committee, but assumes in effect retaining the degree of restraint on bank reserve positions that the Committee most recently has allowed. And those money market conditions, we believe, are consistent with a slowing in Ml growth to a 7-1/2 percent range over the June-to-September period, as you see, and a slowing of M2 and M3 growth--",117
-fomc-corpus,1983,That produces what quarterly average? It's 10 percent or something that like?,15
-fomc-corpus,1983,"Yes, that produces a 10.8 percent quarterly average, given a high July. And I might add that I do now have very recent data and they would not suggest that July is very different from 10 percent. They tend to confirm the first couple of weeks in July that we had estimated last week. Alternative B and alternative C contemplate a tightening of bank reserve positions--in the case of alternative B, perhaps up to the 9-1/2 percent area for the funds rate and perhaps up to the $850 million to $1 billion range for member bank borrowing. And alternative C contemplates even more tightening. We believe alternative B is generally consistent with Ml growth, expressing it at an annual rate, in the 7 to 11 percent range and is more consistent than alternative A with the broader aggregates--at least M2--being closer to the midpoint of their ranges. We believe alternative A to be more consistent with the broader aggregates being toward the upper end of their ranges--particularly M3, but M2 would be in the upper half of its range. And for M1 we would be more comfortable, I think, with an 8 to 12 percent range for the year. The greater tightness of alternative C we believe would be more temporary even than that under alternative B because we would contemplate a more rapid downward reaction of the demands for goods and services. And that would tend to be reversed toward the end of the year and into early next year more than with alternative B and, of course, that would contemplate a greater slowing of M2 and M3. Mr. Chairman, in view of the uncertainties, I might say that as a policy course it would not seem illogical to me to contemplate higher growth rates of the aggregates, such as those in alternative A, even if the Committee wanted also to contemplate some little tightening of the money market. If the Committee did not wish to contemplate any tightening, it certainly seems as if the higher growth rates of alternative A, or maybe even higher rates, would be necessary so far as we can see at this point.",421
-fomc-corpus,1983,"I'm not quite sure I understand what you just said. You say when you really look at it, you're not sure alternative A is inconsistent with some modest tightening of the money market?",36
-fomc-corpus,1983,"If the Committee wanted to contemplate no more than a modest tightening, then I think it would be more certain to get that result to be consistent with the [growth rates it adopts for the] aggregates if it raises them. If the Committee were willing to have much more than a modest tightening--quite a tightening--then, of course, a lower aggregate [figure] would work more to assure that that would develop naturally.",84
-fomc-corpus,1983,Are you talking about roughly a $600 million borrowing assumption?,12
-fomc-corpus,1983,"Well, I'm not sure that that would get you a lot of tightening.",15
-fomc-corpus,1983,I think we need $800 million to get the funds rate to 9-1/2 percent.,21
-fomc-corpus,1983,"Probably, although this week borrowing is running around $400 million. Of course, in earlier weeks it had run much, much higher very steadily.",29
-fomc-corpus,1983,"When you associate ""A"" with some tightening, are you referring to a validation by us of the movement in the markets that has already occurred or are you talking about higher rates from today's level or yesterday's level?",43
-fomc-corpus,1983,"I was associating alternative B with some tightening, Governor Martin--perhaps I misspoke--and alternative A with about the present degree of reserve restraint, which would be a validation [of the modest recent tightening].",42
-fomc-corpus,1983,"Let me shift to ""B"" then: Are you talking about validation or further increases?",18
-fomc-corpus,1983,"No, I was assuming further tightening would mean a funds rate moving up at least to 9-1/2 percent.",25
-fomc-corpus,1983,"Well, you're talking about the funds rate. That might be consistent with the rest of the market being where it is, if [market participants] thought that was the end of [the tightening]. But they may not think it's the end of it.",50
-fomc-corpus,1983,I wouldn't think it's the end of it.,9
-fomc-corpus,1983,"Mr. Chairman, I would like to ask Steve, in response to Tony's question: If we select alternative A, what kind of borrowing level in your judgment would give us a funds rate someplace between 9-1/4 to 9-1/2 percent?",55
-fomc-corpus,1983,That is somewhat tighter than we contemplated in alternative A and I would say between $600 and $850 million.,22
-fomc-corpus,1983,Between $600 and $700 million would you say?,11
-fomc-corpus,1983,Borrowing has fluctuated so much that--,9
-fomc-corpus,1983,"We can't interpret the borrowing level without some allowance for excess reserves. We've had borrowing much higher but we have had a lot of excess reserves. I think the change in free reserves or net borrowed reserves is roughly what we contemplated, but we have been getting a lot of borrowing in the beginning of the week and the market gets easy.",66
-fomc-corpus,1983,Because banks have so many excess reserves.,8
-fomc-corpus,1983,"Would it be better, instead of an initial borrowing assumption, to talk about an initial net borrowed reserve number?",22
-fomc-corpus,1983,"In some sense it is probably better to talk in those terms or in some combination of the two. I think of the borrowing number as shorthand for something that's associated with $350 million or so of excess reserves, which used to be normal. For several months, at least, it has been well above that. I think the distribution of reserves results in some easing influence even though the borrowing is high. So, implicitly I look at the net borrowed reserves.",91
-fomc-corpus,1983,Alternative A on Ml would be consistent with what for the last two quarters [of 1983]?,20
-fomc-corpus,1983,"We thought that would be more consistent--again this is judgmental--with the alternative that isn't here; we had more like an 8 to 12 percent range for the year. Alternative B, which is the basis of the staff forecast, we thought was more consistent with a 7 to 11 percent range.",64
-fomc-corpus,1983,"And ""B"" implies a rise in rates to 9-3/4 percent?",18
-fomc-corpus,1983,"The way we had written ""B,"" it assumed a funds rate probably up in the 9-1/2 percent area or somewhat higher. Again, it depends on what borrowing level the Committee adopts. The one President Guffey suggested would be somewhat lower. What we have in here is 9-1/2 to 10 percent; where it would fall in that range depends a bit on how it's toned up.",86
-fomc-corpus,1983,"Net free reserves, excluding the one week in the past six when it was positive, would average about $225 million.",24
-fomc-corpus,1983,Net borrowed?,3
-fomc-corpus,1983,"Yes, net borrowed reserves were about $225 million. And I agree with the Chairman that that's what we should focus on--whether we want to increase the net borrowed [assumption] or keep it the same--because the week-to-week changes in the excess and borrowings are really all we have.",61
-fomc-corpus,1983,I think that $225 million includes about $150 million of seasonal borrowing.,15
-fomc-corpus,1983,I thought that was out of there. It's the extended that you pushed over.,16
-fomc-corpus,1983,Seasonal borrowing is in.,6
-fomc-corpus,1983,"But if we're going to work with the initial assumption of net borrowed reserves, then we have to make an estimate as to what the excess reserves are going to be, and I don't think--",38
-fomc-corpus,1983,"They are not unrelated, Tony.",7
-fomc-corpus,1983,I know that.,4
-fomc-corpus,1983,When the borrowing goes sky high so do the excess reserves.,12
-fomc-corpus,1983,"No, that would eliminate the need to make that assumption in advance. If you gave us a net borrowed assumption, we would have a required reserve figure; under lagged reserve accounting that would disappear later and then we would know the nonborrowed reserve number by subtraction. Whatever excess is involved and however net borrowed chooses to distribute itself between excess and borrowings, we'll work out. We will have a lot of borrowing and a lot of excess, or a little borrowing and a little excess, for the same--",102
-fomc-corpus,1983,"Well, you remember the old mechanism: If you keep net borrowed at a given level that the banks don't find consistent with prevailing interest rates, the money supply will get away from you as you try to maintain that net borrowed level. It's a very tricky, slippery target.",54
-fomc-corpus,1983,No trickier than [the relationship of] initial borrowing to the federal funds rate.,17
-fomc-corpus,1983,Yes. I think we've been doing exactly the same thing here in the last 6 to 9 months.,22
-fomc-corpus,1983,"Mr. Chairman, what bothers me more than anything else is that when we stopped tracking Ml we lost a lot of that automatic correcting mechanism we had before. I don't think the figures we choose here are as important as that we agree that we are going to change the borrowing level and federal funds rate--and maybe in rather prompt steps--if the actual growth deviates from what we expect. That's the point I'd like to see us zero in on if we could, because all we can do now on the present procedures are ad hoc adjustments. That makes me a little uncomfortable.",115
-fomc-corpus,1983,"Mr. Chairman, I should have commented that the proposed directive alternative on the short run does include a bracketed proposal that the Committee may want to consider as consistent with this discussion. If it were included, it would imply a degree of automaticity in reaction that has not been attained for some time; if not included, we could not have the automaticity that had been in place before last October. That's another point the Committee may wish to consider.",90
-fomc-corpus,1983,Where are you?,4
-fomc-corpus,1983,Pages 21 to 22. That would go with the bracketed comment on page 21.,20
-fomc-corpus,1983,"I had not thought that those necessarily followed, Governor Gramley. This would be in case the Committee wished to give a little more weight to Ml and a little more automaticity, whether or not the bracketed part under the long run--. Oh, I'm sorry! You mean the second paragraph on page 21. That's right; it would go more logically with the last paragraph.",77
-fomc-corpus,1983,"Well, I think we ought to have some modest degree of tightening here, but it's a matter of degree.",22
-fomc-corpus,1983,Alternative B accommodates the present rate of growth in M1 during the third quarter.,16
-fomc-corpus,1983,Present rate of growth? I'm not quite sure what you mean by the present rate. It would accommodate--,21
-fomc-corpus,1983,The 10 percent rate we've been seeing in Ml in the third quarter would be reflected under alternative B. It's running about 10 percent.,28
-fomc-corpus,1983,"I thought it was running above that. Oh, you mean from June. Okay.",17
-fomc-corpus,1983,"[July] is estimated, I thought he said, at about the same as [June].",19
-fomc-corpus,1983,"That's right. But if you adopt the 6 percent and July is correct, that alternative would necessarily imply a sharp drop in August and September to about 4 percent. That would give you a high quarterly average but August and September would have to come down quite a lot to get there.",58
-fomc-corpus,1983,"And you're talking about [growth in] total reserves under ""B"" at 2-1/4 percent June-to-September?",27
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,It's also substantial.,4
-fomc-corpus,1983,It was because of that sharp drop implied in August and September that I suggested with a bit of caution the possibility of higher growth rates [even] if you had some modest tightening.,36
-fomc-corpus,1983,"What would ""B"" imply with regard to the prime rate--very considerable pressure upward?",18
-fomc-corpus,1983,I would think a rise.,6
-fomc-corpus,1983,"There'd be even more pressure on the mortgage rate. Last week it was at 13.3 percent, when we had a--and I quote--""modest increase"" in pressure. Apply the same modest increase in pressure and it would get over 14 percent.",55
-fomc-corpus,1983,"But ""B"" is going to a funds rate of 9-1/2 to 10 percent. If the Committee were only going to a 9-1/2 percent funds rate, things would become a little more iffy; it becomes a sort of struggle between the banks.",59
-fomc-corpus,1983,"But, Steve, didn't you say even alternative A implies some increase in restraint?",16
-fomc-corpus,1983,"Well, we were writing alternative A as if it implied bank reserve positions that would keep the money market about where it is. It's probable that short-term rates and long-term rates have anticipated a further tightening, so there is some real possibility of a little drop in rates under alternative A if it works out that the money market just doesn't tighten up from its recent degree of restraint.",75
-fomc-corpus,1983,"Alternative A does include the present degree of restraint--that is, it includes the tightening that has already taken place?",23
-fomc-corpus,1983,"That's what we were intending. The market is anticipating further tightening, as far as we could construe up to yesterday. But, that's what we were intending.",32
-fomc-corpus,1983,"I think it's fair to say that the market, particularly after the Humphrey-Hawkins testimony, probably will not retreat and will tend to assume that this is not the last upward adjustment.",38
-fomc-corpus,1983,"That's the problem. When we get into a phase of change they keep anticipating more and more until something happens to change that, such as a decline in the money supply, a weakness in the economy, or something.",43
-fomc-corpus,1983,They are reacting now to those wide swings in weekly Ml variations as they were before we had formally deemphasized Ml.,24
-fomc-corpus,1983,You put more on M1 than I think is justified.,12
-fomc-corpus,1983,I'm talking about the swings [in Ml] we're now seeing in the Friday publications.,17
-fomc-corpus,1983,"Well, what I had in mind was borrowing of roughly $600 to $800 million, but I assumed excess reserves of $300 to $400 million, say. It implies higher borrowings as it evens out if excess reserves are very high. Whether that's consistent with ""A"" or ""B,"" I don't know; I guess it's someplace in between.",72
-fomc-corpus,1983,"Let me mention one other factor that's in that borrowing number. We have a lot of nonmember banks that now have access to the discount window; they're borrowing about $100 million. The seasonal borrowing is $150 million and there has always been a normal frictional borrowing amount of about $100 million. So, you're talking about a $350 million base in some sense.",74
-fomc-corpus,1983,"Also, borrowing has been so low that there's less reluctance [by banks] to come in, so it's probably going to be high.",28
-fomc-corpus,1983,"I think $600 million is probably about where we are now, but not in--",17
-fomc-corpus,1983,$600 million on borrowing?,6
-fomc-corpus,1983,I think $600 million on borrowing is somewhere around 9 percent or a little higher--perhaps 9-1/8 percent.,27
-fomc-corpus,1983,"So, what we need is $800 million to get to 9-1/2 percent? Is that what you are saying?",27
-fomc-corpus,1983,"Well, I would give a little range there, I think.",13
-fomc-corpus,1983,Why do you feel we need to tighten now over and above what we've already done?,17
-fomc-corpus,1983,"The economy is moving pretty fast; we have some inflationary danger sitting out there in the future; and the aggregates are running high. So, I'd go for a modest tightening until I see a change in this.",43
-fomc-corpus,1983,What's wrong with the economy recovering?,7
-fomc-corpus,1983,"Nothing, if it does it in a sustained way --a noninflationary way.",18
-fomc-corpus,1983,The forecast doesn't show very much inflationary danger.,10
-fomc-corpus,1983,The staff forecast doesn't show much inflationary danger.,10
-fomc-corpus,1983,"No, the consensus forecast; I didn't hear any strong arguments against the staff forecast on that score.",20
-fomc-corpus,1983,"If we don't act somewhat now, I think we're repeating what we've done many times before. That is, we let it run too long and we then confront either inflation or excessive interest rate increases. Both put an end to the expansion.",47
-fomc-corpus,1983,"We've just had a concerted move in the market, which is the point that Pres made. Now, maybe we haven't fully confirmed that move. But I would be happy to see the private rate structure stay where it is for a while because I think it will have some effect on the very credit sensitive industries and we ought to wait and see what that is before we let this get away from us on the tightening side. But I think that's probably consistent with a little tightening.",95
-fomc-corpus,1983,"That's what I would [unintelligible] except for this expectation. We've had rates move up, and I'm not sure the market is convinced that we've moved at all. Now, when we tell them that we have--probably tomorrow--we will get another reaction.",54
-fomc-corpus,1983,I don't understand how that tightening is consistent with steady [reserve] positions.,15
-fomc-corpus,1983,There's no doubt that we've moved in the market.,10
-fomc-corpus,1983,I don't know. What do you think? I just read the newspaper. Some say we've moved a tiny bit and some say we haven't.,28
-fomc-corpus,1983,"Well, I think the analysts have one [view] and the traders another. I think the traders have voted with their feet and have anticipated not only 9-1/8 percent but something on the order of 9-1/2 percent. The analysts are still sorting out free reserves, borrowings, and excess reserves, and lag a bit behind.",73
-fomc-corpus,1983,"If we tighten to 9-1/2 percent, the chances of the market not continuing to anticipate that there might be more tightening later on are very small. I don't think we could tighten without getting some movement in the whole spectrum of short-term rates, even though technically the 9-1/2 percent [funds rate] would be consistent with the short-term rates we've seen here.",80
-fomc-corpus,1983,It would force a change in the prime rate.,10
-fomc-corpus,1983,"Well, the prime rate probably ought to go up a notch.",13
-fomc-corpus,1983,"You're going to force a change in the discount rate, too.",13
-fomc-corpus,1983,"No, I don't think that follows.",8
-fomc-corpus,1983,I think we could very easily see the prime rate go to 9-1/2 percent.,20
-fomc-corpus,1983,"Yes, and it probably ought to. Everything else has moved and the prime has not.",18
-fomc-corpus,1983,Everything has moved 5/8 to 3/4 point except the prime.,17
-fomc-corpus,1983,"The logic of that argument, Chuck, that we [ought] to wait a while before we put more pressure on the whole spectrum of short-term interest rates is that we really can't afford to push up the fed funds rate even though it would be in a technically better relationship.",55
-fomc-corpus,1983,That could be. An awful lot will be determined by [events in] the next few days--the testimony and so forth.,26
-fomc-corpus,1983,"I am assuming that the tone of that testimony, to the extent that it's not as completely neutral as it can be, is that it would give more [emphasis] to the question of alertness to the strength of the economy, strength of the aggregates, etc., than it would to any implication that would correct anticipation on the other side. In other words, I don't see any reason to assume that the testimony would tend to take the upward movement and expectations out.",94
-fomc-corpus,1983,"There is only one way to do that. If we in fact move a little, then we say we moved a little and leave the implication that at this point we don't see any reason to move any more.",42
-fomc-corpus,1983,We've already moved.,4
-fomc-corpus,1983,"All right, we have moved.",7
-fomc-corpus,1983,Are you prepared to go that far?,8
-fomc-corpus,1983,"Well, that depends upon what we do here, I guess. I don't see how we can give that impression without moving a bit here. If we move a little here, we can leave the impression that we may have a little tightening but there's nothing else in the offing other than what we're in the process of doing immediately. That probably won't calm them down. I don't think [the market] is going to be calmed down until something happens like the money supply going down or the economy showing a bad month or something.",106
-fomc-corpus,1983,And we had the first month of a turnaround in business loan demand in June.,16
-fomc-corpus,1983,"The fact is that in a strong economy and anything like their present mood there's no reason why we should indicate a decline in interest rates, whatever we do.",31
-fomc-corpus,1983,"But that's one month of business borrowing and the kind of businesses that provide much of the new employment are paying 2 to 3 points over prime. If we get the prime rate up another 50 or 75 [basis] points and add 2 to 3 [percentage points] on top of that, we'll see how much borrowing we get!",71
-fomc-corpus,1983,"Well, some people are still paying prime, but it's less of a significant rate in the C&I market. In New York, three-fourths of the new loans are not at prime; in Chicago, half of them are not at prime.",49
-fomc-corpus,1983,They're below prime.,4
-fomc-corpus,1983,"Yes, but small businesses are paying 200 to 300 basis points over prime, as we all know. In construction with 100 basis point increase on FHA/VA [loans], they're back to paying 6 points again. The conventional loan points are much more, maybe 10.",59
-fomc-corpus,1983,There has been a bit of a shift back to prime as the Eurodollar and the Libor rate got lower and the banks found some of their interest is--,33
-fomc-corpus,1983,"Well, I think Pres is right that very few people in the construction industry pay prime. They'll be paying prime plus 2 probably.",27
-fomc-corpus,1983,And then points on the mortgage.,7
-fomc-corpus,1983,"What I'd like to get to, which is a little difficult to do in the current atmosphere, is the point where we're not really tightening more than we can tighten--where the expectations in the market change and they say that whatever change in interest rates will be might have [occurred] and that the next move might be down again. We're not there; we are a long ways from there in the present atmosphere because of all the external events and the money supply. How do we get there without making things so tight? Obviously, we don't want to--",111
-fomc-corpus,1983,"Well, it's going to take a while to get there.",12
-fomc-corpus,1983,"I don't think we can do it right at the moment, but I--",15
-fomc-corpus,1983,I don't think you can do it in your testimony either.,12
-fomc-corpus,1983,"Oh, no.",4
-fomc-corpus,1983,We're not going to get there until there has been enough evidence in the financial data and the nonfinancial data to indicate to the public that no further tightening is needed.,33
-fomc-corpus,1983,I think that is right.,6
-fomc-corpus,1983,A smaller quarter in GNP.,7
-fomc-corpus,1983,Basically I agree with what you're saying. What we're doing here is trying to maneuver things so that indeed those things happen in two or three months.,29
-fomc-corpus,1983,"That's why I would agree that some slight further nudging up is needed. I do think it's important to recognize that we have accomplished a good bit. We have long-term rates up 3/4 percentage point, the stock market has stopped booming, and the exchange rate hasn't dropped a ton like we thought it was going to do in the past year, so we got restraint from that side too. So, we've made some progress. I think we probably need a little more.",96
-fomc-corpus,1983,And Ml.,3
-fomc-corpus,1983,Do you consider the exchange rate progress?,8
-fomc-corpus,1983,"Well, progress in achieving a--",7
-fomc-corpus,1983,Would you like to quantify your view? We'll start backwards: start with that view and then translate it into the right numbers and then go back to the long term. How do you quantify your view?,40
-fomc-corpus,1983,"Well, I would go for a borrowing figure of somewhere around $800 million probably, or $850 million. I'd like to see the federal funds rate hit around 9-1/2 percent. I wouldn't want it to go up high into the 9-1/2 to 10 percent range. I would go basically with the specs of ""B."" That's where I'd be. I want to do this cautiously. I would not wish to go in the direction that the bracketed language in the directive suggests, with a lot of automaticity in response. I think automaticity in response ought to be avoided like the plague because we just don't know what these money numbers mean. Until those numbers begin to make more sense, I think we ought to use a judgmental approach rather than an automatic response.",162
-fomc-corpus,1983,"Well, those specs aren't bad. I'd be close [to that]. I'm not sure I agree with the last point, although I certainly lean away from automaticity. But I feel that we would need to rebase Ml in order to show the market that we're not going to be trying to get it down in the range.",65
-fomc-corpus,1983,I agree with that too; for the long-run range I would use 4 to 8 percent based on June.,24
-fomc-corpus,1983,I could go with alternative B shaded a little on the low side--not as far as $1 billion of borrowed reserves or 10 percent on the funds rate. I'd use lower limits--$850 million and 9-3/4 percent.,50
-fomc-corpus,1983,Are you going to show the 7 to 11 percent range [for fed funds]? That is going to come out as a very strong signal: that we're raising rates by a whole percentage point and the range by quite a bit.,47
-fomc-corpus,1983,"Well, we're supposedly now in the 6 to 10 percent range and funds are at 9-1/4 percent.",26
-fomc-corpus,1983,"Well, I just find it very difficult to accept any tightening. I didn't approve a tightening last time and I just don't think we need any more at this point. We haven't had time, as has been pointed out, to get the effect on the mortgage market and the automobile industry of what we have done already. And the economy, which has had only two quarters of recovery, doesn't strike me as one that needs a lot of restraint. And it's also one which is fairly typical. We typically get a quarter like this. We should get some recovery before we start tightening again; we should let it get back to something close to normal. I'd go for alternative A and keep the free reserves minus the special factors like the seasonal in a range of maybe $200 to $250 million dollars net borrowed.",160
-fomc-corpus,1983,"I would support that. I think we've already had a good deal of tightening. I know some people think it's minuscule; I think it's significant at this point in the recovery. I would not at this time want to damp the recovery because I'm not yet sure it is all that strong. It may well be as strong as many of you think it is, but I would like to be surer than I am now and I would want to wait a bit before I tighten any further. I'd want to wait at least another month or two.",110
-fomc-corpus,1983,"Well, I'm closer to Emmett and Nancy's view, but I think it would be perfectly reasonable to compromise at something in the neighborhood of an initial borrowing assumption of, say, $700 million. I don't see that expectations are going to change, and that [borrowing] would we give us some modest further lift in rates and I think would be consistent, as Steve pointed out--at least I think he expressed this view--with the targets of alternative A. I don't think the funds range is significant; the way we're running monetary policy these days, we're not going to touch either extreme anyway. So, I don't think it's important whether we leave it at 6 to 10 percent or not. I think we might as well leave it.",151
-fomc-corpus,1983,I would join that view for a borrowing level of $700 million or thereabouts. That suggests to me that we validate what has happened in the past; a funds rate roughly in the 9-1/8 to 9-1/4 percent range with a potential high of 9-1/2 percent might fall out of the $700 million borrowing level. I would oppose going much higher than the $700 million at this point.,90
-fomc-corpus,1983,"I'd be more inclined toward alternative B. I'd feel more comfortable with a fed funds rate of 9-1/2 percent or maybe a touch higher. And if a $750 to $800 million borrowing level would accomplish that, I think that's where I'd be comfortable.",54
-fomc-corpus,1983,You and I ought to change Districts! The theory of this regional system is that we reflect the view of our Districts. We do not.,30
-fomc-corpus,1983,I think Si's view is about where I would be. Alternative B is closer to what I would like to see: a funds rate of 9-1/2 to 10 percent and the borrowing somewhere around $800 million if excess reserves are going to be around $400 million.,58
-fomc-corpus,1983,I would support the status quo policy of alternative A.,11
-fomc-corpus,1983,"I would support ""B,"" pretty much for the reasons that have already been set forth. I won't bother to repeat them.",25
-fomc-corpus,1983,"We would support alternative B, Mr.Chairman. We would look for something perhaps at the lower end of-that range for the reasons you've already expressed--namely, that we're looking at a much more robust recovery than we had anticipated and monetary growth is very strong. The major question facing the Committee, it seems to me, is how long we can allow the monetary aggregates to continue to grow without raising inflationary expectations. So, it's a question of how much restraint needs to be put into the system. Our view would be that a little more tightening is required at this time, and the alternative B specifications would fit that. I would say we would look for borrowing at around the $800 million level, with the funds rate somewhere between 9-1/2 and 10 percent.",159
-fomc-corpus,1983,"My preference is alternative A, for the reasons stated. However, I would find acceptable an ""A minus,"" which would be $700 million on borrowing and 9-1/4 percent on the funds rate.",43
-fomc-corpus,1983,"I would support the Chairman's $600 to $800 million range, anticipating that $700 million would be the midpoint of that. I would like to see fed funds at no higher than 9-1/2 percent. In other words, I'd support some verification on the interest rate side of what has already occurred, for the reasons I have mentioned too many times at this meeting. And I would move for the deletion of the automaticity embodied in the language in the two paragraphs that have been called to our attention.",104
-fomc-corpus,1983,"Who else has something to say? Are we supposed to be having coffee? If nobody else has anything to say, why don't we have coffee quickly?",30
-fomc-corpus,1983,"Let me try to summarize this as nearly as I see it. I am impressed, first of all, by the fact that our forecasts, I assure you, will receive much more prominence [than usual] in testimony and congressional discussion. I got a request from Mr. St Germain that the first page of the Humphrey-Hawkins testimony be nothing but a table of economic forecasts so they can concentrate on that. I don't know whether I'll do that or not, but--",96
-fomc-corpus,1983,Our forecasts?,3
-fomc-corpus,1983,Identified?,3
-fomc-corpus,1983,"The Committee forecast. So, it's going to be sitting right out there on the front page. I calculated that the central tendency averages roughly 9-3/4 percent. They go up as high as 11-1/4 percent and the lowest is 8.9 to 9 percent, which rounds off to 9 percent.",69
-fomc-corpus,1983,You're talking 4th quarter over 4th quarter?,12
-fomc-corpus,1983,"I'm talking 4th quarter over 4th quarter for 1984. Now, wait a minute. No, there is someone who is as low as 7 percent. Yes, the low is 7 percent. But still, I think this would be 9-1/2 to 9-3/4 percent, just to cite that as background. But it bothers me in rationalizing--",83
-fomc-corpus,1983,How is that lower one split between real GNP and prices?,13
-fomc-corpus,1983,About even.,3
-fomc-corpus,1983,"Well, I don't know how to answer that because the way I have it arrayed it goes from high to low on each of these, so it doesn't add up. They are all higher than the staff. Or rather, the tendency is to be higher than the staff on the GNP deflator. There's no question about that; that's where the difference from the staff forecast is. The staff forecast is 8.3 percent [on GNP] and on the deflator it's 4.1 percent. The central tendency on the deflator is going to be 5 percent or something like that on the Committee side. Now, it can be changed. But it will be sitting there and much more than before we're going to be asked: Is this desirable? Is this what we really want? Is it consistent with our policy? And so forth and so on. Let me just cite that as background. For the short run, after listening to you and considering the desirability from my particular point of view of a little flexibility, I would still say something like $600 to $800 million, assuming that [excess reserves] are around $300 to $400 million, which means net borrowed reserves of $300 to $400 million. In fact, borrowings would be higher than that if excess reserves show this recurrent tendency to be much higher. But I detect a lot of sensitivity, which I can well understand, to the federal funds rate moving above 9-1/2 percent, and I think that flexibility would be partly associated with a tendency for the federal funds rate to move and stay much above 9-1/2 percent. As for the aggregates, in the sense of being a little more conservative in terms of what actually has been happening in Ml--. Well, it looks like we're going to have a high Ml in July, judging by the way it's starting out. Of course, it doesn't make any difference for the June-to-September figure but for the quarterly average we're starting high. I'd be somewhat inclined to take the specifications of alternative B for M2 and M3 and use 7 percent or something like that for the Ml specification. So much for the short run. We have to discuss precisely what to say in the directive and I would make some changes in what has been proposed. For the longer term, there's no perfect way. I must say that I don't feel comfortable with rebasing on June. It looks like too much fine-tuning. I can see everybody saying: Gee, they just take the highest number they got recently and they are fooling around. I would put in either 7 to 11 percent or 8 to 12 percent for this year, and I take it there's agreement--well, we'll get to it--for 5 to 9 percent or 4 to 8 percent for next year. But if it's 4 to 8 percent, I really have a problem in terms of our forecast. It seems to me the implication of that is a lower GNP forecast. And I would feel much more comfortable if we decide on 4 to 8 percent, if people would say that in the light of all our policy decisions these things were reviewed and we got a somewhat lower GNP forecast for next year and maybe a lower inflation forecast. It can be on the inflation side rather than the real side. But I feel a little uncomfortable about rationalizing 4 to 8 percent with a forecast of almost a 10 percent nominal GNP increase next year. I don't feel uncomfortable in rationalizing it with the staff's GNP forecast; the staff's GNP forecast is more than 1 percent lower than the Committee's GNP forecast. I guess there's agreement not to change the M2 and M3 ranges for the rest of this year and to reduce them by half percentage point for next year. Credit could either be reduced by 1/2 or 1 percentage point. Looking at the numbers now for credit: On the average, though not in every expansion, [nonfinancial] debt has increased a little faster than GNP in the second year of recoveries. I think it's true in all but one case since 1954. The first year it increases more slowly. Now, it has been increasing more rapidly this year; so I don't know what that tells us for next year. So, that probably is where I would be. Now, we have to divide it up in terms of arriving at a conclusion. Let's take the short term first. To repeat: Some degree of flexibility in [borrowing of] $600 to $800 million, interpreted partly as net borrowed of $300 to $400 million, but with some sensitivity to the federal funds rate getting above 9-1/2 percent.",965
-fomc-corpus,1983,So this is more generous than alternative B?,9
-fomc-corpus,1983,"A little more generous, yes. It's pretty much between--",12
-fomc-corpus,1983,Alternative B is 9-1/2 to 10 percent.,14
-fomc-corpus,1983,"Yes, it's between ""A"" and ""B,"" I think, and in broad terms is confirming where the market is now, except that I agree the market just might anticipate more [tightening]. I don't know how to deal with that. The market will anticipate it at some point whether we do anything now or not, unless we try to hold it down by--",74
-fomc-corpus,1983,A lot depends on the testimony.,7
-fomc-corpus,1983,"Well, I think in the testimony I would not try to give the impression that we just embarked on this; the testimony would say we've tightened already. I'll probably say that tomorrow because I don't feel I can avoid it. I will try to say as little as possible about the future until next week.",60
-fomc-corpus,1983,Do you feel that you can say we've tightened a bit and that for the time being we want to wait and see the results of that tightening and other factors on the growth of the economy?,38
-fomc-corpus,1983,"I'd like to be able to say that, but if right in the midst of when I'm testifying we are tightening a little more I don't know that I can really say we are going to wait and see. But I'd like to give that impression to the degree that I could. I think I can say we don't see anything here that says we need any drastic action. The emphasis would be on a relatively modest move. We don't see anything right now to require anything more drastic than a slight action. I'm not sure I can say this is over now.",111
-fomc-corpus,1983,"We're already up to 9-1/4 percent on the funds rate, so you're only talking about 1/4 point and that I think could be encompassed within the statement of no significant further move.",43
-fomc-corpus,1983,We only intended it to go to 9 percent last time.,13
-fomc-corpus,1983,They're going to be watching.,6
-fomc-corpus,1983,"As much as possible I would give the impression, without denying that some tightening may be going on, that a really drastic move is not what the doctor calls for.",33
-fomc-corpus,1983,You just have to convince them that we've moved enough to choke off inflation and not enough to hurt the economy.,22
-fomc-corpus,1983,"Thank you. Just in the interest of clarity, when I say ""sensitive"" to a federal funds rate of about 9-1/2 percent, that doesn't mean that the federal funds rate couldn't be above 9-1/2 percent on particular days or for several days. What I do mean to say is that if it got up there, then we wouldn't be moving aggressively toward the higher borrowing numbers but the reverse.",87
-fomc-corpus,1983,We would be trying to bring it back down to 9-1/2 percent?,18
-fomc-corpus,1983,I don't want to make the target and then set--,11
-fomc-corpus,1983,"Well, if it happens to drift up to 9-3/4 percent, it could stay there.",22
-fomc-corpus,1983,"It could stay there, but it would only stay there if the borrowing number tended to be on the low side of this range that we're talking about.",30
-fomc-corpus,1983,"Well, I think it's a tad of tightening, but just a tad.",15
-fomc-corpus,1983,I don't represent it as anything other than that.,10
-fomc-corpus,1983,"Yes, but suppose it goes up to 9-3/4 percent. Then you'll come back next time and argue that we're just validating what the market has already done.",35
-fomc-corpus,1983,"At that point either we would want to validate it or not or go further, depending upon what evidence we have at that time. I would be delighted to get in a position where because of something we saw in the aggregates and the economy or whatever, we could say ""Let's ease up a little bit."" I'd be delighted to be in that position, but I don't think we're there.",77
-fomc-corpus,1983,I'm not sure that I understand the importance of the targets for M2 and M3 and that for Ml. I'm not sure I understand their importance if we're having that narrow a view as to where we expect the fed funds rate to be. Do you want to--,53
-fomc-corpus,1983,"Well, this gets to the question of what we say in the directive. I don't feel particularly strongly about this but I think it might be useful to have something along the lines of what [the Bluebook] is proposing in the brackets, but I'd modify it. Let me say one other thing: In the long-run targets--but it would have a pale reflection in this operational paragraph--I could see some merit in trying to handle this Ml issue by presenting our targets, when we present them statistically, in a little table. I'd put down M2 and M3 as a target and put down Ml and total credit--I don't know what term to use--as a monitoring range or an associated range, so we have a two-tiered kind of target.",153
-fomc-corpus,1983,Would that be demoting Ml further from what it was?,12
-fomc-corpus,1983,I would not interpret it as demoting it further but making it clear that it has been demoted. It doesn't get the same weight as the other two.,32
-fomc-corpus,1983,Are you talking about the short run still?,9
-fomc-corpus,1983,"I'm talking about the long run when I say that, but [it is reflected] in the short run. I had a piece of paper where I scribbled something for the operational paragraph: ""The Committee seeks in the short run to increase slightly further the existing degree of reserve restraint. The action is expected to be associated with growth of M2 and M3 at annual rates of about 8-1/2 and 8 percent respectively from June to September."" And then, though I am not sure I thought this through, I'd pick up that bracketed sentence [in the Bluebook] but modify it to take out the ""in part."" I'd say ""Depending on evidence about the strength of economic recovery and other factors bearing on the business and inflation outlook, lesser restraint would be acceptable in the context of a significant shortfall, while somewhat greater restraint would be acceptable should the aggregates expand more rapidly. The Committee anticipates that a deceleration in Ml growth to an annual rate of around 7 percent will be consistent with its third-quarter objectives for the broader aggregates.""",214
-fomc-corpus,1983,Could you expand that sentence and put in something about total credit in the same sentence?,17
-fomc-corpus,1983,"We could, except that we don't have a figure.",11
-fomc-corpus,1983,"Evidence comes in later. In terms of the statistical evidence available, it's shakier and comes in later [than numbers] for M2 and M3.",31
-fomc-corpus,1983,"But it would be helpful, I think, to carry through the concept of the two tiers with the associated ranges, if there's some way of doing that even without putting numbers on it.",37
-fomc-corpus,1983,It's not very meaningful if we don't get the figures in.,12
-fomc-corpus,1983,We have a third-quarter projection as I recall: I read it someplace.,15
-fomc-corpus,1983,We couldn't put that in.,6
-fomc-corpus,1983,It's rather low because the government borrowed so much in the second quarter.,14
-fomc-corpus,1983,"We could put in a figure but I don't think it would have much, or any, operational significance. It might have some operational significance by the time we get to September.",35
-fomc-corpus,1983,"Yes, it's very difficult to have any number there until the very end.",15
-fomc-corpus,1983,"We could say that the Committee anticipates that deceleration in Ml growth to an annual rate of blank would be consistent with its third-quarter objectives for the broader aggregates and that total domestic credit would remain within its range for the year or something like that. It could be a little broader--""will remain within the established range for the year.""",68
-fomc-corpus,1983,"That is true, isn't it?",7
-fomc-corpus,1983,"Yes, it's hard to get out of that range.",11
-fomc-corpus,1983,"I wonder whether it's worth putting that in up above, too, just to emphasize that in these respects, anyway, we're within the targets. ""The action is expected to be associated with growth of M2 and M3 at annual rates of about 8-1/2 and 8 percent respectively from June to [September], consistent with the targets established for the year."" I didn't say anything about the range for the federal funds rate. I don't have any strong feeling about that one way or the other. If we leave it at 6 to 10 percent, we are telling the market a month from now--I don't know how meaningful that is--that we didn't want or were worried about the federal funds rate going above 10 percent.",150
-fomc-corpus,1983,"It has been in there for quite some time; if we take it out, it's going to cause comment.",22
-fomc-corpus,1983,"We'll get comment a month from now but I don't know whether it will make any difference. It's a little artificial at the low end, particularly now, but--",32
-fomc-corpus,1983,"But if we really would be concerned to see the rate go above 9-1/2 percent, it seems strange to me to raise the upper limit to 11 percent.",36
-fomc-corpus,1983,"One can argue it either way; it seems strange not to change it because we're nowhere near the middle. And it would seem strange to raise it if we want to reflect that concern. So, I come out neutral.",44
-fomc-corpus,1983,A skewed median.,5
-fomc-corpus,1983,"Yes, I think I'm neutral on the subject.",10
-fomc-corpus,1983,We're still on the short-run directive?,8
-fomc-corpus,1983,"Yes, we're on the short-run ranges.",9
-fomc-corpus,1983,I have a question about putting in the bracketed sentence. I don't know that it adds anything and I would opt to remove it.,27
-fomc-corpus,1983,"Well, it gives us a little more flexibility, Roger.",12
-fomc-corpus,1983,"I don't know that it does, Tony. We can operate policy and this is a record that is essentially meaningless when it's released.",26
-fomc-corpus,1983,"Basically what it's saying, though, is that our judgments about movements in the real economy will temper that earlier sentence. And I think that's consistent.",29
-fomc-corpus,1983,I think it says more accurately that judgments about the real economy and inflation and so forth will temper our judgments about the aggregates.,25
-fomc-corpus,1983,I think it's well to say that; I'd suggest leaving it in.,14
-fomc-corpus,1983,I agree.,3
-fomc-corpus,1983,"But it's also a warning that if the aggregates really went in one direction or another we would pay some attention to that, but how much attention we would pay would depend upon what we thought was going on in the economy and exchange rates and other things.",50
-fomc-corpus,1983,"I guess my point is that, at the time this record is released, that's a meaningless expression.",20
-fomc-corpus,1983,"You think we're being too heretical? ""Depending in part on evidence""--",16
-fomc-corpus,1983,"I took out the ""in part"" deliberately.",10
-fomc-corpus,1983,"--""about the strength of economic recovery both domestically and in the world."" Something like that would show that we are aware of what is happening in the world economy.",34
-fomc-corpus,1983,"Well, if we get the right words, ""Depending on evidence about the strength of the domestic economic recovery and other factors bearing on the business and inflation outlook, including....""",35
-fomc-corpus,1983,We're talking about the operating directive. It's getting somewhat absurd.,12
-fomc-corpus,1983,"Yes, this is the instruction to the Manager.",10
-fomc-corpus,1983,"It's getting somewhat absurd. The whole idea of providing a little broadening is fine, but you are throwing in the monitoring of the credit aggregate and you are throwing in the international situation. This is--",40
-fomc-corpus,1983,"Yes, that ought to come in earlier in the introductory paragraphs, not in this paragraph.",18
-fomc-corpus,1983,The short-term directive--,5
-fomc-corpus,1983,"We can list these things in the Chairman's ear. I agree with flexibility, too. [Unintelligible] between now and the next meeting.",31
-fomc-corpus,1983,It's not so much the world economic recovery as it is international debt. It's really the international financial conditions.,21
-fomc-corpus,1983,It's also the industrialized countries.,7
-fomc-corpus,1983,"Probably the right answer is not to complicate it. I may have complicated it too much, but let's not go any further. We can put somewhere else in the record that among these other factors we're looking at are international financial markets, the credit situation, etc. Well, I think the primary question, so modified, is: Do we leave that sentence in or not? Let's deal with that question.",81
-fomc-corpus,1983,Would you read the sentence again the way you now have it?,13
-fomc-corpus,1983,"The way I now have it is: ""Depending on evidence about the strength of economic recovery and other factors bearing on the business and inflation outlook"" and the rest of the sentence is as it is.",40
-fomc-corpus,1983,"Well, that is an instruction to the Manager whereas it is an expression of the intention of the Committee subject to our evaluation--",25
-fomc-corpus,1983,We will instruct the Manager as to the economic conditions and--,12
-fomc-corpus,1983,That's right. I think we should deburden--,11
-fomc-corpus,1983,I have a feeling the Chairman will have a view on these matters.,14
-fomc-corpus,1983,I think that's fair. In or out? SEVERAL. In.,15
-fomc-corpus,1983,I would say out.,5
-fomc-corpus,1983,"Well, let me have a show of hands. How many say in?",15
-fomc-corpus,1983,Are you talking about everybody?,6
-fomc-corpus,1983,"Just members of the Committee. That's 1,2,3,4,5,6,7,8, without me. Tentatively, we leave that in. Now, what about the numbers? I put in here 8-1/2, 8, and 7 percent and put in at the end of the sentence on the broader aggregates that they are consistent with the targets established for the year. That's just advertising. We say in the other sentence, which would follow this sentence we just discussed, that the Committee anticipates that deceleration of Ml growth to that area will be consistent with its third-quarter objectives for the broader aggregates and that total domestic credit expansion would remain within the range established for the year. Let's just look at that part, both the wording and the numbers of 8-1/2, 8, and 7 percent.",176
-fomc-corpus,1983,That assumes borrowing and [unintelligible]?,10
-fomc-corpus,1983,"I'll get to that in a minute. But that's what I'm going to assume so we can vote on it explicitly. Is that all right? We'll get to the funds range but we're not there yet. We're voting on the 8-1/2, 8, and 7 percent with the language that I suggested. All right.",68
-fomc-corpus,1983,I think I'll go with that.,7
-fomc-corpus,1983,Now we get to the funds range. We have a choice of 6 to 10 percent or 7 to 11 percent; I'm happy with either one.,33
-fomc-corpus,1983,6 to 10.,5
-fomc-corpus,1983,How many want 6 to 10 percent?,10
-fomc-corpus,1983,What has it been?,5
-fomc-corpus,1983,6 to 10.,5
-fomc-corpus,1983,"Well, then, leave it there.",8
-fomc-corpus,1983,"Who is for leaving it at 6 to 10 percent? 1,2,3,4,5. Who is for making it 7 to 11? 1,2,3. How many are left? Some people aren't voting again.",53
-fomc-corpus,1983,"I don't care. As long as you're planning on somewhere between 9-1/4 and 9-1/2 percent, I'm for either.",31
-fomc-corpus,1983,"Well, I wouldn't like to see a lot of disagreement just about that number, but I guess we have more for 6 to 10 percent in an indifferent situation than we have for 7 to 11 percent. All of this is associated with $600 to $800 million on borrowing, interpreted as $300 to $400 million of nonborrowed reserves and sensitivity to the federal funds rate being above 9-1/2 percent--meaning that we would lean toward the lower side of this degree of pressure either in net borrowed reserves or borrowings or both. That's all I have to say. If nobody has any other particular improvement on that formulation, I'll just assume that's it.",138
-fomc-corpus,1983,"I'd just like to ask: When you are talking about $600 to $800 million and $300 to $400 million, I assume you are looking at $700 million [on borrowing] with about $350 million on net borrowed. Is that at least the way we start in theory?",58
-fomc-corpus,1983,I think that's--,4
-fomc-corpus,1983,It's certainly within the range.,6
-fomc-corpus,1983,"Okay, I guess we ought to vote on this unless somebody has some question. Is it all clear?",21
-fomc-corpus,1983,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey Yes President Keehn Yes Governor Martin Yes President Morris Yes Governor Partee Yes Governor Rice Yes President Roberts Yes Governor Teeters No Governor Wallich No,46
-fomc-corpus,1983,A bell shaped distribution!,5
-fomc-corpus,1983,Now we turn to the longer-term ranges. Let's dispose of this total credit figure to get it out of the way. Do you want to go down a half point or one point next year? How many vote for going down one point? [Six.] How many want to go down a half? Five. That certainly settled that one!,68
-fomc-corpus,1983,How about one point on the top and a half point on the bottom?,15
-fomc-corpus,1983,"Well, before we get to what is acceptable and what is not, let's assume for the moment that it's down one point, subject to change. Everybody is in favor of down a half point for the other aggregates, M2 and M3. Now we're on Ml again, our famous Ml. I feel just as I expressed it. I'm willing to go to 4 to 8 percent, but it makes me very uncomfortable with the GNP projections as high as they are. And I would like to have a feeling that if we arrive at 4 to 8 percent people might think that that's a little restrictive--enough to justify some shading of their GNP projections.",136
-fomc-corpus,1983,Do I take it that you mean that you don't think we ought to attempt to restrain GNP at 10 percent? That's an acceptable growth in the economy?,33
-fomc-corpus,1983,"My gut feeling is that if we say 4 to 8 percent, we are assuming that GNP ought to be restrained from 10 or 11 percent. I think that's what I am saying.",41
-fomc-corpus,1983,Whereas 5 to 9 percent is pretty neutral.,12
-fomc-corpus,1983,"You could have, could you not, a 10 percent nominal GNP, 4th quarter over 4th quarter? I think that could still be consistent.",34
-fomc-corpus,1983,"Well, it could be. I can't put it that sharply. I can't say that with 8 percent it is impossible to have an 11 percent [nominal] GNP, but I think that's coming back to pretty much saying that velocity patterns haven't changed at all.",55
-fomc-corpus,1983,What is the staff--,5
-fomc-corpus,1983,In a word we're saying this is our central feeling about the GNP and the central feeling is that velocity patterns probably haven't changed at all. That's what makes me uncomfortable.,34
-fomc-corpus,1983,"If we had 6 percent growth in money, which is right in the middle of our range, and got a 10 percent middle range nominal GNP, assuming 3-1/2 percent velocity--",42
-fomc-corpus,1983,"That's what you have to assume--a 3-1/2 velocity, which would not be outrageous but is higher than the average somebody gave me for the second year.",35
-fomc-corpus,1983,Higher than the 2.7 we heard.,10
-fomc-corpus,1983,"That's what bothers me about it, just in terms of explaining it. It seems to me that we'd have to say that for all this talking we've been doing about velocity changing, our forecast and our policy is based upon the notion that velocity hasn't changed. That's what bothers me.",55
-fomc-corpus,1983,"It seems to me this is not an issue that's worth getting hung up on in testimony. Around a 10 percent nominal GNP has a nice ring to it; it's fairly close to what seems to be the conventional wisdom, right or wrong. For that reason, I wouldn't want to risk a major disagreement or being beat up on because of it.",70
-fomc-corpus,1983,I'm not sure what you're saying.,7
-fomc-corpus,1983,I'm for 5 to 9 percent is what I'm saying.,13
-fomc-corpus,1983,Oh.,2
-fomc-corpus,1983,Then maybe you ought to find out whether today's discussion could cause some of those who came in with higher projections to feel justified in somewhat lower ones or not.,31
-fomc-corpus,1983,"That would solve the problem, if it did. I guess that's what I'm asking, particularly in the light--",22
-fomc-corpus,1983,"Well, it solves the problem of numerical consistency, but I don't think it solves the broader problem of the Fed somehow finding 10 percent growth unacceptable and wanting to restrain it. That strikes me as an uncomfortable position to be in.",47
-fomc-corpus,1983,"Well, I think it's a very big growth. I must say I had 9 percent and I guess I'd be inclined to raise it, hearing what I've heard around the table.",36
-fomc-corpus,1983,We had even lower-,5
-fomc-corpus,1983,We're not talking about any restraint at all.,9
-fomc-corpus,1983,We have second-year velocity expansion as high as 4.3.,14
-fomc-corpus,1983,"Well, I have a list here of what everybody projected on everything and I'm looking for Governor Partee's name and it's not here.",27
-fomc-corpus,1983,"If you're looking at annual averages, I think he abstained.",13
-fomc-corpus,1983,I didn't give annual averages.,6
-fomc-corpus,1983,"Oh, I'm sorry. Have I been looking at the wrong numbers all along? I didn't mean to look at these annual averages.",26
-fomc-corpus,1983,"There still is quite a range, according to this chart that was passed out yesterday, for the year from the fourth quarter. The low I see is 7 percent and the high is 10-1/2 percent. No, there's 11-1/4 percent from somebody.",58
-fomc-corpus,1983,The high is 11-1/4; the low is 8.3. But there are 8 people at 10 percent or higher. Did we present this as Committee members or everybody last year?,43
-fomc-corpus,1983,Everyone last year.,4
-fomc-corpus,1983,Half the people who vote are at 10 percent or above.,13
-fomc-corpus,1983,"Paul, I'd say 5 to 9 percent. Unless there is going to be a major review and change from a substantive point of view I'm happy with the 5 to 9 percent.",39
-fomc-corpus,1983,I think the 5 to 9 percent is easier to explain. You're the person who has to be the expositor here and I think we should go along with your--,35
-fomc-corpus,1983,"When I sit here, it seems to me easier to explain without much question. On the other hand, it's shocking psychologically perhaps.",26
-fomc-corpus,1983,"Well, that's the part that bothers me. We start out with an Ml target for this year of 4 to 8 percent and then we are going to allow an overrun and raise it for next year. And what is going to happen is that people are going to say the Fed [is not] fighting inflation. I think you are making a lot more of this velocity point than is necessary from the standpoint of consistency with GNP projections. If you're talking about the midpoint and the average, fine. But there's no reason at all why if we have a target of 4 to 8 percent, we can't let the 8 percent happen. If 8 percent happens, 10-1/4 or 10-1/2 percent is easily a reachable measure for nominal GNP.",161
-fomc-corpus,1983,"But M1 is going to be in this associated range below, and we're going to show in the M2 and M3 ranges a drop of 1/2 point, and the companion associated range for total credit is going to go down 1 point. It seems to me that we have three of the four down, which indicates concern about inflation in terms of the long-run goals. And the fact that Ml has to go up and down and all around simply conveys the uncertainty that is characteristic of that aggregate.",103
-fomc-corpus,1983,"Well, that isn't exactly right. We've had an excessive rate of growth here for a long period of time; it's continuing at a little more moderate pace. Normally in a business expansion we would moderate that; it's time that we signal that to the market very clearly. And I would be in favor of the 4 to 8 percent.",68
-fomc-corpus,1983,"Historically, Ml has been about 3 percentage points slower than the other two. Now that velocity has changed, it may be 2 percent slower, so that 8 and 10 percent are still reconcilable.",45
-fomc-corpus,1983,"Well, that's arithmetic.",5
-fomc-corpus,1983,At the margin 8 and 10 percent are reconcilable. It is pretty hard to reconcile 4 and 10 percent.,27
-fomc-corpus,1983,I think what you want is 5 to 9 percent.,13
-fomc-corpus,1983,"But if you take Paul's reluctance to base it on June, then you tell the markets that you are going to do 4 to 8 percent based on the second quarter.",36
-fomc-corpus,1983,"Well, I am thinking now of using the annual figures--using either 7 to 11 percent, which is equivalent to 4 to 8 percent, or even 8 to 12 percent.",41
-fomc-corpus,1983,"Well, you're thinking of using annual--",8
-fomc-corpus,1983,"So, it would be presented as: Look, Ml is off this year; we are going to attempt to slow it down. That's true with even the 8 to 12 percent range; 7 to 11 percent is a slightly different coloration. Next year we expect it to be lower by a significant amount. What I would say is just what we said before: that it does assume some slowdown in velocity from past trends, but not all that much at one end of the range. At the lower end of the range we've allowed for a full, or more than a full, cyclical rebound in velocity.",124
-fomc-corpus,1983,We are dealing with a very different aggregate. And this whole discussion is [based] on the assumption that it is still the way it was for 20 years. It's a new aggregate. It's going to behave very differently. And we ought to give ourselves plenty of room to let it operate and find out what it does.,65
-fomc-corpus,1983,I don't want to make too much of the difference between 5 and 9 percent and 4 and 8 percent. But it also comes to: What are our chances of getting within it? It's awfully nice to be within these numbers instead of making excuses for being outside. The down [side] is explaining why they've gotten that high in the first place.,74
-fomc-corpus,1983,"If we go to 5 to 9 percent, isn't there a reasonable argument for rebasing on the second quarter for the second half of this year also?",32
-fomc-corpus,1983,"Oh, I don't mind rebasing on the second quarter, but I don't like rebasing on June.",21
-fomc-corpus,1983,"If we go to 5 to 9 percent, I think we could do that. Maybe the staff could give us estimates of what 9 percent would be. What would a range of 5 to 9 percent give us if we hit the upper end of that range?",56
-fomc-corpus,1983,By the fourth quarter?,5
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,You have to give me some time to make that calculation.,12
-fomc-corpus,1983,The only question is what the year-over-year growth is. I think it'll be close to 12 percent.,22
-fomc-corpus,1983,It's going to be one percent higher than where we are now. That will be an easy calculation.,20
-fomc-corpus,1983,Is June [adding] about 1 percent in the second quarter?,14
-fomc-corpus,1983,1/2 of a percent.,7
-fomc-corpus,1983,"1/2 of a percent, yes.",9
-fomc-corpus,1983,It's 1/2 percent higher than whatever.,10
-fomc-corpus,1983,"Yes, it should be around 11-1/2 percent. If it grows 9 percent Q2 to Q4, just extrapolating from what I have here, that ought to be about 11-1/2 percent for the year. Is that what you're asking? If it grows 8 percent, it looks like it's about 11 percent for the year. So, if it grows 9 percent, it ought to be around 11-1/2 percent for the year.",102
-fomc-corpus,1983,The argument against rebasing as opposed to giving an annual number is that it might look as if we're giving Ml more importance than we want to convey. But I think that's a bit offset by putting in Ml and total credit as associated ranges.,48
-fomc-corpus,1983,I would not argue against rebasing on the second quarter; it just looks a little flimsy to me to rebase on June.,27
-fomc-corpus,1983,"Yes, that's what I'm saying. In other words, I'm addressing why we were moving away from the rebasing approach earlier. In general it was because it might give the impression that we were attaching more importance to Ml than we wanted to convey. But maybe we're offsetting that now by putting in Ml and total credit as associated ranges. So, therefore, I think we can rebase on the second quarter.",82
-fomc-corpus,1983,"Well, I'm perfectly willing to rebase on the second quarter, if it sounds better to say 5 to 9 percent beginning in the second quarter.",31
-fomc-corpus,1983,"Really, it's for this period out ahead--the next 18 months. We don't have much distinction between the second half of 1983 and the year 1984.",35
-fomc-corpus,1983,"And we shouldn't have a distinction because that would imply a knowledge on our part about velocity, which we don't have.",23
-fomc-corpus,1983,"Yes, and I'd say we don't have a distinction in the GNP forecast either. So, I think it makes sense to talk about the period ahead.",31
-fomc-corpus,1983,"If we rebase and take 5 to 9 percent for '83, it looks to me as if we ought to go a little below that for '84.",34
-fomc-corpus,1983,We're talking about a block of time and we are not distinguishing one part of it from another.,19
-fomc-corpus,1983,"But if we really look at our ranges for '83 and a rebased 5 to 9 percent for M1 from the second quarter looks appropriate, then I'm just saying the targets for next year--",41
-fomc-corpus,1983,"If we go for 5 to 9 percent particularly, we have to say in the statements that 9 percent is not appropriate if we get a normal velocity recovery. We just say that very strongly. That's why we have a range, and we could well be low in the range if velocity is normal. But we have some great doubts about whether velocity will be normal. We're going to have a downward movement in M1 next year without a doubt, but it's going to be 11 percent this year or something like 10 or 11 percent.",111
-fomc-corpus,1983,"That's a lot of progress, Bob.",8
-fomc-corpus,1983,"Well, looking at the year as a whole. But from the last half, if we come within a 5 to--",25
-fomc-corpus,1983,From the last half there wouldn't be.,8
-fomc-corpus,1983,The latter half will be about 6 or 6.5 percent.,15
-fomc-corpus,1983,"Yes, but on our principal targets, M2 and M3, we would be showing a reduction.",21
-fomc-corpus,1983,"The difference is that that's not my principal target, Tony.",12
-fomc-corpus,1983,"Well, it is the Committee's.",8
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Mr. Chairman, I'll come back and support the words of caution that Lyle threw out here, wisely in my opinion, a few minutes ago. We are not debating the course of policy; we're debating broad ranges that have a public announcement effect and certain perceptions. To go up to 5 to 9 percent in combination with what we've already done--or let happen--in M1 this year because of some very unusual circumstances, I think has some real risks of adding to perceptions that the Fed is giving up on the battle against inflation. I would be very leery of that. I'd rather live with some inconsistencies that we can straighten out or worry about later on. This is, after all, just a tentative, provisional indication of our 1984 plans subject to the usual more thorough review around yearend or early next year.",169
-fomc-corpus,1983,"Of course, we're not really using the Ml number as a range with a midpoint. We're talking about a true range of 5 to 9 percent and we're expressing hope, I would presume, that it could be more toward 5 percent, but that depends on the rate of increase in velocity.",60
-fomc-corpus,1983,This isn't a statement in isolation; this is a statement made at a time that interest rates have firmed and are continuing to firm a little.,29
-fomc-corpus,1983,We could underline the uncertainty of the velocity projection by making it 4 to 9 percent.,19
-fomc-corpus,1983,We could underline it even better by eliminating M1 guidelines.,12
-fomc-corpus,1983,"We could put it in the list below the credit aggregate: M2, M3, credit aggregate, and Ml.",24
-fomc-corpus,1983,That doesn't--,3
-fomc-corpus,1983,Or a footnote.,5
-fomc-corpus,1983,"Oh, we forgot it!",6
-fomc-corpus,1983,Or put the footnote on another page where nobody could find it!,14
-fomc-corpus,1983,Or we could have another paragraph--associated with the particular increase in bank credit and Ml.,18
-fomc-corpus,1983,"Well, this is all a question of nuance. If we have 4 to 8 percent, then I think a statement has to say pretty clearly that we're counting on regular velocity movements and if they don't happen, we're going to have to increase the target. Now, if we emphasize that less--",60
-fomc-corpus,1983,I certainly don't want to do that.,8
-fomc-corpus,1983,I would prefer doing that and coupling it with going to 7 to 11 percent for this year and thus not building any certainty on the Ml target.,31
-fomc-corpus,1983,We can have a new category for velocity-sensitive associated ranges!,12
-fomc-corpus,1983,"Well, you've heard all my doubts on either side. Who wants the 4 to 8 percent next year?",23
-fomc-corpus,1983,I'd prefer 4 to 8 but I could live with 5 to 9.,18
-fomc-corpus,1983,"One, two, three, four, five. Who wants 5 to 9 percent? One, two, three, four, five.",29
-fomc-corpus,1983,"Well, I'd rather switch than fight.",8
-fomc-corpus,1983,Who wants 7 to 11 percent this year as opposed to either 5 to 9 or 4 to 8 percent for the remainder of the year?,33
-fomc-corpus,1983,I don't think we can have 4 to 8 percent for the remainder of this year and then say next year is going to be 5 to 9 percent.,34
-fomc-corpus,1983,That has to be 5 to 9 percent.,11
-fomc-corpus,1983,"It could be 5 to 9 percent and then 4 to 8 percent, but not the reverse.",23
-fomc-corpus,1983,Either [unintelligible] or we're going to rebase.,14
-fomc-corpus,1983,"Yes, I agree with that.",7
-fomc-corpus,1983,And the question is whether we want to rebase or not.,13
-fomc-corpus,1983,"Yes, that's it.",5
-fomc-corpus,1983,"Yes, one or the other. Just let me put it that way. Do you want to rebase or not? Seven. Well, that isn't a very healthy [margin] but I guess we rebase. Having rebased, what is the preference between 5 to 9 and 4 to 8 percent?",65
-fomc-corpus,1983,5 to 9.,5
-fomc-corpus,1983,"You already asked that, didn't you?",8
-fomc-corpus,1983,I asked for next year; now I'm asking for this year. SEVERAL. It's the same.,21
-fomc-corpus,1983,Everybody is going to have the same.,8
-fomc-corpus,1983,We could have 5 to 9 percent this year and 4 to 8 percent.,19
-fomc-corpus,1983,"Yes, 5 to 9 and 4 to 8--",14
-fomc-corpus,1983,How many people have that?,6
-fomc-corpus,1983,"Listen, you lost that argument.",7
-fomc-corpus,1983,"Heck, I want 4 to 7 percent next year.",14
-fomc-corpus,1983,"Well, we could have 5 to 9 and 4 to 8.",17
-fomc-corpus,1983,That would be my preference.,6
-fomc-corpus,1983,That would be my preference.,6
-fomc-corpus,1983,"Well, let's see how strong the support is for that: 5 to 9 percent for the rest of this year and 4 to 8 percent for next year.",35
-fomc-corpus,1983,Assuming rebasing?,5
-fomc-corpus,1983,This would be from June or the second quarter? SEVERAL. Second quarter.,17
-fomc-corpus,1983,A second-quarter rebasing. That isn't tremendous [support]. Who wants 4 to 8 and 4 to 8?,26
-fomc-corpus,1983,I'm willing to rebase on June.,8
-fomc-corpus,1983,"That's a bigger increase than what you indicated, Henry. That's a triumph of cosmetics over substance.",19
-fomc-corpus,1983,That is right.,4
-fomc-corpus,1983,Hope over experience.,4
-fomc-corpus,1983,That leaves us with 5 to 9 percent for the remainder of this year and 5 to 9 percent for next year.,27
-fomc-corpus,1983,"Well, the whole period could be spoken of as 5 to 9 percent. I wouldn't make that much of a distinction between the second half and next year.",33
-fomc-corpus,1983,You have to rewrite this.,6
-fomc-corpus,1983,"Well, I'm not quite sure what you are saying. Are you saying when people look at it in these cone terms that the cone begins in the second quarter and goes through 18 months and we get a big cone then 19 months later?",49
-fomc-corpus,1983,"Oh, you're not suggesting that?",7
-fomc-corpus,1983,"I hadn't even thought of a cone. No, I was thinking that I did not want to distinguish. The reason I didn't vote with Lyle on reducing it to 4 to 8 percent is that it seems to me to be fine-tuning because we can't make any distinction between the rate of progress on the economy now for the second half of this year and for next year. And our forecast is very close to assuming that. So, it seems to me we ought to talk about a 5 to 9 percent rate of increase as being consistent, depending on what is going to develop in velocity, for this period ahead. I see your point because the Humphrey-Hawkins Act asks us what our targets are for [the next year, which is] 1984.",158
-fomc-corpus,1983,"I don't think it makes much difference, and I don't think we have to face this at this stage. We set it this way and say 5 to 9 percent for the end of this year. The assumption would be that the second 5 to 9 percent started out where we were at the end of this year.",66
-fomc-corpus,1983,It can't go above 9 percent.,8
-fomc-corpus,1983,"It can't go above 9 percent in either case; it can only go below. Well, I recognize the psychological difficulty of this. It's a question of a kind of realism and of the initial psychological [effect]. I have to think of how that could be worded.",55
-fomc-corpus,1983,"You have indicated no change in the range for next year. You could say ""extending 5 to 9 percent over the balance of this year and indicated no change for the range for next year.""",41
-fomc-corpus,1983,"And ""tentatively for next year as well.""",10
-fomc-corpus,1983,"Yes, indicating that its base is wherever it ends up.",12
-fomc-corpus,1983,"When you do the Humphrey-Hawkins testimony, do you actually release the directive language on the long-range targets or do you simply use your own wording?",32
-fomc-corpus,1983,It has been worked into the text in the past.,11
-fomc-corpus,1983,It shouldn't; the wording appears--,7
-fomc-corpus,1983,It is not set.,5
-fomc-corpus,1983,It's not set in; that's correct.,8
-fomc-corpus,1983,It's not set in as a directive.,8
-fomc-corpus,1983,But I assume on the wording that the associated range type of language would be placed around the sentence on Ml.,22
-fomc-corpus,1983,"""At this meeting the Committee reaffirmed the longer-run ranges established earlier for growth in M2 and M3 and total domestic nonfinancial debt."" I don't know that we want to say ""with growth in the broader monetary aggregates expected to be in the upper part of their ranges.""",56
-fomc-corpus,1983,"No, not with the short-run policy; it's not consistent. That was just in case a different short-run policy--",24
-fomc-corpus,1983,That M1 sentence has to be changed quite a bit. We have to write an Ml sentence; that's where we are.,25
-fomc-corpus,1983,An Ml and a total credit sentence.,8
-fomc-corpus,1983,"Why don't we take out the total domestic nonfinancial debt from the first part and just say ""reaffirmed the longer-run ranges established earlier for growth in M2 and M3.""",37
-fomc-corpus,1983,"We could leave the total nonfinancial debt in 1983 in that sentence, take out the next bracket and the following bracket, and then change it to the second half of this year.",38
-fomc-corpus,1983,Would it be too much of a break from precedent to have it structured so that we have in effect two votes--one on M2 and M3 and then a separate vote on the associated range for Ml and total credit?,45
-fomc-corpus,1983,"Well, it certainly would set a precedent.",9
-fomc-corpus,1983,It would be too much.,6
-fomc-corpus,1983,We already have the difficulty of inconsistency.,9
-fomc-corpus,1983,I think it gives more importance to the associated ranges if we have a separate vote on them.,19
-fomc-corpus,1983,Maybe.,2
-fomc-corpus,1983,"Maybe it should be what you were saying, Lyle. ""At this meeting the Committee reaffirmed the long-term ranges established earlier for growth in M2 and M3 for 1983."" And then go immediately to ""The Committee also agreed to tentative growth ranges for the period from the fourth quarter of 1983 to the fourth quarter of 1984 of"" whatever they are. What are they?",82
-fomc-corpus,1983,6-1/2 to 9-1/2 percent--,14
-fomc-corpus,1983,6-1/2 to 9-1/2 percent for M2 and 6 to 9 percent for M3.,27
-fomc-corpus,1983,I thought we were cutting them a half point.,10
-fomc-corpus,1983,"That is cutting them a half point. ""The Committee considered that these ranges""--that's referring to M2 and M3--""would be consistent with growth....""",33
-fomc-corpus,1983,"I think it should be the reverse. In other words, say that the associated ranges of X and Y are consistent with the principal targets. It's not that the principal targets were designed to be consistent with--",41
-fomc-corpus,1983,"All right. ""At this meeting the Committee reaffirmed the longer-run ranges established earlier for growth in M2 and M3 for 1983. The Committee also agreed on tentative growth ranges for the period from the fourth quarter of 1983 to the fourth quarter of 1984 of 6-1/2 to 9-1/2 percent for M2 and 6 to 9 percent for M3. The Committee considered that growth of M1 in a range of 5 to 9 percent""--if that's the number--""in the second half of 1983 and during 1984, taking a base of the second quarter of 1983, would be consistent with these ranges. The associated range for total domestic credit was reaffirmed at 8-1/2 to 11-1/2 percent for 1983 and tentatively set at 7-1/2 to 10-1/2 percent for 1984."" Now, I used a full percentage point reduction there, if we use the 5 to 9 percent. If we use the 4 to 8 percent, I think we'd use the higher total credit number. We could say 4-1/2 to 8-1/2 percent.",258
-fomc-corpus,1983,What would you do then about the next paragraph?,10
-fomc-corpus,1983,That's the operating paragraph; nothing on that.,9
-fomc-corpus,1983,"In the second sentence we ought to say ""the behavior of Ml and total credit.""",17
-fomc-corpus,1983,"Yes, I think that will do. ""The behavior of Ml and total credit will be monitored, with the degree of weight placed on Ml over time dependent on evidence of velocity characteristics that are resuming more predictable patterns.""",44
-fomc-corpus,1983,Take out the bracketed sentence?,7
-fomc-corpus,1983,"Leave out the bracketed sentence. And then we don't need the next sentence either, I don't think.",21
-fomc-corpus,1983,"Well, wouldn't you want to say the degree of weight on both in leaving out the next sentence?",20
-fomc-corpus,1983,The degree of weight on both placed on the velocity characteristics of Ml?,14
-fomc-corpus,1983,"No, the degree of weight on M1 and on the [debt].",16
-fomc-corpus,1983,I don't know.,4
-fomc-corpus,1983,It's clear now; you can't--,7
-fomc-corpus,1983,You're right; I'm sorry.,6
-fomc-corpus,1983,You can't.,3
-fomc-corpus,1983,We haven't got velocity on total credit.,8
-fomc-corpus,1983,"Is that wording acceptable, leaving open for the moment the numbers on both credit and M1?",19
-fomc-corpus,1983,Did you take out Tony's change?,8
-fomc-corpus,1983,It's a just an expression of what we did without any real analysis. We will have to rely on the statement for that analysis. But it's so complicated that I think that's the way to go.,39
-fomc-corpus,1983,"Well, what would appear on the table is the M2 and M3 targets and the associated ranges, or whatever other euphemism is used, that we have for Ml and total credit.",39
-fomc-corpus,1983,I think that's a more clean-cut way of doing it.,12
-fomc-corpus,1983,"Hearing no comment, it leaves us still with this 5 to 9 or 4 to 8 [decision]. I can live with either one; I don't want to make too much of it. I would say if we have 5 to 9 percent, we ought to go down 1 percentage point on the credit range; if we have 4 to 8 percent, I'd go down 1/2 point on credit. I don't know; as a matter of fact we could have 4-1/2 to 8-1/2 percent. We have halves in all the others.",125
-fomc-corpus,1983,For '83 and '84?,7
-fomc-corpus,1983,"No, it's too restrictive for '83.",9
-fomc-corpus,1983,"Well, it seems awfully fine.",8
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,We've done it before [unintelligible] M1.,13
-fomc-corpus,1983,[Unintelligible] compensating with regard to--,12
-fomc-corpus,1983,The fact that we already used multiple--,8
-fomc-corpus,1983,Our range for 1981 was 2-1/2 to 5-1/2 percent.,22
-fomc-corpus,1983,But we weren't protesting then that we didn't know anything about velocity.,13
-fomc-corpus,1983,We should have. We knew as little then as we do now.,14
-fomc-corpus,1983,I guess the more obvious compromise is 5 to 9 percent this year and 4 to 8 percent next year. The only thing that bothers me is the height of those nominal GNP [forecasts].,43
-fomc-corpus,1983,What's wrong with just leaving it 5 to 9 percent for the whole period?,17
-fomc-corpus,1983,I think we're much better off to have it somewhat lower; I would worry very much about just the announcement effects of numbers like 5 to 9 percent continuing through 1984.,37
-fomc-corpus,1983,Amen.,2
-fomc-corpus,1983,It's not that it's going to affect policy at all; I don't think it will. But I think the announcement effects could be unfortunate. It's not the market effects but the announcements effect that I'm worried about.,41
-fomc-corpus,1983,I'll support that.,4
-fomc-corpus,1983,I think we'd get unfortunate announcement effects just by showing that we're going to tighten up again.,18
-fomc-corpus,1983,We're telling the market that we accept this bulge that has taken place--that we are not going to do anything about trying to get rid of it. That ought to be a positive influence.,39
-fomc-corpus,1983,"Yes, I think that would influence their thinking.",10
-fomc-corpus,1983,"Well, I'll switch my vote and accept 5 to 9 percent for the remainder of the year and 4 to 8 percent for the next year.",32
-fomc-corpus,1983,"I would do that, but I think we have to say in the statement that if the next six months show no return to [normal patterns of] velocity, 4 to 8 percent is probably too low.",43
-fomc-corpus,1983,It's subject to a resumption of normal velocity.,10
-fomc-corpus,1983,There's a potential rebasing every year.,8
-fomc-corpus,1983,"All right. Let's vote on that particular variant, understanding that I will cast some doubt if pressed on this consistency. I'll say we are assuming that it will return to normal velocity patterns. If that doesn't happen--if we don't see further evidence of that in the next six months--we're going to put that target higher when we come back in February. After all that, are we ready to vote? Now, where do we put the credit range then?",92
-fomc-corpus,1983,Down 1/2 point. That leaves--,10
-fomc-corpus,1983,It's down a 1/2 point on the credit. If you are going to vote for it--,21
-fomc-corpus,1983,Make it 2 to 11!,8
-fomc-corpus,1983,I thought we took--,5
-fomc-corpus,1983,I thought we already had decided down a point on credit.,12
-fomc-corpus,1983,"Well, I guess we did have a majority there.",11
-fomc-corpus,1983,No one feels all that strongly about it.,9
-fomc-corpus,1983,"Well, let's take it again. Assuming we have 5 to 9 percent and then 4 to 8 percent, who is for down 1 point on the credit aggregate? Who is for down 1/2 point? I guess we have a trade here for the 4 to 8 percent. So, we are at 5 to 9 percent. I have to change the wording slightly here from what I wrote, reflecting that. Understand that that's done. We are down only 1/2 point on credit.",108
-fomc-corpus,1983,From 1983 to 1984?,9
-fomc-corpus,1983,"Yes, for credit. Now all the numbers are reduced by 1/2 point.",18
-fomc-corpus,1983,Excepting Ml.,4
-fomc-corpus,1983,"Except Ml, which is down by--",8
-fomc-corpus,1983,M1 will be 5 to 9 percent; the borrowing--,14
-fomc-corpus,1983,"The 5 to 9 is just for a half year, Nancy. That's annualized.",19
-fomc-corpus,1983,Come on! It goes down a whole point.,10
-fomc-corpus,1983,"Ready, aim--",4
-fomc-corpus,1983,It would be ironic if the markets interpret the 1 point reduction in M1 as against a 1/2 point reduction in the other three as in some way giving more importance to M1 again.,41
-fomc-corpus,1983,Let's take a vote.,5
-fomc-corpus,1983,"Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey Yes President Keehn Yes Governor Martin Yes President Morris No, on the grounds that I don't think we ought to have guidelines for Ml and M2 Governor Partee Yes Governor Rice Yes President Roberts Yes Governor Teeters Yes Governor Wallich Yes",64
-fomc-corpus,1983,Now I think we have reports from the Managers.,10
-fomc-corpus,1983,Somehow they seem rather anticlimactic.,9
-fomc-corpus,1983,We'll be fascinated by everything they have to say!,10
-fomc-corpus,1983,Make it short.,4
-fomc-corpus,1983,I think it is abbreviated.,6
-fomc-corpus,1983,"Yes, very abbreviated. [Statement--see Appendix.]",11
-fomc-corpus,1983,Any questions?,3
-fomc-corpus,1983,Is still borrowing?,4
-fomc-corpus,1983,"No, they've stopped the borrowing now; they have repaid the whole thing. That final week before the consummation of the mergers it got up to a daily high of $960 million and a weekly average of $800 million. We gave them a week after the consummation of mergers to repay the whole thing and they have done it.",68
-fomc-corpus,1983,Did lend to them?,5
-fomc-corpus,1983,"Yes, really raised the funds in the market to do it. We didn't want to have a disruptive situation, so we talked about cranking it down to about $300 million a day. And they paid off late last week and got it down to zero.",52
-fomc-corpus,1983,Any other questions? Mr. Cross.,8
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,"Mexico, as I understand it, would prepay at least part of these but they can't do it because their agreement with the commercial banks doesn't permit them to repay the official [borrowing] in advance. So, we are exploring some kind of deposit arrangement or something.",54
-fomc-corpus,1983,I move we accept both reports and ratify the transactions.,12
-fomc-corpus,1983,"Without objection. I'd say the Brazilian thing has been very disturbing; it's promising if they act. They're in the clinch this week--today, tomorrow. The latest report seems somewhat promising. It's a terrible problem.",43
-fomc-corpus,1983,"What is the political situation in Brazil? Is it like Chile? You know, Chile blew up last night. Is Brazil in that sort of situation?",30
-fomc-corpus,1983,Chile blew up last night?,6
-fomc-corpus,1983,"Well, it didn't blow up.",7
-fomc-corpus,1983,There was a big riot in Chile last night.,10
-fomc-corpus,1983,"Well, there have been some riots in Brazil, too. But it's complicated. The President has heart problems and is coming to the United States. They are in the throes of trying to pick a successor for the President--pointing a finger in the right direction. Apart from the economic problems and difficulties, which are very evident, time is running out in terms of patience by the banks and the BIS and others. And it's either going to come together this week or we're going to be in the soup.",102
-fomc-corpus,1983,There was a reference to our guarantee of the BIS credit. Is that a full or a partial guarantee?,21
-fomc-corpus,1983,"That's a mistake in the papers. It is the United States but it's Treasury, not us. It's shared among the various central banks and--",28
-fomc-corpus,1983,We have about 47 or 48 percent.,10
-fomc-corpus,1983,"""We"" meaning the U.S. Treasury?",9
-fomc-corpus,1983,The Treasury.,3
-fomc-corpus,1983,About $200 million.,5
-fomc-corpus,1983,The Treasury has $500 million out of $1250 million.,13
-fomc-corpus,1983,Isn't the Brazilian guarantee the one that involves,9
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,"No, that was",4
-fomc-corpus,1983,And that didn't go through.,6
-fomc-corpus,1983,They never drew on--,5
-fomc-corpus,1983,"No, this doesn't have any of the real security. The Brazilian problem is very troublesome; it's troublesome whatever happens.  If they act, they're going to have problems at home and they already have them. The Mexican situation, on the other hand, looks pretty good. From an external standpoint they still are not growing. With that, I guess we can conclude.",73
-fomc-corpus,1983,"Mr. Cross, proceed.",6
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,What remaining foreign currency balances does the Treasury have now after paying off the Carter bonds?,17
-fomc-corpus,1983,It's about $3-1/2 billion.,10
-fomc-corpus,1983,That's all?,3
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Yes, that's right. The total for all currencies is $3 billion at current rates and $4 billion at historical rates.",25
-fomc-corpus,1983,Do you have a question?,6
-fomc-corpus,1983,"Well, I have a general comment to make. I think there are two types of intervention: One is [based on] the modest, narrow concept of countering disorderly markets; the other is when one wants to lean against stronger trends. And the second really should be done not only in concert with other key central banks but in a package approach in which other actions--not just intervention--are taken. I think what was done fell between those two schools. Now, it still had a useful purpose. I wouldn't agree with some of the public comment that it was a complete failure. It had the politically useful--and I use the word politically in the very broadest sense of the term--function of demonstrating that the United States was willing to meet its Williamsburg Summit commitments of cooperation. And it certainly checked for a few days the very strong upward trend that seemed to be out of all proportion to the upward movement in U.S. [interest] rates. It's quite clear that it didn't leave a good taste in people's mouths, although some people in the market thought it was a useful thing to do. On balance, I think the general consensus was that it didn't turn out to be very effective. Secondly, I think there was some irritation on the part of European central banks that on the key night, a Thursday night, we did not follow through and do any intervention in the Far East--we had no authority to do that--when there was a very major movement. And this followed a day on which the Bundesbank on its own had asked the central banks of many small European countries to join in on the intervention. And, therefore, it left a rather bad taste in their mouths and they later came out with this statement that Sam referred to, and I think that just about finished the possibility of any really effective concerted intervention. I only make these comments to give you my perspective--a report card, so to speak, of this particular incident. I don't know whether Paul agrees or not.",401
-fomc-corpus,1983,I didn't realize we didn't have the authority to intervene in the Far East.,15
-fomc-corpus,1983,"We're kept on a very close leash. When I first became Undersecretary of the Treasury and we had the need to intervene, Arthur Burns also would keep the New York Fed on a very close leash. That went on for a week or two. He would say that [the Desk] had $25 million and when they used it up they had to come back. And then there would be a consultation with the Treasury. I was following it very closely and I felt policy with that close a leash didn't make any sense. So, I said to Arthur Burns that if we were serious about it, we had to give the New York Desk more room; and he agreed finally. The Desk ended up having a very substantial amount of discretion, including in the Far East, and also with not too small a dollar amount. Frequently there was not a dollar limit as such. Just the process of consultation alone [is cumbersome]. If we need to intervene and are getting close to the end of the money authorization for the day--[which might be] $25, $50, or $75 million depending on the market--by the time we get through to the Treasury and the Treasury consults with the Chairman and then they get back to us, at a minimum that will be 20 minutes; sometimes it can be an hour or two. So, I personally feel that if it's a serious concerted intervention, we have to give a little more discretion to the Desk. I don't think that view is very popular, certainly not in this Treasury. John?",311
-fomc-corpus,1983,"I saw at least one press report that indicated the initial intervention by the Treasury was unilateral and did not involve coordination with any foreign central bank. I was just going to ask, Tony, if it's a fair question: Is that true or not?",49
-fomc-corpus,1983,"No, I don't think that's true.",8
-fomc-corpus,1983,"The first day that we intervened, which occurred rather late in the afternoon, it was intervention by the United States [only] but we had talked with the other central banks about what we intended to do. Then, subsequently, we were acting more or less in concert.",55
-fomc-corpus,1983,"Well, as usual, the press got things screwed up.",12
-fomc-corpus,1983,"Yes, I saw some reports that were wrong.",10
-fomc-corpus,1983,"Now, what was a little unusual was that the Treasury went out and made an announcement. In hindsight, I'm not so sure that was a great idea. Normally that isn't the way we would do it unless we were planning a very major effort, which we used to do by activating swap lines, taking a monetary policy measure--what I call a package approach. Then when we make an announcement, we get more credibility. Anyway, that's a minor point. They announced it, or simply after a couple of days answered questions.",105
-fomc-corpus,1983,Question: Did I hear that the historical cost of the currencies we own [is $4 billion and] the current value is $3 billion? Does that mean an unrealized loss of a billion dollars on currencies?,43
-fomc-corpus,1983,"No, those are the Treasury's losses.",9
-fomc-corpus,1983,I mean for the United States.,7
-fomc-corpus,1983,"Yes. But on the other hand, Ted, we had made an enormous amount of money in our intervention. Just on the Carter bonds alone--selling those, which is done to get foreign currency--not only was there a large interest rate savings but there was also a big profit.",57
-fomc-corpus,1983,Where does all that flow through--the Exchange Stabilization Fund?,13
-fomc-corpus,1983,"Yes, and the Exchange Stabilization Fund when I was there was in the red. By the time I left it was in the black because of the profits that we had made, even though not all of the profits went into the Stabilization Fund. Some of them ended up in the general account.",60
-fomc-corpus,1983,"We have some book losses, though, don't we, Tony? That's my impression.",17
-fomc-corpus,1983,"The Federal Reserve has about $830 million in unrealized losses at the moment, if you want to call it that. But unrealized losses of the Treasury are about $900 million.",37
-fomc-corpus,1983,"So that I understand, I'm trying to summarize for myself what you said just now. Would it be fair to say that you're saying either do it whole hog or don't do it?",36
-fomc-corpus,1983,"Well, I think in a case of countering disorderly markets, in the very narrow sense of that term, we can do that on modest basis. That involves more a quasi-continuing presence from time-to-time in the market without making a big deal out of it. The second type is concerted intervention or leaning against the wind, which was a situation that was posed to us because in the larger sense of the term one can argue that this was a very disorderly movement. The abruptness and the size of the market movement in response to a relatively modest uptick in U.S. interest rates was out of proportion. Yes, I feel that we shouldn't do that kind of major, concerted intervention unless there's a package approach and we really mean it and don't keep such a close hold on the Desk. That's my own view.",169
-fomc-corpus,1983,But you would still sterilize it.,8
-fomc-corpus,1983,"Oh, yes.",4
-fomc-corpus,1983,"Tony, what do you consider a major intervention? This totaled $3.7 billion over those few weeks.",22
-fomc-corpus,1983,Our share was $300 odd million.,8
-fomc-corpus,1983,Our share of the intervention was $250 million.,10
-fomc-corpus,1983,But the total intervention was just over $3.7 billion. That looks big to me and just not on the proper scale.,26
-fomc-corpus,1983,Intervention by the Europeans and others was $2.4 billion.,14
-fomc-corpus,1983,What was the total in 1978?,9
-fomc-corpus,1983,I can't give you a gross figure for all central banks.,12
-fomc-corpus,1983,The United States alone did billions.,7
-fomc-corpus,1983,"Yes. Of course, the dollar was weak.",10
-fomc-corpus,1983,"We started off without foreign currencies so we had to activate the swaps, and I suppose we got in hock by about as much as $8 billion. Sometimes we have to stick with intervention. It's not an easy, simple, black and white thing. For example, when we announced that big dollar rescue package on November 1, [1978], even though we had a whole package of measures and even though there was worldwide consultation and even though the dollar turned around very sharply on the first day, we had to make it stick and make the markets believe we meant business and that [what we were doing] was credible. To give time for the fundamental improvement in our balance of payments to become more and more apparent, we had to stick with substantial intervention all through November and December. On January 2 the markets turned around on their own and then there was such an inflow that we were able to repay our swaps and over the year to begin accumulating foreign currencies because the dollar was rising too fast. That was a situation where we had very effective concerted tactics and yet still needed intervention. Sometimes I hear the argument that [if] it is an effective concerted package which involves domestic monetary policy, then intervention isn't needed at all. That was a case where we did need it.",259
-fomc-corpus,1983,[We need to] ratify the transactions.,10
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,Without objection we will ratify the transactions. Mr. Sternlight.,14
-fomc-corpus,1983,"Thank you, Mr. Chairman. [Statement--see Appendix.] [",14
-fomc-corpus,1983,Questions?],3
-fomc-corpus,1983,"Yes, I have one, Mr. Chairman. I'd like to get Peter's perspective on the new wrinkle added--or should I say reintroduced--at last month's meeting of the Committee, which was to pay attention not just to borrowing but to excess reserves as well. In other words, we were going back to a free reserve or net borrowed reserve concept if I understood that correctly. Just from your perspective, how if at all does that new wrinkle affect your ability to carry out the Committee's instructions or goals?",103
-fomc-corpus,1983,"Well, I think it worked satisfactorily in this period. I don't know that it will always be that satisfactory. It depends on the behavior of excess reserves, which tended not to be as high this last period. They averaged a little over $400 million, and we were pretty much programming them in our path-building at the $350 million level. One week we moved that up to $400 million. If we were to get weeks when there was a much stronger demand for excess reserves, it could be more troublesome to operate on that basis. But it has not been a significant problem.",118
-fomc-corpus,1983,"The reason I raised that question, Mr. Chairman, is that if you go back and look at the history of the relationship of excess reserves to the economy, it appears to me at least to be trendless and erratic. I would have to judge that any sustained move to instruct the Desk to follow free reserve or net borrowed reserve targets would be counterproductive, and I would advise against it.",80
-fomc-corpus,1983,"Well, I don't know what the basis for that is. I don't know whether one would get any better results following borrowings alone; I would suspect not.",32
-fomc-corpus,1983,"Pay your money and take your choice, I guess. Personally, I'd have more faith in just following the borrowing.",23
-fomc-corpus,1983,"I think there has been some rise [in excess reserves] this year; it abated a bit in just the last month or so. We essentially have somewhat higher levels of excess this year than earlier; and I tend to relate that to some of our Reserve Bank operational reviews of overdrafts and things like that, which I think have made some bankers want to hold higher levels of excess reserves.",79
-fomc-corpus,1983,"On another matter, in view of the experience we've had in the last few weeks in the way the markets absorbed this large U.S. Treasury borrowing: You said earlier that there had been some econometric analysis indicating that if there were substantial reductions in the deficit, interest rates might be, say, a couple points lower. Was that analysis done on the basis of current conditions in the economy or was that analysis based upon a more robust economy or higher utilization of capacity?",93
-fomc-corpus,1983,"It was done taking the quarterly econometric model and keyed off what was the equivalent of the staff's forecast--the one that we had prepared in July--and then taking a $50 billion expenditure cut. We also did it with a $50 billion tax increase. Essentially the starting point, the initial conditions, would be the July staff forecast.",69
-fomc-corpus,1983,"So, common sense would tell me that if a year from now the economy were functioning at a much higher level of utilization of capacity and you did the same econometric analysis--and at that time we got a major move to reduce the budgetary deficit--we would get an even bigger impact in terms of interest rate reduction. Is that a sensible conclusion?",71
-fomc-corpus,1983,"I think, unfortunately, that's right.",8
-fomc-corpus,1983,"Why ""unfortunately""?",5
-fomc-corpus,1983,One of the problems with these exercises is that they are all dependent on the structure of the model one is using. Use a different model and get a different answer. It also depends on initial conditions. In our model it's a non-linear relationship so that we get a bigger bang for the buck as we get closer to potential or full capacity utilization.,69
-fomc-corpus,1983,Why is that?,4
-fomc-corpus,1983,"It has to do with the non-linear demand for money function, essentially. The elasticity of money varies over time, and in that model as we get closer to capacity utilization, short-term rates would be rising substantially. And if you take the heat off in absolute terms--and this is done absolutely, the number of basis points involved--short-term rates would drop more than they would otherwise.",78
-fomc-corpus,1983,"Peter may not agree with me, but what the experience of the last few weeks--with this very large Treasury borrowing in the markets--indicated to me at least is that the other factors swamped, or were more important than, the size of the borrowing in ultimately determining the level of interest rates in the markets. So, even though in the early stages of the borrowing there were considerable interest rate pressures geared to the size of the borrowing, the whole amount got digested very easily with interest rates ultimately coming down somewhat because of other factors. It wasn't the size per se that caused that much of a problem in the overall context of current conditions and perceptions about monetary policy. I don't know if you would agree with that or not, Peter.",149
-fomc-corpus,1983,"I don't entirely. I think the size was a factor in the extent to which the market backed up. It came down again very fast, but I think it may be premature to say that the market has really digested this; it may be regurgitated again, too.",56
-fomc-corpus,1983,"Of course, we're talking about a very large financing. I guess it's true of the particular set of financing that occurred, but my recollection of the statistics is that both the month of July and the third quarter show substantially reduced federal financing compared to the second quarter.",53
-fomc-corpus,1983,"The third quarter is going to be about $50 billion, isn't it?",15
-fomc-corpus,1983,"It is reduced, seasonally adjusted, from the very high seasonally adjusted amount in the second quarter.",21
-fomc-corpus,1983,"It was $65 billion or something like that in the second quarter. And as a matter of fact, total credit expansion in July, for which the Bluebook reports a number, is down considerably.",40
-fomc-corpus,1983,"Generally speaking, $50 billion a quarter is what we'll be looking at.",15
-fomc-corpus,1983,That is because the second quarter was so high; I think that's an illusion.,16
-fomc-corpus,1983,"Well, that may be because they also had all that tax-exempt financing that went into governments.",20
-fomc-corpus,1983,No other questions? We'll ratify the transactions. Without objection. Mr. Kichline.,19
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,[The floor is] now open for questions and comments and disagreements and alternative scenarios.,17
-fomc-corpus,1983,"You seem to be assuming that next year we will have a downward drift in long-term interest rates, notwithstanding the improved economy, etc.",27
-fomc-corpus,1983,"That's right. The rates in the forecast are in Appendix I of the Bluebook. We do have in there, for example, in the mortgage area about a percentage point reduction in rates from the fourth quarter of this year to the end of 1984. We have had this kind of pattern for a while. We also have corporate bond rates drifting down. It comes out of our forecast; it's sort of an iterative procedure. But our major view is that inflation will still be quite mild and that indeed, with the slowing of nominal GNP growth that we foresee, we could have a little drifting down of short rates and still meet the Committee's targets and that the good inflation performance over time ought to show through in some reduction in long rates.",150
-fomc-corpus,1983,Now short rates are down too?,7
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"And this would be about a constant real rate, given some decline in inflation?",16
-fomc-corpus,1983,"Well, we have a decline in real rates implied because inflation this year and next year is about the same.",22
-fomc-corpus,1983,An act of faith?,5
-fomc-corpus,1983,"Well, in large part.",6
-fomc-corpus,1983,[Unintelligible] starting it; there's no question about it.,15
-fomc-corpus,1983,"Maybe even when it's econometrically derived, it's an act of faith.",15
-fomc-corpus,1983,Any forecast is an act of faith!,8
-fomc-corpus,1983,"I'd like to step back. You spoke of next year's rates. [In the Bluebook appendix] an increase in rates is shown in the fourth quarter, which I assume is built into your Greenbook forecast. Can you comment on the background of that assumption?",52
-fomc-corpus,1983,"Mr. Chairman, I might note that a good part of my briefing is devoted to these questions.",20
-fomc-corpus,1983,I'll wait.,3
-fomc-corpus,1983,Mr. Balles.,5
-fomc-corpus,1983,"I have a healthy respect for the forecast produced by the Board staff. In light of yesterday's discussion, I feel it necessary to ""fess up,"" as it were: We [in San Francisco] do have a significantly different forecast, though not for this year, where we come in very close to the [Board staff] forecast. By the time we get to 1984 there is a difference that I feel compelled to comment on. I'll try to explain very briefly why. On real GNP, the Board staff reduced its forecast for the end of '83 to the end of '84 fractionally this time. They were at 4.2 percent in July and they're at 4 percent in the latest revision; so, they're down fractionally. We had already been higher than they were in our July forecast, which was a 5.1 percent increase. Our staff, rightly or wrongly, has now upped that to a 5.8 percent real GNP gain fourth quarter-to-fourth quarter. In trying to track down the differences--because what I expect every time from my staff is some explanation or attempted reconciliation of differences between their forecast and that of the Board staff--it gets down to the basic methodology. The Board staff has a model that's driven by M2 and we're old fashioned enough to be back to using Ml. The reason I feel compelled to comment on this is that I have in front of me a chart that shows the relationship between M2 and personal income going back quite a ways. It tracked pretty well up until 1978 when all these things began to happen to rates paid on various components of the Ms. Since that time any relationship between M2 and income is just invisible. In fact, they quite often go in opposite directions. We have some faith that we're about to see a restoration of normal velocity patterns in Ml.",376
-fomc-corpus,1983,Does Ml look better?,5
-fomc-corpus,1983,"Yes, except obviously for 1982, when it just fell out of bed and was hopeless. What we're expecting--and it's a forecast not a fact--is that we're in the process of seeing the restoration of the normal velocity trend in Ml which, if realized by the fourth quarter as we forecast, would mean a considerably faster growth of the economy going into 1984. Our specific monetary assumption is that for the balance of this year Ml will grow at the upper end of its range and that as we move into 1984 it will grow in the middle of the 4 to 8 percent range. I think your forecast, Jim, was based on M2 in the middle of the range both for the balance of this year and next year. So, it's simply the difference in methodologies. All sorts of details, of course, would have to be explored, but just in a gross sense that's why we come out with a different forecast. Since we have stronger real growth, we have less unemployment. Time will tell which of these views is correct.",213
-fomc-corpus,1983,What does that forecast have for inflation?,8
-fomc-corpus,1983,"It's a little more than the Board staff has. Specifically, they're expecting 4.3 percent this year, fourth quarter-to-fourth quarter, versus our 5.1 percent; next year they're at 4.4 percent and we're at 5.2 percent.",55
-fomc-corpus,1983,What about the interest rates?,6
-fomc-corpus,1983,We don't forecast interest rates. We don't know how.,11
-fomc-corpus,1983,Do you assume that velocity will grow at the same old rate hereafter or is it a reduced but stable rate?,23
-fomc-corpus,1983,"We assume velocity will approximate its historical growth rate more than what we saw in 1982. I'm not sure--I don't think anybody can be, Henry--that it's going to come back right on or somewhere around the historical average, but it's certain to bounce back and be reasonably similar to what it used to be--up 2 or 3 percent a year.",74
-fomc-corpus,1983,"I'm just looking at the trend for the last four quarters: Starting with the third quarter of 1982, Ml has grown by 6.1, 13, 14, and 12 percent and nominal GNP [growth] was well below it for the first three of those four quarters. Then in the last quarter, the second quarter of this year, velocity has finally made a comeback and is now running ahead. That reinforces in my thinking what John is saying about the likelihood of a rebound toward more normal velocity. What worries me was that we could really see this surge. M1 was surging way ahead of nominal GNP and now all of a sudden nominal GNP has zoomed ahead on a concurrent basis. That obviously isn't the right way to look at it, but that's the way a lot of people around here have been talking about it for the last few quarters. So, if you want to continue talking in that vein, we should now be concerned about the fact that the second-quarter nominal GNP went up by 13 percent when Ml went up by a little less.",221
-fomc-corpus,1983,"Coming back to the real economy, Jim: What level of housing starts and what level of automobile sales are you assuming for the fourth quarter?",28
-fomc-corpus,1983,"Housing we have at 1.55 million units at an annual rate; that would be down from our guess of 1.65 million units for the current quarter, which entails some decline for August and September. So, we have a further drop of 100,000 units in the fourth quarter. For auto sales in the fourth quarter we're assuming 9-3/4 million units in total, of which domestic sales would be 7.4 million, and that's about where they've been running in the first half of this quarter to date. We have domestic auto sales at this higher level but not rising further.",124
-fomc-corpus,1983,"I would guess, although it's nothing other than gut instinct, that those levels are somewhat optimistic. Housing transactions are beginning to fall. And as the pent up demand for automobiles begins to be satisfied to some degree, I have a feeling that that's a very high level of automobile sales to be projecting for the fourth quarter.",63
-fomc-corpus,1983,"I would join Tony only in the comment on housing. I was convinced yesterday that the interest concessions have been so narrow in automobile financing that their removal is not going to be a material factor in the fourth quarter. But I would argue that housing in the fourth quarter will be down more likely by 200,000 to 250,000 than 100,000 units. The cancellation rates in the escrows in Dallas, Chicago, San Diego, Los Angeles, San Francisco, and Atlanta are such that the sales will not be completed. The rates are floating up 150 and in some cases 200 basis points. Those sales are just not going to be closed and that, of course, will back up into starts and other housing figures. So, as usual, I would indicate a deeper, further degree of pessimism on the housing front.",169
-fomc-corpus,1983,Are you referring to single-family primarily?,8
-fomc-corpus,1983,New single-family homes primarily.,6
-fomc-corpus,1983,Isn't there some increase in the multifamily area that is partially offsetting that?,17
-fomc-corpus,1983,"Yes, but there, Ted, we have the condition of high vacancy rates for apartments in the major markets in the Sunbelt and a very low household formation rate in 1982. There is some controversy about what the formation rate was last year; some people say there wasn't any for the first time in twenty-five years or something like that. I think that's a bit too pessimistic, but the Board's staff indicated that it's several hundred thousand households.",91
-fomc-corpus,1983,"Is that because of the demographics or because people aren't getting married, or what?",16
-fomc-corpus,1983,The staff comment yesterday [at the Board briefing referred to] the impact of the recession. I think it goes beyond that. I think there are some changes. Some younger folks are staying with Momma and Poppa a little longer and I think there's a definite slowing in the rate of [household] formation.,63
-fomc-corpus,1983,They are spending their money on a new car.,10
-fomc-corpus,1983,"Or a new computer. Then there's a question, of course, of the thrift industry problems, if any, at today's interest rates. We had some work done here a while back--I'm not sure that Jim would still underline that work--in which we second guessed the thrift industry economists and it came down to this: A very rough figure of 100 basis points in weighted average costs for the thrifts means a pre-tax impact of about $1 billion. If you remember the rise in rates since June, which is the month in which we received those data from the thrifts and translated that into a post-tax profitability, [it means that] they don't have any [profit]. And, of course, for the savings banks you get a figure that's in the red. But some of you in your own Districts know that picture of the savings banks a lot better than I do.",178
-fomc-corpus,1983,"Mr. Chairman, I thought John Balles was going to make my speech for me. He started off pretty much the same way, but we come out with less real growth next year than he did, though a tad more than the Board staff is projecting. The main difference is that as we looked at prices next year, we paid right much attention to the behavior of money in recent months in addition to the effects, as the Board staff suggested, of a great firming of labor markets, a depreciation of the dollar, and the drought this year. And we believe that's going to result in somewhat higher prices than the staff is projecting. If I figured it right, they have the implicit deflator [rising] about 4-1/2 percent from the fourth quarter of '83 to the fourth quarter of '84; we think [the increase] might be near 6 percent. That's really the significant difference between us and John.",190
-fomc-corpus,1983,You have prices and he has real growth.,9
-fomc-corpus,1983,I like mine better.,5
-fomc-corpus,1983,I hasten to add that I hope we [are wrong]. I thought we were going to end up the same place but that's exactly the difference.,30
-fomc-corpus,1983,"By way of a District report, I must say that economic conditions in the Middle West are very significantly improved and would be broadly consistent with the outline that Jim has given [for the nation]. The only point I'd make--and I think Jim used the phrase ""capital goods are poised for recovery""--is that the people who are running the major capital goods firms in the Middle West really are becoming very, very discouraged by the outlook. I'm now talking about the heavy capital side: foundry equipment, railroad equipment, and heavy trucks. Though things may look a little better off a very weak base, people on that side of life are becoming terribly discouraged that 1983 is by now largely gone and the early part of 1984 is to a large extent gone as well. Most of them say the earliest they expect recovery is in late 1984. So, they continue to be very pessimistic. Perhaps that's typical for this point in a recovery but, as a consequence of all this, our outlook for 1984 would be modestly lower than the Board staff's outlook.",217
-fomc-corpus,1983,"Mr. Chairman, I sense a somewhat different tone developing at this meeting in regard to where the economy is going than I detected at the last meeting. We have seen some signs of slowing in retail sales, although it's hard to assess what one month's numbers mean. Prospectively, in housing we've heard a lot qualitatively about the slowdown in mortgage applications and so on. Still in all, I think it's wise to recall that if anyone had forecast 6 months ago that we were going to be looking at a 9 percent real GNP growth in the second quarter and 8 percent in the third, he would have been considered slightly off his rocker. [The expansion] has developed much, much more strongly than nearly everybody had foreseen. In my judgment, probably the best single analogy one can use for the economy is that of the fly wheel: What happened in this quarter is going to happen in the next one. My guess, if I had to make one, would be that we're more likely to see somewhat faster growth than the staff has forecast for 1984. And I think the big candidate for an overrun is business investment. It's something I cannot pin down except to say that the increase in contracts and orders for plant and equipment in the past two quarters has been very, very substantial, but I have a hunch that more is developing in this area than what was allowed for. Still in all, if I had to put out a forecast, it wouldn't be drastically different from what the staff has for next year. It might be a half point more or something like that, but certainly nothing that would change in major ways the outlook for employment and for prices. One of the things that we do need to think about and concern ourselves with is what may be happening in the food area. The staff has a 7 percent rise in food prices fourth quarter-to-fourth quarter. Unless we get some rain of substantial magnitude soon, it could be a lot more than that. It would be worrisome if that got built into the underlying inflation. It's awfully hard to keep that from happening. I'm not quite sure what to do about it, but I worry about it.",439
-fomc-corpus,1983,Seed the clouds.,4
-fomc-corpus,1983,"Some work I've done is supportive of your feeling on the capital goods sector. I've compared the current expansion to the expansion of 1975-76 and in general the broad measures show that we're tracking very closely to that expansion. One sector that is different, even though the capital goods people in the Middle West may not appreciate it at the moment, is that capital goods orders are coming in much stronger than they did at the corresponding phase of the 1975-76 expansion.",95
-fomc-corpus,1983,"Isn't the composition different, though?",8
-fomc-corpus,1983,"It's a different segment of the capital goods side. I'm talking about machine tools, foundry equipment; I don't think perhaps you are.",27
-fomc-corpus,1983,But doesn't that side hit the lag in any event?,11
-fomc-corpus,1983,"Perhaps so, but it has been lagging so long that the guys are getting awfully discouraged. For example, to give you just one quick figure: The delivery of railroad cars this year will be 5,000 units. It typically runs about 80,000 to 85,000 units and in 1980 it ran 120,000. This year's figure will be lower than any year since 1933 and I'm not sure the figures in 1933 were that good. This provides the kind of environment in which people are thinking and they've become very discouraged about it.",118
-fomc-corpus,1983,Is there some increase in orders?,7
-fomc-corpus,1983,"No, orders have been absolutely flat. Now, there are some reasons for that; nonetheless, it provides a very difficult environment in which people are operating.",31
-fomc-corpus,1983,"Union Pacific people tell me that carloadings have not gone up as much as the rest of the economy and normal relationships would indicate, although the published data don't seem to make that very clear.",39
-fomc-corpus,1983,"While I was on the phone the other day I was looking at Business Week, which has this business indicator [measure] on the front page. They compared last month to two months ago and last year, and they had a comparison with five or seven years ago. They included the steel industry, which is running 40 percent below the figures of five years ago. Every other industry they included was up 30 to 40 percent compared to whatever it was 5 or 7 years ago. There's a tremendous contrast between what is going on in steel, as reflected in that, and in the rest of the economy.",124
-fomc-corpus,1983,"The barge business is also very, very bad. It has not picked up. There seems to be less movement of coal, heavy material, steel, and even of grain. But coming back to food prices: I thought we were sitting with such huge surpluses. I'm not quite sure I understand why there is such a big price impact.",70
-fomc-corpus,1983,"We are, in wheat. But the inventories of corn and soybeans are going to be quite low. If the crop forecast is reduced much further, I think we will get some liquidation of livestock herds, hogs and cattle both, and then a very large run-up of meat prices next year. That is the big risk.",67
-fomc-corpus,1983,"I see. So, it's meat prices rather than corn that you think--",15
-fomc-corpus,1983,"Just the feeling that everybody buys, including the Russians.",11
-fomc-corpus,1983,"Just to follow up on that comment: Our people had [forecast] an increase in food prices in 1984 of about 5 to 6 percent until this drought really hit the corn and small grain crops; now they've moved it up to 7 percent or a little over. And the reason the rise is only that modest is the fact that in the early part of 1984 there will be a liquidation of red meat [animals], both hogs and cattle. As a result there will be a depressed meat price and the impact on food prices won't occur until later in 1984. So, the yearly contribution to inflation [from the food] price increase will be modest--in the 7 percent range. But by the end of 1984 quite likely we'll see food prices rising much more rapidly than 7 percent.",168
-fomc-corpus,1983,"Well, they'll get that new crop in by the end of 1984.",16
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,Then people will stop liquidating their meat animals and that will really push meat prices up.,18
-fomc-corpus,1983,"As somebody observed, the PIK program was ill devised but what they also missed was Mother Nature being a participant in it. It essentially has been much more effective in bringing down the excess stocks of corn and other crops that normally would be harvested in the fall than anybody ever imagined.",56
-fomc-corpus,1983,"Mr. Chairman, I have a different forecast, which I've had since February. I did have growth of 8-3/4 percent for one quarter, but I think interest rates at these levels will calm down the economy, bringing it to the levels we had previous to the last run-up during the fall. And my real [GNP] forecast for next year is at the bottom of the FOMC [members' range]. I think [GNP growth] will probably slow down to below 4 percent, fourth quarter-over-fourth quarter, which will both reduce the inflation rate and increase unemployment next year. We don't have a stable relationship on velocity. It may return. Until it does, it seems to me that what is more important is the level of rates and what that does to economic performance. So, I'm anticipating a much slower recovery, with all the consequences that go with that slower rate of growth.",186
-fomc-corpus,1983,Since that hasn't been true up to now--real rates have not slowed the growth at all--why will it be true later in the year?,29
-fomc-corpus,1983,"I think there was a great deal of pent up demand, particularly in the housing and automobile areas, that came out in the early parts of the recovery. As that pent up demand is met and as the rate [increases are felt]--obviously, [housing] is very sensitive to a mortgage rate somewhere between 12-1/2 and 14 percent--we also are going to run out of people who qualify for mortgages at this level or even at 12-1/2 percent as we move further into the recovery. So, I think that we will see a moderation in housing demand and that automobile demand probably will moderate also. GM, as you know, raised its prices about 2 percent today. Well, 2 percent, given the level they're starting from, makes the real cost of owning an automobile very high and rising. And I think people are responding to that in a very economic way.",186
-fomc-corpus,1983,"We should keep in mind, though, that the housing recovery started at a higher level of mortgage rates than you're suggesting would be a problem.",28
-fomc-corpus,1983,"Well, it means that more people who could qualify have been wiped out already.",16
-fomc-corpus,1983,Did you really have an 8 percent third-quarter projection back in February?,15
-fomc-corpus,1983,"No, for the second quarter.",7
-fomc-corpus,1983,Even when you were so worried about interest rates back in February?,13
-fomc-corpus,1983,Yes. It was obvious what the inventories were going to do.,13
-fomc-corpus,1983,"I sort of agree with Nancy but for different reasons. And that is--though I realize Jim has put the saving rate back [up] some--that I just think the projected saving rate is too low. For the projection period it's around 4-1/2 percent as we go through 1984. I think that's an extraordinarily low rate. And it's not consistent with all the incentives to save that the government has provided with IRAs and deferred compensation. I'm not sure whether the problem is that income is being understated--it could be--in the forecast. But that means stronger plant and equipment or something to provide the income that will make for a higher saving rate. Or maybe consumption is too high. I realize that people, because of pent up demand, can go in and use credit actively and draw down their financial assets in order to take care of their needs; [but] as soon as that's over, I should think that the saving rate would be around 6 percent. Therefore, I would come in with a little lower forecast for the year from the fourth quarter of '83 to the fourth quarter of '84--certainly lower than John Balles has, and lower I think than Lyle has.",246
-fomc-corpus,1983,How much of the increased spending do you attribute to the stock market and bonds?,16
-fomc-corpus,1983,"I can't answer explicitly in terms of a number. I don't know what the model has on that; I don't remember. I do think that part of what we saw in the second quarter was a wealth effect, and that was important in the kind of forecast that we have. It's hard to see stock prices zooming on up in the near term; that market has cooled a bit. So, I would use that wealth effect argument as helping to explain the second quarter. And that [effect] is weakening now, given what is happening in the market.",111
-fomc-corpus,1983,"Jim, in terms of wealth effects for middle income consumers, their assets are tied up in a single-family residence, which they can't sell. In city after city those people are sitting there with a number on paper or in their minds as to what the equity in their home is and they can't realize it. So, I wonder how important the stock market is to the middle of the pyramid.",78
-fomc-corpus,1983,"Peter Fousek from New York has some projections, which I forgot. I don't have any here. You can answer it, can't you? MR. FOUSEK(?). [Unintelligible] impact of the total rise in consumer spending, 30 percent is attributed to the stock market.",61
-fomc-corpus,1983,Nationwide?,3
-fomc-corpus,1983,The change from the second quarter of 1982 was a rise of some 57 percent in the stock market.,23
-fomc-corpus,1983,What was the 30 percent?,7
-fomc-corpus,1983,Of the excess increase of the--,7
-fomc-corpus,1983,It seems high.,4
-fomc-corpus,1983,What's this excess increase?,5
-fomc-corpus,1983,"Yes, what's this excess?",6
-fomc-corpus,1983,"Well, all our past relationships would have suggested about half--",12
-fomc-corpus,1983,And what was the offsetting decrease? I don't have our [forecast] here so I can't--. There was a decrease in the value of the equity of housing of $30 to $40 billion for households. Is there an offset? They have a perception of a decrease in their wealth.,59
-fomc-corpus,1983,Why?,2
-fomc-corpus,1983,"That's not in this period, I think.",9
-fomc-corpus,1983,They have a decrease in their rate of return.,10
-fomc-corpus,1983,"They've had a decrease in the real value of their housing and, therefore, their equity. They're heavily borrowed.",23
-fomc-corpus,1983,Not for the second quarter of '82 to the second quarter of '83.,16
-fomc-corpus,1983,I believe that's exactly--,5
-fomc-corpus,1983,Housing prices [were] firm.,7
-fomc-corpus,1983,"I think the statistics show that household wealth has gone up somewhere between 3/4 of a trillion and a trillion dollars in the past year, taking the two things together. Now, the distribution of this is another question. But certainly the household wealth statistics have looked much, much better in the past year. How much of that one can really expect to influence consumption is hard to say because it is rather narrowly distributed among a small--",87
-fomc-corpus,1983,You have to look at the volume of refinancing of existing house mortgages to begin to get some kind of clue as to whether it influences consumer spending or not.,31
-fomc-corpus,1983,And there you're talking about 14 percent interest rates.,11
-fomc-corpus,1983,"We've had a number of different views expressed here about the outlook. Out of curiosity, how many people would have a forecast significantly higher than the staff forecast? I will define significantly higher as roughly 1/2 percent or more on the rate of growth over the next 18 months. [Secretary's note: Messrs. Balles, Black, Gramley, Ms. Horn, Mr. Morris, and perhaps a few others.] How many would have a significantly lower forecast? [Secretary's note: Messrs. Partee, Rice, and Ms. Teeters.]",115
-fomc-corpus,1983,There are a couple of us left who more or less agree with it.,15
-fomc-corpus,1983,"Well, I think that's quite possible. Why don't we turn to Mr. Axilrod.",19
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,"Steve, what has been the pattern of growth for the old M1A?",16
-fomc-corpus,1983,"The quarterly figures, starting with the third quarter of 1982 are: 2.4 percent; 7.8 percent; 5.6 percent--held down by shifts, I think, but I don't know the exact amounts--and 6.7 percent. And it looks like Q3 1983 will be 6.9 percent.",73
-fomc-corpus,1983,Thank you.,3
-fomc-corpus,1983,Any other questions? Mr. Axilrod answered all the possible--,14
-fomc-corpus,1983,"Steve, may I ask: What is your velocity forecast or expectation for Ml for the fourth quarter?",20
-fomc-corpus,1983,It's around 2 percent or that order of magnitude for current M1.,15
-fomc-corpus,1983,The historical average was how much higher?,8
-fomc-corpus,1983,"Well, if you use Ml without NOW accounts, which is what we used to have, the history is that in the fourth quarter of a recovery, its growth is around 7 percent or something like that. Take out [unintelligible] and it'll be lower--more like 6 to 7 percent.",64
-fomc-corpus,1983,"True, but is that a fair comparison? That is kind of old M1 with--",18
-fomc-corpus,1983,"No, that's what I was trying to say. I don't think it is. I don't think you would then reason that the 2 percent is too low.",32
-fomc-corpus,1983,What I'm trying to get is: What would be the comparable figure of the old Ml velocity given the new M1 content? Would it be 3 percent or 2 percent or what?,38
-fomc-corpus,1983,We don't know.,4
-fomc-corpus,1983,"I'm just trying to smoke out, if we can, what Steve meant by ""velocity is recovering but it will remain low."" I think those are the words you used.",34
-fomc-corpus,1983,"What I meant was, if you go back to history when Ml had a different composition, the numbers in the fourth quarter of a recovery run around 5 or 6 or 7 percent. What we have now, based on our current estimates, is something on the order of 2 percent, which will mean GNP doesn't pick up and Ml doesn't pick up with it. If you use the old M1A, you'd have something like 4 or 5 percent, which would be more in line with past cycles. It just says it's some sort of a residual transaction element if this keeps up and old M1A is moving like it used to. One conclusion I drew from that is that the new Ml does have this additional element, which is holding down its velocity. So, one might not want to extrapolate from that to higher nominal GNP a few quarters ahead. Velocity is behaving a little differently; that could change.",189
-fomc-corpus,1983,Mr. Ford.,4
-fomc-corpus,1983,"Since you asked yesterday for some comparisons: I don't know how many of the models you follow, but we do that all the time. And I feel great listening to Steve and Jim and so on, if one can only believe all this. The others that we track, such as Townsend-Greenspan, DRI, and Harris--your alma mater is forecasting even lower rates, as you must know--and Chase all are giving forecasts very similar to what the staff has. So, that kind of alternative makes one feel better. I think it would be beautiful if it comes true, but--",120
-fomc-corpus,1983,It could just be that everybody is wrong.,9
-fomc-corpus,1983,That's what worries me.,5
-fomc-corpus,1983,But so far the consensus is better than the individual forecasts; that's been the experience of this guy out in Arizona.,23
-fomc-corpus,1983,But isn't it true that the majority of outside forecasters expect higher interest rates?,16
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,Don't they expect higher long-term rates in 1984?,12
-fomc-corpus,1983,"Well, I just have the T-bill and the prime rates. All four of those outsiders expect, by the second quarter of 1984, the prime to be the same as it is this quarter on average and T-bill rates to be maybe 1/2 percentage point or more lower. I don't know about bond rates; I didn't get that.",73
-fomc-corpus,1983,Are there any other questions addressed to Mr. Axilrod?,13
-fomc-corpus,1983,"Did I understand, Steve, that you were expressing the view that foreign demand for U.S. investments affects U.S. interest rates rather than U.S. exchange rates?",34
-fomc-corpus,1983,"I think they are probably not unrelated. I was assuming that the large capital inflow we've had this time, without a sharp depreciation in the dollar so far, reflected a willingness of the foreigners to put their money here not [wholly] independent of interest rates but more or less independent of interest rates--that is, there is a wide range of interest rates that wouldn't have mattered. But that willingness really meant that the exchange rate stayed higher than it would otherwise be instead of depreciating. That kept our prices from being higher than they would otherwise be and it was the price effect in my mind that kept the interest rates from being higher. It's somewhat like in the olden days of fixed exchange rates when we could run big balance of payments deficits and lose [foreign] exchange reserves and in some sense have bigger domestic purchases without getting right away the inflationary impact of the purchases. And in my head, subject to Ted's contradiction, something like that has been going on--",195
-fomc-corpus,1983,Why wouldn't it have a direct effect on interest rates as well?,13
-fomc-corpus,1983,"Well, yes. One would think so.",9
-fomc-corpus,1983,I'd understood this as a circularity question. I'd really dismissed foreign demands ebbing and flowing as having an effect on U.S. interest rates because of the circularity of flow.,36
-fomc-corpus,1983,It depends a bit on what you--. You get the same results as Steve's--,18
-fomc-corpus,1983,There isn't circularity when you're running great big current account deficits.,13
-fomc-corpus,1983,If you think [unintelligible].,9
-fomc-corpus,1983,That may be caused by the exchange rate.,9
-fomc-corpus,1983,"It's a question of how you break into the circle. If you think the current account deficit to some extent has been pushed by fiscal policy or an increase in aggregate demand in the United States, then to the extent that you can open as opposed to not being able to open up a current account deficit, in effect the saving that comes in does damp the rise in interest rates that a given impetus to domestic demands would give you in a closed economy context. That's a slightly different way of putting the same point that Steve was making, though you obviously know, Mr. Chairman, that one has to say where one is going to start the circle.",128
-fomc-corpus,1983,"If there are no other questions, we'll go and have some doughnuts.",15
-fomc-corpus,1983,"We've had some differences of opinion expressed about the business outlook. There are some indications of a little slowing [in the recovery] from the pace to date. Differences of opinion on the outlook seem to be rooted in [unintelligible]. There are some tentative signs of a little slowing in Ml; M2 and M3 are doing pretty well in terms of the objectives. It doesn't necessarily strike me as a time for pronounced moves, but I'm open to comments.",93
-fomc-corpus,1983,Let's vote on alternative B and go home! SEVERAL. I'll second that.,17
-fomc-corpus,1983,"Well, I'd like to suggest that alternative C would be no change. We agreed last time that we wanted 7 percent growth in Ml and alternative C would take us there. I think the economy is doing great and we shouldn't change what we're doing, which is working. And I would recommend that we go to alternative C.",65
-fomc-corpus,1983,"Well, I don't think we have to argue really about whether it's ""B"" or ""C."" We maintain the same operational paragraph and simply say we maintain the existing degree of reserve restraint. And we assume [borrowing of] $700 to $900 million. I guess that's the difference between us. If we go all the way down to alternative C, that assumes a borrowing range as high as $1 to $1-1/4 billion, and then we would be pushing up the federal funds rate to 9-3/4 percent plus, whereas if we stick with $700 to $900 million, then it's about 9-1/2 percent.",135
-fomc-corpus,1983,"You're objecting to the Ml number, isn't that right? You would rather have the old Ml range. That's all he's talking about.",27
-fomc-corpus,1983,"I would remind you, Ted, that we're not targeting Ml; we're only monitoring it.",18
-fomc-corpus,1983,"It seems we could use our monitoring a little more sensitively, though, which I'd appreciate.",19
-fomc-corpus,1983,"The operational paragraph says 8-1/2 and 8 percent for M2 and M3 and it says 7 percent for Ml. I don't see that we have to change any language, but I feel very strongly that we not go higher than $700 to $900 million on the initial borrowing.",62
-fomc-corpus,1983,I would agree.,4
-fomc-corpus,1983,"Well, I don't know what the right level is. You remember the discussion the last time; we were so panicked over going to $400 million and nothing dreadful seemed to have [happened] in the market when we went to $900 million. In fact, the rates have subsided here. I'd let the borrowing go up if necessary to maintain the path.",75
-fomc-corpus,1983,"Well, the rates did go up a half point, Ted.",13
-fomc-corpus,1983,Including long-term rates.,5
-fomc-corpus,1983,"Net, I don't think it's a half point except for the prime rate and the funds rate; the bill rate went up 25 basis.",28
-fomc-corpus,1983,"This isn't the time, really, to make a change. Two weeks ago, I must say, I would have thought we should tighten up a little, but the data that have come in have made me think we'd better wait--as Steve said in his final remarks, wait and be cautious. It looks almost too good to be true that we can get off this bulge of Ml with no further increase in interest rates. And, if true, it makes me think that something is happening to M1 in that it fails to send us a very useful message. But both from the point of view of the monetary aggregates and the point of view of the economy, the right thing to me seems to be to go with ""B,"" leave things as they are, and hope that [the forecast] as projected here is true.",166
-fomc-corpus,1983,"I think that's reinforced by the fact that we're getting credit--I'm not sure we deserve it--in that there's a widespread perception in the financial community that it was our tightening that started correcting that bulge. Whether it's true or not true, we're getting the credit for it.",55
-fomc-corpus,1983,We deserve anything we can get!,7
-fomc-corpus,1983,"I think Henry is probably right and that things aren't really as nice as they seem, but I'd just like to relax and enjoy it awhile.",28
-fomc-corpus,1983,"Well, I don't know whether these views that are expressed are the consensus, but I have a certain aversion to making unnecessary changes in these targets in the middle of the quarter. That appears to be an extreme fine-tuning. All we really have to do, if this is the course we want to go, is say ""The Committee seeks in the short run to maintain the existing degree of reserve restraint."" We'll discuss how that gets interpreted. Maybe we say that the action is expected to be associated with growth in M2 and M3 at around 8 percent--that's about what we have--and leave in the 7 percent for Ml. MESSRS. GUFFEY, FORD, and CORRIGAN. Yes. Let's go home.",153
-fomc-corpus,1983,"Well, we have to discuss just precisely what we mean by the borrowing assumption. As Steve suggested, all things considered, the $700 to $900 million might be appropriate. It is $100 million higher than we set before, but it encompasses the range that we've actually had.",56
-fomc-corpus,1983,It's $100 million higher? Is that because you think that the demand for borrowing is a little higher?,21
-fomc-corpus,1983,"It has been running, generally, quite a lot higher. This week it's running over $1 billion; even taking out a couple of what I think are special cases it would be running $800 to $900 million. And the federal funds rate is at 9-1/2 percent. It seems that the demand for borrowing is running a little higher than we thought.",75
-fomc-corpus,1983,Would that be matched by higher excess reserves than usual?,11
-fomc-corpus,1983,"I was looking at the $350 million; I was not necessarily assuming that, Governor Wallich. I assumed that the range would encompass some variation in excess reserves.",33
-fomc-corpus,1983,I think we're still talking specifically of excess reserves in the $350 to perhaps $400 million area when we make that borrowing assumption.,26
-fomc-corpus,1983,"Well, they've been running $650 million in the last two weeks on the chart.",17
-fomc-corpus,1983,What--excess reserves?,6
-fomc-corpus,1983,"No, the net borrowing ran about $650 million.",11
-fomc-corpus,1983,This would imply [excess reserves of] $350 to $550 million.,16
-fomc-corpus,1983,What set of numbers would keep the funds rate more or less around 9-1/2 percent?,21
-fomc-corpus,1983,"I would say somewhere between $700 and $900 million on borrowing, but one can't be absolutely certain. Mr. Sternlight?",26
-fomc-corpus,1983,"I agree with that. And I agree with some looseness of that relationship, because we seem to be getting borrowing a little over $1 billion and yet the funds rate looks as if it's going to average a little under 9-1/2 percent. When I look back at some rough equations I tried to draw up, $700 to $900 million might suggest to me 9-1/2 percent or a little higher on average, but it--",93
-fomc-corpus,1983,"Where the funds rate is in the short run, I suspect, is partly affected by whether the market thinks interest rates are going to go up or down. If they think they're going up, the funds rate will be higher; if they think they're going down, the funds rate will be lower.",59
-fomc-corpus,1983,Borrowing of $700 to $900 million seems like a reasonable starting point.,16
-fomc-corpus,1983,"Also, we have a fairly long time before the next meeting. I thought we ought to have some sort of a consultation in between.",27
-fomc-corpus,1983,"It's October 4th, I think. Yes.",11
-fomc-corpus,1983,I think it's an ordinary six-week interval.,9
-fomc-corpus,1983,We have the question of the federal funds rate range. We left it at 6 to 10 percent last time and I don't know if there's any great reason to change it. I think its only relevance will be when it is published.,48
-fomc-corpus,1983,I'd leave it alone.,5
-fomc-corpus,1983,"Well, I don't want to conclude the discussion prematurely.",11
-fomc-corpus,1983,That's a blessing!,4
-fomc-corpus,1983,"I'll start an argument here, just so that we can have something to do between now and lunch time.",21
-fomc-corpus,1983,"We have some other things we can talk about, though. I don't want to encourage it unnecessarily.",20
-fomc-corpus,1983,"Based on the San Francisco money market model, we do not share the view that Ml is in the process of slowing down. Therefore, that leads me to wonder whether the 10 percent funds rate is going to be enough to contain Ml anywhere near the path that we have set for this quarter. We've already overshot as it is and I would expect some further overshoot based on our analysis. That leads me in the direction of at least ""B-"" if not all the way to ""C.""",100
-fomc-corpus,1983,But how can you get that significant a move upward for it to go over 10 percent if we're running policy as we are and interpreting it as maintaining the existing degree of reserve restraint? That's the operative sentence.,42
-fomc-corpus,1983,"Well, if the aggregates ran high, we could tighten up on this.",15
-fomc-corpus,1983,"But our main aggregates are M2 and M3, which are within their ranges.",17
-fomc-corpus,1983,"I guess I'm quarreling about whether ""existing degree of reserve restraint"" is in fact what we need or whether we need a bit more restraint.",30
-fomc-corpus,1983,"It comes down in part to whether we trust ourselves to deal with the problem you raise when it happens, doesn't it, John?",26
-fomc-corpus,1983,"That's right. We have two choices: We can put our confidence in the forecast, which may be wrong, or wait to see what happens, in which case it may be too late.",38
-fomc-corpus,1983,"Well, since you're the one who has that forecast --Steve doesn't have the same forecast--it's putting our trust in your forecast as against Steve's forecast.",31
-fomc-corpus,1983,That was one of the two models I referred to that did run higher.,15
-fomc-corpus,1983,"I would just change the focus a little. It isn't clear to me what establishment of a borrowing figure by this Committee really means. We've been operating on nonborrowed reserves or net borrowed reserves. It appears to me that what we're doing is simply pegging the funds rate at some level and turning over to the Desk and in a sense to you, Mr. Chairman, where that funds rate will rest on a week-to-week basis. I guess I'm raising a question on the operational procedures that are being followed. If we're following a regime of merely pegging the funds rate, then establishing a borrowing level isn't very meaningful because it all cues off of what Peter and Steve believe will give us a 9-1/2 percent funds rate. And then it is adjusted from there depending on, I guess, their judgment and the Chairman's judgment.",169
-fomc-corpus,1983,"Well, there is some variation.",7
-fomc-corpus,1983,How much weight you put on the funds rate is in our minds when we make the decision. And we're obviously constraining the funds rate in some sense but we're not aiming at a particular funds rate. The funds rate came out a little higher--a quarter point maybe--than we anticipated at the last meeting.,62
-fomc-corpus,1983,"Well, to illustrate the point, the fact is that the funds rate ran up in the last two weeks; it then came back down, to be sure. It may have been affected by technical considerations of the [Treasury] refunding and other things. But as a member of this Committee, I have a very difficult time saying that $700 to $900 million is the right borrowing figure when it is meaningless after the first day, if you will, after the paths are built. I'd rather talk about some appropriate funds rate.",107
-fomc-corpus,1983,"Well, you can talk about what you want to talk about or what you want to aim at, but I don't think it's meaningless after the first day. We haven't basically changed that. We could change it in light of all these factors mentioned here.",50
-fomc-corpus,1983,"When borrowing ran at the $900 to $1 billion level, we did not follow the regime of earlier days by adjusting the nonborrowed reserve path.",31
-fomc-corpus,1983,"But in planning the nonborrowed reserve path you still have been using the assumption for everything you've said, haven't you, Peter?",26
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,Irrespective of the fact that some weeks borrowing comes in higher or lower.,16
-fomc-corpus,1983,[Unintelligible] and then you accommodate that borrowing.,13
-fomc-corpus,1983,"Well, it looks to me as if we've had a constructive effect. The policy has resulted in a path that has slowed the [growth of the] monetary base, which is getting reflected here in a slowing in the stock of money.",47
-fomc-corpus,1983,That's a larger question. He's talking about a narrower question.,12
-fomc-corpus,1983,"Yes, I am.",5
-fomc-corpus,1983,"I'm not on the phone every day, but my understanding--if I'm wrong, Steve or Peter ought to speak up--is that they are following the Committee's guidance in calculating the nonborrowed reserve path. They are not adjusting the nonborrowed reserve path to the actual borrowing that happened to occur in a particular week.",65
-fomc-corpus,1983,"Except that, as kind of a footnote, they have had these weeks when [borrowing] came in very high early in the week and the market may get pretty [unintelligible]. We get a lot of excess reserves as a result. The Desk hasn't been driven to supply a lot of money to get the borrowings way down to balance off what happened in the first half of the week on some occasions.",85
-fomc-corpus,1983,But those weeks have followed one after the other; that is my point. It's not just one week in isolation.,23
-fomc-corpus,1983,"No, there were several weeks.",7
-fomc-corpus,1983,"We got a lot of borrowing early in the week. There was one week when we were just about explicitly making the kind of adjustment that President Guffey referred to. We were prepared to accommodate--to make some allowance for the high level of borrowing in that week, as it closed out. We were going to make an allowance for high excess reserves as we were closing out the week but then it turned out that the reserve factors caused a big miss that pretty much offset the kind of allowance we thought we were making there.",105
-fomc-corpus,1983,Consider that confirmation!,4
-fomc-corpus,1983,"I think it's clear that members of the Committee, in varying degrees, have the level of the funds rate in mind when they think about the borrowing level. But we're not strictly adjusting the operations so that we are aiming at a particular federal funds rate.",50
-fomc-corpus,1983,"Well, you try to hit a net borrowed reserve figure that will give you a [particular] funds rate, though, if I understand the way you've been operating most recently.",36
-fomc-corpus,1983,Right. But that net borrowed reserve figure comes out of the Committee's discussion on borrowing and--,19
-fomc-corpus,1983,"I guess, though, that I can understand Roger's point. Another way to put it, precisely, is that you think $700 to $900 million is closer to giving us a 9-1/2 percent funds rate than $600 to $800 million was. So, Roger's point is: Well, why not just specify a 9-1/2 percent funds rate and forget about the borrowing number? There's some logic to that, I think.",94
-fomc-corpus,1983,"We can do that, but that's not what we are doing.",13
-fomc-corpus,1983,"It is true that we don't operate on the automatic system where a rise in money supply and, therefore, demand for reserves automatically leads to a rise in the funds rate.",34
-fomc-corpus,1983,That is correct.,4
-fomc-corpus,1983,"That's why we changed the paragraph to put emphasis on the degree of tightening--or maintaining or loosening, even--of reserve restraint.",27
-fomc-corpus,1983,"I think that is what Roger is saying, if I understand him correctly.",15
-fomc-corpus,1983,That's correct.,3
-fomc-corpus,1983,It certainly limits the amount of variability in the fed funds rate. There's no question about that. But I think it's also correct to say that we're not pegging it. We've seen within a week a considerable movement in the funds rate.,47
-fomc-corpus,1983,"With that clarification or lack thereof, I guess where we are specifically is that we replace ""increase slightly further"" with ""maintain the existing degree of reserve restraint."" I would just summarize that 8-1/2 and 8 percent by saying 8 percent [for both M2 and M3] and take out the ""respectively."" We leave in the 7 percent for M1 and I guess we're leaving in the 6 to 10 percent for the federal funds range. And we are assuming a borrowing level of $700 to $900 million, unless these other factors suggest that that should be changed.",125
-fomc-corpus,1983,And this implies a funds rate of around 9-1/2 percent?,16
-fomc-corpus,1983,"That's where they are guessing, that's right.",9
-fomc-corpus,1983,Or a little less. [Laughter.],9
-fomc-corpus,1983,Shall we vote? Somebody is pointing something out. What is this about?,16
-fomc-corpus,1983,The interest rate sentence.,5
-fomc-corpus,1983,"It's not true, is it? Mr. Bernard is looking at the last sentence of the boilerplate on interest rates. ""Interest rates rose appreciably through most of the intermeeting period but recently market rates have retraced much of their rise."" We should just be putting in ""all of their rise."" Is that correct?",65
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Some, but not all.",6
-fomc-corpus,1983,"Well, ""much"" is the way it is now.",12
-fomc-corpus,1983,Much or most?,4
-fomc-corpus,1983,"We'll make it ""most.""",6
-fomc-corpus,1983,It depends on what rates did in the last few days.,12
-fomc-corpus,1983,"That gives us two ""mosts"" in that sentence. Say ""through much of the""--",19
-fomc-corpus,1983,"I would say it is more than a large part, Governor; in many cases they're within 5 basis points. It really is the bulk or something--",31
-fomc-corpus,1983,"Where it says ""most"" up above we'll change it to ""much."" We'll reverse the ""most"" and ""much.""",25
-fomc-corpus,1983,"Give them something to work on, right!",9
-fomc-corpus,1983,Okay. I guess we'll vote.,7
-fomc-corpus,1983,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey Yes President Keehn Yes Governor Martin Yes President Morris Yes Governor Partee Yes Governor Rice Yes President Roberts Yes Governor Teeters Yes Governor Wallich Yes,46
-fomc-corpus,1983,"All we have left is the confirmation of the date for the next meeting, October 4. And we may have a consultation before then.",28
-fomc-corpus,1983,Two-thirds of the Chrysler workers in Ohio voted against the 12 percent [wage] increase?,20
-fomc-corpus,1983,"What, they wanted more?",6
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,I didn't figure they wanted less! [Laughter],11
-fomc-corpus,1983,"But looking at the wage picture generally, the astonishing thing is the extent to which we're still getting give-backs and freezes. The Board staff's latest memorandum on wage concessions says that concession bargaining was extensive again in the third quarter; at least 150,000 workers agreed to wage freezes or pay cuts just in that quarter. And the latest wage concessions bring the cumulative number of workers who have acceded to give-backs so far this year to around a million compared with two million in 1982. I think we still are getting indications of very, very substantial moderation in wage rates.",118
-fomc-corpus,1983,And the aggregate wage figures are not going anywhere.,10
-fomc-corpus,1983,That's right. Wage rate figures for the third quarter confirm what is going on in the union sector.,20
-fomc-corpus,1983,"Well, you can look at that somewhat differently. There isn't any question that they are still getting concessions, but what is holding up the average? What are they getting in areas where there aren't concessions?",40
-fomc-corpus,1983,"Well, I'm not sure the average is holding up. We don't have an employment cost index for the third quarter and the average hourly earning figures are a little difficult to read now because the latest employment situation report has a big strike figure in it. I don't know what the August numbers will look like once the strike effects are taken out, but indications for the third quarter so far are for a slower rise in average hourly earnings this quarter than in the previous one.",92
-fomc-corpus,1983,But isn't it still close to 7 percent for the country as a whole?,16
-fomc-corpus,1983,Hours? For the wages it's more like 4 percent.,12
-fomc-corpus,1983,"It's 4 percent but a lot of industries, such as the utilities industry, [are higher]. I'm just looking at some figures here that somebody gave me on collective bargaining agreements and they are all more than 6 percent; many of them are 8 percent. That's down 1 or 2 percentage points from the peak levels in an industry that isn't under exceptional pressure. They can always pass it on to the customer.",85
-fomc-corpus,1983,We're going to get that in industries where the [competitive] pressures are not there. But they are surely being counterbalanced.,25
-fomc-corpus,1983,"Well, you remember what happens when these pressures go away. The next report could have an expansion. Wages could settle down.",26
-fomc-corpus,1983,There are more industries where that restraint is not present than where it is. Just look across the board. In the heavily unionized heavy industry types of companies you find that. You don't find it much in the financial sector; you don't find it in the service sector generally.,55
-fomc-corpus,1983,I think there is an enormous catch-up demand in all these areas where concessions have been made. It's natural that they regard that as a temporary calamity and will try to catch up again. Chrysler showed that.,42
-fomc-corpus,1983,"There is an institutional element in this too that is coming up, particularly next year, and that is the turnover in union leadership. In more and more cases the senior captains of those unions are retiring and new faces are appearing. And there's going to be a certain amount of motivation among those folks to make the record show that those old boys, and old women in some cases, had gotten tired. I think that's a factor that we have to watch in 1984. MR, FORRESTAL. Mr. Chairman, we don't have any esoteric tales either to report from the Sixth District. We would generally agree with Jim Kichline's estimate. I think the Southeast pretty much mirrors what is going on in the rest of the country. The economy continues to expand, although there are a few sectors that are showing some signs of slowing. Consumer spending remains pretty strong, although the drought and the unseasonably hot weather affected not only farm prices but consumer spending as well because there were not the usual back-to-school purchases. Industrial employment is continuing to rise. We're looking at some reversals, particularly in the forest industry. [That experienced by] Georgia Pacific, which recently moved to Atlanta, is very much apparent to us in that particular industry. Higher mortgage rates have reduced sales of new homes from the levels that were attained earlier this summer. It seems to me that 13-1/2 to 14 percent rates are about the choke point for most people for new homes as well as existing homes. In the financial sector we've had pretty good deposit and loan growth, although it has been weaker than in June. It's going to be interesting to see what the results of the deregulation move on October 1 will be. I believe that somewhere in the Bluebook or Greenbook there was an indication from the staff that there was not going to be as much hype in advertising for these new instruments as there was before. We don't expect it to be very extensive in Atlanta or in the Southeast, but we do think that it's going to take off to some extent--that there is going to be more advertising and more attempts to draw funds through these instruments into the banks and the S&Ls. Tourism is showing some signs of ebbing particularly in central Florida, and in the Miami area the tourist industry is a disaster. They are doing very badly and that's true not only in Miami Beach and Miami but in Dade County generally. If we had some concerns to express--where we would differ from the staff estimate--it would be on the up side. We think that perhaps there has been some underestimation of the strength of the economy. That is certainly true in our area; we get people talking about this quite a lot in our section of the country. After all, throughout this third-quarter period we did have some strikes, such as the AT&T strike, which I think had an effect on the economy. We had the hurricane in some parts of the country. I think we have to take that into account. So, we would be a little concerned that the third-quarter number is perhaps on the low side and might be revised upward. There is considerable concern in our District, as I'm sure there is in other Districts, about the [federal budget] deficit, and there's a great deal of concern in the export-related industries about the strength of the dollar. Interestingly, inflation in two of our major cities, Atlanta and Miami, is running about 1.3 to 1.4 percentage point above the national average, so that's a concern. Because of already existing inflation in those cities and the threat of increased food prices as a result of the drought, we see some pressure on prices. One other thing I might mention is related to industrial production and capital expansion. Some of the contacts we've had with industrial development agencies around the District indicate to us that a lot of the capital expansion is being designed to improve existing productivity rather than to meet additional product demand. And finally, Mr. Chairman, there is a good deal of concern in Atlanta and Miami about the Eastern [Airlines] situation. Governor Martin's remark about concessionary bargaining certainly bears on this. This is a good example of the union leaders not being supported by their own people. I'm not sure they're in the old man/old lady category but the flight attendants, for example, are now coming forward and indicating that perhaps they would rather have wage concessions than have Eastern go under. In other words, they are tending to believe management rather than their own union.",912
-fomc-corpus,1983,"I thought the indication was that that was non-union people. MR, FORRESTAL. No, the flight attendants are unionized. And they have been mounting a petition in both those cities, Atlanta and Miami, to accept some form of wage concession. They are saying Frank Bowman ought to be believed that the losses are going to be extensive, and it's better to have a 15 percent pay cut than no job. Where the pilots and the others in that company are, I'm not sure. Obviously, the effect of anything happening to Eastern would be devastating in our part of the country because Eastern and Delta account for about 90 percent of all traffic out of Atlanta's airport. So, we're watching that situation pretty carefully.",146
-fomc-corpus,1983,Mr. Morris.,4
-fomc-corpus,1983,"Well, Mr. Chairman, I've been looking for some signs of crowding out in the staff projections; I don't see any through 1984. Presumably, if nothing is done on the budget deficit, we will reach a point where the total demand for credit is going to require some reduction in housing, but apparently that is not going to take place in 1984. I assume it's because the corporate financing gap, which is projected to be negative this year, is very small next year. Have you attempted to calculate when this day of reckoning is going to be if it's not in 1984?",123
-fomc-corpus,1983,"Let me interject a question or a comment. I don't understand this ""either/or"" crowding out theory. It seems to me that interest rates are relatively high and that the deficit is relatively high and there's already crowding out in some sense [unintelligible] more investment and more housing.",61
-fomc-corpus,1983,"Well, what I meant is the level of crowding out that would require a substantial reduction in housing from the current level.",25
-fomc-corpus,1983,Their projection shows a reduction in housing.,8
-fomc-corpus,1983,They show 1.8 million starts in the last quarter of '84.,16
-fomc-corpus,1983,"Well, we don't have a good answer to your question. I would say that, from our point of view, interest rates are significantly higher now than they would be in the absence of a $200 billion average deficit on the part of the government. So, in that sense, clearly there is some degree of crowding out. You're quite correct in noting that what holds this forecast together in not seeing really bad things materializing early on in 1984 is a very strong business picture. That is, internal funds generation in the forecast is very strong; profits growth is very high. And investment, while growing, simply doesn't match what we're seeing on the business side. So, the combination really of the foreign sector--foreign inflows--plus business savings has been able to offset what would be more apparent crowding-out effects. You're right that in the forecast we don't see at this point a collapse in housing. [Housing demand] clearly is not growing much and it's lower than one might have expected otherwise. Consumer borrowing, I might note, is very strong in this forecast. Looking at this now, one of the problems, it seems to me, is that while we have reduced business borrowing--the negative financing gap--we have very strong consumer spending and consumer borrowing in this forecast.",258
-fomc-corpus,1983,"Isn't part of the answer that when we think about crowding out we have a mind set that goes back to the days of Regulation Q? And now, with interest rates largely deregulated, there isn't an abrupt point where funds just simply aren't available; it's a more gradual situation. I don't think we're going to see a fellow jump out of a box and say: I'm Mr. Crowding Out. It seems to me it's going to be much more gradual. Interest rates will be higher than they otherwise would be and there will be distortions in the mix of GNP; I think we have some of that right now.",126
-fomc-corpus,1983,"Mr. Chairman, I'd like to add to what Ed just said. I think there are some signs on the horizon already of this crowding out. It's true that housing starts nationally continued to go up in August, but in the state of Oregon, for example, there was no increased production of lumber even in the face of that. Sales were made out of fairly high levels of inventory at the plant level and at the retail level, and that's because they expect the corner to be turned in the near future. They look at such things as what is going on in the sales of new single-family homes, and in that area there were declines two months in a row--in July and August. The lumber industry feels that that becomes a harbinger of what is going to happen in the near future to housing starts. Once a housing start is under way, of course, [the builder] has to complete that house. So, even though the demand may be weakening in terms of ultimate purchases, housing starts continue to look solid for a while. But I think this indication that sales of new single-family homes are already starting to decline, down two months in a row, is a concrete sign that the squeeze is being put on that industry by high interest rates.",253
-fomc-corpus,1983,What has happened to lumber prices in the last few weeks?,12
-fomc-corpus,1983,They've been coming down.,6
-fomc-corpus,1983,"The answer is that they haven't looked into '85 far enough. Pretty clearly, the problem is going to come when the corporate financing gap starts to grow, and that means a counter-balancing decline in housing to permit that financing to take place. And the question is: When does that process start?",60
-fomc-corpus,1983,"Also, partly in support of Frank, over the next year we're projecting a slight decline in long-term interest rates. That would argue against any buildup of crowding out.",34
-fomc-corpus,1983,Are you speaking of long-term--?,8
-fomc-corpus,1983,We're projecting a decline in long-term interest rates of about 1/2 percentage point.,18
-fomc-corpus,1983,We vary quite a bit from Wojnilower and Kaufman.,13
-fomc-corpus,1983,"Let me ask whether the staff has gone through a hypothetical scenario that I tried to go through, very inconclusively. That is, next year we're probably going to be running a trade deficit of about $110 billion and a current account deficit of $70 or $80 billion. What happens if, notwithstanding the high level of interest rates, expectations regarding exchange rates change radically and we see the exchange rate falling substantially? That has implications of a reversal--a major reduction or a complete cessation--of net capital inflows. Now, what's the effect on interest rates? As we analyze it, there probably would be some upward movement, but there would be an improved differential in the dollar market against the Eurodollar market and there would be reflows from the Eurodollar market brought in by the banks. The composition of the capital movements would change substantially. The interest rate effect probably would be not too significant here at home and/or we would have a dramatic change in the exchange rate. But I want to be sure of this kind of analysis. If anybody on the staff wants to comment on what they think the impact, if any, would be from this on domestic interest rates, I'd be interested in hearing.",242
-fomc-corpus,1983,"Well, you might want to separate the question about what will happen as a natural course of events as distinguished from what might happen. I was, in fact, sitting here asking myself a slightly different question: What if the dollar declines more rapidly than we now anticipate in the forecast? That would tend to have an expansionary effect on the economy just because aggregate demand goes up. Once you get the impact of that larger decline on the current account, you are going to get an increase in aggregate demand in the economy. And through that mechanism alone, leaving aside the direct effect on prices, you're going to have some inflationary push. You might argue from that standpoint that there would be an induced increase in the average level of interest rates coming from the higher level of nominal income. Now, there is always the timing problem: The dollar initially falls and there's not going to be any change in the short run in the current account. So, whatever the net capital inflow is going to be, for a period the lags that most economists think are there will continue to be there. It might have some compositional effects. Whether it would take the form of flows through banks or inflows through the flow of funds, I'm not quite sure. Whether the intervention and purchase of government securities in itself through different channels will affect the general level of interest rates is a more difficult question to answer.",277
-fomc-corpus,1983,Can you see any clear effects on the monetary aggregates resulting from the changes in the composition of the flows?,21
-fomc-corpus,1983,"Whenever we're asked the question from Congress we tend to say no. I guess what you're saying is that there is a tendency for some magnitudes to rise more rapidly than others. Most of the research would suggest, at least for the United States, that the exchange rate is not an argument in the demand for money equation, so you have trouble getting it into there. Now, whether you get an effect from the nature of the flow, I think Mr. Axilrod might say that it would tend to be washed out by the operations of the Desk.",111
-fomc-corpus,1983,"The only thing I would add is that to the degree foreign private investors are less anxious to be in dollars and their dollar holdings that are in the money supply, like overnight Eurodollars, are replaced by foreign government purchases of U.S. Treasury securities--if that's the form of the capital inflow--then, of course, we get minor effects on M2 and M3. But they would be relatively minor, I would think. And they might be replaced by banks getting that money from domestic [sources].",103
-fomc-corpus,1983,"But again, Steve, I want to emphasize Ted's point about nominal income. I think there could be a very marked effect on nominal income mostly through higher prices, and interest rates could move quite a bit if we have a 30 percent drop, say, in the value of the dollar. I think it is a hazard, but it's more indirect than it is verifiable.",76
-fomc-corpus,1983,Mr. Boykin.,5
-fomc-corpus,1983,"Mr. Chairman, in the Eleventh District we are seeing the economy very much the way Jim outlined it. If there is a surprise, it is that [economic activity is] coming back a little stronger and probably a little faster than we had originally anticipated. In housing, of course, single-family housing is very strong, particularly in the Dallas/Fort Worth area and that's expected to continue; in multifamily housing, we're probably getting into a dangerously overbuilt situation. Our consumer sales are running along pretty well. In energy there seems to be a turnaround. In Texas, we had a 22 percent increase in rig count last month and in New Mexico a 20 percent increase. Of course, that was from very, very low levels; but there is activity in the oil patch again. In terms of [drilling] permits, in July we had about 2500 permits in Texas and in August we had 10,000. We attribute that to the fact that starting September 1 there was a $100 permit fee to drill a well versus $25, and apparently the people who drill oil wells worry about $75. I'd find it a bit surprising if that would really account for that large an increase. In agriculture, of course, the drought has been mentioned. It's a mixed situation; on balance in agriculture we still might have a fairly good year down our way. I guess it depends on whether you're east of the Pecos or west of the Pecos. Those west of the Pecos, particularly the cattlemen, are having some very, very severe difficulties. I was talking to and he told me he was taking a thousand head of cattle to market this week because he just didn't feel he could afford to feed them. He said he expected to get about $300 a head and what really upsets him is that when he goes back to restock next year he figures he will be paying $600 a head. I sympathize with him, but then he has 2,000 head east of the Pecos that he thinks he can try to get through the winter. As they say down there in the South: Some people lose a thousand head and the big boys really get hurt. So, we'll see how that turns out. In talking of the crowding out and whether we are looking past 1984 to 1985, I have a couple of comments I picked up last week: The conversation among home builders, particularly in Texas, is that they are going to be doing all they can for the rest of this year because 1985 is going to be a disaster in home building. That's the type of terminology they were using. Then, I was talking to the president of an electronics firm and he said [business] this year is better than anticipated. Their plans call for a very good 1984, but they don't know how to plan for 1985. They are very, very concerned. So, the overall sentiment seems to be that things are going along well, the economy is coming back, and this will continue through 1984. But the very real question mark seems to be what 1985 is going to be.",639
-fomc-corpus,1983,Mr. Keehn.,5
-fomc-corpus,1983,"I want to add that I think a recurring theme on capital goods--certainly in the fundamental heavy capital goods industry--in the Middle West is that the situation seems to be very slow. I think the decline is beginning to level out somewhat but at a very, very low level. At this point, there is no discernible improvement. Some of the people who are directly involved in these companies are beginning to think the recovery may pass them by altogether. As people see increasing comments about a recession in '85 and '86, I think there is some concern that they won't actually experience a pickup in the heavy capital goods side. As a consequence, they are beginning to focus on interest rates. Nancy Teeters was in Milwaukee a week or so ago and we heard a lot about interest rates there. I think they really do feel that if we can get rates down, we could sustain a recovery that would bring some improvement on the capital goods side. But that continues to be very slow to move up.",201
-fomc-corpus,1983,"You're not suggesting that we call that ""crowding out.""",12
-fomc-corpus,1983,Not quite yet.,4
-fomc-corpus,1983,Mr. Corrigan.,5
-fomc-corpus,1983,"Mr. Chairman, in terms of the economic situation and the commentary that one picks up, at least as you move away from Wall Street and Constitution Avenue, the thing that has struck me most of all in the past month or two is the extent to which the overall international situation has crept into Main Street. Some of that grows out of the LDC debt problem situation and the IMF legislation. It's truly incredible to me how much attention the subject of the IMF legislation gets in places where I would not have expected it. It's quite astonishing. But I think beneath it what perhaps is really going on is the extent to which our trade account, our exports and imports both, really is having a perceptible impact on people in ways that are quite new to them. At our last meeting one of our directors told a story that I think in some way captures this best. It was quite obvious as he was talking that they have had an informal policy to buy American for a long time. I think he said that they historically have bought everything by way of equipment that they use from an outfit down in your District. They had to replace a single piece of machinery that he described as a $900,000 piece of equipment. They put it out for bid and got the bid back from their customary supplier for $900,000. But they got a bid from a German firm for $500,000. Obviously, the difference between $500,000 and $900,000 had crossed the threshold point where this outfit could live with their informal buy American policy. If I am reading the tea leaves right, I don't think that situation, while it's obviously just one anecdotal case in point, is unrepresentative of what is going on. Indeed, when you talk about the capital goods industry in the fourth quarter in the Seventh District, I just wonder to what extent this phenomenon at the margin may be making a very, very big difference in terms of what they are seeing versus what they might normally expect to see. And certainly this is also true in the agricultural sector, both in terms of exports of agricultural goods and in terms of imports of agricultural machinery; it's hitting on both sides. I don't know what it means but Karen Horn mentioned it: I do think that it begins to get the smell of a very perceptible but creeping element of protectionism that is now out there in a way that I have not seen it. I don't know what it means beyond that, but it is something clearly different in terms of attitudes and commentary about the economy and the financial system. On inflation and concessions and all that, I am inclined to the view, at least for the moment, that bankruptcies even when they're quite removed from a particular situation--whether they're in the airline industry or piano manufacturers who have decided to get into the financial business--are still having an effect on wage behavior that's fairly pervasive. But I am not at all sanguine that the wage situation couldn't turn around very quickly in the context of these substantial cash flows and profits that are being generated by the business sector in general. On agricultural prices, the fellows in our Bank who look at that agree with Mr. Kichline that we're looking at [increases of] 7 or 8 percent. Some of our directors who are involved in the agriculture business are on the low side of that. The commentary we get from them rather forcefully suggests that most of the official forecasts, including the Agriculture Department's own forecast, have not adequately taken into account the manner and way in which the PIK program is going to free up very substantial quantities of inventory that have to go into the marketplace. By and large our directors who are involved in agriculture have a more optimistic outlook in terms of the inflation in agricultural prices, although in some cases it may be more pessimistic from their own self interest point of view. Abstracting from this overall international thing, my own view continues to be that in the near term--and by that I mean out, say, to the middle of 1984 anyway--the risks or dangers or whatever you want to call them are on the up side. What that really means in the context of Frank Morris' question--I think he was questioning when crowding out really will become a problem as opposed to the kind of problem it is now--is that it is probably going to be sooner rather than later. And, that's about it.",884
-fomc-corpus,1983,Mr. Black.,4
-fomc-corpus,1983,"The press has been devoting a great deal of attention to discussing the possible slowdown occurring in the economy. But as we've gone around the table here, I think Jim Kichline and others have captured this very well with regard to the straws in the wind, which leads me to think that this a pretty normal, healthy sort of recovery and one that still doesn't need an undue [effort] on our part to prop it up. It looks as if the recovery is moving into a more mature stage now, and even abstracting from the shortage in automobile inventories and the elimination of some of the sales rebates, I think consumer spending has slowed some and housing has clearly slowed a great deal and probably will slow more. But now we are moving into the stage where I would think that inventory rebuilding and some expansion in capital expenditures would begin to assume part of that role. Really, the only weak thing of any significance that I see in the economy is the export sector. Even that looks a little better in that we have more signs of a pickup abroad now than we had maybe a month or so ago. I think we are in pretty good shape. I do agree with Jerry that there is a growth in protectionism in places we never expected to see, and I share his fear that these wage pressures are going to mount before we expect them to, although they do look darn good at the present time.",281
-fomc-corpus,1983,Mr. Roberts.,4
-fomc-corpus,1983,"I don't want to repeat what has been said. I'd like to associate our District viewpoint with the staff view except to say that we think the '84 prospects are probably for a little less real growth and a little more price pressure. I have a couple of comments from our District that might be of interest to you: Auto production is going up very well. Chrysler has added [unintelligible] employees in the last two weeks. Chrysler, Ford, and General Motors are all in the expansion phase of their production in the District. They seem to be very optimistic about future sales potential, particularly for large cars, which is where they have shortages that are affecting their sales at the moment. GM has put an enormous amount of money into a new plant in Wentzville, west of St. Louis, and has yet to produce a car. These are front wheel drive cars and GM is having some difficulty with their quality but they are expected to come on line soon. head of a major independent oil company that he's reasonably sanguine about the outlook for energy prices, even in the face of a probable disruption of supplies from the Middle East, because of the large amount of indicated shut-in production. He said that for the first time there's enough shut-in production outside the Gulf states to offset essentially anything that could happen in the way of reduced supplies from [the Middle East]. I had the principal homebuilders in our area in for lunch recently and they classified themselves as a hardy group of survivors. They certainly were guarded in their optimism and made comments about the distortions in the national figures on home building that really should be related to areas such as Dallas and conceal more difficult marketing problems in mature areas such as St. Louis. But they then went on individually, almost without exception, to speak of their recent land purchases and their plans for expanded building over the balance of this year and next year. They said home prices are up about 6 to 8 percent from a year ago and that, admittedly, there had been some pressures on them a year ago but not a whole lot. They didn't sell much but when they sold something the price hadn't been down. There is concern about rising materials costs, notwithstanding the indicated drop in the cost of lumber; several of them mentioned that the sharply higher cost of lumber was affecting them. Overall, I'd say the expansion continues in our District, but we are getting a few more downs than ups for a while, and the agricultural area remains severely depressed from the effects of the drought.",503
-fomc-corpus,1983,Could I just ask why you expect increased pressure on prices?,12
-fomc-corpus,1983,"Well, I suppose we are concerned about the buildup in liquidity in the economy and the lag effect we expect to be associated with that.",27
-fomc-corpus,1983,Governor Gramley.,4
-fomc-corpus,1983,"Mr. Chairman, there are two things that worry me about the staff forecast. One is that it is so similar to a wide variety of forecasts that exist in the private sector. The staff provided us with the usual summary of forecasts that they follow--Chase, Wharton, DRI and Merrill Lynch--and it's amazing how close everybody is. Real growth next year ranges from 4.2 to 4.7 percent; inflation rates measured by the deflator are somewhat higher than the staff's forecast but are very uniform at a little over 5 percent; everybody expects the unemployment rate to drop to somewhere around 8-1/4 percent by the end of 1984; and interest rates are expected to stay about where they are or maybe go up a little, but certainly not very much by the standards we've seen in recent years. You know, when everybody forecasts the same thing, something is bound to be wrong. There has to be something coming along that we have not foreseen. The second thing that worries me is that the outlook seems just too good to be true. And if I could lay out the way I want it or what can reasonably be hoped for in terms of a course of economic and financial development next year, what I would hope for is a growth rate that slows down to the range of 4 to 5 percent--enough to make further progress on unemployment and not so rapid a growth rate to generate any unusual inflationary pressures. I'd want a combination of developments that keeps interest rates about where they are or going down a little, pushing off any serious crowding out problem until 1985 and beyond. I've listened to the comments around the table as to which way the risks go, and the sentiment tends to be that the risks may be on the up side. I've asked myself [that question] and I would assess the risks as fairly well balanced. But I would agree that the thing we ought to worry about most from the standpoint of policy is not that we will get a weaker economy but that we will get a stronger one with more inflation. If we get a weaker economy, my feeling would be that we have enough pent up demand for housing and for consumer durable goods that, with a moderate decline in interest rates which certainly would not be unwelcome, we could keep the recovery going. But if we got a considerably stronger recovery and more inflation and began to get significant pressures in credit markets with money growing very rapidly, we would have to resist. Then we would have significant problems. So, really, I hope things work just the way the staff forecasts. But what I worry about most is that the recovery might be stronger with more inflation later on.",543
-fomc-corpus,1983,"I want to go back to Frank Morris' question because I think we are beginning to see some evidence of crowding out and I think we see it in interest rates. The table on page 5 of the [Greenbook] supplement shows that the federal funds rate has gone up 56 basis points since its recent low in May, and the longer-term Treasury securities--the 3-year, 10-year, and 30-year Treasuries--have gone up 2 to 3 times the change in the short-term rates. Then we see the decline of 37 basis points in the fed funds rate since the last FOMC meeting and almost no decline at all in the rates on longer-term securities. So, I think we're seeing the crowding out in terms of the increase in long-term rates. And those longer-term rates may be crucial to getting the type of recovery that the staff forecasts. That hits housing and it hits capital goods. And it may be that that's what will show up as the crowding out. You also remember that in the July/August refunding the Treasury had quite a bit of trouble selling longer-term issues, and the rates had to go up in order [for the market] to digest those issues. So, I think we're seeing a new form [of crowding out]--one that hasn't been recognized before.",275
-fomc-corpus,1983,"Thank you, Mr. Chairman. The report in the Tenth District is not unlike others that have been given around the table. That is, retail sales have remained fairly vigorous; the agricultural sector is under some pressure although I would note that in our District it involves only the corn and soybean crops whereas wheat has not been affected since it was harvested before the drought really hit. On the other hand, the PIK program has maintained liquidity within the financial system that finances the agricultural sector. Perhaps the greatest impact would be on those suppliers to the agricultural sector--I'm talking about farm machinery and other manufacturers who are doing no business now and do not expect to into the next year. Energy, mining, and housing, of course, are very much as has been described in other Districts. I was interested in Governor Gramley's comments because I agree that [the forecast] is almost too good to be true. I disagree only with his last comment in that I think the risks may be on the down side instead of the up side. I too would hate to see a lot of vigor show up in 1984 because it would present the problem that he described. By the same token this forecast seems to me to be largely based upon two or three assumptions: that consumer spending will remain very vigorous; that capital spending will come on very early in 1984; and, lastly, that the dollar will decline and thus improve somewhat the export market and our balance of trade problem. We have seen the saving rate return to the 5 percent level; if that were to continue or go up to some level closer to historical experience, then I assume that consumer retail purchases would be muted somewhat. Similarly, fixed investment may not come on. It appears that there may be a change in the way companies plan their fixed investment. That is, if I understand it correctly, it used to be that we would see fixed capital investment coming on [stream] at a utilization rate in the area of 80 to 85 percent. It seems to me that [business executives] are much more cautious now, having come out of a three-year recessionary experience, and are not going to be as quick to make those capital commitments. Lastly, as to the dollar, the staff--and I think everybody--has been expecting a dollar decline over the last year, and it really hasn't happened. I just note that part of the forecast is based upon agricultural export levels that our people judge will not be achieved either in 1983 or 1984. They are looking at an annual export level of about $36-$37 billion in 1983 and I think the USDA just announced a figure of roughly $34-1/2 billion. Now, that [difference] is not big in magnitude but for 1984 I think the staff is projecting an agricultural export number of about $40 billion and our people think that it likely would be in the $35 billion range or thereabouts. And it is going in the wrong direction, which is one point that I want to make. I like what I see but I would suggest that the risks may be on the down side rather than the up side. I don't think that suggests anything in terms of action by the Federal Open Market Committee at this meeting, but I'm not sure that all is as good as it may appear.",672
-fomc-corpus,1983,Mr. Balles.,5
-fomc-corpus,1983,"Well, things do seem to be going very well overall. And yet in the spirit in which Lyle Gramley raised the question, I wonder: Is Murphy's law--Murphy's law being that if something can go wrong, it will--going to operate? I travelled around 5 Pacific Basin countries in the last month and one of the questions that kept recurring very frequently--to which, admittedly, I didn't know the answer--was: Are we going to get through this next 12 to 18 months without some sort of a major financial backlash or crisis as a result of the LDC international debt problem? And for those of us who weren't around at the IMF meeting I just wonder, Mr. Chairman, if you or someone else can fill us in on what seems to be the picture with regard especially to the manageability of the international debt position of particular countries south of the border.",181
-fomc-corpus,1983,"Why don't I defer that until we get through this go-around on the business situation, and I'll be glad to address it.",25
-fomc-corpus,1983,"Mr. Chairman, I'd just like to make a comment on the international value of the dollar. I was rather startled yesterday to learn that the forecast has a 15 percent depreciation in the value of the dollar and that depreciation only stabilizes the deficit.",50
-fomc-corpus,1983,"Well, we do get a bigger impact in 1985. It's probably a difference of about $6 billion in 1984, which would be relatively modest. If you make an assumption of a substantially--",42
-fomc-corpus,1983,"What do you mean by ""substantially,"" Tony, 30 percent?",16
-fomc-corpus,1983,"Well, let's say 25 to 30 percent as against 15 percent. I think it would give you only about a $6 billion improvement in 1984 but the improvement is much, much larger in 1985.",46
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Well, as we said yesterday, Governor Teeters, it depends a lot on what you assume as you go out [in time] about how growth is proceeding here and abroad. If we continue with growth here at or above the average rate abroad, which is consistent with many forecasts, then you have to catch up with that. That's basically the reason why that 15 percent depreciation doesn't give us much more than stabilization as we go out. But if we return to a more normal--what one might perceive to be more normal--cyclical position, it would involve probably having faster growth in foreign countries than here. Then we would need less of a further depreciation in order to bring the current account deficit down substantially.",144
-fomc-corpus,1983,Governor Wallich.,4
-fomc-corpus,1983,"It's hard to make a coherent case one way or the other that differs from the staff position. I would say that the staff forecast differs [from other forecasts] in one significant respect: namely, that it has lower inflation. If it has lower inflation, then given interest rates that are somewhat similar to what other forecasters have, we would have a higher real interest rate. I don't know to what extent that in turn enters into the projection of investment spending. But as for the present level of investment spending, as has been pointed out, it's very bad in the heavy capital goods area. I think overall we can't say that the business fixed investment is bad. On the contrary, it seems to be a little larger than it has been in other expansions. Evidently, there's a great shift in the nature of the investment away from the smoke-stack type goods that one observes in the middle of the country to high technology-type equipment. But secondly, and this was very interesting, maybe the heavy equipment area is additionally hit by the large current account deficit--that is, the weakness in our trade balance which, of course, takes the form of imports of things from abroad that we didn't usually import previously. I think the net export area is really the greatest [source of] weakness in the economy. If we didn't have that, we would have a much stronger expansion. I'm concerned in the same area as Nancy is but maybe about the opposite things. Suppose that the dollar does not go down as projected and as has been projected many times by now. In that case, of course, that gap in the trade balance becomes worse. Now, I agree that we're subject to the possibility of shocks from the developing countries or from wage developments, perhaps incited by large profits. These things are unpredictable. We're getting into the area where professional economists tend to see a lack of demand over the horizon. As far as one can see, things are not too bad. Beyond that, one can't tell what is going to keep the economy going. I would say that this is probably an economic recovery cyclically like all others. If it lasts two years, it would have been short; if it lasts over three years, it would have been very good. And if we cannot see it clearly lasting longer than three years, that would not be a great surprise.",468
-fomc-corpus,1983,Governor Partee.,4
-fomc-corpus,1983,"Well, I agree with the staff forecast. I think it's very plausible. I usually have something to point out but now that they have the saving rate up some I don't have any complaint at all with it. And it has even occurred to me that the forecast could be right, Lyle. I really don't see anything in the domestic economy that would be terribly upsetting. Possibly something could come out of this Eastern [Airlines] situation and we could get a lot of labor distress and a lot of stoppages in transportation. But that's a long reach. The really different thing about this projection compared to earlier ones is the big trade deficit. I would take it that the trade deficit is our maximum contribution to increasing the prosperity of the world economy because we're importing a lot and not exporting much. And I guess that's what we would want if we see a very weak growth economy. And we certainly do seem to see one. I've been amazed as I read both the New York reports and our own on country developments that there really hasn't been a strengthening around the world as I thought there would be as the summer went on. Indeed, [the world economy] is beginning to look a little weaker.",238
-fomc-corpus,1983,There's a disproportionately favorable impact on our trade from our large imports from Canada and Japan. There's a relatively small impact on Europe and--,26
-fomc-corpus,1983,"Well, Japan doesn't look particularly strong. And, of course, Canada still has 12-1/2 percent unemployment. So, I just don't see too much there. But I think if something is wrong with the forecast, it's in that area--some result of the very, very unusual trade deficit and the very unusual potential for a drop in the dollar. And that's going to upset the apple cart. I can't say what it is, but that's the area I would refer to as the most problematic.",102
-fomc-corpus,1983,Do you see these signs of slowing down abroad over the summer?,13
-fomc-corpus,1983,"We just got a revision in the German industrial production figure, which was adjusted in July. It went down not 0.9 but 2.8 percent. That's a--",36
-fomc-corpus,1983,"Italy, France, and England are often mentioned.",10
-fomc-corpus,1983,"In the United Kingdom, the action yesterday to drop interest rates by about 1/2 percentage point when their monetary aggregates are above target is interpreted as meaning that they, too, were seeing things weaker than they had hoped. And France and Italy have adjustment problems. So, there's not much over there.",61
-fomc-corpus,1983,"Of course, I've been sitting at meetings with these fellows and they told me for a week how good things were and that they were getting better.",29
-fomc-corpus,1983,"That's the line they've been taking. The Chancellor of the Exchequer told me that he thought [the UK economy] was going to be even better in the second half than in the first half, which most people are saying is not so.",49
-fomc-corpus,1983,A big increase in the GNP in Germany in the second quarter--,14
-fomc-corpus,1983,"Well, the best one can project, I would assume, would be 2 percent real growth in 1984 for the European community. And it may fall short of that. I think the biggest threat--and I know we'll get into that later--is not the export problem that we're having in our current account deficit but something probably happening in the LDC indebtedness situation that will trigger some major ripple effects around the world.",86
-fomc-corpus,1983,"I'd certainly like to join in that [assessment], Tony. When you look at country after country and what they have agreed to under IMF constraints, in each case one can make the point that they have to solve their own problems--the deficit has to come down, and the subsidies, etc., etc. When one looks across the whole less developed world one wonders how they can increase their exports and how they can slash their imports--not just reduce them but cut them to the bone--and what happens after they cut them to bone. We have this whole section of the planet continuing to operate and jointly [trying to] solve their problems, and it seems to me that inevitably there are going to be great difficulties. And this Argentina thing is a very political action in appearance but there are great, great possibilities for disturbances arising out of that side of it.",171
-fomc-corpus,1983,Maybe we need a larger trade deficit.,8
-fomc-corpus,1983,Maybe we do.,4
-fomc-corpus,1983,From that point of view we need an easier monetary policy.,12
-fomc-corpus,1983,That's right. The best thing we can do for them is lower the interest rates.,17
-fomc-corpus,1983,"I agree, Pres, and that's why I raised that issue for some discussion here.",17
-fomc-corpus,1983,"When you look at the [projected] increase in our exports from the second quarter to the fourth quarter of 1984, given a 15 percent change [in the value of the dollar] and stipulating all these matters, but assuming that the IMF pattern will work, that we will get the [increase in IMF] quotas, and that we will get the $6 billion and another $7 billion in credits--. The assumptions are cumulative. They simply in my mind do not add up to a world recovery.",105
-fomc-corpus,1983,"Well, that's a pretty strong statement. I was about to say that I was struck by everybody's optimism around the table. Now you tell me there's no world recovery. It seems to me that the business news has been quite mixed recently and everybody is perfectly willing--maybe with your exception--to look through this and say [the economy] is really very good or reasonably good and is going to continue. All the economists who can't see over the horizon are perfectly willing to see out to the next 18 months anyway--at least those around this table--and say that things are going to be fine, or orderly, or whatever. Now, I do think that has a bearing on our current policy decision. I'm not sure that the news is all that uniformly good statistically, but I hear a lot of optimism around the table on balance. And it may be right. I'm not arguing that it's wrong. That's just the conclusion I take from the discussion around the table: Ignore all these soft figures. People are feeling pretty good. But looking out into the future and questioning what can go wrong, I think a lot of things can go wrong, none of which can be easily incorporated into a forecast of the kind that the staff has to make. I would put this debt problem at the top of the list, and let me return to that. But let me just make a comment about the oil situation, just on the other side of Mr. Roberts' comment. If we really had a disturbance in the Middle East, which people worry about now in terms of the Iraq/Iran war getting more aggressive and involving an impairment of the oil flow from the Gulf area, I think it is true that, looking at the United States position alone, we import relatively little [from Iraq and Iran]. And one could say that if that supply were almost cut off, we could probably make up that gap relatively easily. I don't remember the exact figures but the Middle East still supplies 35 percent of the world's oil or something like that in exports.",407
-fomc-corpus,1983,"It's a little more than that, probably.",9
-fomc-corpus,1983,There would be tremendous shortages elsewhere in the world.,10
-fomc-corpus,1983,And our price--,4
-fomc-corpus,1983,"Activating shut-in capacity or whatever in the United States wouldn't make a dent in that situation and the price impact could be very large if it really happened in a major way. I think this is a completely unpredictable kind of event, but I don't think that we can consider ourselves [unintelligible].",61
-fomc-corpus,1983,"Paul, I think Bob Sweeney's projection went like this: If Iran and Iraq had no production at all, [the difference] from the decreased levels at which they now operate could be offset by shut-in production. He assumed that the Saudi production would be protected by the United States. That's the big difference here.",64
-fomc-corpus,1983,"Well, that may be if just Iran and Iraq went. That's a big assumption--whether it can be confined to them. I still think there might be a bit of a problem, but you're talking about a more manageable [situation]--not U.S. production, I don't think, but Mexican, Venezuelan, and Nigerian might get through--",71
-fomc-corpus,1983,And the fighting would spread into the Gulf and straight to--,12
-fomc-corpus,1983,"If they ever reach peace there, we'd probably have a surplus. I guess that's something one can't evaluate. This exchange rate problem and our export problem are all mixed together. As many people have said, it's a new ingredient. I don't know whether to worry more about the exchange rate remaining high or declining precipitously. I think either would give us very real problems. This wage situation is very uncertain in my mind; it depends upon psychology and expectations. I get ultimately buoyed up when I see some figures and ultimately discouraged when I analyze some [other] figures and the lack of any big adjustment, as I suggested earlier, in industries that have not been severely impacted by the recession--the financial industry and the utilities industry to name two. All of these things don't tell me very clearly what policy should be. But let me return to the debt issue for a moment. The bright spot there, of course, continues to be Mexico. Even there it has to be looked at with some degree of realism, I suppose. Their external financial condition is substantially better. They have a certain amount of cash; they haven't drawn upon all the bank loans they can draw upon. They will be in a position to go back to ask the banks for significantly less money next year, even assuming their imports rise. And they probably will get lower rates in the process. If everything else goes smoothly there, it will probably be a simpler process than it was last year. But at the same time, even looking at Mexico alone, there aren't many signs apparently of an increase in economic activity there. They're still at the bottom in terms of their own domestic business picture and they've had a more severe contraction than the program planned in the first place. It's not unlikely, I suppose, when you begin making a vigorous adjustment that it will go a little further than you estimated. That's part of the reason why they look so much better--fairly dramatically--externally. They have even fewer imports than they were assuming when they took the contractionary measures. Of course, we're feeling the other side of that in our trade picture. But still, I think one could say that they are in a position to [have] some expansion consistent with financial stability if nothing else goes wrong among their neighbors or elsewhere in the world. That prospect isn't exactly safe; we have had Brazil struggling for months and months. And partly because they have been struggling for so many months, I think the political support for a strong adjustment program has deteriorated within Brazil. They had a political setback a few weeks ago when the Congress reared up and rejected a wage law. That is of no substantive significance in itself, but the opposition demonstrated that it could reject the wage law and by implication that they intended to reject the wage law that is the centerpiece of the Brazilian program. Now, that--",567
-fomc-corpus,1983,How much longer does that have to run?,9
-fomc-corpus,1983,"Well, it has a month-and-a-half or so to run at the maximum. They might do it by avoiding a vote. There may be some maneuvering to have a vote and try to get it passed, but it's a very tenuous situation. Mainly because of that situation, I think the prospect of getting any short-term financing into Brazil has evaporated, and their arrears are getting bigger and bigger; and they have arrears of the kind that will produce nonperforming loans over the third quarter. I don't know if that's any disaster, but it will be an interesting psychological test of the market when banks have to report nonperforming Brazilian loans in some magnitude. On the other hand, we did manage to put together in principle a basic financing program for Brazil if they carry through on their adjustment program. That money wouldn't be available before the end of the year, but in principle the outlines of that--a combination of bank money and public money--are set to go forward. It will not go forward unless they carry through on the adjustment program, and that is very much in question. As I suggested, it may not go forward anyway because we still have a big problem of getting all the banks to join in. The lead banks have agreed in principle; they haven't gotten all the other banks to agree yet. But it's going to remain a quite tenuous situation. Argentina is in a particularly political period before an election. It has been mentioned that they already have taken actions that are inconsistent with their IMF program and it's a question as to how long they can be said to be in compliance with it. The actual specific tests of that program have not yet been violated, looking back, but it's virtually certain that they will be, looking forward. The [situation] has heated up internally in terms of negotiations with the banks to the point that they put the central bank governor in jail yesterday.",382
-fomc-corpus,1983,That ought to be an IMF compliance standard!,9
-fomc-corpus,1983,That's an unusual hazard.,5
-fomc-corpus,1983,It's indicative of the hazards that they run. I don't know [the details]; all I read was a newspaper report that he's too friendly with the foreign banks. But it is some indication of the difficulty of managing these programs.,45
-fomc-corpus,1983,Didn't a judge down there overturn one of the restructurings?,13
-fomc-corpus,1983,"Well, he made a constitutional ruling against one of the provisions; it had to do with a waiver of sovereignty as I understand. It says Argentina can't do that, and that's a point the banks have insisted upon in these arrangements. And apparently some more particular political incentives are operating on that judge as well. But, it is illustrative of the enormous problems that are both real in the terms that Governor Martin was talking about and political and organizational in terms of the number of people that have to get involved. This, for instance, was a judge in the southern part of Argentina. I don't think it was any great plot, but I think he is in opposition and is a radical fellow who apparently just acted on his own.",144
-fomc-corpus,1983,"Also, Gonzalez del Solar told me that [the judge] acted under the influence of the Argentine Air Force who are very powerful in the Terra del Fuego region where he is located. They are very militantly nationalistic and angry at the United States and Great Britain. Now on the other hand, [unintelligible] told del Solar before he got arrested that they seem to feel that the [unintelligible] Sandinista candidate as well as the radical candidate are both going to play this debt issue very moderately. That was the view as of a week ago. And he certainly didn't get arrested by those groups; he got arrested by--",132
-fomc-corpus,1983,"But look at the risks involved, as we discussed them.",12
-fomc-corpus,1983,"These are not the only countries involved. Some of the medium size countries in Latin America are not in good, though not in terrible shape. Chile, Peru, Equador--none of them is in good shape, but they maintain their equilibrium. Venezuela has been taken care of and an election is coming up, so it should be easier; but there are still very tense political pressures. And there are countries elsewhere in the world, notably the Philippines and Nigeria, that are on the verge of real problems. The Philippines situation is obviously complicated by their political problems on a large scale, quite apart from their economic problems. That makes it very difficult to deal with the economic problems. The risks [in this country] are at least as large as they have been and in my judgment may be larger. I don't know what the definition of crowding out is, but the only way I can see really important short-term relief--by short term I'm talking about a year or so--would be to have interest rates decidedly lower. The chances of having interest rates decidedly lower with the budget deficits of the magnitude that we are running do not seem self evident to me. Growth obviously is terribly important, but growth acts over a period of years. To get real leverage on their external flows in the short run, interest rates would act over a period of a year if we had a decided reduction in them. Because their debts are so big, Latin America I suppose would get $4 to $5 billion of debt relief if we had a couple percentage points reduction in interest rates. We would not get anything like that from the growth side in that kind of time period. Yet, it is hard to be optimistic that that is going to come about. I see nothing there but their continuing to hang on by their fingernails for the indefinite future. As for these special IMF programs, Governor Martin, I think it is worth saying--IMF or not--that the constraint is the shortage of finance. And if we didn't have an IMF, I suspect they would be involved in even more contractionary programs simply by force of circumstances if they were unable to raise the money abroad. So, it's a risky picture from that side.",442
-fomc-corpus,1983,"There is the view in the world--I'm not sure it would be so at this table--that if a major international financial problem is triggered, let's say, by Brazil or Argentina or something, that the Federal Reserve is basically the lender of last resort in the world. So much of the debt is dollar-denominated that a large part of the world, including France, would look to the Fed to ease monetary policy immediately and very drastically. I'll leave it at that, but I hear that.",99
-fomc-corpus,1983,"Yes, I've heard it too. The foreign--",10
-fomc-corpus,1983,Me too. It's very disturbing.,7
-fomc-corpus,1983,"In fact, one very distinguished member of the financial community told me that if Brazil were to announce a standstill or default, whatever you want to call it, that interest rates would immediately fall in the market in New York because everyone would expect that the Fed would have absolutely no alternative but to ease policy.",61
-fomc-corpus,1983,"If countries defaulted on interest, since the interest is more than what they've been borrowing, they would actually be able to import more, assuming that nothing else intervened. Our banks would not get their income and the consequences would be tremendous. But just in terms of what the picture is for them, they feel that they could import more if they stopped borrowing and paying the interest.",76
-fomc-corpus,1983,From whom?,3
-fomc-corpus,1983,"Yes, but that assumes that they can still get IMF help.",13
-fomc-corpus,1983,Do you think we'd deny them imports?,8
-fomc-corpus,1983,I'm asking--,3
-fomc-corpus,1983,"Well, I don't know. How would they get bridge financing for it? And if they move the cash to the United States, wouldn't the banks take it? It would be a very difficult period.",40
-fomc-corpus,1983,"Yes, sure. And the trade credits would stop and a lot of other things would stop. So, I think they'd have a real crisis on the import side.",33
-fomc-corpus,1983,"I think these countries have assumed that it would not be very easy or they wouldn't be trying as hard as they are. Brazil's vulnerability is clearly oil imports. If the oil imports dry up for two weeks, they're out of oil. That's not literally true in the sense that there is a little more stock than that. But considering what has to be kept in the pipeline and so forth, they'd be in real trouble.",84
-fomc-corpus,1983,And [there would be problems in] the flow of foodstuff and spare parts after a period in which the inflow of foodstuff and spare parts has been down. They already have cut their imports. Add on to that a difficulty of importing--,50
-fomc-corpus,1983,I tell them that too because I have to make a case. I just want to say to you that the case is not very convincing.,28
-fomc-corpus,1983,Not very convincing to whom?,6
-fomc-corpus,1983,"It's not very convincing to them that they would not in some sense be better off if they defaulted. They will have tremendous difficulties. They'd be sued; they'd be taken to court; planes and ships would be attached. Whether it would really become impossible to import, I don't know.",58
-fomc-corpus,1983,"I don't know either. But so far, they have not been willing to take the chance. That's what you can say. So far as the rest of the IMF meeting is concerned, let me say that there has been a lot of stuff in the newspapers. The tone, from where I saw it--and maybe I didn't see it all--was reasonably good. The United States took what was considered to be a very tough line specifically on some of these IMF issues. A lot of the rest of the world didn't like it much and certainly some of the developing countries didn't like it much. But there was a tendency to say that we had to do that because of the IMF legislation, so we got excused for a lot of things we ordinarily wouldn't be excused for, I suspect. There was a feeling, which I don't think is entirely true, that it was politically necessary in the United States. The people were quite happy that the President very strongly supported the IMF legislation in a very uncompromising way publicly--more strongly than he had before in a public statement of this sort. That was accepted at face value and thought to be very, very encouraging. There was a great deal of worry about whether we will in fact vote for the IMF package in the end and a lot of concern as to what would happen if that fails.",268
-fomc-corpus,1983,But he hasn't signed the letter?,7
-fomc-corpus,1983,He's presumably negotiating that letter. I don't know whether he will send it or not.,17
-fomc-corpus,1983,Send this to the--,5
-fomc-corpus,1983,Seventy.,3
-fomc-corpus,1983,Seventy?,3
-fomc-corpus,1983,Seventy times.,4
-fomc-corpus,1983,"How long are you going to talk, Mr. Axilrod?",14
-fomc-corpus,1983,15 to 20 minutes on this special presentation.,10
-fomc-corpus,1983,We'll let you talk for 15 to 20 minutes and then we'll have coffee.,17
-fomc-corpus,1983,"There's a package of material--charts on velocity, in which chart 1 is the Ml velocity--and I'll be referring to those charts. I'll be giving a special presentation on velocity without necessarily any implications for current policy. Mr. Chairman, I have no more than a very few comments on current policy, but I would delay making them if I--",70
-fomc-corpus,1983,I don't know what order you're going in. You're going to talk about velocity first and then current policy second?,22
-fomc-corpus,1983,"Yes, on velocity for around 15 to 20 minutes.",13
-fomc-corpus,1983,All right.,3
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,Satisfied?,2
-fomc-corpus,1983,I have a question. These velocities on chart 8 look a little different--maybe it's a difference in scale--than those on chart 1. Are they computed differently?,35
-fomc-corpus,1983,"No, I do have a lag in the middle panel on chart 1 and there is a scaling difference and they start in 1969.",29
-fomc-corpus,1983,"Chart 1 isn't lagged, is it?",10
-fomc-corpus,1983,"No, I don't have the lags in chart 1.",13
-fomc-corpus,1983,But it's on a four-quarter basis?,8
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,Four quarters on--,4
-fomc-corpus,1983,"No, they're both quarterly. They should be exactly the same except that it's lagged on one chart and contemporaneous on the other and I shortened the time period and put M2 and M3 down for reference.",43
-fomc-corpus,1983,The scales are a lot different.,7
-fomc-corpus,1983,There is a difference in scale but there should be no difference in the numbers.,16
-fomc-corpus,1983,"Mr. Chairman, I have a great respect for Steve's analysis. In fact, his report was so interesting that I wish to ask him if he would provide us with a copy of it so that we can study and digest it. Until I've had a chance to do that, I wouldn't want to make any immediate response or rejoinder other than to say that his conclusions leave us with a considerable dilemma. The bottom line on his conclusion--that it's premature to place much more weight on Ml at this time--is somewhat contrary to the paper that I distributed following our last FOMC meeting. The dilemma that I see is that the Board staff's response to our paper, which has not been circulated to the rest of you yet, pretty much agreed with the second major proposition in the paper that I distributed. Here's a quote from a paper from Steve that was prepared [by Board staff] and had to do with the fact that there is no discernible relationship in recent years between M2 and M3 on the one hand and future income on the other: ""Indeed, there does not appear to be any significant statistical relationship between M2 and nominal GNP."" So, perhaps it's appropriate to be cautious about saying that we can restore faith in M1 or put it up higher in priority in terms of our goals. But at the same time, let's not overlook the fact that we've been dealing with two other intermediate targets, M2 and M3, and putting more weight on those for quite a few months now. And I think all of us knew, or should have known, that there was darn little relationship between those two particular intermediate targets and the rest of the economy. So, M1 may be far from perfect but the alternatives are even worse. And that's the dilemma. Pending the chance to really cogitate and think about Steve's paper, I'd prefer to defer any other comments or rejoinder until I've had a chance to do that. But I congratulate him on the excellent work that he's done here.",403
-fomc-corpus,1983,"Mr. Chairman, may I make a comment? President Balles did refer to a staff paper which actually had been sent, of course, to your staff in the spirit of professional economic discussion. The bulk of it was the technical analysis of the econometric methods used in the estimating procedures. There was a small part of it in which the people went on to provide some tests about whether M1 or M2 would be better. I would not read those results--and I'm not sure that that paper would be circulated in exactly this way to the FOMC--as indicating in any way that Ml was good over the last year and a half. The part that you were referring to was a set of theoretical, not empirical, estimates of various kinds of elasticities and what one would have to have for Ml relative to M2 for M2 to be better. I think the econometric evidence that I referred to here does show that the prediction values of M2 and M3 were no better than M1 in predicting GNP in 1982. In 1983, from some perspectives perhaps it was a little better; it turned out quite well, maybe by accident, because on average M2 and M3 don't do as well as Ml. But M2 didn't miss the first-quarter and second-quarter predictions by [much]; on average, it was less than 1 percent at an annual rate. The [predictions] went far off in the third quarter because of the first-quarter distortion in M2. So, I think it's quite right that M2 and M3 didn't become better as Ml got worse, but they didn't get nearly as bad as Ml relative to their past experience in this particular period. This is a transition period.",350
-fomc-corpus,1983,"Well, if I may: I think we probably both agree, Steve--if you don't, say so--that the main reason for the precipitous drop in Ml velocity in '82 and the first part of '83 was a parallel decline that took place in both inflation and hence in interest rates. And bottom line, our expectation is--and admittedly this is a forecast and not yet a fact--that the slight improvement that we've seen in Ml velocity in the second and third quarters is about to become more than slight as we go into the fourth quarter. In fact, our forecast for M1 velocity in the fourth quarter is about a 4 percent increase. If we're right, and time will tell, we are really on the verge of Ml bouncing back to a point where it can be used and would be superior to M2 and M3. But, as I say, that remains to be seen.",182
-fomc-corpus,1983,"I find it difficult to rely on velocity as a measure of the usefulness of an aggregate because if velocity is variable but determined by factors that can be measured in relation to it, principally interest rates, then the demand function for that aggregate will be stable even though velocity is not. And it seems to me that we have to factor that in before we judge the aggregates. The demand function I guess is pretty standard in the profession but has lately been buried among researchers. And I think efforts should be directed toward getting a better grip on what is the right money demand function than on the stability of velocity.",119
-fomc-corpus,1983,"I would agree with that, Governor Wallich. In fact, one of the main thrusts of the paper that I distributed was that, in our view at least, demand for M1 has not been unstable in recent times--that what we witnessed in '82 and in the first part of '83 was not a shift in the demand for money but a movement along a given demand function as interest rates came down and people wanted more money. That's not the same as a shift in the demand for money; that's moving along a demand function. And therein, I guess, lies one of the differences in analysis between us and Steve.",127
-fomc-corpus,1983,"Well, I think Ml demand may be highly interest sensitive at this point. The alternative estimating methods can give you somewhat different results over the long run than obtained in your excellent staff paper. I wouldn't doubt that in this transition period Ml elasticity is a lot bigger because I think the NOW accounts have introduced that because of the ceiling rates and the related movement of market rates and ceiling rates. So, it appears we have that. The main point I was trying to make for the Committee was that if indeed it is true that the Ml demand is highly interest elastic--and I don't think it is over the long run though I think it may be now--to the degree that's true the value of Ml as a target, even if you can predict the demand, is reduced. It is not such a good target for you any more.",165
-fomc-corpus,1983,[Unintelligible.],6
-fomc-corpus,1983,"Then, when interest rates go down, because the economy is weaker than you have projected, you have to let money grow a lot faster than your target. So, it isn't serving the function of a fixed target.",43
-fomc-corpus,1983,You're back to targeting interest rates?,7
-fomc-corpus,1983,"Right. Intuitively, if there was no interest elasticity to money demand and income was weak, then you could hold this fixed target and income would be dragged back up. There would be a lot of interest rate variation. That gets to be the problem if money is as highly interest elastic as your paper makes out.",64
-fomc-corpus,1983,"Well, one of the things that I found fascinating about the technical paper that was distributed was that the Board's staff found fault with the way we had computed interest elasticity going back to the mid-1960s, but there seemed to be no disagreement in the two methods that your staff used leading toward a conclusion that interest elasticity had shown virtually no change. The interest elasticity of M1 has shown virtually no change following the introduction of NOW accounts in January of '81 and Super NOW accounts in January of '83. I was quite impressed by those flat lines. That was one of the things that we had concluded: that the introduction of NOWs changed interest elasticity.",133
-fomc-corpus,1983,I think there are some technical disputes.,8
-fomc-corpus,1983,"I think you have some disagreement there. Do you have 2 minutes on current policy, Mr. Axilrod?",24
-fomc-corpus,1983,"Well, Mr. Chairman, it's very brief since the aggregates are so comfortably within their ranges. We really had a hard time thinking of alternatives for the Committee to consider. Alternative B, of course, was based on current reserve conditions, which we've interpreted as borrowing centered around $650 million, and an associated funds rate probably around 9-1/4 to 9-1/2 percent. Alternatives A and C are somewhat easier and somewhat tighter, respectively. But even so, the degree of ease and tightening as presented there is not so much as to push the aggregates outside their long-run ranges; Ml, M2, and M3 remain within the ranges from now to the end of the year. The logic of presenting alternatives within our usual structure--where aiming at a higher money growth leads to lower interest rates and a lower money growth to higher interest rates--to my mind yields somewhat anomalous results under current circumstances unless there are vast differences in opinion about the staff outlook for the economy or about the demand for money. For instance, given the economic outlook, there is no apparent need to force money up or down in the ranges by significant changes--at least premeditated or fore-ordained changes--in reserve restraint or reserve paths. The question would seem to be more whether if money were moving up in the range, or even above it, the Committee would wish to tighten. And if money were moving down, would the Committee wish to ease and to what extent? It's somewhat opposite from the way the specs are presented and the logic of it. Given as much uncertainty as still prevails about the meaning of the aggregates that are the focus of policy, it seems to me that the answer to the policy question still involves an assessment of the economy and emerging financial conditions. Thus, the directive as structured at the last two meetings, with a sentence that in effect serves as a proviso--permitting reserve adjustments to faster or slower money growth depending on the economic outlook and financial conditions--seems appropriate assuming that whatever option is adopted is an option that keeps money growth comfortably within the range.",422
-fomc-corpus,1983,With that I think we ought to have a doughnut.,12
-fomc-corpus,1983,"You all heard Mr. Axilrod's opinion that the real question is what to do if these various aggregates begin going off track. The implication is that there isn't much to do at the moment. Although he didn't say it explicitly, I suppose that suggests some version of alternative B, which he interprets as no change for the moment, assuming nothing goes off track. I will raise that question anyway, as to whether that's a reasonable starting point.",90
-fomc-corpus,1983,"Mr. Chairman, I think that's a very good starting point and I would recommend that we pursue that path. My only concern would be that we not let the growth of the aggregates diminish from these suggested rates in October through December, which are well above where we've been recently.",55
-fomc-corpus,1983,"I think that's probably the question isn't it, Paul--whether they are going to snap back in the way projected?",23
-fomc-corpus,1983,"Well, I don't think we know. That's what Steve was saying: We have to get some guidance on what happens if indeed [monetary] growth either snaps back and goes above or goes below. Presumably, there would be some implication for moving and the rate of speed at which to move. How aggressively to move is a nice question. If we start where we are, which is at this peculiar $650 million borrowing level that we talk about but which has never been in existence--",99
-fomc-corpus,1983,In the past three weeks.,6
-fomc-corpus,1983,The fundamental borrowing level.,5
-fomc-corpus,1983,"What is going on in the market today, by the way?",13
-fomc-corpus,1983,The funds rate is firm at 9-1/2 or 9-5/8 percent--a slight improvement.,25
-fomc-corpus,1983,You're on track with $650 million now?,9
-fomc-corpus,1983,"Borrowings have been running closer to $1 billion this week. Banks may want more excess reserves than we're allowing for. Our projection has us slightly above the [reserve] path, which is staying put, and getting some RP withdrawal that will put us closer back to the path.",56
-fomc-corpus,1983,"Mr. Chairman, we had $647 million one week; and that was the week before we went to a $650 million [objective].",28
-fomc-corpus,1983,That's the week before we went?,7
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"Well, I don't want to speed you along faster than you want to go, but are we starting roughly where we are?",25
-fomc-corpus,1983,"May I ask a question about where we are? I understand the $650 million; I think I understand why we shoot at $650 million but don't hit it. But are we talking in terms of a federal funds rate of 9-1/4 percent as being what we think is roughly consistent with $650 million of borrowing or are we thinking of 9-1/2 percent as being consistent with it, or what?",87
-fomc-corpus,1983,"Well, 9-1/4 percent is what Mr. Axilrod says, but I don't consider that a vital part of the decision. I don't know exactly what [funds rate] is consistent with it down to the last quarter point.",51
-fomc-corpus,1983,"Borrowing since the last Committee meeting, as we said, varied between $650 million and $1.6 billion. And for practically all of that time the funds rate on a weekly average basis was within 5 or 6 basis points of 9-1/2 percent. Then one week it dropped to a little over 9 percent. So, the relationship has been quite loose.",79
-fomc-corpus,1983,"I think the best answer I could give to your question is that $650 million implemented over a period of time, with a reasonable excess reserve figure, would probably give you a federal funds rate averaging less than it has been averaging.",46
-fomc-corpus,1983,A little less.,4
-fomc-corpus,1983,Somewhat less; how much less I don't know.,11
-fomc-corpus,1983,"I liked your starting position better than the one you moved to subsequently, Mr. Chairman.",18
-fomc-corpus,1983,Did it change?,4
-fomc-corpus,1983,I'm not aware that it changed.,7
-fomc-corpus,1983,"I thought it did--just a tad, it seemed to me.",14
-fomc-corpus,1983,I'm talking about $650 million borrowing and using the specifications of alternative B.,15
-fomc-corpus,1983,That sounds fine to me.,6
-fomc-corpus,1983,Me too.,3
-fomc-corpus,1983,"It seems to me that the risks are probably more on the side of continued undershoots just because, looking back over this, if we get a string of undershoots we usually get them in a row; and if we get overshoots, we get overshoots in a row. It seems to me that we're more in the midst of a string of undershoots so, for no intellectual reason at all, my gut tells me that we probably have a little more chance for continued undershoots than we do overshoots.",110
-fomc-corpus,1983,The trouble with that is the undershoots end sometime.,12
-fomc-corpus,1983,They do end sometime.,5
-fomc-corpus,1983,"Well, I have no particular feeling on that one way or the other. But I do feel we have to discuss how we will react to either undershoots or overshoots. I'm only in stage one.",43
-fomc-corpus,1983,"My sense is that if we continue to get weakness, we ought to probe down with the borrowing. I don't have a problem with that. I would have a problem, however, if we suddenly got a lot of strength; I would not automatically want to probe up.",54
-fomc-corpus,1983,I think you're just a little ahead of the game. Let me come back to you and ask my original question: Do we want to deal with those questions that you're dealing with against the starting point of basically $650 million of borrowing?,47
-fomc-corpus,1983,I think that's the only thing to do.,9
-fomc-corpus,1983,"Well, that seems to represent the general feeling. Okay, Mr. Boehne, go ahead. Did you say if monetary growth falls short [of expectations], you want to react pretty quickly and if it goes above, you want to react more slowly?",52
-fomc-corpus,1983,That's basically right.,4
-fomc-corpus,1983,I don't agree with that. I would be evenhanded and I would react to an appreciable change in the aggregates in either direction.,28
-fomc-corpus,1983,"Well, I'd want to be evenhanded but I would want to try and interpret [the aggregates] in light of what was happening in the economy. If I saw a weak money number for October prospectively and a very strong set of September employment statistics, then I'd relax and let that happen. If, on the other hand, the money growth were strong in October and the September employment statistics came in very weak, then I'd want to go in the other direction. But I'd want to have a lot of input from thinking of where the economy is going.",112
-fomc-corpus,1983,"I think the fragility of the world debt situation is such that probing downward makes sense. I think that is the major risk to our recovery on a three-year basis; it's a major risk to the world's recovery; and it's a major risk to the financial institutions, particularly the commercial banking institutions in this country in terms of write-offs and their possible contraction of credit in a different sense than we use that term. Therefore, I would be very cautious in probing upward and quite willing to probe down.",99
-fomc-corpus,1983,"Let me just mention a descriptive point that bothers me a little, but it's going to be dealt with in the policy record. If we do begin as we just said--that we remain basically unchanged--presumably the directive will say we remain unchanged. The last directive said we remained unchanged. In theory, we have eased a shade since the last meeting but both directives say things are unchanged.",78
-fomc-corpus,1983,But we haven't--,4
-fomc-corpus,1983,"It all would be clear enough if the borrowings actually had been lower recently, but in fact they weren't. So we're saying we are remaining unchanged in a somewhat easier posture that isn't evident--",38
-fomc-corpus,1983,And may become so.,5
-fomc-corpus,1983,--to anybody who is not inside our heads. How do we explain this in the policy record?,20
-fomc-corpus,1983,"Well, we have to do the borrowings. We could say something like ""taking into account the somewhat lower reserve conditions."" We would say about where that level is.",34
-fomc-corpus,1983,What level? The trouble is the last figures right up to this meeting are higher in terms of borrowing.,21
-fomc-corpus,1983,We average them.,4
-fomc-corpus,1983,"Well, we say reserve conditions. I don't present this as a major substantive point; it's just a little something that has to be cleared up, and it's a little difficult because they--SPEAKER(?) How about ""maintain the somewhat easier tone.""",51
-fomc-corpus,1983,But it's within the tolerance limits of unchanged. That's [conveying] the point that we can still say unchanged even though there has been substantial--,30
-fomc-corpus,1983,"I'm not saying there is a substantive problem but I think there is a completeness-of-the-record problem. We have gone from--it wasn't much of a change--$800 million or something in borrowings in our minds to $650 million and it's all labeled as unchanged. And, in fact, the statistics went from $800 million to $1 billion in the last--",74
-fomc-corpus,1983,Weren't there a lot of quarter-end pressures in that?,13
-fomc-corpus,1983,I know why it happened. All I'm saying is that some clever writing--not clever in the pejorative sense--,24
-fomc-corpus,1983,"John Berry's article in The Washington Post, I think, goes in that direction. He quotes from the directive and says that the flexibility of how the Desk interprets ""maintaining the existing degree of restraint"" is becoming enormously wide.",47
-fomc-corpus,1983,He neglected the fact that the Desk checks with the Chairman.,12
-fomc-corpus,1983,"No, he didn't.",5
-fomc-corpus,1983,"Oh, it came through pretty clearly.",8
-fomc-corpus,1983,"But can we use the words ""decrease slightly""? If we got to $650 million, we would be down almost $300 million in the borrowing average for the month.",35
-fomc-corpus,1983,"We could say that, but that's a little misleading too in terms of our--",16
-fomc-corpus,1983,"How about ""maintain a slightly easier posture with respect...""",12
-fomc-corpus,1983,"The nice thing to say would be ""seeks to maintain the slightly easier posture implemented over recent weeks,"" but it wasn't implemented.",26
-fomc-corpus,1983,"How about ""intended for recent weeks""?",9
-fomc-corpus,1983,That's exactly what it is: maintain the slightly easier posture intended but not implemented.,16
-fomc-corpus,1983,"Well, we're quibbling about words now.",10
-fomc-corpus,1983,I didn't--,3
-fomc-corpus,1983,"I understand. In terms of the way this should hit the public later on, I think we'd be much better off if we said unchanged and then--",30
-fomc-corpus,1983,"Well, I just raised this because I think it needs some description in the policy record. It would not be in the directive itself unless somebody can think of very clever wording for the directive. But I diverted us from this other discussion. What I have are some views that if things come in weaker, we ease a little, if it's quite natural on the aggregates. And if things come in tighter we would be either reluctant or we'd be symmetrical, all depending upon the business situation.",96
-fomc-corpus,1983,And the international situation.,5
-fomc-corpus,1983,"Well, I happen to be depressed about the international situation; I think it has gotten increasingly fragile in the past couple of months. And the best thing we can do for them is to get lower interest rates. If we have the opportunity to lower them, I think we should do it. So, I would probe downward as much as possible and be reluctant to raise the rates.",76
-fomc-corpus,1983,We do have a meeting next month and one wonders whether anything is going to happen between now and then that we have to worry too much about.,29
-fomc-corpus,1983,"Well, if we continue operating as we did here, there is a certain degree to which the Chairman and the Desk and Steve are exercising a bit of discretion.",32
-fomc-corpus,1983,"All this is simple enough unless the business news diverges from the monetary aggregates news. If we have the kind of thing Lyle was talking about, all the [business] numbers would be coming in quite buoyantly but the monetary numbers could remain low for another month and we might be quite happy about that and not want to do anything. If the business news is mixed or weak and the aggregates are low, it's quite clear what we do; and vice versa, it's quite clear what we do. If we get these mixed signals from the two sides, it's a little more difficult.",117
-fomc-corpus,1983,Then you could handle that in a conference call. We could make a directive based on an existing understanding that if we get the kind of--,28
-fomc-corpus,1983,"We can't deal with every possible contingency here. We can have a call, but we can get some feel for the situation anyway.",26
-fomc-corpus,1983,"It's not meaningful, I think, for this short intermeeting period but how would the markets read this directive if we say ""maintain the existing degree of restraint"" and have the accompanying language for [moving] up and down [from that], when they see after the next meeting that the quarterly targets at least for M2 and M3 were raised at this particular meeting and [we say] nothing happened.",82
-fomc-corpus,1983,Have they?,3
-fomc-corpus,1983,"Well, they won't--",5
-fomc-corpus,1983,"The numbers we would put in here, I suppose--. Oh, the 1/2 percentage point [difference]. Suppose instead of saying 8-1/2 and 8-3/4 percent, we just say 8-1/2 percent [for M2 and M3] and 7 percent [for Ml].",69
-fomc-corpus,1983,"Well, to be sure, the two have gone up only 1/2 percentage point from the third quarter to the fourth quarter.",27
-fomc-corpus,1983,They're up 1/2 percentage point.,9
-fomc-corpus,1983,"But it [represents] some ease. My question, and maybe somebody can answer it, is: How would the market interpret that 30 days from now?",33
-fomc-corpus,1983,"The October 1st deregulation is enough almost to explain a 1/2 point, I would think.",23
-fomc-corpus,1983,I don't think they would pay any attention to a 1/2 point [difference].,18
-fomc-corpus,1983,"What they will pay more attention to is if they see the fed funds rate decline to below 9 percent in this period and then they see the release of a record that says ""maintain the existing degree of reserve restraint."" Then they would be surprised, possibly.",53
-fomc-corpus,1983,"No, if the money supply were low, I think they would say: Okay, you said if the money supply came in low, you'd ease a little.",32
-fomc-corpus,1983,"But if the money supply were still within the target but in the upper half, then I'm not sure they would understand that we were not being a little more secretive in easing. But I don't think it's a major point.",45
-fomc-corpus,1983,"Well, the staff projects pretty strong growth in the money supply; I wouldn't think it likely that the funds rate would drop by much. In both the market and the net borrowings, it seems to me to--",43
-fomc-corpus,1983,"Well, it depends on velocity.",7
-fomc-corpus,1983,"If the real economy were showing signs of weakening, even though the money supply was still in the upper half but within the range, it might still be a situation where we would do some easing. That's a mixed case.",44
-fomc-corpus,1983,That's even another combination--high money and a low economy.,12
-fomc-corpus,1983,It's not likely.,4
-fomc-corpus,1983,"The more I look at that first sentence the more it bothers me in terms of being misleading. I'm afraid the more accurate thing to say would be ""The Committee seeks in the short run to decrease slightly the degree of reserve restraint evident in the market in recent weeks.""",53
-fomc-corpus,1983,"Yes, that's the record.",6
-fomc-corpus,1983,Why not?,3
-fomc-corpus,1983,"Right. When you say ""reserve restraint"" are you talking about the funds rate or are you talking about net borrowed reserves or borrowings?",28
-fomc-corpus,1983,Net borrowed reserves or the borrowings.,8
-fomc-corpus,1983,It seems to me if we put out a directive--,11
-fomc-corpus,1983,We did have one whole week where net borrowed reserves came in less.,14
-fomc-corpus,1983,The month averages out as $450 million.,9
-fomc-corpus,1983,There were three recent weeks when the borrowing was about $700 million.,14
-fomc-corpus,1983,The lowest week was way back on September 9th when we had virtually--,16
-fomc-corpus,1983,"Well, let me look at these figures. Maybe it's not as bad as I thought it was. What are they? Read off the recent borrowings and the net borrowed figures.",36
-fomc-corpus,1983,"Adjustment plus seasonal borrowing for the August 24th week, which was the week of the meeting, was $1.1 billion; August 31st it was $1.2 billion. Then it was $757 million, $647 million, $1,589 million or $1.6 billion, and then this past week $739 million. And this week they're probably going to be somewhere around $800 or $850 million.",88
-fomc-corpus,1983,"All right. Now, what was [net borrowed]?",11
-fomc-corpus,1983,"The net borrowings, doing quick subtraction in my head, would be: $600 million August 24th; around $700 million August 31st; then close to zero; around $220 million; $1.3 billion; and last week $317 million.",55
-fomc-corpus,1983,And this week it should be what?,8
-fomc-corpus,1983,"Now, the market takes out the seasonal though. This week?",13
-fomc-corpus,1983,$300 million or so.,6
-fomc-corpus,1983,"This week we're aiming at $200 million. Yes, it's $450 million and $650 million, so probably we're very close to $200 million. We may hit it with higher borrowing or higher excess.",41
-fomc-corpus,1983,"Well, maybe that's not so bad. If you take out that one figure and give weight to net borrowed reserves, we have been distinctly lower than we were. I don't know when we were--",39
-fomc-corpus,1983,But take the monthly nets. It was +10 in May; -200 in June; -370 in July; -609 in August; and about -450 in September.,35
-fomc-corpus,1983,"Well, it's one month. But I guess we could almost say ""The Committee seeks in the short run to maintain the slightly lesser degree of reserve restraint achieved in recent weeks"" if [the numbers] come out [as expected] this week. We had two weeks, then, of a low net borrowed figure.",63
-fomc-corpus,1983,"The other fact, Mr. Chairman, is that in July nonborrowed reserves dropped about 0.3 percent and dropped 9 percent [in August]. In September, based on the data as of the end of last week, they will rise around 4 percent because there's a small drop in borrowing. So, the nonborrowed is turning up in September after dropping.",76
-fomc-corpus,1983,"I think it's ""sought in recent weeks.""",10
-fomc-corpus,1983,"I think that's right. Can we use the word ""sought"" in recent weeks instead of ""achieved""? That's exactly right; everything else would--",31
-fomc-corpus,1983,"Well, maybe we just say that and explain it in the [policy record].",16
-fomc-corpus,1983,The policy record can refer to the difficulties with the Treasury balances.,13
-fomc-corpus,1983,"Well, you could say ""the slight easing in reserve positions"" and point to the nonborrowed going up as was reflected mainly in drops in short rates other than the funds rate, which was affected by all these other things. Because the other short rates are down.",54
-fomc-corpus,1983,"Well, except right now as we're meeting the funds rate is quite high.",15
-fomc-corpus,1983,"No, I mean it was reflected in other short rates apart from the funds rates.",17
-fomc-corpus,1983,Now we're talking about rates.,6
-fomc-corpus,1983,Then we say we're aiming at those rates?,9
-fomc-corpus,1983,"No, I meant the easing in reserve conditions was reflected--",12
-fomc-corpus,1983,"I can't imagine that market participants would look at numbers like net borrowed reserves, borrowings, and the funds rate and decide that what we've been trying to do is to hit a target for net borrowed reserves. The numbers are all over the map, as are the borrowing figures. They saw the funds rate average 9.4, 9.4, 9.5, 9.5, 9.5, and 9.0 percent [in recent weeks]. And to say that market participants are going to look at what we say and then compare it with the borrowing numbers seems to me a little strange.",126
-fomc-corpus,1983,"Really, I'm not sure what you're saying. That one week screwed it up. Otherwise the borrowing number and the net borrowed both are distinctly lower than they were earlier.",33
-fomc-corpus,1983,"Yes, but they're all over the map. The range runs from $647 million to $1.6 billion on borrowings. And for net borrowed reserves it's from 0 to $1.3 billion.",42
-fomc-corpus,1983,"Yes, that one week--",6
-fomc-corpus,1983,"Well, it isn't just one week. Throw out that one week and now the range on borrowings goes from $647 million to $1.2 billion and on net borrowed reserves from 0 to $700 million.",44
-fomc-corpus,1983,The $1.2 billion goes back to the earlier period; that's before we moved. In the last five weeks there's only one week that's way out of line.,33
-fomc-corpus,1983,"Well, the net borrowed on a monthly basis reflects what we've done, if you average out the weeks.",21
-fomc-corpus,1983,"Could we put it this way? Could we say: ""The Committee seeks to maintain the existing degree of reserve restraint, compatible with the slight easing in market conditions in recent weeks.""",36
-fomc-corpus,1983,"That ""compatible with"" sounds like rate targeting.",10
-fomc-corpus,1983,Because we have seen some easing in market conditions.,10
-fomc-corpus,1983,"Yes, but I think the problem--",8
-fomc-corpus,1983,"I like the word ""maintain"" and I like the words ""slightly easier."" Any connective that makes it possible--",25
-fomc-corpus,1983,Anything that makes those reconcilable is all right with him!,13
-fomc-corpus,1983,"What we have written down here at the moment is: ""The Committee seeks in the short run to maintain the slightly lesser degree of reserve restraint sought in recent weeks.""",33
-fomc-corpus,1983,Should I put that down or will you change it?,11
-fomc-corpus,1983,Then we have to explain how we came to seek a different one than we said in the previous directive.,21
-fomc-corpus,1983,"I think what we've done is distinctly compatible with the previous directive, but I--",16
-fomc-corpus,1983,"Yes, because it's consistent with weak aggregates in the light of business conditions.",15
-fomc-corpus,1983,"Mr. Chairman, should we heed the Biblical passage ""Seek and ye shall find""?",17
-fomc-corpus,1983,"Eventually. [This wording] isn't perfect, but then--",12
-fomc-corpus,1983,"[Unintelligible] other interest rates in the markets generally, so why can't someone try to explain why--",23
-fomc-corpus,1983,I think by implication you're saying we are aiming at interest rates.,13
-fomc-corpus,1983,Mention rates and they think we're targeting rates. Mention M1 rebasing and they think we're targeting Ml.,21
-fomc-corpus,1983,"Well, we've mentioned enough different things in that length of time.",13
-fomc-corpus,1983,They might think it means the discount rate.,9
-fomc-corpus,1983,Anything we put in there is going to require some explanation.,12
-fomc-corpus,1983,But the policy record can explain that.,8
-fomc-corpus,1983,Sure.,2
-fomc-corpus,1983,"Really, it's not--",5
-fomc-corpus,1983,"Unless there's strong objection--I don't think we're talking about any substance in what we're trying to do here--I'll put in this language: ""The Committee seeks in the short run to maintain the slightly lesser degree of reserve restraint sought in recent weeks."" We'll explain in the policy record that we had problems with Treasury balances and the market was a little easier.",70
-fomc-corpus,1983,That's also consistent with what we would have done because of the way the aggregates came in from the--,20
-fomc-corpus,1983,"Yes, I don't think there's any trouble in rationalizing it with the previous directive.",17
-fomc-corpus,1983,There will be indicators of somewhat lesser reserve pressures on the net borrowed--,14
-fomc-corpus,1983,It is except for that one week.,8
-fomc-corpus,1983,"Yes, if we look at September and August on average, net borrowed is a little less than--",20
-fomc-corpus,1983,Okay. Who can add some enlightenment as to how we should react to contingencies?,17
-fomc-corpus,1983,"I'll just say symmetrically, Mr. Chairman.",11
-fomc-corpus,1983,"Paul, I'd like to support the proposition made by Governor Martin a little while ago that if we have a chance to probe toward a little lower rates, we should do so for the reasons he set forth, which I find not only cogent but very worrisome.",54
-fomc-corpus,1983,"There's a Catch-22 here, though. My concern, as I said before, is that, if anything, the economy may be stronger than the forecast and then inflation might be greater than the forecast. I think that way because in some ways the focus now should be 1984 rather than just the fourth quarter of 1983. Personally, I would be happier if we came out someplace closer to between ""C"" and ""B"" rather than ""B."" I think the Catch-22 is very important because if the economy is stronger and inflationary pressures are greater, then we get Frank Morris' collision sooner rather than later. And if that happens, we will not have helped the LDC problems; as a matter of fact, it works the other way. I get troubled by this whole argument that says that the solution to the LDC debt problem is [for us] to ease monetary policy. The real solution is beyond our control: It's a tighter fiscal policy. But I think there is some danger in overplaying that and ending up with just the results that we're trying to avoid.",221
-fomc-corpus,1983,"I agree with that to the extent that if we get too aggressive--and we're talking in a limited range here, I understand--and take too many risks of having the aggregates and the economy moving up on us, it may help to bring a little glimmer of hope to the LDCs for three weeks, but then we will put an arrow through their hearts.",74
-fomc-corpus,1983,"You know, Paul, I think this language in the next sentence is just perfect.",17
-fomc-corpus,1983,"Oh, I think the language covers it all right.",11
-fomc-corpus,1983,"The language, you notice, does not qualify less restraint but it does qualify more restraint by saying ""somewhat"" more restraint. And I think maybe that's a reasonable compromise.",35
-fomc-corpus,1983,I don't have any trouble with the language. I agree that the language in its general way covers what we're talking about. But it doesn't mention the international situation explicitly. I don't know whether that's wise anyway.,41
-fomc-corpus,1983,I don't either.,4
-fomc-corpus,1983,"Mr. Chairman, this dialogue here--",8
-fomc-corpus,1983,"There is the phrase ""other factors bearing on the business and inflation outlook.""",15
-fomc-corpus,1983,"Mr. Chairman, in terms of whether we probe one way or another, it is at least my sense that we would be probing toward a little lower rates only on the condition that the Ms come in somewhere outside the range shown in alternative B. If anyone was making a different proposal than that, I didn't understand it.",64
-fomc-corpus,1983,That was my understanding too.,6
-fomc-corpus,1983,"So, we aren't talking about making major overt moves to accelerate the rate of monetary growth, which I agree would be untoward. We'll never get to 1984 if we have a big LDC debt crisis in the fourth quarter of 1983. I think we have to deal with these things one at a time. I'm not talking about any extreme measures, but a shading in favor of easing a bit in the immediate future if we can, given the behavior of the aggregates.",98
-fomc-corpus,1983,Where is October [Ml] starting from in terms of the September level?,15
-fomc-corpus,1983,"The latest figure published for the 21st is just barely above the August level. On September 28th a further increase is what we would forecast and, for what it's worth, a rather strong increase on October 5th. There's some doubt about all that. But that would give you an October level well above--by about $5 billion--the September average level, which would suggest a strong October growth of a little over 10 percent.",91
-fomc-corpus,1983,Over 10 percent.,5
-fomc-corpus,1983,But we're not projecting that.,6
-fomc-corpus,1983,You had 6-1/2 percent.,10
-fomc-corpus,1983,Most of the forecasters don't believe it and the rest of the projections assume a drop after the October 5th week. But if that [unintelligible]--,35
-fomc-corpus,1983,"Let me give you a calculation, which you don't have. Given an assumption that the 28th is a little higher than the 21st, if you increased it by $1-1/2 billion a week in October, would it be over 7 percent?",55
-fomc-corpus,1983,"Yes, because $2.8 billion is 6-1/2 percent.",17
-fomc-corpus,1983,I think $1 billion a week--,8
-fomc-corpus,1983,That's the average.,4
-fomc-corpus,1983,"Yes, I'm sure it would be. I'd have to work it out.",15
-fomc-corpus,1983,That would be almost 10 percent.,8
-fomc-corpus,1983,"Yes, that would be very high.",8
-fomc-corpus,1983,"Well, it depends upon where you start. The average--",12
-fomc-corpus,1983,We'll just make the calculation.,6
-fomc-corpus,1983,"Mr. Chairman, if I may: There are an awful lot of uncertainties out there. And it would seem to me that the contingencies that might arise--for example, the LDC crisis or something like that--can be dealt with on a conference call and a special meeting of the Committee. But I really have two concerns. One is the strength of the economy. As I said before, we tend to see the economy growing more rapidly than perhaps other forecasters. The forecast for the second quarter was certainly not very accurate. It came in at 9.7 percent, appreciably above what people thought. So, that's a worry that I think we ought to have. The other concern to me is that [we ought not just] look at the growth of the monetary aggregates over the last couple of months alone but back up and look at what has been happening to monetary growth since August of 1982. In the period from August '82 to June '83 we had very rapid monetary growth. So, it seems to me when we're deliberating about a specific policy option, we have to take into account those two periods of time. Because the aggregates in the short term--and I guess even in the long term--are within the targets, there doesn't seem to be any particular need to have a more restrictive policy at this time. On the other hand, since we have had some accommodation--some ease in the monetary aggregates and some base drift, I might add, in rebasing--I think it would be premature to ease at this time. So, I would opt for a target somewhere between ""B"" and ""C."" If we did that, we would be able to come in somewhere near the middle of the range for Ml. If my numbers are right and if that kind of policy were followed, it seems to me that Ml growth would still not be restrictive over the long term. Ml could grow at a little over 6 percent from September to December and still reach the midpoint of the target range. That still would imply fourth quarter-to-fourth quarter growth of about 10.4 percent, so such a policy is still not restrictive in any sense. What it comes down to in my mind is that we ought to opt for a steady-as-you-go policy and not change policy at this time. And as I say, the contingencies that might arise can be dealt with specifically.",485
-fomc-corpus,1983,"But ""B"" already has the fourth quarter down to 5.6 percent, dependent upon December being at an 8 percent growth rate. I'd go the other way and say the risk is that it's going to be too tight.",47
-fomc-corpus,1983,"Well, I think we have decided on the $650 million, generally interpreted as $600 to $700 million.",23
-fomc-corpus,1983,"What does that mean, Mr. Chairman? Why set a range for borrowing at all?",18
-fomc-corpus,1983,"Well, sometimes strange things go on with excess reserves or otherwise.",13
-fomc-corpus,1983,It has no meaning. It's not a constraint up or down. We merely build the path on $650 million; I don't understand the range for the borrowing that we incorporated last time. To me it's meaningless. The policy that--,46
-fomc-corpus,1983,We use the range.,5
-fomc-corpus,1983,"Well, you start out at the midpoint of the range and that's the only thing you really use until there's some consultation that suggests that the aggregates are coming in differently [than expected] and then you drop the borrowing. The last time we set the range at $700 to $900 million and then we went to $650 million. And that wasn't a policy decision of this Committee; it was done in consultation with the Chairman. Why set a range?",90
-fomc-corpus,1983,"Let's be clear; there may be some confusion about it. My interpretation is that this directive says we ease if things are coming in low or we tighten if they're coming in high. I don't interpret that as staying within the range that was set, which is an operating--",54
-fomc-corpus,1983,"No, and that's my point. If it doesn't have any implication for staying within the range, why set a range?",24
-fomc-corpus,1983,"Well, it's not a big point to me. It doesn't make much difference, but sometimes we get in there and we ask: Shall we stick explicitly at $650 million this week when things are very tight and excess reserves are going to be high, or do we allow for a little higher excess reserves this week because that looks like what's going to happen? A little more borrowing or a little less is just fiddling around from week-to-week. I don't know whether it adds much; it's not a big deal one way or the other.",108
-fomc-corpus,1983,It gives you a little movement around the mean. I might remind you that we're talking about a number that is not even in the directive. So what difference does it make whether it's a point or if we think of it as being a range of $100 million?,53
-fomc-corpus,1983,"Well, would the path then also have a range of $100 million?",15
-fomc-corpus,1983,"If we use the individual weekly paths, they have a specific value over time.",16
-fomc-corpus,1983,"I have a distinction in my mind between a technical reaction to the patterns that are developing during the week, which has no real significance in terms of what we're aiming for, and whether we're really making a [policy] move, however small, because the aggregates are high or low. And it is meant to convey that. I don't care--we've operated both ways--whether we use a number or [a range]. It doesn't make much difference.",90
-fomc-corpus,1983,"As I understand it, part of that technical problem--the reason for that modest shift in the borrowing assumption--can be that the System suspects there's a miss in the projection because of some peculiar movement in the fed funds rate which doesn't seem to be explained, unless there is some--",56
-fomc-corpus,1983,"We'll do it anyway because we're always sitting there saying: Well, which way are we going to miss? Which way are we likely to miss this week and which way are we going to be most misleading if we miss? So, we lean a little one way or the other sometimes. And we do that whether we put down $650 million or whether we put down $600 to $700 million. That kind of gives the range for that, but it's not a big deal.",96
-fomc-corpus,1983,"Mr. Chairman, in answer to your question: If we were so unfortunate as to have those $1-1/2 billion [weekly] increases--you remember $1 billion is to the top of the range, 9 percent--",48
-fomc-corpus,1983,"It clearly goes higher than the range, depending on where you start.",14
-fomc-corpus,1983,"On the assumption that there's a further increase in the week of the 28th, it would get you 14 percent growth if it steadily grew $1-1/2 billion through the course of that month.",43
-fomc-corpus,1983,"It sounds as if even if it were $1 billion, the growth would be pretty high.",19
-fomc-corpus,1983,Oh yes. The latest week is right on the September average.,13
-fomc-corpus,1983,"The latest week is on it, so if the next week is up--.",16
-fomc-corpus,1983,"So if it's up, we're already above.",9
-fomc-corpus,1983,"We're not assuming that. You might say the fourth quarter we have there is consistent with what our local money market model would be projecting and roughly, not very far off, what the quarterly model would suggest. We've allowed for a bit of shift out of NOW accounts or demand deposits.",56
-fomc-corpus,1983,What about the broader aggregates? Are they starting low or high?,13
-fomc-corpus,1983,"I'd have to find that nonexistent sheet. I'd have to go through the same exercise. M2 has moved up steadily over the course of September, so that would be starting on the high side of the average. And similarly for M3. Roughly, the early October level that we're estimating is [unintelligible].",65
-fomc-corpus,1983,"Well, you're telling me the chances are that we're going to be starting a little on the high side on all these aggregates, which makes it sound to me as though the chances are that October may come in a little high rather than the opposite.",49
-fomc-corpus,1983,"We put M2 and M3 a little high, again just allowing for the brief effect of this deregulation. But our models suggest growth in nontransactions balances in the 9 to 10 percent area--not really exceptional on a monthly average basis.",51
-fomc-corpus,1983,Does this figure that you have in all these alternatives allow anything for deregulation?,16
-fomc-corpus,1983,"Well, as I was trying to say, in October we've allowed a little. We started allowing nothing and then after seeing some of the newspapers where there has been some advertising, in New York and other places like that, we've allowed some.",48
-fomc-corpus,1983,But only for M2 and M3?,9
-fomc-corpus,1983,"Well, we pushed down Ml a bit in [October], not much more than roughly 1/2 to 1 percentage point on our estimate in either case. It's a very small effect, but some effect.",43
-fomc-corpus,1983,"We could get pretty good growth in M2 and M3 in October. I guess that ought to be mentioned in the record as a minor effect. Well, I don't know whether we need to go any further. Unless somebody wants to change his or her mind, we're interpreting this in any event at around $650 million [in borrowing]. I don't much care whether we call it $600 to $700 million or around $650 million.",88
-fomc-corpus,1983,"Mr. Chairman, you did ask one question about how we would treat overshoots and undershoots and I said symmetrically. I wonder if everybody agreed that we ought to react as quickly to an undershoot as to an overshoot or vice versa.",53
-fomc-corpus,1983,I don't think they did.,6
-fomc-corpus,1983,I don't think they did either. There was a range of [views].,15
-fomc-corpus,1983,I don't.,3
-fomc-corpus,1983,"Yes, there was a range of views.",9
-fomc-corpus,1983,"But if you literally look at this language, I think it's not too bad.",16
-fomc-corpus,1983,The language sounds fine but the--,7
-fomc-corpus,1983,"Well, the language is more permissive on the down side than on the up side.",18
-fomc-corpus,1983,"Well, I didn't read it that way. In that case, it doesn't sound fine.",18
-fomc-corpus,1983,"Oh, yes.",4
-fomc-corpus,1983,"Oh yes, there's a modifier ""somewhat"" on the up side.",15
-fomc-corpus,1983,"""Somewhat"" is all we ever do between these [meetings] anyway.",17
-fomc-corpus,1983,"Well, it's just that little [nuance].",10
-fomc-corpus,1983,"Bob, have you learned--",6
-fomc-corpus,1983,That's pretty subtle.,4
-fomc-corpus,1983,You could underline it.,5
-fomc-corpus,1983,"I wouldn't wish to change the language, even though I believe in going much less symmetrically, to make it consistent. I think everybody reads into these changes in language much more than they ought to.",41
-fomc-corpus,1983,I said it originally in order to solicit Pres's support but now I've said it to elicit your support on the other side.,26
-fomc-corpus,1983,"Well, I'm not voting, obviously.",8
-fomc-corpus,1983,The only hesitancy I would have is that I would think we're more or less symmetrical but I would accept Governor Gramley's caveat that before we do anything we look and see whether the business picture tends to be consistent or inconsistent with the way the aggregates are going.,54
-fomc-corpus,1983,"Well, that's clearly true.",6
-fomc-corpus,1983,"Yes, that explains it.",6
-fomc-corpus,1983,"Also, we should look at incoming information on the distortions that the deregulation might have on the aggregates.",22
-fomc-corpus,1983,"Well, that's a new thought.",7
-fomc-corpus,1983,We don't really expect it to be enough to bother to put that in.,15
-fomc-corpus,1983,"I think we are probably covered on that if we make some mention in the policy record that we expect a small effect in the next few weeks but we don't expect it to amount to much. If we decided it mattered a heck of a lot, we would take it into account.",56
-fomc-corpus,1983,We were so accurate on the MMDAs!,10
-fomc-corpus,1983,"I would come out on the side of being a bit asymmetrical in the sense of not reacting to higher growth of the aggregates during this upcoming intermeeting period simply because the projections indicate that we're going to be within the long-run ranges unless the aggregates just explode on us. Then I think we'd have a conference call and do something about it. The other point is that we do have a federal funds target range of 6 to 10 percent and we're in the upper part of that already. And as a result, that range would not let us react to strong growth really as quickly as we could, it seems to me, if the aggregates came in somewhat lower. So, I would not react aggressively on the up side, if at all, but I would be more inclined to react in this intermeeting period on the down side if we saw the aggregates coming in a lot lower.",177
-fomc-corpus,1983,"Mr. Chairman, a further technical clarification on M2: That nonexistent kind of weekly M2 has not been rising as fast in the most recent weeks relative to a normative weekly growth as Ml. So, if after the week of the 28th it grew at a rate which if sustained over time would give you 10 percent for a year, it would give you an October of around 9 percent. So, it's not biased as much toward an upward thrust in October.",96
-fomc-corpus,1983,"I think we've gone as far as we can. I think we're verbally hitting the shadows. There is a slight implication of asymmetry in the language and I don't think there's much more we can do. We shouldn't start tinkering with that, I think. I don't know what more we can do.",60
-fomc-corpus,1983,"Well, I don't know whether I can postulate the median opinion as being a little less quick on the trigger on the up side than on the down side, all other things equal.",37
-fomc-corpus,1983,Very little less.,4
-fomc-corpus,1983,"I guess we can vote. We're voting for the specifications of ""B"" rounded off to 8-1/2 percent, with a mention in the policy record that 8-1/2 percent was shaded up a bit because of deregulation but we don't expect the effect of deregulation to be very significant. In explaining that first sentence we would indicate in the record that we had tended to ease a little. Otherwise, all the language is the same with the substitution of 8-1/2 percent for 8 percent and that new first sentence I read. There's a 7 percent where it was 7 percent and borrowing is $650 million or thereabouts.",136
-fomc-corpus,1983,Would you say that again please?,7
-fomc-corpus,1983,"I'm saying you're voting on the directive as it is with an 8-1/2 percent and a 7 percent number in there and with a new first sentence as I read it before: ""The Committee seeks in the short run to maintain the slightly lesser degree of reserve restraint sought in recent weeks.""",61
-fomc-corpus,1983,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey Yes President Keehn Yes Governor Martin Yes President Morris Yes Governor Partee Yes Governor Rice Yes President Roberts Yes Governor Teeters Yes Governor Wallich Yes,46
-fomc-corpus,1983,You have a tentative schedule for next year to which it is my understanding nobody has objected. And we thought we might begin on Monday next time even though it's in the middle of the quarter and discuss the inflation outlook in a little more depth. Let's start the next meeting on Monday afternoon.,58
-fomc-corpus,1983,What's the date?,4
-fomc-corpus,1983,November 14th.,5
-fomc-corpus,1983,"Mr. Chairman, I am giving a speech on Monday afternoon at the ABA, but you're suggesting having an FOMC session on Monday afternoon.",29
-fomc-corpus,1983,What did you want to discuss in more depth?,10
-fomc-corpus,1983,"Inflation and the outlook. Expect to discuss inflation and come equipped to debate the issue, including maybe what we were intending to discuss, which is where we should go on inflation in a 5-year time perspective.",43
-fomc-corpus,1983,Whatever you like.,4
-fomc-corpus,1983,"To zero, I thought.",6
-fomc-corpus,1983,"We thought we were going to cover some of these issues in depth in the spirit of trying to look at alternative views of the determination of wages and prices, as well as some of the issues that are debated among folks here as well as outside the Committee. For example, does the speed of activity matter in determining inflation and a few other issues.",69
-fomc-corpus,1983,I think that's all fine. And you're also going to explain how we can get to a zero rate of inflation in the next--I'll be modest and say the next 5 years.,37
-fomc-corpus,1983,Be more symmetrical.,4
-fomc-corpus,1983,"No, it's a matter of being less symmetrical.",10
-fomc-corpus,1983,"Yes, in the other direction.",7
-fomc-corpus,1983,How many recessions can we assume?,8
-fomc-corpus,1983,How much unemployment?,4
-fomc-corpus,1983,How many recessions do we need?,8
-fomc-corpus,1983,We did pretty well in the Eisenhower years.,10
-fomc-corpus,1983,"That was a real performance. We have to [decide on] the long-run [monetary] targets for next year soon and present some [economic] projections. There have been some proposals that we present projections through 1988, which happens to coincide with [the period covered in] the last table [distributed for this presentation]. We're not yet obligated to do that; I don't know whether we will be by the time we get around to presenting our long-range projections. We're going to have to decide how we will collectively look at this situation. The staff has a pretty sharp decline in M2 in 1984 to get on this track [toward price stability]. What is it going to be this year?",146
-fomc-corpus,1983,M2 in this price stability case is 6 percent and that's down from our projection for 1984 of an 8 percent increase at an annual rate.,32
-fomc-corpus,1983,"Did I understand you to say that if productivity growth is 1 percent higher--that is, 2 percent rather than 1 percent--that the unemployment rate associated with this long-term projection would be about a point lower?",45
-fomc-corpus,1983,"That's correct. That's because if we assume a 2 percent productivity growth rate, the unemployment rate could fall to 8.1 percent by the end of 1984 and then would stay at about a 7-3/4 percent rate throughout the last four years of the price stability scenario.",60
-fomc-corpus,1983,Would that mean that total output would be quite a bit higher?,13
-fomc-corpus,1983,Yes. That's correct.,5
-fomc-corpus,1983,Because you have lower unemployment and more output per worker?,11
-fomc-corpus,1983,That's correct.,3
-fomc-corpus,1983,I see.,3
-fomc-corpus,1983,"I'd like to ask about the increase in the GNP deflator in 1985. If you take 6-1/2 percent as the natural rate [of unemployment] and we're 2 percentage points above that in both '84 and '85, that should get us, according to your formula, about a 1-1/2 percentage point reduction in inflation per year. You offset that with a drop in the average unemployment rate from 9-1/2 to 8-1/2 between '83 and '84; that should add about a quarter of a percentage point to the inflation rate. So, on balance, one would think that in '85 we ought to come up with about a 1 to 1-1/4 percentage point lower inflation rate than in '84. But you have it going up. Can you [explain]?",177
-fomc-corpus,1983,Yes. The difference is that the exchange rate behaves quite differently. In the price stability case we still have some depreciation of the exchange rate coming and that accounts for the difference.,35
-fomc-corpus,1983,Thank you.,3
-fomc-corpus,1983,You've taken a fairly restrictive definition of price stability. How sensitive is this last table to that? If you said price stability was 1-1/2 percent or something like that instead of essentially [zero]--,43
-fomc-corpus,1983,We see how tolerant you are!,7
-fomc-corpus,1983,In that case you should get [price stability] by 1987.,15
-fomc-corpus,1983,"Well, there are a couple of things to keep in mind about this price stability [scenario] that we're presenting. The first thing is that in the next two years we think we're facing a couple of hurdles that are going to make it difficult to reach price stability: We have a food price shock that is going to be showing up in 1984 and we have a substantial increase in the social security tax.",82
-fomc-corpus,1983,How big is that?,5
-fomc-corpus,1983,"That accounts for about 0.4 percent on compensation over the four quarters of 1984. So, that's almost a half point added back onto compensation. We have some depreciation of the dollar in any of the cases that we are examining and we have some momentum of the recovery moving into 1984. So, we spend the first two years in almost any of these cases just keeping the lid on the special factors that we think are tending to boost inflation in '84 and '85. Even in this case that we're presenting we achieve all the price deceleration really in the last three years. So, we get the deceleration occurring in three years but we have to spend the first two years--the next two years--holding down those things that we think are apt to boost inflation. In either case the costs, obviously, are less the higher you make your target rate of inflation by the end of the period. But it does require fairly low rates of growth, particularly in the next two years.",202
-fomc-corpus,1983,"If by the end of the period we're shooting for, say, 1-1/2 percent, would that loosely translate into saying that we could afford 1 percent per year more real growth? Or, what's the order of magnitude?",48
-fomc-corpus,1983,We have not done that exercise specifically but I would guess that it would just be a marginally lower unemployment path on average compared to the one here.,30
-fomc-corpus,1983,Might as well go for broke--go for zero. Mr. Morris.,16
-fomc-corpus,1983,"I have an intuitive feeling that your 1 percent productivity assumption is too pessimistic just because I see so many structural changes that were made in the last three years in terms of reducing staff overhead and in terms of changes in work rules. When we went through the 1970s with a lower rate of productivity growth than we could explain on the basis of the ordinary analytical factors, we got a big negative residual. It seems to me that maybe we will start to see some bounceback; maybe we'll start getting a positive residual. What was the basis for your 1 percent productivity assumption, which I think is 1 percentage point too low?",129
-fomc-corpus,1983,"At this point in the business cycle we're seeing increases that are largely cyclical in nature. We try as best we can to look through these increases and see what underlying trend that type of behavior would be consistent with. And that's basically how we came up with it. Now, you're right, that during the last recession we saw a lot of shedding of labor, a lot of changes that kept productivity growing--even last year during a period when normally it would decline. So, to some extent, these developments that you talk about could be once-and-for-all changes in the productivity level that wouldn't become embodied in a continued improvement in the growth rate. But to the extent that business is making an attempt to invest in new technology and really change on an ongoing basis some of those undefined things--things that we couldn't define during the '70s very well--then, yes, we could be too pessimistic. I think the coming year will be the critical year for evaluating where we are on this productivity path because generally what shows up in the second year of recovery is a sharp deceleration toward a trend rate of growth. If we keep getting information that tells us that the productivity is doing better than 1 percent, that will firm up the view that perhaps the trend is changing and could be closer to 2 percent or whatever.",265
-fomc-corpus,1983,You didn't mention a more experienced labor force and you didn't mention the impact of these high unemployment rates you project. Do you discount those factors in getting back to the 1.1 percent trend?,39
-fomc-corpus,1983,"Well, certainly, some reversal of the problem of having inexperienced workers contributed to moving [up] 1/2 percentage point to 1.1 percent. Looking ahead, yes, the demographics could help us out a bit. There has been an ongoing trend. For example, women who entered the labor force in the '60s or '70s now have career attachments to jobs or are staying in the labor force all year and are likely more productive than the new entrants to the labor force. That could help us out; that sort of change occurs very slowly and gradually over time.",118
-fomc-corpus,1983,Mr. Boehne.,6
-fomc-corpus,1983,"I would like to second what Frank said about productivity. There have been a number of changes in the industrial structure and demographics and I think your assumption probably is on the pessimistic side. The point that I want to make is that this baseline case is really a gradualist approach to price stability and I think that's the right way to do it for this kind of analysis. But more realistically we would likely have a recession, say, in 1986 or 1987. I wonder how sensitive this model is to having a third recession in a period of 6 or 7 years. We have seen lots of forecasts that are always based on a gradualist approach--that we're going to bring inflation down gradually. In reality, if you look back at the history of inflation, inflation really only comes down through recessions. The last time we really knocked inflation in the head was in the 1950s when we had three recessions over about an 8-year period going into the early 60s. So, my question is: What does a recession do in terms of bringing down inflation and in terms of these real variables?",228
-fomc-corpus,1983,"Well, I think a recession obviously gets the inflation rate down that much faster. And you're right that it's very difficult with models to project business cycles. The earlier that you have the reduction in output the more immediate effect you have on lowering inflation. Then, that lowers inflation expectations through all subsequent periods so that a sharp contraction of output could lead to a substantial reduction in inflation and that would bring down inflation expectations just as it has in the past two years. In essence, the costs have to be paid in any of those cases [through] recession or slow growth.",113
-fomc-corpus,1983,"Well, it's also the case that where we have '85 and '86 based on a little over 1 percent real growth, the economy is really rather delicately balanced between small and no growth or declining output. If you shorten the time horizon, the model is quite willing to cycle into recession. It's not difficult to get the model to fall into the negative side for real output.",77
-fomc-corpus,1983,Mr. Balles.,5
-fomc-corpus,1983,"My question pertains to Chart 18 on the baseline case. I want to precede that by saying that the reason I was so impressed with this presentation is that it's a very useful device for reminding us that an interaction goes on between the monetary side and the real side of the economy and getting these outcomes for almost all the variables we're looking at. With respect to the particular baseline case, in light of the fact that some of us here--I at least--think that the velocity of Ml is in the process now, or soon will be, of returning to a more normal historical pattern, I was wondering if you've done any experimenting with what growth in Ml, or indeed other monetary measures such as growth of total reserves, for example, might be consistent with the outcome that you have in unemployment, inflation, and real GNP?",166
-fomc-corpus,1983,"Well, we looked at the path of Ml that would be capable of generating our price stability scenario, and generally the M1 path that goes along with the baseline case would be around 5 percent next year and would stay at about 5 percent the following year and then drop off to about 2-1/4 percent by 1988.",70
-fomc-corpus,1983,Gradually?,3
-fomc-corpus,1983,"Gradually, yes. It's not in a straight line, like putting a ruler down to a piece of paper; it is gradually.",27
-fomc-corpus,1983,"Is it something like 5,5,4,3, and 2 percent?",18
-fomc-corpus,1983,"[5.5, 5, 3.2, 3 and 2.2] or something like that.",26
-fomc-corpus,1983,Mr. Solomon.,4
-fomc-corpus,1983,What does this model assume about real growth in the rest of the world and how sensitive is the conclusion to changes in the assumptions on how the rest of the world is growing?,35
-fomc-corpus,1983,I think this model assumes about 2-1/2 percent.,14
-fomc-corpus,1983,It's 2-1/2 percent on average and it's a little higher than that in the rest of the world.,24
-fomc-corpus,1983,Steadily through the 5-year period?,10
-fomc-corpus,1983,"Right. It is likely reduced by about 0.3 throughout the period as a result of the slower growth in the United States. So, it's a little under 3 percent on the baseline projection, which is basically the staff forecast, and it's a little closer to 2.5 or 2.6 percent after you take account of the impact of the United States on the rest of the world.",82
-fomc-corpus,1983,"That's aside from any influence on the exchange rate. I assume that, say, a 1 point gain in the economic growth in the rest of the world doesn't have much impact on this?",38
-fomc-corpus,1983,"In terms of the aggregate demand impact, you mean? Well, it would have an impact just like any other demand shift. It would give you a higher level of aggregate demand and in that sense it would put you on a different point on the given--",51
-fomc-corpus,1983,But it is a very small effect.,8
-fomc-corpus,1983,Mr. Forrestal.,5
-fomc-corpus,1983,"I just wanted to observe that I have a gut reaction that this real GNP projection is perhaps understated, especially for 1984. But I really wanted to ask a question about the deficit reduction. What kind of assumption are you making for deficit reductions in 1985?",55
-fomc-corpus,1983,"In the baseline price stability scenario we assume that starting in 1985 equal cuts are made in both taxes and government expenditures, accumulating to $15 billion on taxes and $15 billion on expenditures. So, we get $30 billion the first year, $60 billion the next year, $90 billion the following year, and $120 billion the following year.",72
-fomc-corpus,1983,"It is remarkable that you can give a presentation about inflation and never mention the deficit, and there are a hundred eighty million people out there who think there's some relationship.",33
-fomc-corpus,1983,It's in there.,4
-fomc-corpus,1983,"We didn't focus on that, but it's certainly mentioned.",11
-fomc-corpus,1983,That was part of the question I wanted to ask. Is there a feasible monetary policy that is consistent with no progress in reducing the deficit?,28
-fomc-corpus,1983,Yes. There certainly is. If it required--,10
-fomc-corpus,1983,You don't want to hear about it.,8
-fomc-corpus,1983,"Is there a feasible one, a doable one?",10
-fomc-corpus,1983,"Yes. In fact if no fiscal action is taken, it makes it a bit easier to achieve price stability. Now, the reason for that is that cutting the deficit leads to exchange rate effects through the effect on interest rates. As smaller deficits lead to lower interest rates that has more of an effect on the depreciating dollar, which leads to higher inflation, which you have to offset through less output. So, in fact, the unemployment path needed to achieve price stability, if we assume no fiscal action, would be about 0.2 of a percentage point a year lower than what we--",119
-fomc-corpus,1983,"I don't agree with that, because at some point as the current account deficit gets larger and larger and larger, with huge leaps, we'll see higher interest rates. It's not going to prevent some change--some depreciation of the dollar.",46
-fomc-corpus,1983,"That's precisely correct, I think. Let me just make two points to President Solomon. One is that to the extent that we have built into the baseline projection some depreciation of the dollar before price stability, essentially, I would view it as part of the process by which we got the dollar very strong to build up the big current account deficit. And in fact we don't have much more built into there than is necessary to keep the current account deficit in the current range. So, therefore, it is possible that it could go further, as Mr. Stockton mentioned when he talked about other exogenous factors--exogenous being outside what we currently predicted--being part of the process. But in some sense that is part of paying the price for the good luck on the dollar or the appreciation of the dollar that we had gotten earlier which had accelerated the short-run process of the disinflation. But once it reverses itself, the lag comes through the system and we will get much more. I would regard this projection as in some sense neutral or agnostic to the extent that it doesn't involve a very big further buildup in the current account. That's true of the baseline and of the projection. Similarly, it doesn't involve so much correction of the value of the dollar; it has as given a relatively moderate growth in the rest of the world such that you get a big improvement in the current account over a period. And in that sense I would say that it's somewhat agnostic in the way it takes--",299
-fomc-corpus,1983,"Let me ask a question of you. When you answered Governor Rice that it would be easier to achieve price stability if we didn't get rid of the budget deficit because of the higher interest rate effect and the higher dollar, are you also assuming a major recession?",51
-fomc-corpus,1983,"No. The output path there is associated with the one here. It would be basically the same; there's no difference. It's fairly uniform, adding output along those cases that were given.",37
-fomc-corpus,1983,"If I understand you correctly, your assumption on reducing the deficit is that it's bad for inflation?",19
-fomc-corpus,1983,That's correct.,3
-fomc-corpus,1983,"I think we've been very cautious in presenting the issues with respect to inflation expectations, and that's where one presumably has the channel of influence in terms of deficit actions feeding back on inflation expectations. The model simply doesn't capture that. I think Dave has stated that. So, it's in the area of expectations that this model and most models are very weak and that offers something very positive in terms of potential outcome.",80
-fomc-corpus,1983,It's agnostic on the point that Mr. Solomon is raising as to whether you can have those deficits and have this nice smooth path?,27
-fomc-corpus,1983,"The particular point is that by achieving a better outcome in 1988 [unintelligible] defined this way to the extent that a different fiscal/monetary [policy] mix over this period gives you higher interest rates, a higher dollar, or a larger current account deficit. So, likewise, it might be if you look beyond 1988 that you would go backwards and have a correction of that process. You would have to work harder just as we are now in terms of a correction if you felt that that kind of current account deficit would not be sustainable for an extended period of time. So, you would have to pay a price later for that.",135
-fomc-corpus,1983,How much does the level of interest rates itself affect your inflation forecast?,14
-fomc-corpus,1983,"Well, the level of interest rates plays a small role through cost of capital effects, capital being about 35 percent. But we don't think that's a major effect in short-run price determination.",38
-fomc-corpus,1983,There's no cost push from high interest rates?,9
-fomc-corpus,1983,There's a small cost push from higher interest rates. That's true of our general outlook.,17
-fomc-corpus,1983,"When you say cost of capital, do you mean in terms of cost or in terms of affecting the amount of investment?",24
-fomc-corpus,1983,I mean in terms of cost rather than affecting the amount of investment.,14
-fomc-corpus,1983,"What level of interest rates and changes, then, are required to get to the particular path of real GNP?",23
-fomc-corpus,1983,The federal funds rate is about 10-3/4 percent in this path for 1984 and drifts down to about 9 percent by 1988.,34
-fomc-corpus,1983,So the implication is rising interest rates in the short term in order to produce a decreased rate of real growth and price stability.,25
-fomc-corpus,1983,That's correct.,3
-fomc-corpus,1983,You still have 9 percent interest rates with a 1 percent or 3/4 percent rise in prices?,23
-fomc-corpus,1983,That's correct.,3
-fomc-corpus,1983,Governor Wallich.,4
-fomc-corpus,1983,This cost of capital of over 30 percent: Does that include depreciation?,15
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"Can you tell me a little about the period over which the data in the model reach? My impression is that the model derives its data mostly from a period in which nobody believed that inflation could be reduced to .7 percent, and so it naturally has built in a very strong resistance to that. Now, if we could have a credible policy--if it were believed that your alternative assumption, the last one [listed], is possible and will be done--wouldn't that invalidate many of the assumptions underlying the past data?",104
-fomc-corpus,1983,"Well, it would certainly change. I hope we made clear that our alternative assumption [of a ""credible"" disinflation policy]--the last one we've listed under price stability --is clearly a possibility and would alter the cost of achieving price stability. Now, the past couple of years, this credibility issue has been very difficult. I think many economists went out and said: We've never had observations with unemployment that was this high and that has stayed this high so long. And when they reestimated their models they found it looked as if prices were more sensitive to higher rates of unemployment than they previously had thought. But it's not clear. We're not able to distinguish the hypothesis that prices are more sensitive to high rates of unemployment from the hypothesis that perhaps there was a credibility effect which was bringing inflation down faster than might have been thought back in 1980.",172
-fomc-corpus,1983,Mr. Guffey.,6
-fomc-corpus,1983,"We went through a similar exercise using the [MPS] model. But the difference from what the staff has done in the baseline case is that we used Ml as the money growth rate. We started with 6 percent for 1984 and dropped it 1 point per year for the next 3 years, using 5 percent for 1985, 4 percent for 1986, and 3 percent for 1987 and 1988. That does have some measurable effect on output in the sense that it's just marginally higher in 1984 but is roughly a percentage point higher in both 1985 and 1986. And it brings the inflation rate down to 1 percent at the end of the five-year period. So, what we did was to use Ml, dropping it 1 percent a year for the next three years and then holding it stable at 3 percent. And that does give a bit better inflation picture, bringing inflation down in the years 1985 and 1986 a bit faster than is shown in the staff projection, as well as about a percentage point greater [GNP] growth in 1985 and 1986; it comes out to about the same in 1987 and 1988.",255
-fomc-corpus,1983,"Let me just explore this for a moment. I take it the staff does not agree that that is possible, [barring] some revolution of expectations?",31
-fomc-corpus,1983,"Well, I'm not certain from the context of the model that--",13
-fomc-corpus,1983,"Well, I don't know about his exact Ml figure but, if I understood Mr. Guffey correctly, he has a model that gives us faster growth and faster deceleration of inflation at the same time.",42
-fomc-corpus,1983,That's right. Faster growth in '85 and '86 and faster deceleration in the inflation rate in '86 and '87.,26
-fomc-corpus,1983,There are a number of other factors--,8
-fomc-corpus,1983,One issue is the growth of productivity. We have extrapolated--,13
-fomc-corpus,1983,"I know one can make other assumptions as to the growth of productivity and all the rest. I don't think I said anything very startling. Unless you make some other assumptions of that sort, you can't come up with that kind of answer. You have to find the answer in productivity or expectations--",58
-fomc-corpus,1983,"I think that's correct, yes.",7
-fomc-corpus,1983,I think we're using the same model.,8
-fomc-corpus,1983,"Yes, we are.",5
-fomc-corpus,1983,"Well, we'll ask Mr. Guffey how he comes up with a different answer. Did you put in more productivity or different expectations or what?",30
-fomc-corpus,1983,I'll have to turn to my staff.,8
-fomc-corpus,1983,Maybe they have the dollar rising 10 percent a year.,12
-fomc-corpus,1983,I think about 14 percent is close. It may be the 18 percent that the staff is looking at.,23
-fomc-corpus,1983,"I was cheating and looking over your shoulder and I see that the terminal unemployment rate is 8-1/2 percent in your simulations and the terminal unemployment rate in ours is 8.7 percent, so I really don't think there is that much difference between the basic thrust of the results that your staff has gotten.",64
-fomc-corpus,1983,"However, I think there is a difference in the unemployment rate because it drops in 1985 to 8.2 percent as opposed to your 8.6 percent and is 8.3 percent for 1986 as opposed to 8.4 percent. And then it comes back to about your level in both 1987 and 1988.",73
-fomc-corpus,1983,I couldn't read all those numbers!,7
-fomc-corpus,1983,"It's a relevant question in a way: How do we do better than these numbers? Mr. Roberts, maybe you can tell us.",27
-fomc-corpus,1983,"I really can't help you much on that; I'm sorry. I have two comments, which are sort of questions. On the productivity, I guess you took into account this major change from manufacturing to services in the 1970s as one of the factors holding back productivity. With services now such a large part of the economy, would that from here on out tend to cause the same or an increased rate of productivity if it stabilized, let's say?",90
-fomc-corpus,1983,"The bulk of the research that was done, as we discussed earlier, was unable to pin that down for the 1970s. Most of the research showed that productivity slowed in service industries as well as in manufacturing industries. The pattern of the slowdown was at least the same across different types of industries, so we were unable to pin this productivity slowdown on the growing services sector. Looking ahead and having the services sector be one of the growing sectors, I'm not sure that that should detract from the things that seem to be important in the productivity slowdown, however undefined they may be. There are some technological changes that could affect the services sector as well as manufacturing.",133
-fomc-corpus,1983,"That really is the point that I was coming to. I think maybe some of the drag in productivity in the services sector is now being overcome. Productivity is coming to the services sector. And if you have lower [productivity in the] manufacturing sector also as [the staff] has here--I'm just saying that I think productivity estimates are too low for the short run anyway. Then I had a question. I'm intrigued by this expectations effect on inflation. Do I understand this correctly: That if someone expects inflation, it's more likely to happen regardless of the policies in effect? That is, if a person loses his job, even though he has expected inflation, it's more likely to happen although the conditions are [such as] to cause him to be unemployed?",152
-fomc-corpus,1983,"Certainly, if we think of expectations in a more general sense, obviously, the price expectations of the person who is unemployed are exerting less influence on current wage negotiations than those of the person who is employed. But our general feeling is that the level of expectations of future inflation is critical in determining the entire environment in which wages and prices are being determined. We have situations where people have [negotiations] going on for three-year contracts and they have to form expectations about inflation over a three-to-four year horizon. We have businesses making contractual commitments based on expectations. It's certainly the policies that will influence the actual outcome; but if we were to hold policies constant and increase everybody's inflation expectations by 2 or 3 percent, we think that would lead to higher inflation.",156
-fomc-corpus,1983,"I guess what I don't see is how, if inflation expectations rise and policies are in place so that the sales can't be made at the higher prices, that really would affect real inflation. It might in the very short run.",45
-fomc-corpus,1983,Inflation in that case would be lower than people perhaps had expected. But the fact that they had expected higher inflation would have been a marginal contribution to the higher inflation.,34
-fomc-corpus,1983,It would make it tougher for the policies to work.,11
-fomc-corpus,1983,Is the message you are trying to deliver here that the credible disinflationary policy is basically a long period of very high real interest rates and high unemployment? Is that the only way we can obtain low or close to zero inflation?,47
-fomc-corpus,1983,"No. That was not the intent. The intent was to do this exercise and to look at what comes out and then recognize that, indeed, we're using a model that has some deficiencies. All models do. Outcomes can differ; they can be better or worse. And we've tried to focus on those things that we felt could be important in reducing the costs or raising the costs from a baseline case. So, it was really designed to be illustrative. And then one can think about those things that over the longer run might cause the outcome to be better or worse.",113
-fomc-corpus,1983,"I think that's precisely right. I think that they set themselves up here as a big fat target, and it's not a very--",26
-fomc-corpus,1983,I might say it was at someone's request!,9
-fomc-corpus,1983,It's useful. It shows the result. It is meant to be a vehicle for discussing how to get a better result.,24
-fomc-corpus,1983,"I think, though, that the result is even worse than you have there. You have real interest rates rising steadily from present levels to a point where eventually they are about 4 percentage points or so higher than they are now. I find it inconceivable that we wouldn't have a recession in this period. And for a period of time we would have a much higher level of unemployment than you have. At least that seems to me more likely.",90
-fomc-corpus,1983,"If that's right, then we would also get a lower level of prices.",15
-fomc-corpus,1983,"That's right. I guess I would say that is a slightly better scenario. I wouldn't want to be quoted on this but it seems to me that a more realistic scenario would be a monetary policy that keeps inflation in the 4 to 5 percent range for the rest of the recovery and then one would hope that a normal cyclical recession at that point would cut the inflation rate down to maybe half of that and get it to the 2 to 3 percent range. It seems to me that, in terms of all the elements that have to be accommodated, that is a more realistic way of trying to work toward long-run price stability.",128
-fomc-corpus,1983,"Well, let's examine that proposition. I'll let Mr. Gramley answer that.",16
-fomc-corpus,1983,"I would like to ask the staff this question. Did you by any chance turn this exercise on its head and say: Suppose we were to walk the unemployment rate down gradually to the natural rate by 1988? What results do you get then? I don't think they are going to be all that bad, really.",64
-fomc-corpus,1983,"In fact, we have done that exercise, and doing that we end up with an inflation rate a little under 4 percent by 1988 and the unemployment rate would have gotten down to about 7 percent at that time.",46
-fomc-corpus,1983,"And if we accept the definition of price stability of the President of the Federal Reserve Bank of Minneapolis, we're almost there.",24
-fomc-corpus,1983,It surprises me a little that you get that answer based upon these numbers. You get the unemployment rate down to where? The natural rate is 6-1/2 percent?,36
-fomc-corpus,1983,Seven.,2
-fomc-corpus,1983,"If you just take the straight Phillips curve approach to it and make some rough ballpark calculations, leaving out what happens to the exchange value of the dollar, it looks as if you ought to be able to get [unemployment] even lower than that. I suppose you have a very different effect on the dollar.",63
-fomc-corpus,1983,"How can you? If the unemployment rate went down steadily, you would be bound to have a higher inflation rate in 1985, right?",29
-fomc-corpus,1983,"That's correct. The inflation rate goes to about 4-1/2 to 5 percent in '85, back down to 4-1/2 percent in '86, about 4-1/4 percent in '87, and a little under 4 percent in '88.",60
-fomc-corpus,1983,"You're always above the natural rate of unemployment. All that is happening then, if you reduce the extent to which you get improvement, is that you have the speed limit effect. The speed limit effect in any case is one that has been much in dispute; not everybody believes the speed limit hypothesis. But if you threw that out, you would get even better performance.",73
-fomc-corpus,1983,May I just tack on to Tony's question? I was bothered by that too. You just threw out a number on interest rates in 1988 and I'm not sure I heard it correctly. I thought you said 9 percent or so for the funds rate. Is that with a $120 billion improvement in the budget situation?,66
-fomc-corpus,1983,"That's right. The actual budget deficits, of course, still remain fairly high, but you get much weaker--",22
-fomc-corpus,1983,"Yes, it's a $120 billion better budget deficit than otherwise--that is, without a change in policy occurring. And there's still a 9 percent funds rate with a 1 percent rate of inflation? That sounds extraordinarily tough.",46
-fomc-corpus,1983,Mr. Balles.,5
-fomc-corpus,1983,"I'd like to come back just a second to this inflation expectation problem that, as you said, your model can't incorporate. As I look at today's Bluebook and the structure of the alternatives there between alternative A and alternative C, the interest rate levels projected show the T-bill rate going down to the 8 to 8-1/2 percent range under alternative A with a slight drop in long rates. And in alternative C the T-bill rate is up in the 9-1/4 to 9-3/4 percent range with a slight rise in long rates. My question is: Given the dramatic drop in inflation we've already had, what is holding interest rates up at those levels? Might it not, in fact, be inflation expectations?",153
-fomc-corpus,1983,I can spare them an answer. I don't think these people have been involved in the rates. You might want to wait for another 20 minutes or so.,32
-fomc-corpus,1983,"I'd rather not wait, but if you have an answer I guess--",14
-fomc-corpus,1983,I was a little [reluctant] because there is a large group of people here who don't attend the regular meetings.,25
-fomc-corpus,1983,I'm sorry.,3
-fomc-corpus,1983,Mr. Black.,4
-fomc-corpus,1983,"If I understand the Phillips curve analysis properly, your inflation forecast depends upon the markup over cost. Is it possible that international competition could intensify to the point that that could be very difficult to accomplish and significantly affect your inflation forecast?",46
-fomc-corpus,1983,That the market could be--,6
-fomc-corpus,1983,Reduced.,2
-fomc-corpus,1983,"Oh yes, that's a possibility. In fact, we have to take into account rising import prices--that there would be domestic goods that compete with imports, and normally you would expect [producers] to be able to raise their prices. But if that competition is great, the market is limited and they may not be able to do that.",69
-fomc-corpus,1983,"But you're assuming a sizable depreciation in the dollar, so all those import prices are going to go up.",21
-fomc-corpus,1983,Correct.,2
-fomc-corpus,1983,Mr. Keehn.,5
-fomc-corpus,1983,"Perhaps you said it and I missed it. What is your expectation with regard to labor contract settlements over this period? The question has a basis--namely, that an awful lot of people I've talked to are currently settling contracts in the 6 percent area with 3-year contract periods. But they do suggest that, whereas they are sanguine about being able to hold this for the rest of this year and for 1984, as they get further out corporate profits really begin to improve. I guess most people expect corporate profits to be very good over the next few years and [thus] it's going to be very, very hard to maintain that [pattern of wage increases]. There are still some COLAs around, and the expectation is that contract settlements will begin to move back up. What kind of settlement number do you have in mind during this period?",172
-fomc-corpus,1983,5-1/2 percent.,7
-fomc-corpus,1983,"The staff projection through 1984 has something close to a 5-1/2 percent increase on hourly compensation. Now, the data that we've seen on contract settlements so far this year have been on average about 4-1/2 percent, I think, rather than 6 percent. But I don't deny that there are some industries that are returning to profitability where workers are going to be looking for larger settlements. Within the context of our forecast, in 1984 the petroleum industry bargains in January and then there's nothing very much going on until we get to the auto [industry negotiations]. By the time we get to the end of '84, moving into '85, we will start to see some of these contracts turn over where there had been concessions and some recognition that profits were low. And we would expect by 1985 to start to see larger wage settlements. I haven't thought through exactly what we're going to put down when we extend our forecast, but we would be looking for larger settlements.",203
-fomc-corpus,1983,"In some ways that's the other side of the productivity point, because to the extent they get a lot more productivity they're going to get more profits and more cash flow; that, in turn, will solidify even further on the part of labor [their resolve] to get their piece of the action.",60
-fomc-corpus,1983,"Well, we could get a recession in 1986, which will head off unfavorable contract negotiations.",20
-fomc-corpus,1983,"By 1986 we will have had, with or without a recession, 5 straight years of the consumer price index [in this projection] being less than 4-1/2 percent. So, why should they accelerate beyond 6 percent? That's your number.",55
-fomc-corpus,1983,"Well, Joyce was referring not to this 5-year scenario, but rather to--",17
-fomc-corpus,1983,"--the staff projection. In the staff projection, we had consumer prices in 1984 up around 5 percent.",24
-fomc-corpus,1983,About 5-1/4 percent.,9
-fomc-corpus,1983,"But I think one could argue, Paul, that even if inflation continues at only 4 percent or 4-1/2 percent or whatever, that we would still get a net increase in wage compensation beyond 6 percent for this reason: The only way we get today's low average is by having extremely depressed wages and absolute cuts in many manufacturing industries. It's running much higher, as you point out, in utilities and the financial sector, etc. So, if we have recovery in the smoke-stack area--even if inflation is still in this [4 to 4-1/2 percent] area--we probably will end up with a higher average wage in the country as a whole.",139
-fomc-corpus,1983,You read my speech!,5
-fomc-corpus,1983,"But in this projection, on chart 18 you don't have tremendous increases in corporate profits and, therefore, you don't have the upward pressure on wages.",30
-fomc-corpus,1983,"Chart 18 is not a staff forecast, necessarily.",11
-fomc-corpus,1983,"No, but if we had the scenario in which--",11
-fomc-corpus,1983,"No, that's right. If we have low real growth, we would not have a very bullish outlook for corporate profits.",24
-fomc-corpus,1983,"And as a result, that's part of the mechanism by which you get a lowering of the inflation rate in there.",23
-fomc-corpus,1983,"Yes, but some of that probably is already built in. Look at the auto industry: The best guess now seems to be that this year the auto industry is going to earn $5 billion in profits, and that's in a context in which not insignificant concessions have been made across the board in a setting in which the wages are too darn high to begin with. I would just speculate, even on the basis of what has happened this year, that trying to hold wages in the automobile industry in any reasonable proportion is going to be very difficult with that $5 billion in profits there.",116
-fomc-corpus,1983,"Let me ask a couple of questions. If you extended this assumption for M2, the monetary policy proxy, of 4-1/2 percent for three more years--you seem to have a zero velocity in here, roughly--what is going to happen to prices and real GNP in '89, '90, and '91?",69
-fomc-corpus,1983,"Well, zero velocity doesn't [unintelligible].",11
-fomc-corpus,1983,Would you still have inflation under those assumptions? You have an unemployment rate 1-1/2 or 1-3/4 percentage points above the natural rate.,34
-fomc-corpus,1983,"In '88 and '89 you probably would not have positive inflation, but eventually your long-run equilibrium would give you slightly positive inflation if you have 4 percent M2. So, you could probably have slightly lower M2 in the long run consistent with price stability.",54
-fomc-corpus,1983,It would go into minus prices and then it would go plus again.,14
-fomc-corpus,1983,"Yes, that's the likely outcome.",7
-fomc-corpus,1983,"You're getting close to the long run now, corresponding between money and prices--",15
-fomc-corpus,1983,I don't know whether we ever get to that; it takes 8 years to get to the long run on this model. Suppose--the obvious question--you cut all these money figures quickly and then level them off. Where would things go?,49
-fomc-corpus,1983,"Well, we'd probably get a recession or some contraction in output in the '85-'86 period and that would get the inflation rate down that much faster.",31
-fomc-corpus,1983,Where would we end up in '88: a lower rate of unemployment?,15
-fomc-corpus,1983,Well--,2
-fomc-corpus,1983,"Those kinds of questions are very hard to answer. Certainly, if you got more unemployment sooner, which that would cause, it would be possible to end up with a slightly lower rate of unemployment at the end that would still be consistent with price stability. But I can't simulate in my head what would happen.",61
-fomc-corpus,1983,Is there some monetarist here who will give us a much more favorable hypothesis and explain it?,20
-fomc-corpus,1983,"Well, in light of the results in chart 17, the remarkable thing is how well the Phillips curve model has done to explain what actually has happened. It got a little off track for a while in 1981, but in terms of the overall performance of the economy from 1978 on it has done very, very well indeed. So, I think the result that the staff is presenting to us is eminently reasonable in terms of outcome. If what you want to do is get back to price stability, this is what you're going to have to suffer. And if you want to get back to the natural rate of unemployment, you're going to have to have a worse inflation outlook.",139
-fomc-corpus,1983,The Phillips curve in Chart 7 doesn't look so good.,12
-fomc-corpus,1983,"Well, didn't Henry put his finger on it a while ago in pointing out that we can't incorporate expectations in there to the extent that we probably should? That's the great missing thing, it seems to me.",41
-fomc-corpus,1983,"Well, to some extent the Phillips curves in Chart 7 move across the page as the natural rate is rising and shift up to the extent that inflation expectations were higher in the '70s than in the '60s.",45
-fomc-corpus,1983,"Yes, I don't think Chart 7 at all contradicts what is in Chart 17.",19
-fomc-corpus,1983,"Okay, but counting Chart 17 [unintelligible], assuming that there is that correlation, what level of unemployment do you have to have to get price stability in 1988?",38
-fomc-corpus,1983,In the quarterly model?,5
-fomc-corpus,1983,You come back to the same conclusion as your baseline.,11
-fomc-corpus,1983,The quarterly model is in the 6-1/2 to 7 percent area as well; that's the natural rate implicit in the model.,29
-fomc-corpus,1983,Shouldn't the natural rate be coming down over the decade of the '80s?,17
-fomc-corpus,1983,"Right. To the extent that we get better productivity performance, that should lower it. And to the extent that the demographics favor less of the sort of frictional unemployment that was associated with the rapid rise in the labor force in the '70s, that should bring the natural rate down.",58
-fomc-corpus,1983,"I can make a simple point that if you're not ready to attack the model, you have to live with it. Do you want to attack it, Mr. Corrigan?",35
-fomc-corpus,1983,"No. I think there's some good news and some bad news. The bad news is: My hunch is that, if anything, the model as we're talking about it here probably underestimates the amount of inflationary pressure in this period, even though I would agree that it's likely that we're going to have more productivity growth than the model suggests. My reason is that I think inflationary expectations, however latent, are probably stronger than this model contemplates. And I continue to believe that the speed effect, if that's what it's called, in the short run will hurt quite a bit if prices even begin to pick up moderately--say, gravitate up to 5 percent.",136
-fomc-corpus,1983,What is the inflationary expectations assumption of this model?,11
-fomc-corpus,1983,"I assume, and maybe I'm wrong, that it's something like what is in that early chart, which basically says 4 percent.",26
-fomc-corpus,1983,It's a weighted average of past rates--probably more like 5 percent.,15
-fomc-corpus,1983,"That weighted average that's on Chart 13 is just geometrically declining weights. It's similar to most of the econometric [models with] distributive lags, and that's 4-1/2 to 5 percent.",45
-fomc-corpus,1983,Suppose you magically changed that in your model and made it 1 percentage point lower. What would that do?,23
-fomc-corpus,1983,The inflation rate that we're projecting right along that path would come down 1 percentage point.,18
-fomc-corpus,1983,One whole percentage point.,5
-fomc-corpus,1983,That's correct.,3
-fomc-corpus,1983,But the converse is also true. STAFF(?) Or one could lower the unemployment by maybe a percentage point.,21
-fomc-corpus,1983,One thing clear from Chart 13 is that the consumer--,12
-fomc-corpus,1983,"Wouldn't both happen? If monetary policy and everything else is unchanged except you have some deus ex machina here that gets inflation expectations down 1 percentage point, the inflation rate would be down 1 percentage point and the unemployment rate would be down too. STAFF(?) Initially the inflation rate goes down, but I think eventually the unemployment rate would end up lower too.",73
-fomc-corpus,1983,Would you like to hear my good news?,9
-fomc-corpus,1983,Not if it's like your bad news!,8
-fomc-corpus,1983,"My good news is that some of my staff have developed an alternate model, which is a very interesting model. It basically says that the deficit over time effectively has to be financed through inflation, with a very direct connection between the size of the deficit and the amount of inflation in the system. Now, working backwards from that, we're going to see a happy result because this suggests that if you could eliminate the deficit net of interest payments, which are roughly $65 or $70 billion, quickly--say, in a period of a couple of years--you could find yourself with the happy result of a combination of real growth of around 3 percent and real interest rates of around 3 percent. I don't believe that, necessarily--",146
-fomc-corpus,1983,The inflation rate is where?,6
-fomc-corpus,1983,The inflation rate effectively would be zero or something close to it.,13
-fomc-corpus,1983,What does the staff say about that?,8
-fomc-corpus,1983,"I've never fully understood that approach. I think that assumes, President Corrigan, that debt equals money.",21
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"It assumes that Treasury bonds equal Ml, and it's just hard for me to relate those as one to one. One can spend Treasury bonds as readily as currency, perhaps--",34
-fomc-corpus,1983,"No, I don't think you have to associate them rigorously, but it does say that financing the deficit in effect can only be done in one of two ways: through new money, however defined, or through inflation. But if you get rid of the deficit and you get rid of that constraint, then you can have real growth and the real interest rate at about the same level, 3 or 4 percent.",84
-fomc-corpus,1983,Finance the deficit from overseas.,6
-fomc-corpus,1983,"But if you believe that theory, how would you explain what is on Chart 1?",18
-fomc-corpus,1983,You couldn't.,3
-fomc-corpus,1983,Turning to something else: You show a one for one--,12
-fomc-corpus,1983,"You couldn't explain Chart 1, but it does provide to me a more useful framework for being able to answer the question of how the deficit gets into all this. And it doesn't produce the kind of perverse result we get here, which says you get a better result if you increase the deficit.",60
-fomc-corpus,1983,"Well, but that's kind of a technical answer out of a model which goes through the exchange rate.",20
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"It doesn't say what kind of political pressures evolve when high interest rates begin to upset the capital goods industries and residential construction and the export industries get devastated and trading partners complain a lot. All those exogenous factors no longer stay unchanged. When you build a model that endogenizes a lot of these responses, which never would take place, you would get different answers. I don't know how you could argue seriously that in the long run the only way to finance a deficit is through money growth or inflation. That to me makes no sense. I'm not a monetarist, but if you give me 30 years, I have to believe that what happens to the money stock primarily determines what happens to prices.",141
-fomc-corpus,1983,"All right, but that view is not incompatible, because it comes down to the same thing. It would say in that case that you will end up with more inflation because the deficit in effect forced you to create more money.",45
-fomc-corpus,1983,"Yes, except if you go back to these 30 years in Chart 1, they were years in which the federal deficit as a percentage of GNP was dropping like a stone.",37
-fomc-corpus,1983,"Well, for that whole period going back to the 1950s, the federal deficit net of interest payments was basically zero until two years ago. For that whole period it was basically zero.",39
-fomc-corpus,1983,"This theory is based on the assumption, isn't it, that there's some limit to the volume of government bonds that the public is willing to hold and that, therefore, necessarily a continuing deficit leads to monetization? I don't know what that assumption is based on, but the ratio of debt to GNP has been very stable over a long period of time regardless of how the debt was made up. The debt was large in terms of public debt, and private debt was small; and later it changed to less public and more private debt. Now it has been changing back to a greater proportion of public debt and smaller private debt. Throughout, the relationship of total debt to GNP has been very stable.",140
-fomc-corpus,1983,"But look out from where we are now and take the latest CBO estimates of the deficits out to 1985. If you take out interest payments and look at it that way, as a percentage of GNP there is no precedent in the postwar period for the kind of phenomena we're looking at in the period from now to 1988.",70
-fomc-corpus,1983,"Well, doesn't that mean that private debt creation will be very small, which is the phenomenon referred to as ""crowding out""?",26
-fomc-corpus,1983,And interest rates are very high and growth is very low.,12
-fomc-corpus,1983,That's exactly right.,4
-fomc-corpus,1983,"And a large part of the deficit is financed by imported capital, which is what is going on right now.",22
-fomc-corpus,1983,"The general impression I get from this model, frankly--aside from congratulating you on having the courage to remain at zero inflation, which was by request--",31
-fomc-corpus,1983,False courage!,3
-fomc-corpus,1983,"[Unintelligible], which I think people believe would change the nature of the problem. I see this, as Tony Solomon does, as a cyclical problem: The economy probably will go into recession one way or another after two or three years or a little more after the last drop. And what your model seems to say is that it will take more than one more recession in order to get to zero [inflation]. The next recession will start from 5 or 6 percent inflation and we can cut inflation in half again. But that's not enough, so we have another expansion of two to three years from a lower starting point. And then maybe the next recession will get us close to zero.",142
-fomc-corpus,1983,"And to continue on that line, since you say in the earlier pages that if you have a 1 percentage point less rapid rate of growth in '84 and '85, you get 1 percentage point less inflation in '84 and '85: If you were basically following a policy along the lines Governor Wallich and I are talking about, is there any additional reduced inflation payoff of running, say, a 1 percentage point lower rate of growth in the next year or two, recognizing that what you're really trying to do in the broadest policy sense is to contain inflation just where it is during the recovery and then take advantage of the next recession to bring it down somewhat more? Is there a significant advantage in running a lower growth rate over the next two years--that's basically a cyclical view--rather than doing this?",166
-fomc-corpus,1983,"Over the next two years--again we have to run slow growth just to contain those factors, we think--there may be a loosening of inflation. But--",33
-fomc-corpus,1983,"Unless you're lucky on some of the other things, such as productivity and a couple of other things--",20
-fomc-corpus,1983,"Let me tie on to that with a collateral question: Is there a one-to-one unemployment increase if you, let's say, come down 1 percent in the rate of growth with contained inflation?",39
-fomc-corpus,1983,"No. Normally we think that every one percent on growth might be 4/10ths on [the unemployment rate]. But the problem is that it's hard to see any major advantages within the structure of the model to pursuing what you're recommending. That is, you may get benefits from lower inflation and the value of the dollar. But again you have to pay back part of that once the economy begins to go upward. You may get lower benefits from concessions on compensation, but you may have to pay back part of that. The benefit you get from running lower output early is lower inflation expectations for the remaining periods of the simulation. In that sense, the sooner you reduce output, the easier it is to bring down inflation because you've lowered inflation expectations for all subsequent periods.",153
-fomc-corpus,1983,"I understand that. But if we were able to prevent the rate of inflation from going up beyond the present level during the rest of this recovery, though I don't think we will be, I would guess that there would be a very, very widespread expectation in the financial community that the next recession would bring the rate of inflation down significantly. We would get a very favorable expectational result if, over the next year or year-and-a-half, we could stabilize this level of inflation.",96
-fomc-corpus,1983,This level meaning what?,5
-fomc-corpus,1983,4 or 4-1/2 percent. The [financial] community is expecting basically a 1 to 2 percentage point rise in the rate of inflation over the next 2 years.,39
-fomc-corpus,1983,"Well, it seems clear that that is our task: to keep it from accelerating. And that's what their model shows--the way we get it. If in '84 and '85 we're going--",40
-fomc-corpus,1983,"This model shows [that we get it] with a more restrictive monetary policy than what we have heretofore talked about, if I read it correctly.",32
-fomc-corpus,1983,"Well, what does it assume for velocity of circulation for M2? If we drop [M2 growth] to 6 percent in 1984, what velocity of circulation does that assume?",39
-fomc-corpus,1983,Between [unintelligible] and 4.2 percent increase in velocity in '84 and a lower increase in velocity in '85.,29
-fomc-corpus,1983,"Yes, but isn't that a lower velocity than we normally adhere to?",14
-fomc-corpus,1983,"It drops each year. Eventually, velocity drops because the nominal GNP is less than M2.",20
-fomc-corpus,1983,"Yes, it does.",5
-fomc-corpus,1983,"It does unless interest rates--. If you let interest rates rise as you seem to [assume] here, velocity ought to increase.",28
-fomc-corpus,1983,"Interest rates are declining in the latter part of this projection period and that is giving you some decline in velocity--some stronger demand for M2 relative to GNP. That wouldn't be a continuing factor, if you extended this out beyond 1988, but it's a factor in 1987 and 1988.",63
-fomc-corpus,1983,What assumption do you make about M2 or Ml or anything--zero [effect] except as it affects nominal GNP?,25
-fomc-corpus,1983,That's correct. It doesn't have a direct expectational effect.,12
-fomc-corpus,1983,"But it has an interest rate effect in your model, doesn't it?",14
-fomc-corpus,1983,"Oh, sure; that's the channel.",8
-fomc-corpus,1983,I thought you were referring to expectations. There's no feedback effect on price expectations from altering money growth.,20
-fomc-corpus,1983,You have two columns here. It doesn't tell you anything--it's some pure guess--about velocity.,20
-fomc-corpus,1983,"Well, it's a model that in effect--",9
-fomc-corpus,1983,"It's a guess; it's your model of velocity. But its influence [unintelligible] model. Well, I'm left with my question to the group, not to the staff: Either accept something like this model, [which has] satisfactory results from most points of view, I guess, or say how you would change any of these factors to get better results. You have to come up with a better model or a different model if you don't like these results.",94
-fomc-corpus,1983,"Well, I think a different model, like the one that Tony talked about that incorporates--",18
-fomc-corpus,1983,I don't think that's really a different model. There's a different timing with inflation [unintelligible]. But you don't have different factors to play around with; [you have] the same variables.,40
-fomc-corpus,1983,"If you plugged in a couple of recessions in the model, you'd get different results.",18
-fomc-corpus,1983,Or higher productivity.,4
-fomc-corpus,1983,"You would get different numbers, but you're still using the same model.",14
-fomc-corpus,1983,"I think the expectation, as I was trying to say earlier, is a little different and the scenario is different. If you contain the existing rate of inflation during the recovery, you will get a very significant drop in inflationary expectations in another couple of years. That, I think, is significant in working the model.",64
-fomc-corpus,1983,"I think that's the key: If we could cap inflation at 4 to 4-1/4 percent, while the economy for the next two years is growing at, say, 4 percent.",41
-fomc-corpus,1983,"But that doesn't work. That's not what this says. It says the faster the economy grows, the more inflation you're going to get. As nice as it would be to cap the inflation, we don't have any way to do it except by slow growth.",51
-fomc-corpus,1983,It would be nice if the world worked the way Tony wants it to.,15
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"But we've just been through an experience in which the Fed said to the world in 1979: Here it comes, guys; we're going to put you through the wringer. And what we got, if you believe the model, and there have been other studies that confirmed this, was by-and-large the response of prices to the degree of slack in the markets--period, end of story. Now the question is: Why do you think it's going to work any differently the next time around? It would be nice if you were right, Tony, but I don't--",115
-fomc-corpus,1983,"I'm not saying it's going to be right or that this is going to happen automatically. And I don't want you to assume that I'm going to vote the way I'm now going to suggest. But if we reduce the speed of recovery by 1 percentage point over the next year and we get 1-1/2 to 2 percent growth, and assume no action on the deficit until 1985 and then only half of what we are thinking at this time, I was wondering what that would look like. We might very well not have any increase in inflation in the next couple of years because of the exchange rate effects as well. Maybe you fellows worked this out roughly: A 1 percent lower rate of recovery over the next two years during this--",151
-fomc-corpus,1983,This package is 3.3 percent next year and 1.5 percent the year after.,20
-fomc-corpus,1983,I'm talking about this earlier scenario.,7
-fomc-corpus,1983,"You're talking about chart 15--the staff projection chart--not the experiment over 5 years. And there we have assumed, I think, a 4-1/4 percent rate of growth in 1984.",45
-fomc-corpus,1983,"Well, they already assumed a 1 percentage point lower growth in the briefing.",16
-fomc-corpus,1983,You have already assumed in '84 and in '85--,12
-fomc-corpus,1983,"Yes, this says you can hold the inflation rate constant with essentially a little over 3 percent real growth in 1984 and a little under 3 percent in 1985.",37
-fomc-corpus,1983,"In '84 and '85 we have reduced [real GNP growth], if I understand it.",20
-fomc-corpus,1983,"Well, I don't understand that because chart 18 has 3.3 percent in '84 and 1.5 percent in '85.",29
-fomc-corpus,1983,I think it's 1 percentage point lower than they otherwise--,12
-fomc-corpus,1983,"Chart 18 is not the staff projection. Chart 18 is the model projection, not the staff forecast as shown in the Greenbook projection. Chart 15 represents our forecast.",36
-fomc-corpus,1983,"Okay. But at the moment in the real world we are assuming that growth in 1984, if we were to continue with the present monetary policy, is likely to be 5-1/2 percent. At least that's what we are assuming in New York; it's higher than you people have.",61
-fomc-corpus,1983,And we are assuming 4-1/4 percent.,12
-fomc-corpus,1983,4-1/4 percent.,7
-fomc-corpus,1983,"With the present monetary policy? So, we are assuming significantly higher growth. Am I right on that, Peter?",23
-fomc-corpus,1983,5-1/4 percent.,7
-fomc-corpus,1983,"Okay, 5-1/4 not 5-1/2 percent. And I'm saying--well, I guess you can't compare the rates.",31
-fomc-corpus,1983,You're assuming 5-1/4 percent with this same inflation prediction?,15
-fomc-corpus,1983,Our inflation prediction is somewhat higher; I think we have a rate 3/4 of a point higher than the Board staff has.,27
-fomc-corpus,1983,With the current monetary growth rate as your assumption for '84? Without any reduction in money growth?,20
-fomc-corpus,1983,We are assuming basically that we have a 9-1/2 percent fed funds rate.,19
-fomc-corpus,1983,"Now, what about money growth?",7
-fomc-corpus,1983,I don't worry about that.,6
-fomc-corpus,1983,It's 5-1/4 percent real growth if they have 5-1/2 percent on prices.,23
-fomc-corpus,1983,"Yes, [unintelligible] in the same ballpark because you are talking about roughly 1 percentage point. That's the real growth, and we would have a higher price forecast for that.",40
-fomc-corpus,1983,"So, in other words, if I'm correct: To maintain 4 to 4-1/2 percent inflation, assuming that's what we have now, you would have to cut back real economic growth in '84 according to your model to what level?",51
-fomc-corpus,1983,"Well, in 1984 real growth would be in the area of 3 to 3-1/2 percent and in 1985 2-1/2 to 3 percent.",40
-fomc-corpus,1983,"But if you had 1 point more in productivity, you wouldn't have to cut back quite that much?",21
-fomc-corpus,1983,"That's right. They're about offsetting. If you get that 1 percent higher trend growth of productivity, then you could get the same inflation outcome that we have without cutting back on real growth.",39
-fomc-corpus,1983,"Well, does anybody else want to comment? Mr. Wallace.",13
-fomc-corpus,1983,May I ask a question for clarification on this natural rate of unemployment? With respect to the factors that you've listed on chart 8 here: Is it your assumption that on balance the thrust of those factors would reduce the natural rate in the year ahead rather than the productivity that you talked about?,58
-fomc-corpus,1983,"No, as a matter of fact, on income support programs there has been some cutback--more stringent eligibility requirements introduced on unemployment insurance and benefits--which should work to reduce the natural rate. Those sorts of things are hard to estimate. And to the extent that we have seen some improvement in work rules and labor/management relations, that makes the labor market a little more flexible. [Those are] conditions that would help. But that has been continuing as the recovery goes on.",97
-fomc-corpus,1983,But the most important thing in reducing the real natural rate of unemployment is the shifting demographics.,18
-fomc-corpus,1983,"Well, I think the sharp [deceleration] of productivity growth was far more important in and of itself in the '70s than the demographics, in terms of the percentage points that added to the natural rate. On the demographics I think the story is a little uncertain. You have to assume that all these workers who have come into the labor force have been getting work experience and have developed career attachments to jobs. As that happens they improve their job performance.",93
-fomc-corpus,1983,"Yes, but just the demographics are going to reduce the rate of growth in the labor force.",19
-fomc-corpus,1983,"Oh, in terms of the major unemployment rate, yes.",12
-fomc-corpus,1983,"I think the answer is clear, Mr. Chairman: We have to get the productivity gain up to 4 percent. That would take care of the whole thing!",33
-fomc-corpus,1983,"If capacity is increasing at less than the postwar average or [unintelligible]. So, at this speed of recovery, at least it's a normal recovery but we are moving up faster in utilization of capacity. This is where the Carter Administration ran into trouble quickly because there was a theory that utilization of capacity was supposed to [unintelligible] noninflationary growth [unintelligible]. I've put a lot of emphasis on capacity utilization. And it's very disturbing not to have it growing at a normal rate, even though we're having a fast recovery. I attribute this to the inflation rate. However, we are getting a lot of spending on equipment but not on plant; presumably the spending on equipment will extend the rate of productivity for [existing plants].",154
-fomc-corpus,1983,"Well, I think we can leave this for the day. But I would urge people to look at this question. I think we have a rather pessimistic [unintelligible]. But I have not heard a great deal of attacking of this today. You're simply saying we are better off with higher productivity if we could only achieve that. They can have a wrong estimate. But people might want to think a little about how we can improve this situation or even [unintelligible]. We will attend to it briefly at the next meeting. If we have enough time, maybe we can go through the Managers' reports this afternoon.",127
-fomc-corpus,1983,"Mr. Chairman, I wonder if in this review at the next meeting we could have the advantage of having sent to us the text of the staff's views given in the chart show today so that our own staffs may work on an analysis. We'll see if our [unintelligible] and weigh them a little.",64
-fomc-corpus,1983,"Well, there's no problem there.",7
-fomc-corpus,1983,"I think there's a little more to be considered, consistent with that. This is very much internal staff speculation. It has no Committee status and there's no Committee--",32
-fomc-corpus,1983,It seem to me that the [unintelligible] means more optimistic. But I would like to know how to be able to avoid a significant effect rather than a lower growth with such an elusive combination of--,43
-fomc-corpus,1983,"Well, I think you may be taking it too literally. I don't think this is a business cycle forecast. It's kind of a structural forecast with growth tradeoff [unintelligible] of these recessions.",43
-fomc-corpus,1983,It depends on when you have recessions--,9
-fomc-corpus,1983,[Unintelligible] factors cyclical. It's unlikely that the recovery would last beyond '87. I don't even think we should wait until '87; we ought to go for '86. And if you factor in an enormous [unintelligible] then we could get worse inflation. I don't know how to look at this kind of policy.,72
-fomc-corpus,1983,Are you talking about an improvement in the presentational sense or one that we really believe?,18
-fomc-corpus,1983,I'm only interested in what we can believe.,9
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,Or have somebody believe; it may have some correlation in the presentation.,14
-fomc-corpus,1983,"Well, I think the main thing is to be skeptical with respect to the model even though it has tracked very well in the last two years, because the very fact that it has tracked well and inflation came down is a surprise to people. And from here on out there may be less resistance because there was a lot of resistance to bringing inflation down built into the numbers of this model.",77
-fomc-corpus,1983,"I'm curious, but I won't prolong this, how you get this similar result from a long lag money growth model and a short lag money growth model in the chart that has the deflator and Ml. This Ml only goes through '81. Do I interpret that correctly?",54
-fomc-corpus,1983,Which chart?,3
-fomc-corpus,1983,Chart 2.,4
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,I don't remember a 10 percent rate of growth--maybe in 1981.,17
-fomc-corpus,1983,"Do you think, Jim, if you had made this presentation three years ago, that under any realistic kind of model you would have come up with 4-1/2 percent inflation?",38
-fomc-corpus,1983,"If you told me that the unemployment rate was going to be over 10 percent, I think we would have come out fairly optimistic. I wouldn't say that our staff view on inflation has been much more optimistic generally than outside forecasts; outsiders beginning in 1982 have moved their forecasts down substantially relative to the staff forecast. Now as we look ahead to '84 and what is happening in light of a lower unemployment rate, our staff forecast has been edging up. So, I'm not so sure. We wouldn't have had 4-1/2 percent inflation, but I'd say we would have had in the context of 10 percent plus unemployment rates, very strong improvement on price performance. But we missed on that, as you well know.",148
-fomc-corpus,1983,So did we all.,5
-fomc-corpus,1983,And the strength of the dollar.,7
-fomc-corpus,1983,"Yes, right.",4
-fomc-corpus,1983,"On a purely monetarist approach here: If you looked at this first chart, chart 2, you would have the money supply lower. You've got its growth coming down to below that of the [deflator] for a while and kind of coming back in line with prices, right?",59
-fomc-corpus,1983,[Unintelligible] based on recent performance.,11
-fomc-corpus,1983,"Then you would show a sharp increase, which would imply a sharp increase in unemployment at the same time we were going into a recession if we maintained the recent rate of growth of the money supply.",39
-fomc-corpus,1983,I think that's right. That shaded area is the area where there are some questions about the performance of the money stock relative to nominal spending and that was part of Steve's presentation last time. And that's where the--,43
-fomc-corpus,1983,"Oh, this is really before the most severe [unintelligible]. This money supply stops in mid-1981.",25
-fomc-corpus,1983,"That would be in the summer--the third quarter of '81. You only plotted M1 through the third quarter of '81, so there's another spike in here.",34
-fomc-corpus,1983,"Because if you get in there--. Well, Mr. Sternlight. No. First, the meeting has to come to order and we need to approve the minutes.",34
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,Without objection. Mr. Sternlight.,8
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,"Well, you might explain why you need a larger leeway.",13
-fomc-corpus,1983,"Over the intermeeting period our projections indicate a possible need to add something in the area of $4 to $5 billion to System holdings, and I think we could run into the normal $4 billion intermeeting limitation. I would suggest enlarging the leeway to $5 billion until the next meeting, Mr. Chairman.",65
-fomc-corpus,1983,Is that an average figure? Is it that it can't be over $4 billion on average?,19
-fomc-corpus,1983,"It's not an average, no. At any point within the period we would not be able to increase outright holdings by more than $4 billion from the starting point.",33
-fomc-corpus,1983,I was wondering because that doesn't include the repurchase agreements.,12
-fomc-corpus,1983,It does not include the repurchase agreements.,9
-fomc-corpus,1983,"So, the big operations--whether the Treasury balance is running out or not--are not the subject of this.",23
-fomc-corpus,1983,That is true. Correct.,6
-fomc-corpus,1983,You don't have any limit on your repurchase agreements?,11
-fomc-corpus,1983,That's true.,3
-fomc-corpus,1983,"As Mr. St Germain pointed out. About a year ago he wrote me a letter, which was in the press, asking: Why are you doing such a huge volume of RPs? We wrote back explaining the reasons why and I never heard from him again.",54
-fomc-corpus,1983,On a commitment basis we're not changing the System's holdings [when we do RPs].,18
-fomc-corpus,1983,"You have had to ask every once in a while before, Peter, for this kind of temporary increase in the limit. Wouldn't it make more sense, if you can establish your case, to have a permanent $5 billion [intermeeting limit] instead of having to come to the Committee each time?",61
-fomc-corpus,1983,"Well, this was reviewed--I forget when--and we went to the $4 billion limit. The Committee has gradually raised this [limit]. When it was reviewed a year or so ago, I think it was raised from $3 to $4 billion; the feeling was that with $4 billion there were likely to be maybe one to two occasions a year when we would have to come to the Committee [for a higher temporary limit]. I think the Committee's preference then was to set it a point where once or twice a year we did face the limitation and had to come before the Committee rather than to set it so high that it very rarely, if ever, needed review.",137
-fomc-corpus,1983,"This is typical for this time of year, isn't it?",12
-fomc-corpus,1983,"Fairly typical for this time of year, yes.",11
-fomc-corpus,1983,"Well, we'll come back to that. Are there any other questions on that point or any other point? Operations are all lucid as a spring [unintelligible] flowing out of that swamp.",40
-fomc-corpus,1983,We need some harp and string music here!,9
-fomc-corpus,1983,"You're saying that if by some chance the Congress were to reach the end of the week without raising the debt ceiling, you think the Treasury could get through until early December?",34
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,Does the Congress know this?,6
-fomc-corpus,1983,"I think they do, yes. The Treasury has a low point in [its cash balances around] the mid-month and [then] they can get through to about the end of the month.",39
-fomc-corpus,1983,"We might discuss this a bit tomorrow; I don't think we should take time now on the debt ceiling. I sent a letter to Mr. Regan telling him what horrible things would happen if they do run out of money now or later. I presume that will be published at some point but we could distribute it. Or did we distribute it, Mr. Axilrod?",75
-fomc-corpus,1983,I don't think it was distributed generally.,8
-fomc-corpus,1983,"Well, maybe we can distribute it tomorrow morning so people are aware. It has strong operational--",19
-fomc-corpus,1983,Any reply?,3
-fomc-corpus,1983,"Not yet. I don't know what happened. I've been out for a couple days; I haven't had a chance to follow up. Any other comments or questions? We need to ratify the transactions. Without objection. We have this proposal on increasing the limit. Without objection, we will approve that. I don't know how I got you out of order, Mr. Cross.",75
-fomc-corpus,1983,"[Statement--see Appendix.] I also have a recommendation, Mr. Chairman. All of the Federal Reserve System regular swap arrangements with foreign central banks and the BIS will come up for renewal in December. And I recommend that all the swap arrangements be renewed. We would propose no change in the terms of the agreements except that in the swap arrangement with the Bank of Japan we are discussing a possible change in the interest rate provision. The change under discussion would provide a more favorable basis for calculating the interest cost in the event of a United States drawing under the Japanese swap arrangement. We still do not have that negotiated with the Japanese but if it comes about in time and we can do it, we would like to introduce that change in the renewed Japanese swap agreement.",151
-fomc-corpus,1983,What if it came about two months after?,9
-fomc-corpus,1983,We would revise it.,5
-fomc-corpus,1983,You wouldn't need a new authorization?,7
-fomc-corpus,1983,"Well, I would inform the Committee.",8
-fomc-corpus,1983,Is this to make it more parallel with the other agreements?,12
-fomc-corpus,1983,"Yes. There is a difference in the rate we would pay if we should draw on the Japanese arrangement and in the basis on which we calculate our earnings on investments with the Japanese because they were negotiated at two different times. As we looked at them, tracking them over the period of the past several years, one seems to be consistently a bit below the other and we're concerned about that.",77
-fomc-corpus,1983,This contingency would be if we drew yen and invested--,11
-fomc-corpus,1983,"If we drew yen, the interest rate that we would pay on those drawings is based on Japanese rates and would be slightly less favorable to us, we think, if looked at over time, than the rate that we would get on investments.",48
-fomc-corpus,1983,"The drawing rate we pay, Paul, as I understand it, is the bond rate three months before the bond matures whereas the rate we get when we invest is the 3-month rate on an RP. And there is a few basis points difference here to our disadvantage if we were ever to draw on the yen swap arrangement.",66
-fomc-corpus,1983,Is this a controlled set of rates? Is that the difference?,13
-fomc-corpus,1983,"No, they are not. But when we draw we try to work it out so that what we pay is based on a short-term Treasury bill type rate. In Japan they don't have any such thing, so we base it on a longer-term seasoned bond which is maturing but has only a short period to run. That rate, for reasons I can't entirely explain, seems to be consistently a little higher than the so-called Gensaki rate, which is a [rate in the] much more liquid repurchase market. It seems to have rates that are slightly lower and that's the rate we would get on our investments. So, we want to try to bring about a change.",137
-fomc-corpus,1983,And the Bank of Japan is sympathetic and discussions are going on.,13
-fomc-corpus,1983,"The Bank of Japan is sympathetic but it is always a long and tedious process to have to negotiate anything like this with the Finance Ministry, so it has taken time. But we are trying to work it out.",42
-fomc-corpus,1983,Are there any other comments or questions?,8
-fomc-corpus,1983,Maybe this isn't the right time or maybe it is: Does anybody want to comment on the international debt situation?,22
-fomc-corpus,1983,Maybe we should just leave that for tomorrow in view of the time.,14
-fomc-corpus,1983,"Just a quick question on Schroeder, Meunchmeyer, [Hengst & Company]: Did they have a lot of foreign exchange positions in the market? Was it a fairly small bank?",40
-fomc-corpus,1983,There were no foreign exchange implications in that problem. It was local.,14
-fomc-corpus,1983,Just the bank?,4
-fomc-corpus,1983,"Well, I think the one thing that is worth commenting on--I don't think Sam mentioned it--is that the price of gold was declining during this period of enormous ""safe haven"" flows. The dollar has basically replaced gold and that has shocked a lot of Europeans and Arabs and a lot of other people. But they basically told them there are all these events--Lebanon, the Caribbean, etc. They would all expect the price of gold to go up instead of going down.",97
-fomc-corpus,1983,The price of silver has gone down.,8
-fomc-corpus,1983,A lot more.,4
-fomc-corpus,1983,"You might say a few words about the debt situation tomorrow, Mr. Truman.",16
-fomc-corpus,1983,I keep reading that there's a large German bank that has some problems and I assume it's not Schroeder. Is there any truth to that?,28
-fomc-corpus,1983,"Well, there are a lot of rumors about banks and they are usually denied. The foreign exchange market on Friday was subject to a certain amount of [fluctuation] when we were closed because of alleged problems with respect to German banks. But, again, sometimes they talk about the situation in Luxembourg branches that we're not aware of.",67
-fomc-corpus,1983,We need to ratify the transactions. Without objection. We have this proposal for authority to renew the swaps with the possibility of one small change. Without objection. We will see you tomorrow at 9:30 a.m.,45
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,"Is there anything you want to add, Mr. Cross?",12
-fomc-corpus,1983,No. I agree with everything Mr. Truman said.,11
-fomc-corpus,1983,May I ask a question? Have they been able to keep the regional and smaller banks on these loans to the debtors?,25
-fomc-corpus,1983,"Well, they generally have, with a certain amount of effort of pulling and clawing. I think the success has been pretty good so far. There are a lot of questions about whether they will be able to bring them along this next go-around, but so far it has worked reasonably well.",59
-fomc-corpus,1983,"I don't know of any small bank that has refused to reschedule, as distinct from coming up with new money. At least I haven't heard of any lawsuits, attempted lawsuits, or attempted cash-ins, and I find that comforting.",46
-fomc-corpus,1983,"The expectation is that this time it will be more difficult. On the other hand, there is greater recognition of the depth and pervasiveness of these problems. I think that the banks also are more aware of the situation and probably have less, or not much, chance of doing anything but going along.",61
-fomc-corpus,1983,"There were dissents on the other side of the [unintelligible]. I think they are realizing that this is not a short-term problem, and that leads to increasing concerns among the more thoughtful banks, I think, in terms of considering how it will work out over a medium-term rather than a more short-term set of operations.",68
-fomc-corpus,1983,"I think a major problem still is the likelihood that some major debtor country will ask for better terms. Argentina is discussed frequently on the front pages, even though that is the more moderate of the candidates [unintelligible]. I still think that [such a development] is more likely than not. There are various ways in which that request could come forward. Hopefully, it would be in private and in a moderate form and not be accompanied by any threats of a standstill. How the banks will respond to that is still a big question mark, if that does occur.",115
-fomc-corpus,1983,Has any consideration been given to changing the nonperforming loan classifications that might develop at year-end if there were major failures to pay interest?,28
-fomc-corpus,1983,"Well, we hope that Brazil will get its interest arrears up to date by the end of the year. Can they or can't they if this [loan] goes through?",35
-fomc-corpus,1983,"Yes, they can.",5
-fomc-corpus,1983,They can do it if things go as we are hoping they will go.,15
-fomc-corpus,1983,"In that case, the question wouldn't arise in any important way. There is a lot of accounting controversy and discussion and all the rest as to how these [items] are reported. The SEC wants some reporting of them as troubled reschedules, or whatever they call them. There will be more disclosure at the end of the year but they won't go into a nonperforming category, I don't think.",80
-fomc-corpus,1983,"Well, if they are more than 90 days past due, I think they are statutory bad debts and they have to be [so reported]. The accountants would certainly be negligent not to require that they be counted as nonperforming.",47
-fomc-corpus,1983,There are reversals of interest accruals also.,11
-fomc-corpus,1983,"I guess that's right, if they are past 90 days. I don't know that anybody is [past due] 90 days.",27
-fomc-corpus,1983,"Argentina will be, I guess, if they don't make some payments. Brazil is more than 90 days, but that presumably will be cleared up first.",31
-fomc-corpus,1983,"There's a reasonable chance that in Argentina's case there will be enough disbursements so that interest will be current on the public sector debt through the end of September, which would obviate, for the moment, the 90 days requirement.",50
-fomc-corpus,1983,What is the latest on the IMF bill? Is that likely to be approved soon?,17
-fomc-corpus,1983,"Well, we only have a few days [before we know] whether it's going to be approved or not going to be approved. There's great negotiation going on; it got tied up with the housing bill and, in a satisfactory way, from the standpoint of the Democrats. That obstacle seems to be removed but there are still a lot of questions. They have to get the appropriation as well as the authorization and it hasn't been through the Appropriations Committee. They are going to try to short-circuit that; whether they can isn't a hundred percent clear. But that is being negotiated right now and has been for the past week.",127
-fomc-corpus,1983,They still haven't reached an agreement on the [unintelligible] side on the communist countries?,20
-fomc-corpus,1983,"Well, I don't know; in the Congress it varies from day to day. They were not going to have the communist countries; there's still some controversy about the apartheid.",34
-fomc-corpus,1983,I think there may be a consensus but not an agreement.,12
-fomc-corpus,1983,What about the reserve issues? I remember there is a difference between the Senate bill and the House bill.,21
-fomc-corpus,1983,"Those things have all been fixed up satisfactorily, I think. But there probably will be some reserving, not for these big countries, in accordance with proposals that we gave Congress when it was before the Senate. When the loan is in protracted difficulty or whatever we called it, there would be some mandatory write-off on reserves. This would be for Zaire, Sudan, Poland, and some Latin American countries.",84
-fomc-corpus,1983,Bolivia.,3
-fomc-corpus,1983,"What is being worked out now and will probably happen in the next week or so is that some directive will go out. The amount is not massive in total; it would be a maximum of $300 and some odd million dollars for all the banks together, less anything they have already written off, which is a very foggy notion. But it's enough potentially, if they haven't already written some off, to have an impact on some of the bigger banks in reducing their earnings in the fourth quarter. In terms of the psychology, it will raise the question: If it's Sudan, Poland, and Zaire now, when does Mexico follow and when will Brazil come down the pike and so forth?",139
-fomc-corpus,1983,"But you agreed to create a fourth category in between weak and substandard, I gather.",18
-fomc-corpus,1983,"Yes, but that's different. This is at the opposite extreme where these [loans] are really weak. We will rename those categories so we will have a category that some of these Latin American countries will fit into where the loans won't require any reserving but will get a notice in something like a special-mention category for foreign loans.",68
-fomc-corpus,1983,"This is action we are taking, as opposed to action that is a part of the IMF legislation?",20
-fomc-corpus,1983,"Well, it's consistent with a provision in the IMF legislation. But we would be taking the action a little in advance in a sense. Presumably, the legislation will have passed anyway. It's totally consistent with the Senate version of the IMF legislation but it raises some questions of precedent. It will be the first time we have done it and will raise those kinds of questions. It won't apply to any of these countries that are in negotiation with the IMF or have IMF programs and so forth, but I think it will send a little tremor through the banks.",111
-fomc-corpus,1983,Some of the foreign central banks and banking commissions are beginning to require a provisioning against [loans to] Latin American countries. [Unintelligible] for this year are requiring 5 percent of the exposure for the first time and they are talking about 5 to 10 percent next year.,60
-fomc-corpus,1983,"Well, this question will arise. Some work also is being done on proposals that we came up with at the time of that [unintelligible] and rejected for the time being--whether to require a reserve against the aggregation of all this if it's too big.",54
-fomc-corpus,1983,It is reported that the German banks have written off enough in Latin America so that they would be amenable to one of these solutions where the interest rate is lower and the principal is funded into a long-term security.,43
-fomc-corpus,1983,"It's very hard to know what this reserving is for our banks or other banks. They say they reserve. The question is whether they are increasing their total reserves more than they otherwise would or are saying within some total they have anyway that they are allocating this to Brazil, Mexico, or whatever. I don't think anybody knows the answer to it completely.",70
-fomc-corpus,1983,"In our case, Paul, I think we ought to recognize that that will be a segregated reserve and will not be counted as capital. For these $300 million--",34
-fomc-corpus,1983,Or they will write them off. I think many of them will just prefer to write them off for their [unintelligible] balance sheet. I say write them off; it's just a partial write-off.,43
-fomc-corpus,1983,Some of the banks' CEOs said to me that they would be most reluctant to start provisioning if the reserves were [not] tax deductible; they are concerned that the IRS regs would not--,38
-fomc-corpus,1983,"Well, it's a foggy area. This write-off equivalent is what we would be [unintelligible].",23
-fomc-corpus,1983,It's mandated.,3
-fomc-corpus,1983,They don't want the write-off equivalent. And you're saying that the specific reserve provisioning would be deductible?,20
-fomc-corpus,1983,"Only this particular type of specific reserves. Our banks are very reluctant to write off or reserve in a way that really adds to the reserves. It has been argued so many times that we can't do enough to make any difference, and it just raises questions about the loans. Our banks operate more in a goldfish bowl than any of these other banks who can write off without telling anybody their reserve [unintelligible] and they haven't got any hidden reserves. The allegation by many of our banks is that they are reserving whereas these other banks are not really reserving. They just move something out of hidden reserves into calculated reserves.",127
-fomc-corpus,1983,And the argument against write-offs is that the debtor countries become aware of it and would have less interest in trying to keep paying. I'm not sure whether that is an honest point or not.,38
-fomc-corpus,1983,Some of them have written off some of these extreme ones.,12
-fomc-corpus,1983,"I don't know. [Unintelligible] trying to differentiate between those that have been charged off or written off and those that haven't. So, I'm not sure at all that there is that much validity to the argument that one reason they can't write them off is to take advantage of the tax cut [unintelligible].",66
-fomc-corpus,1983,I have an ideological question for some of your New York banks who refuse to accept [unintelligible].,22
-fomc-corpus,1983,Privately [unintelligible].,8
-fomc-corpus,1983,"Ted, what happened to the negotiations or alleged negotiations with the Mexican private sector credits--exploring the notion of a rollover that would be part debt and part equity. Was that just talk?",38
-fomc-corpus,1983,"There have been some of those, I think, in the big conglomerate cases. I don't know how widespread it is; I think it's fairly limited.",31
-fomc-corpus,1983,"But if it were rolled over into part debt/part equity, would the accounting or the reserving or the nonperforming status be affected at all?",31
-fomc-corpus,1983,"Yes. But the accounting on those private sector loans is easier to handle. They just fall into the normal rule more easily than a sovereign credit. So, they would be handled just like domestic credit.",40
-fomc-corpus,1983,We still don't have a definitive clarification from the Comptroller on the legal limit being exceeded and how that is to be treated when everything gets rolled over.,30
-fomc-corpus,1983,"The staff is still working on it; there hasn't been any definitive clarification. In fact, the Comptroller's staff and our staff are meeting today to discuss it further.",34
-fomc-corpus,1983,Any better feel on how many banks are involved in that now?,13
-fomc-corpus,1983,"From the data that are coming in so far, it doesn't look like a serious problem. There are individual banks that have problems. I don't think it is more widespread than we thought earlier.",38
-fomc-corpus,1983,I thought earlier it was less than a dozen banks but I fear it is more.,17
-fomc-corpus,1983,"But the thing I didn't understand is that, in my naive mind, it looks like an evasion. Bank of America has said that they would exceed the limit so, therefore, they are going to make the loan from their holding corporation and not from the bank.",53
-fomc-corpus,1983,That's a possible way of doing it.,8
-fomc-corpus,1983,That's one way around it.,6
-fomc-corpus,1983,The lending limit is on the bank.,8
-fomc-corpus,1983,Does that meet the spirit [of the law]?,10
-fomc-corpus,1983,"It doesn't diversify for the stockholders of the holding company, but it meets the statutes of lending limits for the banks.",24
-fomc-corpus,1983,"We're not probing too closely. It meets the technical [requirements]. In terms of the Mexican [situation] and the interest rates, that is in my judgment the opportunity for the banks to provide a lower spread--a positive spread, but a much lower one. They stuck Mexico last year. And we will have a provision in the legislation that gives strong moral endorsement at the very least on the part of the United States--it's a Congressional directive--to look for lower interest rate spreads on these.",100
-fomc-corpus,1983,It's a bit of price-fixing by the Congress.,11
-fomc-corpus,1983,It looks that way.,5
-fomc-corpus,1983,"Well, the language, I guess, is all right now. I don't think it's so bad to have a little moral suasion coming out of the Congress. We didn't want it so mandatory that it would foul things up. Mr. Truman and Mr. Bradfield have [determined it is] satisfactory, I hope. I haven't looked at it closely. MR. TRUMAN-. Mr. Bradfield still thinks it can be improved. He believes in this [unintelligible].",99
-fomc-corpus,1983,Mr. Kichline.,6
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,"Mr. Chairman, I think the staff forecast is about right, but it's a little cautious on the current quarter. The current quarter seems to me possibly a little stronger than is forecast. I think the economy is slowing down from the third quarter, but not as much as [the staff projects]. I'm particularly impressed with the labor market numbers. There has been some decline in industrial production over this month from last month. But all the other numbers seem to show continued strength at roughly the same momentum as in the last quarter. I wouldn't be at all surprised to see this quarter turn out closer to a 7 percent real rate of growth than the 6-1/4 to 6-1/2 percent that has been forecast. So, I would say the forecast for this quarter is a cautious one. Again, I think the longer-run forecast for 1984 is about right. The main difference that I would see is that the strength of consumer expenditures may continue longer into the early part, or the first half, of next year. And the swing toward inventory accumulation may last longer than is projected, which of course would then mean that the growth rate for the first half of next year would be somewhat higher than is now forecast. I would consider that to be unlikely. But I mention it just to suggest that if there is any error in the forecast, it is that the outcome is likely to be stronger than is now forecast. I was one of those people, I would remind you, who in the spring of this year were concerned about whether the recovery was really as strong as most people thought it was. I'd like to say now that I am convinced and that it's probably stronger than forecast.",341
-fomc-corpus,1983,Governor Martin.,3
-fomc-corpus,1983,"Could I ask a question with regard to price changes and the price outlook, Jim? As you know, several of us have had some discussion with regard to futures prices and spot prices and commodity and producer price indexes and so forth. What would be your judgment as to what the spot and futures markets are showing with regard to the first signs of reinflation or the lack thereof?",76
-fomc-corpus,1983,"I don't think they're showing much. In terms of industrial materials, prices have perked up a little recently. There is still a good deal of weakness in a couple of markets such as copper and I guess silver and lead. What has been changing is that the very rapid run-up in prices in futures markets that we had seen for grains has backed off a bit. In fact, our projection of food prices next year would seem to be high now if you were to take what is going on in the futures markets as a likelihood. So, I don't see a big problem there. We are getting hints in some of the markets of a tightening in supplies, but it's not really dramatic at this moment.",140
-fomc-corpus,1983,"But, Jim, you have the GNP deflator going from 3.5 percent in the third quarter to 4.6 percent this quarter; that's a substantial rise of 1.1 percentage points.",43
-fomc-corpus,1983,"Yes, I think Mr. Truman is doing that to us. We tried to offset him; I must say I worked very hard but failed. It has to do with oil imports and oil prices and the screwy way in which they enter the deflator.",52
-fomc-corpus,1983,Which I'm not responsible for! I'm only responsible for the raw material!,14
-fomc-corpus,1983,"Apparently it is the mix of commodities that affects this, particularly on the imports side--the oil imports. That may not be clear.",27
-fomc-corpus,1983,Does that mean that oil import prices are going down?,11
-fomc-corpus,1983,"They were up in the third quarter and the mix was high. They are going down and, therefore, we get a larger deflator--more negative.",31
-fomc-corpus,1983,They are subtracted out and it works the other way in the initial quarter.,16
-fomc-corpus,1983,Mr. Wallace.,4
-fomc-corpus,1983,"Jim, the retained earnings of corporations have apparently been an important factor recently in holding down the rise in interest rates. I notice in the flow-of-funds tables that this has changed or is changing in the second half of '83. Has that changed or has the financing gap become positive at this point?",61
-fomc-corpus,1983,"Well, it is in the process of change. It's very clear. In fact, we have raised our projected external needs for funds in the corporate sector especially in 1984 because we've raised our forecast of business fixed investment. Unfortunately, I have a flow-of-funds table here that has about 50 pages and a million numbers and I can't find the line I'm looking for.",76
-fomc-corpus,1983,I was looking at line 6 on the highlights in table 1.,15
-fomc-corpus,1983,"You have a positive financing gap of $8 billion in the second half of '83, according to Monday's [staff] presentation.",27
-fomc-corpus,1983,"The negative that we have in this forecast in the financing gap, as noted, ran through the first three quarters of the year, and we have a financing gap of around $17 billion in the fourth quarter. So, our expectation is that this quarter will be the first one where the financing gap has swung from a negative to a positive and it rises further throughout 1984.",76
-fomc-corpus,1983,I'd like to make a modest request that occurred to me earlier. These flow-of-funds figures are always shown in half-year terms. Could you put them in quarterly terms for the period?,38
-fomc-corpus,1983,"Yes, as long as you recognize the volatility and the substantial revisions in those numbers that half-year patterns--",21
-fomc-corpus,1983,You like this volatility submerged!,6
-fomc-corpus,1983,"If you want the full display, we can certainly do that.",13
-fomc-corpus,1983,"If nobody else is going to comment at the moment, let me ask you a question, Mr. Kichline. Mr. Rice said he thought, if anything, that the forecast may be on the low side. Suppose we want to explore the opposite. I'm not saying you would forecast it, but what plausible scenario could you make for substantially more weakness in the first and second quarters than you have projected? What would you expect to see happen if the economy gets weak?",95
-fomc-corpus,1983,"Well, we'll put Mr. Truman on the spot. I think one of the areas of potential weakness is on the foreign side. Obviously, as the dollar continues to be very high, it raises questions about performance on the foreign side. That's one area of [potential] weakness. Another may well be in residential construction activity. We've seen fluky numbers there--shooting up in August and dropping back in September. Our view is that that's about the bottom, but that's not necessarily clear. It could easily go a bit weaker. Another is this dramatic increase in business fixed investment, which has shown up in terms of orders and shipments in the durable equipment area. And we've had a lot of gyration on the building side in nonresidential construction. There were deep declines in commercial construction in the spring and then big increases in the summer, and it's hard to read those numbers. It may well be that there's not as much happening on the structure side of business fixed investment, and that would turn our forecast weaker. I would note particularly that we continue to get very bearish reports in office construction; the numbers are still quite weak. We have built in here a flattening out of that--very little growth next year. But it may well be, given the dramatic increase in vacancy rates in many areas across the country, that office building construction is winding down and will go more deeply negative. So, in the investment area and in residential structures and the foreign sector I think there are potential negatives.",299
-fomc-corpus,1983,"May I just note, Jim, that you have brought the saving rate back now, but it's still not a high saving rate.",26
-fomc-corpus,1983,"No, that's right. It's in the 5 percent area which, as you know, is very low. And we have perceived that to be a constraint on consumer spending next year.",37
-fomc-corpus,1983,To hold that up?,5
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"You have assumed that interest rates are going to stay where they are now, is that right?",19
-fomc-corpus,1983,"Well, they're a few basis points higher; they are a little higher than the forecast we had used last time, but it's a quarter of a point or so--nothing dramatic.",36
-fomc-corpus,1983,One of your contingencies is not rising interest rates?,11
-fomc-corpus,1983,You mean in the fourth and first quarters--in my answer to the Chairman?,16
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"No, I didn't sprinkle that in. If you were to talk about a significant rise in rates, which we have not built into this forecast, again, it seems to me that certainly the residential structures area could be hit early on. But it would have to be much more than we have built into the forecast to alter the picture in the very near term. I think it would have a longer-run implication.",82
-fomc-corpus,1983,Mr. Keehn.,5
-fomc-corpus,1983,"I just have a comment on capital goods, particularly for those industries or those companies in the Middle West. While there has been some improvement, I think, nonetheless in a broader perspective many of these industries are still doing very, very poorly. We took a look at four components of the industrial production index--farm equipment, construction equipment, metal works, and railroad equipment--all of which are terribly important in the Middle West. We compared their current levels of operations with the third quarter of 1981, which was for many of them a high point. And these four individual sectors are still operating at a very, very depressed level. I'm sure they will come along, as Jim is suggesting, but I also think some of them have undergone some pretty important structural changes. They are still operating at very low levels and the people running these companies continue to be quite depressed about the outlook. So, if there's any error at all, in my judgment it certainly is in that area on that side.",199
-fomc-corpus,1983,The four you mentioned were what?,7
-fomc-corpus,1983,"Farm equipment, construction equipment, metal working, and railroad equipment. Railroad equipment, for example, is currently operating at 81 percent under where it was in the third quarter of 1981. It has some very individualistic circumstances, which caused that, but it's an industry that is--",58
-fomc-corpus,1983,An 81 percent decline from 1981?,10
-fomc-corpus,1983,Yes. That's freight cars.,6
-fomc-corpus,1983,"They are going to deliver about 5,000 freight cars this year, and it's an industry that has frequently delivered, say, 80,000 in a year; and that has been as high as 120,000 in a year.",49
-fomc-corpus,1983,"In the index, I might note, I'm told there was a dramatic increase in October. The numbers were just released; it's up about 50 percent or something like that. The index level goes from 13 to 19 or something like that. It was 100 in 1967, so it's operating at 87 percent below where it was in 1967.",75
-fomc-corpus,1983,Governor Wallich.,4
-fomc-corpus,1983,"I'd like to ask whether, in terms of our capacity limitations, the labor supply limitation is more or less severe in your judgment than the capacity utilization. As I look at the numbers here, you forecast that by the end of 1984 we will get to 82.5 percent capacity utilization, which I would regard as close to the flash point, even though that's hard to define. And at that time we get to 8 percent unemployment, which is still well above a reasonable range for the noninflationary rate or non-accelerating inflation rate of unemployment. Does that mean that we have a tighter capacity ceiling over us than a labor supply ceiling?",133
-fomc-corpus,1983,"Well, that's a very murky area, as you know. Our concern at the moment runs in the direction that capacity utilization appears to be rising more rapidly, given growth in the economy, than it did in previous cycles. But there are some factors that clearly could affect that. One is that we apparently do have substantial additions [being made] to business equipment at the moment, which would presumably add something to capacity growth. We're uncertain about how to measure recent capacity growth and, indeed, some of the facilities that were removed from the capital stock or allegedly closed down may come back on stream depending on what happens to the economy. So, it may be that the numbers [projected for] a year from now or two years from now are not as tight as they look. But for now I would very much agree that it appears that the risk is on the side of capital shortages rather than labor shortages.",182
-fomc-corpus,1983,"Jim, wouldn't you add the question of world capacity and the business relationships that have been entered into by American firms with foreign suppliers over this last four-year period? Obviously, you have built into the forecast changes in the exchange rate, but I think the business relationships, contracts, and so forth to some extent transcend the exchange rate question. If you talked to some of Silas' constituents and some of the others, they say they are going to continue to use those foreign sources. Now, that's too flat a statement, but isn't that--",108
-fomc-corpus,1983,"No, I should have mentioned that. That clearly is very important in our thinking about all of this and about the price pressures that might stem from rising capacity utilization. I would say that it's particularly important in the context of a very sluggish current and prospective recovery abroad. So, there appears to be in many key areas ample world-wide capacity.",68
-fomc-corpus,1983,Let me ask a second question with regard to labor resources. If your productivity figure is indeed too low--as I have said innumerable times that I think it is--where does that leave you with regard to unemployment rates?,45
-fomc-corpus,1983,"Well, I think in the shorter run we will probably be talking about higher unemployment rates. It's conceivable that in the short run it means that businesses would not be adding as much to payrolls as we have projected in this current forecast. So, we would expect that to give us perhaps a bit higher unemployment rate in the shorter-run context--that is, the demands for labor would be weaker.",79
-fomc-corpus,1983,Mr. Forrestal.,5
-fomc-corpus,1983,"Mr. Chairman, the conditions in the Sixth District are substantially different from those reported by Si Keehn. In practically every sector, with very few exceptions, we're seeing very, very robust growth in the economy--August auto sales, retail sales, housing construction, and so on, and even areas that have been badly hit by the recession and were giving us very gloomy reports until recently. Alabama, Louisiana--particularly due to the energy sector--and Mississippi are reporting substantial gains in their situations. Even the areas that I mention as exceptions--housing and agriculture--are doing better. The farmers, of course, were hit by the drought and the excessive heat during the summer. But the PIK program has insulated a lot of them from difficulties, and their revenue will probably be up. When you put all of this together, as far as the Sixth District is concerned, we see very, very robust growth ahead for the rest of '83 and for '84. I don't have any particular quarrel with the staff's analysis but like Governor Rice I would think that the strength of the economy, if anything, is being underestimated, especially for the fourth quarter. So, we would be looking for higher rates of growth in the fourth quarter and probably in '84. Associated with that, I would say, too, that we think the staff's inflation forecast for '84 is perhaps a little on the low side.",282
-fomc-corpus,1983,Mr. Corrigan.,5
-fomc-corpus,1983,"The situation in the Ninth District is a lot like what Bob Forrestal has just described in the Atlanta District. The reports that we're getting are of strength across the board, even in some of the areas that have been very weak, such as iron ore and so on. It's not booming yet but the mere fact that one of the big taconite companies has just announced that they're recalling 1600 workers as of January 1st, in the context of the situation up there, is quite a dramatic development. The lumber and timber areas are very, very strong. There is even a renewed surge of activity--I don't want to call it a burst yet--in the oil and gas producing areas in western North Dakota and Montana. The number of operational rigs in the field has doubled--from admittedly a low level--in the last couple of months. The farm price situation as it was reported to me is probably compatible with what Jim said earlier; in a sense it's looking better. If anything, our people are suggesting that they think it looks even a little better than Jim says. One of the things that is now being cited is that the change in the dairy and milk program that was enacted by Congress last week in all likelihood is going to put a lot of milking cows into the slaughter market and that will work to hold down the widely expected big jump in beef prices next year. So, by and large, our agriculture price outlook is thought to be improving, if anything. In the Twin Cities area, the character of the situation, I think, really has changed. For example, we even heard reports last week of strengthening in office space rentals in a context in which there's a tremendous amount of new building going on in the Twin Cities. And last of all, in terms of an anecdotal leading indicator, I've been struck myself just noticing the number of help wanted signs in the store windows of small businesses throughout the Twin City area. That is something that I certainly can't recall seeing since I've been up in those parts of the woods. On the housing side, though I don't know to what extent this is generalized, I get the sense that the housing market is being held up by the increased acceptance of variable rate mortgages on which the initial rate, the rate that people are looking at today, is a relatively moderate rate compared to the rate on conventional fixed-rate mortgages. To what extent that will last is another thing. But right now I think it is one of the things helping to hold up the residential side. I also think, as I have for some time now, that the risks are on the up side in terms of the economy and clearly on the up side in terms of inflation. I've looked very hard to find any hard evidence of a resurgence of price pressures and can't really find it. But I must say I have the distinct sense, extracting from the numbers, that it's either there or lurking close at hand. Certainly, we do get a lot of reports of disappearing discounts--in some cases substantial discounts off posted prices for industrial goods--which may or may not be captured in the price statistics. And, getting back to the discussion of yesterday, I think the character or the chemistry of the recovery as it pertains to the interaction of wages, productivity, unit labor costs, and cash flow to the business sector--any way you look at it--clearly is about to change. Even if productivity is stronger than the Board staff's forecast, we still are going to have a marked shift away from the phenomenon of the last few quarters in which wages were decelerating, productivity was growing very sharply, and unit labor costs were actually declining for two quarters running. So, even if productivity is stronger than the staff estimates, which I think it will be, I still think that the character of the recovery as it pertains to cost-price pressures is about to change. And that is one of the reasons why I think it's going to be very, very difficult to hold the inflation rate in the 4 to 4-1/2 percent range.",813
-fomc-corpus,1983,Mrs. Horn.,4
-fomc-corpus,1983,"With regard to the economic outlook in the Fourth Federal Reserve District, I thought I would come at it from the side of some of the industrial developments in the District and what they might mean for the near-term outlook for inflation. It has been said many times around this table, and I just repeat it, that the labor concessions that we've seen have been in industries that are under severe market pressure and are fighting for survival. Of course, the question remains: How long-lasting will those concessions be in industries that pick up? They may, of course, continue in those industries that are getting smaller over the long term. Let me make some specific industrial comments. First, about autos and the nationwide Chrysler settlement that had been followed by the local settlements: All the locals settled except Twinsburg, Ohio, which is the metal stamping plant for Chrysler, and Twinsburg went out on strike. The settlement of that local agreement was considered a union victory to be settled regardless of cost to the company, which in lost earnings was somewhere between $50 and $100 million. I think there are reasons to argue that that is overstated and that Twinsburg was unique. There had been a terrible industrial accident there in which a man was crushed to death in a stamping machine. The working conditions are bad in metal stamping plants and that is an old stamping plant. In addition, it had a rather unique situation in having quite radical union leadership at that plant. Nonetheless, I think what happened at the Twinsburg Plant is indicative of workers' attitudes and it is one of the things that makes me apprehensive about the upcoming auto negotiations. It makes me think, as we look at those negotiations next year, that maybe a number like 6 percent is on the low side of what might come out of those negotiations in an industry that has been quite profitable. In thinking how auto negotiations might affect inflationary expectations and inflation through the economy, one can look at other sectors of the economy where there is some strength and talk about those being the next to go. One strong area that we see, of course, is trucking. That might be the dynamics by which inflationary expectations build. Let me turn to another industry that's heavily represented in the Fourth Federal Reserve District, which is steel. That brings questions of both capacity and productivity. Capacity has been discussed, of course, and capacity growth rates have been slowing domestically in a number of our industries, and in some industries we've even had liquidations. This brings forth a great question of how we measure capacity and when the cost pressures will show through into prices, as has been discussed. Steel causes me to see the productivity outlook as mixed. On the positive side, I agree with a number of comments that have been made to the effect that if you talk to businessmen, they think that they not only have accomplished significant increases in productivity but they see ways that they will continue to increase productivity in the future. On the negative side, if you look at some of our beleaguered industries in the Fourth District and talk about labor attitudes toward productivity, it's very difficult to convince organized labor that productivity increases are important. We tell them [they are]. I think they believe quality increases are important--that they are not competitive because their product is shoddy compared with a foreign import. But I think they see productivity increases as a way to lose jobs. It's like the old story about when oil prices were going up and people were supposed to use less electricity, and they paid more for their electricity. It's the short-run effect. It is very hard to convince labor of the importance of productivity increases, particularly in industries facing severe international competition. To go back to the Twinsburg situation, in the context of productivity, I think almost the most important thing that came out of Twinsburg was probably the re-evaluation of the way of doing business that we thought was going to happen in the auto industry. It still may, but I think they are very carefully looking at something like a just-in-time concept of producing products because they found out that if they don't have the same kind of labor market conditions as they have in Japan, an inventory control method like just-in-time can shut down their business. And at least at Chrysler they are really evaluating their possibilities.",855
-fomc-corpus,1983,That might lead to larger inventories?,7
-fomc-corpus,1983,"Yes--not labor productivity but capital management productivity, that's for sure. I think that's a very serious outcome.",22
-fomc-corpus,1983,Governor Gramley.,4
-fomc-corpus,1983,"Well, I'm getting worried about whether or not we're going to get the speed and the degree of slowdown that the staff has forecast. I agree with Governor Rice that the current quarter is one in which we may end up with more GNP growth than 6.3 percent. I wouldn't worry too much about that, but I would worry a lot if growth in 1984 didn't slow down to somewhere close to the 4-1/2 percent or so rate the staff is forecasting. One can make a strong argument, based on past cyclical performance, that we're going to get a lot less thrust from those two areas that typically lead the recovery--housing and inventories. What we don't know at this point is the degree of strength that is developing in the business fixed investment area, which tends to replace the strength that comes along from housing and inventories in the first year of recovery. We're in a very difficult position, I think, in trying to predict that because the investment intentions surveys that we used to depend on so heavily have become almost totally worthless. The two private surveys we have gotten now for 1984 are predicting increases in nominal terms of between 9-1/2 and 11 percent. And the staff has said, quite properly, that those numbers can't possibly be right; a lot more has happened. The other kinds of information that we've tended to use are the contracts and orders figures, and they show simply enormous strength. The contracts and orders figures in September in real terms are up at a 25 percent annual rate [from] the fourth quarter of 1982. The problem with forecasting from those figures is that they carry for about a quarter or maybe two quarters but not much further. The staff's forecast for business fixed investment is reasonably strong for next year but it shows a progressive slowdown in the rates of increase from what we've had recently--from a 15 percent annual rate in third quarter of 1983 to 13 to 11 to basically 9 percent. And if that doesn't happen and we get something more toward the upward end--in the 10 to 15 percent range--then we have a lot more growth ahead of us than we've allowed for. The other reason I think we ought to ask ourselves whether past cyclical patterns of slowdown in the second year are going to emerge is the policy assumption the staff is using on the monetary side. It is true that we've had a very, very substantial slowdown in the growth of the monetary aggregates, but we've also had a very substantial turnaround in the performance of velocity. The staff here--and there are many other economists who have been doing the same thing--have been using what we call effective money growth or what other economists call adjusted money growth. I have been looking at some of the numbers. What you do is ask yourself what would have happened to the money stock if the relationship between money and GNP and interest rates had been what it was prior to 1974. Now, that's a wild kind of thing to have to do, but it yields some interesting results. What it says is that effective money growth in the first three quarters of this year was about 6-3/4 to 7 percent at an annual rate, about 5 percentage points below the actual figures. And in the fourth quarter it's going to be reversed; it's going to be about 8-1/2 percent at an annual rate, about 5 percentage points [above] the growth forecast by the staff. Next year the staff forecast assumes that 7 percent is appropriate; but if we translate that to effective money growth, it comes out to 8 percent. And that means, if you believe the staff's forecast for real money growth, that Ml is increasing at a 3-1/2 percent annual rate next year. That is very, very high by historical standards. On the fiscal side, I would remind you that we still have a lot of fiscal spending ahead of us. The full employment deficit, based on the 6 percent unemployment rate calculation, went from a $10 to $15 billion range in the first half of 1981 to a $65 to $70 billion range in the first half of 1983. It goes up to a range of $115 to $120 billion in the first half of 1984 and to $125 to $130 billion in the last half of next year. I have to figure, with that kind of fiscal stimulus and monetary expansion still proceeding quite rapidly, that the chances of an overrun of the staff's forecast for next year are very substantial.",923
-fomc-corpus,1983,Mr. Wallace.,4
-fomc-corpus,1983,"Mr. Chairman, I could echo the kind of bullish report that you heard from Bob Forrestal and Jerry Corrigan as far as our District is concerned. Of course, I'm talking primarily about the state of Texas; the recovery is very much in evidence there. It was fueled initially by the construction industry, which remains a strong element of that recovery, at least on the commercial construction side. I think residential construction has plateaued at this point but now we're seeing strength developing more generally from the industrial side of the economy. That is in evidence in such industries as aluminum, copper, and steel; and although the evidence in the high-tech electronics industries is spotty, that is still a source of strength. And we're beginning now to see some evidence of recovery in the energy sector though, of course, it's also not as much as in the District economy generally. But we are seeing evidence in the variables we tend to look at such as the active rig counts, which have shown a 23 percent increase since July, and the seismic crew counts in the District, which have increased 20 percent since September. This is occurring throughout the four-state region that we look at but, again, primarily in Texas. So, there is evidence of some upturn in activity in that industry. That does not indicate that we will see relief any time soon in the sense that some of the bad loans in regional banks that have been very much in the news recently will necessarily get paid off, but at least over a long period of time it should provide some relief there. The services side of the energy industry is still very much depressed--the mud suppliers, the welders, the truckers and all that goes along with it. That has not shown any evidence of picking up yet. Of course, this is attributable to several things but it's not attributable to any prospect, at least at this point, of higher oil prices. It seems to be resulting from lower production costs and the fact that the economy in general is showing some increased strength. Certainly, the weakest part of our economy at the moment continues to be the border region, which I think we would have to say is still in a state of depression. There has been some improvement in the economy in the El Paso region but not in areas farther down such as Laredo, Brownsville, McAllen, and so on. Those cities are flat on their backs. The city of Laredo at this point has the distinction of having the highest unemployment among those cities recorded in the labor statistics. We have noticed some curious activity in certain parts of the District. One of the questions that you raised with us when you were down there last week was about land prices, and we talked with a few people in this area. Some prices of raw land are being bid up on the basis of the prospective development of retail strip shopping centers and that sort of thing. We've uncovered a few instances of land changing hands as often as 3 or 4 times a day in this process, which we hope is not a usual situation, but that was the latest--",619
-fomc-corpus,1983,It has to be set up in advance.,9
-fomc-corpus,1983,It could be. SPEAKER(?) But not in Texas.,12
-fomc-corpus,1983,"For example, there are instances of land as far as 25 miles out from the central business district of Dallas where prices have been bid up to $5 to $6 dollars per square foot on the anticipation that these properties will be prime sites for shopping center developments and that kind of thing. That, of course, would be along major highways. One of the members of our staff attributes this to unsophisticated developers being fueled by unsophisticated lenders, primarily in the thrift industry. Unfortunately, this is not a very favorable development. But I think on balance the economy of the Eleventh District is very strong at this point, and I certainly would agree with Jerry Corrigan's comment that the risk is on the up side, and I think we will continue to see increasing inflationary pressures in the months ahead.",163
-fomc-corpus,1983,Does anybody else see the kind of land speculation that is going on in Texas?,16
-fomc-corpus,1983,You mean land changing hands three times?,8
-fomc-corpus,1983,Prices are up in some areas four or five or six times.,13
-fomc-corpus,1983,"I don't want to leave you with the impression that this is a common everyday occurrence; on the other hand, I don't know that it's not either.",30
-fomc-corpus,1983,"That's better than $200,000 an acre!",10
-fomc-corpus,1983,"That's right: $5 to $6 dollars a square foot is $250,000 to $300,000 an acre.",25
-fomc-corpus,1983,"Well, New York real estate is still [unintelligible]. To the extent that people are looking around for an inflation hedge, the collectibles market has picked up quite rapidly in the last two months; much higher prices are being bid at auction houses. It's almost as though people are thinking in the inflationary hedge terms we saw a couple of years ago. I can't understand why there is such a rapid rise in prices at the better end of the scale.",92
-fomc-corpus,1983,Mr. Balles.,5
-fomc-corpus,1983,"Well, Mr. Chairman, I continue to be impressed by the differences in the strength of an aggregate like real GNP, which is looking strong, versus the reports I hear around the table and the conditions I witness in our own District industry by industry. Basically we have both great strengths and great weaknesses. Perhaps that is what one expects in a recovery that is less than a year old. Certainly, if you disaggregate the economy, you get a marked impression that things are not going well across the board; some things are going very well indeed and some things aren't going so well. It's only in some aggregate sense that the economy is continuing to move upward. But I'm beginning to get concerned about some of the distortions that are taking place in some key industries, despite overall growth in employment and production--in areas such as construction, trade, finance, services, and so forth. The drop in housing starts that we had last September of some 15 percent is really beginning to feed back into the forest products business now, and the recovery that had taken place in the state of Oregon clearly has stalled. Unemployment is rising again. In our aerospace business, our country's biggest company has continued to reduce its payroll up until very recently. But there is some good news there because they have just gotten a heavy inflow of new orders for commercial aircraft. New orders in the last month or so have been greater than all the rest of 1983 put together and the backlog of unfilled orders is now rising. And that's, of course, good news for the Pacific Northwest.",315
-fomc-corpus,1983,"John, are they domestic orders or a combination of domestic and foreign?",14
-fomc-corpus,1983,"It's a combination of domestic and foreign in the commercial field. I'm not talking about the military areas now. The other thing, which is disturbing in the sense of representing some real distortion in the structure of production in the country, is that we have important agricultural economies in the the western region--California, of course, being the country's biggest single agricultural state--and I keep hearing many of our directors sing the blues about what the high value of the dollar is doing to export markets. This ranges all the way from log exports to Japan to cotton exports coming out of the central valley in California to a good part of the rest of the world. So, even though yields on a good many agricultural crops are reaching new records, the markets for these products are lousy and that's a direct reflection of the value of the dollar on the exchange markets. I think we ought to keep these kinds of things in the back of our minds as we assess the outlook, [knowing] that not all of reality gets captured in things like real GNP.",207
-fomc-corpus,1983,Doesn't our forecast call for a decline in agricultural output?,12
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,That's somewhat contrary to what John Balles seems to be observing.,13
-fomc-corpus,1983,"It depends on which commodity you're talking about, Governor Rice.",12
-fomc-corpus,1983,Agriculture overall.,4
-fomc-corpus,1983,"I think overall it's a small decline in output, but there really is a bad mix problem in terms of some components rising and others declining substantially.",29
-fomc-corpus,1983,"My information, Jim, is that the wheat crops around the whole country will be at a new record level by a big margin and that the foreign demand for it just isn't there and the farmers are very worried about price prospects. Does that jive with what you hear in your District, Roger?",59
-fomc-corpus,1983,"As a matter of fact the wheat crop has received moisture and looks very good at this point. Lots of things could happen between now and harvest, to be sure. But if it comes forth as a good year, then we could be in trouble again in wheat.",53
-fomc-corpus,1983,Mr. Roberts.,4
-fomc-corpus,1983,"In the Eighth District, things are looking good. I would say we've moved from what I previously called reluctant optimism to near euphoria. Sales, which reflect consumer attitudes, are running very strong. The merchants we've talked to in the major cities in the District think we're going to have a very outstanding Christmas season. Automobile sales are good; they are running about 21 percent over a year ago. Unemployment, which has been high, is coming down now very noticeably and the Missouri Division of Employment is predicting substantial reductions beginning in December. A large part of this is due to planned expansions at the area's auto plants. Ford and GM are planning expansions around the first of the year and Chrysler is going to add a second shift of 1,200 workers to one of their assembly plants, number 2. There is an interesting anecdote regarding this workforce expansion--some good news and some bad news, I guess. Chrysler is limiting applications for the jobs to a total of 6,000. They're taking 3,000 applications through their Presswood employment office but they distributed 3,000 interview cards to present employees to give to interested parties. The story going around is that employees are selling these cards for about $200 a piece, which either indicates that there are still a lot of people who want to be employed who aren't or, if you figure the chances of being hired are about 1 in 5, that the present value of the rents after union dues is $1,000 per worker at the Chrysler plant. I guess that tells you something about why we don't do well with import competition. GE is adding 1,400 workers to its Louisville appliance plant by mid-January--again, an indication of a tough area that's coming back. Granite City Steel is going to add 1,000 to its workforce, and steel has been a very depressed area. Even residential home sales are looking good. They're below the peaks but still strong and well ahead of a year ago. Construction of new homes is brisk. We have good order backlogs. I hear the builders expressing optimism again after being rather blue a couple of months ago. Residential construction in St. Louis is up 21 percent. Nonresidential construction in September in Missouri was double the September '82 figure. Overall, the nonresidential numbers are looking quite good. So, except for agriculture, where we've had the worst drought in 50 years and where with the PIK program we've had big reductions in yields in corn, soybeans, tobacco, and cotton, I would be with the optimists in terms of the outlook, for the fourth quarter in particular.",531
-fomc-corpus,1983,Governor Martin.,3
-fomc-corpus,1983,"Mr. Chairman, I would like to address some of the downside risks with regard to the expansion in order to get that on the record and also some pessimism as to prices. Obviously, our goals are both disinflation and growth. And those of you who have served on the Federal Reserve Board since 1979 deserve all the recognition that you'll never get. But this is not an expansion like that of the 1970s. We don't have the kind of world inflation or the kind of economic growth in the OECD countries or in the less developed countries that we've had in other periods. I wonder if, in a global sense, the problem today isn't the illiquidity of so many financial structures and corporations around the country and the slow growth that characterizes most of the world outside the United States. We've talked about productivity, and certainly that is a positive factor in terms of future inflation. But that should be coupled with the kinds of comments of an anecdotal nature that I have picked up from my business contacts. Certainly, the businessman is going to try to raise his prices. Certainly, the union leadership, particularly the new young faces you see in union halls who have taken over from the old guard, are going to try to make their reputation. But we have not talked much about the natural rate of unemployment and the current rate of unemployment and the projected rate of unemployment since yesterday. That kind of analysis is still before us. The anecdote I hear is: ""We're going to try to raise our prices but we're not so sure in terms of world competition that we're going to be as successful in that as we have been in previous recoveries."" This is still a typical recovery. I think we are talking about it here a little in terms of our awe that we have so exceeded our own forecast. But if you look at the 5 or 6 recovery periods since World War II, on an average basis we're talking about 5 percent real growth or so in the first three quarters of a rather typical upswing. [As for] the expectational side of what data we can get--what President Corrigan [mentioned]--I've certainly examined these data. If you look at the commodities, spot and future price indexes, other than what has happened in the past few days, you find if you go back a month or two months that index after index on the spot market--seven or eight of them--is down or pointing in that direction. If you take the futures market, it's not so clear. But of 10 or 11 indices there 7 out of the 10 are pointing downward. The stock markets, once you get beyond the misinformation of the DOW and look at the other market indices, are down; the common stock prices of the NASDAQ and of the AMEX and the general markets are certainly not pointing toward a revival of inflation. It seems to me, then, that looking at the world situation and looking at how we stand vis-a-vis previous recovery periods something can be said for steady-as-you-go rather than using out intuitive feelings about a revival of inflation. Rates, both short and long rates, have already revived some; they have gone up some since the last FOMC meeting. There may be a question that we should keep in mind about 1985 and how we're going to sustain the expansion into 1985 when inflation is still perhaps not as revived as our intuitive sense would say and unemployment is going to be very substantial and the world economy is probably not going to be that recovered.",712
-fomc-corpus,1983,"Mr. Chairman, I think the Tenth District is sharing the general optimism about the recovery, particularly as it relates to consumer retail sales. Residential construction has picked up. For commercial construction, on the other hand, it depends on what area of the District one is talking about. The Denver area was in a boom for a number of years and is well overbuilt, and that's not a very vigorous sector. But if you begin to disaggregate the basic industries or areas of economic activity in the Tenth District--if you look at energy, there has been some moderate upturn in the number of rotary rigs actually working. But it is only modest, even though percentage-wise it looks pretty good. It is maybe 40 percent greater than 8 to 10 months ago, but that was a very low base level from which they are working up. Mining, on the other hand, particularly coal, is flat. There is certainly no increased activity in the mining industry. That whole industry hasn't begun to recover yet. Commercial aircraft, which is a very big segment of our economic activity, is flat on its back, contrary to what John has reported about the Northwest. There is no backlog of orders; as a matter of fact there are continuing cancellations of commercial jet aircraft orders. The one bright spot is a military contract landed by the Lear Company down in Wichita and in Arizona, but that's just one blip on the horizon. As for the rest, they are looking at a rather dismal outlook. With respect to the agricultural sector, you spoke of land prices. As I think most of you around the table know, through this recession agricultural land prices fell somewhere between 15 and 21 or 22 percent, depending upon whether it was dry or irritigated land. And those prices have not yet turned up. As a matter of fact, the report that I've had is that there will be some continuation of foreclosure on farmers and ranchers as a result of their not being able to service their debt. Although there's a good deal of optimism at the moment in the farm area over the PIK program, which has given them a cash flow so that some of them can service their debt, I think the observation is correct that without some improvement in the export market, there isn't a great deal of hope for substantial improvement in the period ahead. As to unemployment, it has been decreasing; one of the principal reasons is auto assembly, which is a fairly large segment of our economic activity. Auto plants have put people back to work and as a result the unemployment rates have dropped dramatically in Missouri, as has been observed by Ted Roberts, as well as in Oklahoma where there are auto assembly plants. With regard to the mainstream merchant in the agricultural area, it's a mixed bag. In the agricultural chemical area, they have had a very good fall season and look forward to a good spring. On the other hand, for the farm equipment manufacturers there's nothing going on in sales. It's obvious that the ranchers or farmers are just not buying any additional equipment; they are not making any capital expenditures. They're just sitting and waiting to see what will happen. So, in summary, it seems to me that we're enjoying the benefits and the optimism of the consumer but the underlying support in the Tenth District isn't all that great.",664
-fomc-corpus,1983,Governor Partee.,4
-fomc-corpus,1983,"Listening to the reports from around the Districts, by and large they certainly do show a change in attitudes as against two or three months ago, probably just because we've moved to a later stage of the business cycle. We're now clearly in the expansion phase of the business cycle and that's reflecting itself very broadly across the economy. There are structural differences, and I don't think we ought to be misled by them. The policy mix in particular creates different circumstances than in previous recoveries. John is concerned about his agricultural industry and his lumber products, but that's a direct result of the change in policy mix; we have higher interest rates and a higher dollar than we would have otherwise. And the counterpart of it is generalized purchasing power, reflecting more [after] tax [income] that people are earning. That just goes throughout the spectrum and brings us these reports of better retail sales and consumer optimism and so forth; that's just the other side of our picture. So, taking that into account, I don't think there's anything that unusual, after adjusting for the policy [mix] change, in the recovery.",219
-fomc-corpus,1983,Isn't business fixed investment stronger than one would expect with that policy mix?,15
-fomc-corpus,1983,"The difficulty there is that we don't know how much the tax incentives are. It may be that the tax incentives are offset by the [higher] interest rates in the aggregate. Although I must say, speaking to Governor Gramley's comments, that I'm inclined not to think that there is much strength in the business fixed investment area. I don't think it has that thrust and momentum; and I don't believe it's going to be that strong looking out ahead. On the other hand, I'm impressed by what Karen Horn says about inventories. I've noticed that in the last several months we've had very [sizable] accumulation but the ratio of inventories to sales has not improved at all; it's right at the bottom. And if business should have a view that in order to take advantage of opportunities it needs a little thicker stocks, we could get quite an inventory accumulation, particularly if it should follow a Christmas season with very strong consumption because people feel good this year. Therefore, there may be a little more [upside] hazard in the combined inventory-consumption area for the expansion. But I don't agree that plant and equipment is all that strong. Maybe I'm just too much of a Midwesterner and I'm impressed by the continued weakness in the basic industries which seems to me to be still, as Si says, very, very marked. In sum, I rather agree with Pres Martin that we're having a good expansion. There is some danger that it may run too strong as time goes on, but we don't have any indication of that at this point. And we don't have any indication of a heating up of inflationary pressures. And, therefore, perhaps what we ought to do for the moment is to sit back and enjoy it.",343
-fomc-corpus,1983,"Without any other comments, we'll ask Mr. Axilrod to deliver his remarks.",17
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,You can put a doughnut in your stomachs now!,12
-fomc-corpus,1983,"Well, I guess as Mr. Axilrod carefully explained to us, we have somewhat conflicting feelings and signals of great ebullience and some [concern] about the economy. I just had Mr. Kichline check, and you have to look fairly hard among past recoveries to find three consecutive quarters [of growth] as high as [we have now], including the projection for the fourth quarter. Interestingly enough, 1958 was a bit more rapid and immediately terminated after three rapid quarters.",102
-fomc-corpus,1983,There was a steel strike.,6
-fomc-corpus,1983,Maybe it was the steel strike that made it end so abruptly.,13
-fomc-corpus,1983,The first two quarters of 1981--,9
-fomc-corpus,1983,"I mention that because I think some of these things about the strength of the recovery are a little misleading. We started out with a fairly slow quarter. That's probably an accident of when somebody dates these things or just how it starts out. The recovery really is in my judgment somewhat above average since it has gotten some momentum; it may be quite a lot above average. We have some weakness in Ml; I don't think we have too much weakness in the broader aggregates at the moment. That Ml weakness comes against the background of having had a big increase earlier and having raised our target in effect by rebasing it. I'm not sure there are grounds for making any very violent move at this point. But, let's see what other people think.",147
-fomc-corpus,1983,"Mr. Chairman, I just want to bring up one thing that I don't think has been touched on, except in the early discussion this morning. I'm not sure we have an awful lot of room to do very much because of the foreign international debt situation.",51
-fomc-corpus,1983,In a tightening direction.,5
-fomc-corpus,1983,"In a tightening direction, that's correct. I happen to agree with [the view] that this is a typical recovery at this point; if anything, it's a little stronger than even I predicted a year ago. But I don't see any great need to move it down because it's going along at a very nice clip, though perhaps a little too fast. I don't see that we have any upward mobility at this point, at least until we have some of these things a little more firmly set in the international area. And I think it would be extremely dangerous to make a major move of any sort at this point.",122
-fomc-corpus,1983,I second it.,4
-fomc-corpus,1983,Third.,2
-fomc-corpus,1983,Fourth.,2
-fomc-corpus,1983,I don't hear any sentiment for a major move now. Maybe we'll do this in a different way. Does anybody want to make a major move?,29
-fomc-corpus,1983,I think we have no basis for a major move downward at this time.,15
-fomc-corpus,1983,Or up.,3
-fomc-corpus,1983,Or up.,3
-fomc-corpus,1983,"It seems to be in the nature of human beings to want to complain a lot when things go poorly and to want to worry a lot when things go well. As I was listening to what was being said around the table I thought that at least central bankers are human: Things are going pretty well, so we'll worry a lot. But I think now and then we ought to have the courage, as Chuck said, to sit back and enjoy it. So, I'd fifth or sixth or whatever [the motion] and leave well enough alone.",108
-fomc-corpus,1983,Mr. Balles.,5
-fomc-corpus,1983,"Well, I guess I'll take on the role of the school of contrary thinking for about the third month in a row, just so we don't get too complacent. What I'm referring to, Mr. Chairman, is the move we made--with which I agreed at the time and which we all know about--to deemphasize Ml and to pay more attention to the broader aggregates. There was good reason for doing that. We also said to ourselves, I think [the record] will show, that when and if Ml began to behave more normally again, particularly in terms of velocity, we would reconsider whether more emphasis ought to be put on it. A couple of months ago--specifically in August--I circulated a paper that had a couple of key conclusions. One was that the broader aggregates, M2 and M3, looked to us to be highly unreliable as a forecaster of income, prices, or anything else for the last couple of years. Ml admittedly wasn't perfect but it was a lot better than the alternatives had been in the past, and I expect it will be again in the future once we get a revival of velocity looking somewhat normal. We were forecasting in our Bank at least that that would happen by the closing months of this year, and that forecast looks better than ever now. It is pretty much expected--I see similar figures in the Bluebook--that we will have a strong rise in velocity of Ml in the fourth quarter. And for that reason I'm again suggesting that we not wait too much longer before putting Ml back as one of the primary intermediate targets, along the lines it used to be, simply because I have such a big distrust of M2 and M3 telling us anything. We went through a big recession and now have a strong recovery, and we hardly would have noticed it from what happened in the behavior of those broader aggregates. I recognize your point, Mr. Chairman, that the recent slowdown in Ml has to be viewed against the background of the strong growth earlier and the fact that we did rebase in July. Having said that, I'm not sure I'd be comfortable with seeing another month or two of very low growth in Ml just because it seems to be coming back on track in terms of behavior, including velocity behavior now. Our San Francisco money market model would not suggest any major move and I too am against a major move in policy at this time. But I would suggest a modest move toward nudging that funds rate down at least 50 basis points in order to get a little stronger Ml growth in the remaining months of this year and bring it by December at least a little closer to the midpoint--though it would still be under the midpoint--of that 5 to 9 percent range. Frankly, I'm skeptical about whether we're going to get the 7-1/2 percent growth in November-December mentioned in the Bluebook, given the recent level of the federal funds rate. So, in a word, I would be in favor of moving toward the specifications of alternative A in order to accomplish what I just outlined.",619
-fomc-corpus,1983,"Let me just comment that I think it is possible that more predictable relationships may be returning to M1 but, speaking for myself, it's a little too early [to be sure]. I think we probably are going to have a very big increase in velocity here, which will make up for some of the reverses earlier, but what the trend is going to be in the future isn't clear. I wouldn't assume that this increase in velocity is going to continue. But whether it will lapse back [unintelligible]. But, given the burst that we had earlier and now the retracing of it, partially anyway, at what point does one assume that [a return to normalcy] begins? It still mystifies me.",145
-fomc-corpus,1983,"John, I think technically that's a reasonable proposal. But I must say that you're making an awful lot of small differences in Ml growth. The projection is for pretty good growth. If it doesn't occur, of course, then we have a situation that needs to be confronted. But the projection is 7-1/2 percent [for November-to-December] and 5-1/2 percent for the September-to-December period. And it seems sort of strange to be reducing interest rates significantly with the background of the economic discussion that we had before the coffee break. It almost requires, it seems to me, a confidence in the technical relationships that exceeds what I'm able to have in them. So, I just can't agree with your particular proposal, but I do agree with your general comment that Ml is a lot better than it has been cracked up to be and quite a bit better than M2 and M3. And we ought to review this in connection with the posture we take for next year, which I guess would be at the next meeting and the January meeting.",216
-fomc-corpus,1983,"Well, that's right, Chuck. I didn't expect to change many minds today, but one of the reasons I wanted to raise this flag of caution here is that, as I look back at the 11 years I've been sitting around this table, I think the mistakes that we've made have been ones of intuitively trying to look through the intermediate targets to the economy as a whole, while officially we never did, if you wish, target real GNP and even interest rates. That has led us more often than not into a pro-cyclical monetary policy. And it was one of the reasons that the Chairman proposed to this group in October of 1979 that we get off our interest rate stabilization in the short run and onto monetary targeting. I think what we really have been doing in the past year de facto is targeting interest rates, and I'm afraid that again that will lead us to some pro-cyclical monetary policy if we keep it up too long.",193
-fomc-corpus,1983,But I shudder to think of what would have happened to the economy if we had followed Ml on its crazy turns in the last year.,28
-fomc-corpus,1983,"Well, I would never have proposed that we follow it in the last year, Tony, because we did realize in a timely way that something funny was going on in velocity and were wise enough to offset it. It would have been a disaster if we had not let Ml increase by 8-1/2 percent in 1982 instead of the targeted 2-1/2 to 5-1/2 percent in view of what in fact was going on in its velocity and the big drop that we had first in inflation and then in interest rates. We are convinced, and I think a lot of people around the table would be too, that what happened was that the opportunity cost of holding money dropped very significantly with that drop in interest rates and, therefore, more money was demanded. It wasn't that the demand curve was shifting but that the amount of money demanded moving along a given curve was going up, given the fact that interest rates were coming down.",194
-fomc-corpus,1983,"John, I think there was one cost of our monetarist experiment that tends to be overlooked, which was the extraordinary economic cost of the volatility of the rates. The volatility of short-term rates is not all that serious, but when it was transmitted totally and completely into long-term rates it helped to destroy the long-term market. I think not only the level of the rates but the volatility of the rates was just economically unacceptable. And if we do consider going back to Ml, I think we ought to keep in mind that it has a very high cost in other areas.",115
-fomc-corpus,1983,Governor Wallich.,4
-fomc-corpus,1983,"Well, I've been troubled by the great deal of stability that we've had in the funds rate, which does seem to harken back to olden times. But the error that was committed in olden times was not that we became too tight as a result of holding the interest rate but that we became too easy. The natural tendency in an expansion, it seems to me, is to generate that kind of pressure. Inflation expectations rise and, therefore, the real rate falls, and at a given [nominal] interest rate we have really less restraint than before. Then the aggregates have tended to expand too rapidly. We have not had that this time, if we discount the earlier behavior of Ml. But I think one can't discount it completely; at least one has to give it a chance to unwind now, as Steve said. If too much of it went into the economy earlier, there's a good reason why it should move more slowly right now. I think the whole picture of the economy that we're seeing is one of much greater strength than we expected. Half a year ago we talked about the fragile expansion. Now, each time we meet the expansion is a little stronger and the forecast is raised a little more. We're not borrowing from the future and cutting down the amount of expansion we see hereafter; but we're more or less maintaining the projection for the future, which means that the economy is moving at a higher level and, therefore, a potentially more inflationary level. The tendency to approach the capacity ceilings early is part of that general picture. So, if I had to make a move right now, I would certainly want to make it in an upward direction. But I think we don't really have to make a move. There are a lot of factors on both sides and enough leeway continues to exist so that we can wait; I don't know whether we should enjoy but, at any rate, we can wait.",385
-fomc-corpus,1983,Mr. Wallace.,4
-fomc-corpus,1983,"Mr. Chairman, if I may be permitted a somewhat different view: I come out very supportive of the position that Governor Wallich just expressed, although I think that perhaps some move is called for. It is becoming increasingly clear that the recovery is more robust than we expected earlier, and I think that combined with the prospects of continued high deficits will put upward pressure on interest rates, notwithstanding Secretary Regan's position. I think we will see increased inflationary pressures. As Governor Partee has observed, inventory building is going to continue; the inventory/sales ratio is low; corporate retained earnings are ceasing to be a factor holding rates down. So, I'm inclined to believe that the best thing that we can do now is to let the funds rate move up closer to the 10 percent level and send a signal to the market that we continue to be concerned about future inflation. Therefore, I would come out in favor of a ""B-"" position or ""B"" perhaps with a higher borrowing assumption that would carry a clear indication that we would like to see the funds rate move higher. I might add parenthetically that my preference would be to see the record stated in terms of that rate. But knowing that that's not an option we have, I would opt for ""B"" or ""B-.""",261
-fomc-corpus,1983,Mr. Roberts.,4
-fomc-corpus,1983,"Well, I share John Balles' concern about the persistent deceleration in the rate of Ml [growth] as evidenced from August through October. I don't think any major change is called for. Alternative B, which would show [M1 growth] rates of 6 percent in November and 9 percent in December would be fine with me. I would be cautious in view of the character of the expansion about moving over to ""A,"" because if we were successful in achieving it, John, that would have us moving into the new year at an 11 percent rate of growth in Ml, which I think would be excessive. I agree that there has been some unwinding, but all of our research would indicate that if we persist in restraint of this magnitude, we will in fact stop the recovery sometime beyond midyear of next year. So, I would like to see us get back on track and address the issue in terms of the monetary base and Ml and let the interest rate fall out wherever it does.",203
-fomc-corpus,1983,Mr. Black.,4
-fomc-corpus,1983,"Mr. Chairman, I'm very much in John Balles' camp. Or, to put it in a slightly different way, he has returned to a camp that I never left. We've heard a lot of criticism of Ml during recent years and a lot of it I think has been warranted, but nobody has put forward anything that seems to have any promise, from my viewpoint, of being a better intermediate target. Just to cite one case: The only thing that would have led anybody to predict the amount of strength we've had in the recovery was growth of Ml. So, I still focus most of my attention on Ml, but I'm very pragmatic about it. If Steve's probing into the behavior of M1A or anything else turns up something that will behave better, then I'll gladly switch. Given that position, on the basis of past experience I think there's a legitimate reason to be concerned about this deceleration that we've had in M1 and to conclude that it conceivably might have a negative impact on business next year if it continues. So, I can understand why John has some sympathy for easing up a bit to stimulate the rate of growth in the money supply. I would have a lot of sympathy for that point, particularly if I thought that if it turns around the other way we would move as quickly to snug up. But there are a couple of reasons, or maybe three reasons even, why I don't think that would be very wise right now. One, of course, is that the economy does seem to be very strong. I will buy pretty much Lyle's and others' argument on that. And after the kind of growth we've had in the money supply, again narrowly defined, I think it's probably inevitable that we will have a few bumps and grinds as we try to get this back down to where it ought to be.",370
-fomc-corpus,1983,Bumps and grinds?,6
-fomc-corpus,1983,"That was a Freudian slip! But in more technical terms, we've been playing around inadvertently with the seasonal adjustment factors. I think it's at least conceivable or plausible that the introduction of the MMDAs and also the advent of the OCDs and the inadvertent seasonal adjustment that seems to have gotten into our monetary policy the last several years may have biased our seasonal adjustment factors upward for these last three months, in which case the reported figures are going to be lower than they really ought to be. If that analysis is right, then that's a reason for not being quite as concerned about the weakness we see there. So, to get to the bottom line, which I probably should have gone to directly, I would go for alternative B.",147
-fomc-corpus,1983,Mr. Corrigan.,5
-fomc-corpus,1983,"Mr. Chairman, I would favor what I would call a small precautionary move in the direction of firming a little at this point. What I would have in mind is perhaps letting the borrowing level go up to $750 million or so, or maybe a bit higher, with the funds rate moving from 9-1/4 to 9-1/2 percent to 9-1/2 to 9-3/4 percent, at least for the time being. I say that, of course, primarily because of the way that I'm looking at the economy. Again, if I look at the staff forecast for 1984 fourth-quarter-over-fourth-quarter, nominal GNP growth is 9 percent--4.3 percent real and 4.9 percent inflation. If indeed the risks are on the up side, as I think they are at the moment, it seems to me quite plausible that we may be looking at a situation in 1984 where we will have to try to restrain somewhat the growth of prices and nominal GNP. Now, when I look at the specifications that Steve has put together, even though one has to take the numbers with a grain of salt, alternative B growth rates for Ml, M2, and M3 basically between October and December range from 7-1/2 to 8-1/2 percent, which are still pretty robust numbers. I don't think I would care too much if growth came out in that range, but I sure wouldn't want it to come out much higher than that. Those considerations, in combination with my view of the economy, lead me to believe that a small move in the direction of a little precautionary restraint right now might prove to be very helpful in the longer run.",357
-fomc-corpus,1983,Governor Gramley.,4
-fomc-corpus,1983,"I share Governor Wallich's concerns that we're looking at an economy that is growing a lot faster than we thought it was going to. And I think it's probably still going to show a lot of robustness over the next couple of quarters. If I think about the kind of posture monetary policy for the course of 1984 that's likely to be consistent with keeping the economy's growth rate down to 4-1/2 percent or so and inflation no worse than 4-1/2 to 5 percent, I end up concluding that we're going to need higher interest rates. I just don't see how we can run a monetary policy that provides the kind of expansion in the money supply that is in the staff's forecast for 1984 together with this horrendously stimulative fiscal policy in an economy that has a tremendous amount of cyclical momentum developing and not have an outcome that's rather different from what the staff is suggesting. I've listened to what [Governor Martin] has said with great interest. I think there are considerations on the down side that we need to think about. But in my judgment the risks of an overrun are much greater at this point. So, I agree with Jerry fully. I think a precautionary step in the direction of firming is necessary and desirable. It wouldn't have to be done today. It can even wait until the December meeting. But the sooner we make it, I think the better off we're going to be. Jerry's specs were a ""B-;"" I had put down $700 to $800 for borrowing and 9-1/2 to 9-3/4 percent [for fed funds] and that's exactly where he was. So, I agree fully with him.",347
-fomc-corpus,1983,Mr. Forrestal.,5
-fomc-corpus,1983,"Mr. Chairman, I have a good deal of sympathy with the comments that John Balles made about Ml. I think the time is fast approaching when we need to take a hard look at restoring Ml to some degree of respectability, which apparently was lost along the way. But I part company with John at that point. Even if we look at Ml, the situation of the economy is such that I don't believe any degree of loosening would be appropriate at this time. I would associate myself with the remarks just made by Governor Gramley. I think that the concern we have is with a very robust economy in 1984. The projections, even of the money supply, are on the high side. So, the bottom line for me is ""B-."" I too had a borrowing range of about $750 million with a fed funds rate of 9-3/4 percent. So, I would come out for a B- alternative, although alternative B would certainly be acceptable. But I wouldn't like to see the Committee move below ""B"" to a position closer to ""A.""",220
-fomc-corpus,1983,Governor Martin.,3
-fomc-corpus,1983,"Mr. Chairman, I'd like to enter a vote for alternative B. One reason is my concern with regard to our leadership in the world economy and our impact as the world's biggest market for the less developed countries. Speaking on a domestic basis, though, we are not yet back to a trend line in real GNP, described using the last decade or 1973 to 1980 or whatever you feel is the appropriate period. Things have changed so much, though, in the last few years--financial institutions, financial instruments, business institutions and the way they're dealing with their unions, and the world competition that has now been vectored into this country. But I think any fine-tuning, considering how little we know about our institutions and their financial instruments and how they perform today, would go just as fine-tuning has always gone--not so fine. So, a slight firming of interest rates or so-called precautionary firming, given the disappearance of Reg Q and given the removal of other estoppels that the government had built into the financial system, means that if we're going to tighten it has to be, in my not so humble opinion, a major tightening--not a firming of a 1/4 or 3/8 of a point. And I'm not prepared to support either a fine-tuning or a major move. I understand most of us are not willing to support a major move. I'd like to see the status quo and borrowing between $600 and $700 million, with emphasis on the lower number.",310
-fomc-corpus,1983,Mr. Solomon.,4
-fomc-corpus,1983,"On balance, I also come out for staying as we are, although I do think it's quite possible that next month we will have to give more consideration to a tightening move. In addition to the arguments that have been offered around the table against a move at this point, I would add that a tightening move at this point really would not be understood in the markets. It would be totally unexpected in the country at large. And I think there would be a lot of speculation that the Fed is expecting much more inflation next year, notwithstanding the Chairman's testimony in which he said it could be 4-1/4 percent or less. I think the only way the country would understand a tightening move at this point would be [to conclude] that we privately are expecting significantly higher inflation. Obviously, I'm not saying that that should be the sole governing consideration, but it does seem to me that, even though one can make an argument for a precautionary move, the force of the justification for that might be very much clearer at our next meeting. So, I would vote to stay where we are and for borrowing in the $650 million area.",229
-fomc-corpus,1983,Mr. Guffey.,6
-fomc-corpus,1983,"Thank you, Mr. Chairman. Well, I have some sympathy for those around the table who have spoken for returning to Ml, but not now. I also have some sympathy for those who expressed the position that we will indeed face a period in the future when some additional tightening is needed, but I think not now. I would come out very much as Tony has for retaining our current position with a borrowing level of about $650 million. This may be the month to sit back and enjoy it. Come next month, before Christmas, I believe we may be the grinch who takes away Christmas. It may be appropriate to make a modest move, even in view of the international situation, in the upcoming month or two.",145
-fomc-corpus,1983,Mr. Keehn.,5
-fomc-corpus,1983,"Well, I would end up associating myself with those who are in favor of continuing the current policy, probably alternative B. I think we are in a period in which things are going well, and that suggests that change would not be appropriate. It's clear that the economy is far better now than we expected earlier and it is continuing to improve. If this continues into the time of the next meeting, we may want to move modestly toward tightening. But I think there still are enough uncertainties that I'd like to see a few more cards before taking that move. Therefore, I favor alternative B with a borrowing level at about its current target level.",129
-fomc-corpus,1983,Mr. Morris.,4
-fomc-corpus,1983,"Well, Mr. Chairman, even though I believe in an activist monetary policy, I think there are times when the best thing to do is to do nothing. It seems to me that the case that Lyle made is one which has a reasonably high probability of being right. I think we have an environment for a strong surge in capital spending next year but the case is not that clear that we ought to be moving right now. One thing that I think we learned from the May 24 decision of the Committee is that with the new mortgage market we really have a very powerful instrument in monetary policy in that the mortgage rate now is so responsive to changes in monetary policy. We used to think of a six-month lag between a change in policy and the impact in real activity. What we found when we pushed up interest rates in June is that we got a decline in new home sales in July, a decline in permits in August, and a decline in starts in September. The textbook would suggest that we should not expect that prompt a response. I think the reason we got it is that we now have a mortgage market in which the thrift institutions are mortgage bankers; they take in mortgage packages and sell them in the market. And they have to get a market rate on them if they're going to sell them. So, that means that a fairly modest change in monetary policy can have a pretty big impact on the housing sector pretty fast.",286
-fomc-corpus,1983,How do you explain the fact that in the last month or the last few weeks--I don't know exactly what time period--while there has been a firming in bond yields there has been a slight lowering in mortgage rates?,45
-fomc-corpus,1983,"Well, there certainly hasn't been much of a firming in bond yields and the short-term money rate structure has been moving down.",26
-fomc-corpus,1983,"Tony, the variable rate mortgage is coming into its own; it's 30 to 45 percent of the market. I mean no disrespect, but we don't have good measures of those rates and how those loans are traded in the markets. If we had that data, I don't think you'd find the discrepancy. You're talking about fixed-rate mortgages.",68
-fomc-corpus,1983,There has also been quite an inflow into the S&Ls recently.,15
-fomc-corpus,1983,Yes. The explanation I heard is that the competition among the thrifts has become more intense for mortgage business and they are--,25
-fomc-corpus,1983,That could be true and Frank's point could still be right. But I think it is true that we have a very responsive mortgage rate.,28
-fomc-corpus,1983,I wasn't disagreeing with that.,7
-fomc-corpus,1983,"I think this is the tool we can use when we get evidence that the capital goods boom is really taking off. I don't think the evidence is strong enough yet, so I would argue for alternative B.",41
-fomc-corpus,1983,Does anybody else have a comment?,7
-fomc-corpus,1983,"I'd just like to register a position on this. Because of the way I see the economy developing, I have a good deal of sympathy for the position taken by Lyle and Jerry. That is, I can see the case for some precautionary firming at the present time. But I'm not prepared actually to move in that direction at this time. I do agree that we have to be looking in a firming direction and I agree with Tony that it may be next time [we meet]. But I think Tony put his finger on the problem and that is that if we took any firming action at all at the present time, it simply wouldn't be understood. The public and markets are looking at the aggregates and they see them either well within the ranges or toward the bottom of the ranges. And if we firm up now, even in a slight way, it simply wouldn't be easily understood. But at the same time, we still ought to keep ourselves looking in that direction. And if we expect that we may have to take some firming action next time, perhaps we ought to find some language in the directive this time to prepare the markets for such an action.",234
-fomc-corpus,1983,Mr. Balles.,5
-fomc-corpus,1983,"Mr. Chairman, perhaps I should defer; my question has nothing to do with current specifications. I would like to ask Steve a question about our meeting yesterday after you get through this. Pardon me.",41
-fomc-corpus,1983,"We have a couple of people for whom I do not have an opinion indicated, if they want to express an opinion.",24
-fomc-corpus,1983,"I thought I did at the beginning. I'm very much for just staying where we are and not moving one way or the other. But I'm a little curious: What do you expect to know in a month that we don't know now? We will have one more unemployment rate and we will have the flash on the fourth-quarter GNP, which is not a very good number.",75
-fomc-corpus,1983,We won't have Christmas sales yet.,7
-fomc-corpus,1983,"And we won't have Christmas sales. So, I'm not sure that we're going to have that much more information in another month. Now, if we go into February, we'll have a firmer number on the GNP and another two or three months of unemployment data and hopefully good information on the international side. Those seem to me the things necessary for making a decision.",73
-fomc-corpus,1983,"I agree with what you say. You're right that we are not going to have any better numbers a month from now. The problem is that if we wait until February the capital spending plans for 1984 would be set in concrete; they are all being developed now. The Christmas sales boom will have taken place and there is all the inventory planning that stems from that. And it then becomes late. If I'm right in my hypothesis, and I may not be, we're going to find ourselves in February wishing we had acted last August.",107
-fomc-corpus,1983,"Even though I agree that we won't have any better monthly numbers, there would be some anecdotal information. We may have a better feeling for how the fourth quarter will be coming in and what is happening in business fixed investment.",45
-fomc-corpus,1983,Ideas grow on people over time; they sink in.,11
-fomc-corpus,1983,The most important thing is that there will be time for a few more public statements to the effect that we might be firming.,26
-fomc-corpus,1983,"Have you expressed a view, Governor Partee?",10
-fomc-corpus,1983,"Yes, I'm for staying right where we are.",10
-fomc-corpus,1983,I thought I had that correctly.,7
-fomc-corpus,1983,I thought I rebutted John.,7
-fomc-corpus,1983,It would have been a very peaceful meeting except for me; I'm sorry about that.,17
-fomc-corpus,1983,"Well, I have a lot of people who want to stay more or less where we are, with some tendency toward tightening by some. I don't recall many times when we've tightened prematurely.",37
-fomc-corpus,1983,I do.,3
-fomc-corpus,1983,Let's keep it up.,5
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,January of 1981.,6
-fomc-corpus,1983,"January, 1982.",6
-fomc-corpus,1983,"January, 1982.",6
-fomc-corpus,1983,How about May of 1975?,8
-fomc-corpus,1983,How about May of 1983?,8
-fomc-corpus,1983,"May, 1983.",6
-fomc-corpus,1983,We tightened because the aggregates went up.,8
-fomc-corpus,1983,To no avail.,4
-fomc-corpus,1983,"We tightened in January '81, if I remember.",11
-fomc-corpus,1983,We pushed short-term interest rates up 400 basis points in response to a rise in Ml.,19
-fomc-corpus,1983,"Well, we'll have to discuss next time or the time after how we get into a disinflationary policy if we want to have a disinflationary policy over a period of time. A five percent M1 figure, if M1 is going to return to normal, looks a bit high to me.",63
-fomc-corpus,1983,Five percent Ml?,4
-fomc-corpus,1983,I'm talking about next year.,6
-fomc-corpus,1983,That isn't what the staff is projecting for next year.,11
-fomc-corpus,1983,I don't care what the staff is predicting; it looks a bit high.,15
-fomc-corpus,1983,"Yes, but if 5 percent looks high, what does 7 percent look like?",18
-fomc-corpus,1983,Very high!,3
-fomc-corpus,1983,"If it returns to normal--I don't know if it's going to; that's a big if. Well, I could convince myself to tighten up a little now, although I don't feel that strongly about it. But I'm not sure we will want to wait for the next meeting if the aggregates turn out on the high side and the business news remains that good. We can start off where we are and stay there if everything goes according to the forecast. If the aggregates or the economy come in more strongly, obviously, we have room in these directives to move anyway. I think we ought to discuss how to bias this a bit, if we want to. I don't know that it takes any change in the wording. What does the [current] directive say? Maybe we should start out by saying ""maintain the existing [degree of reserve restraint]."" And if we believe what the staff tells us, that 8-1/2 percent [for growth in M2 and M3] can remain, I think. We're in a mid-quarter meeting; I don't see any necessity [to change] the second sentence. The third sentence may be a question. Let me just look at it.",239
-fomc-corpus,1983,"We could say ""further evidence of strength in the economy.""",13
-fomc-corpus,1983,"I could reverse the sentence in a sense, and say ""Depending on evidence about the strength of economic recovery and other factors bearing on the business and inflation outlook, greater restraint would be acceptable in the context of more rapid expansion in the aggregates.""",48
-fomc-corpus,1983,That sounds good to me.,6
-fomc-corpus,1983,And then pick up the--,6
-fomc-corpus,1983,Reverse [the order].,5
-fomc-corpus,1983,"Yes, because we might well have continued slow growth in the aggregates. That [bounceback] is something that has been projected; we don't see it.",31
-fomc-corpus,1983,If you think of this seasonal adjustment thing--,9
-fomc-corpus,1983,We can reverse it.,5
-fomc-corpus,1983,"Well, reversing it is an obvious possibility.",9
-fomc-corpus,1983,"But isn't there an implication if we say that greater restraint would be acceptable should the aggregates expand more rapidly, that that's the only condition under which we would go to greater restraint? And yet, of course, we could have weakness in the aggregates and still have enough business evidence that we would want to move a little. What I'm saying is that we ought to put a little more emphasis on the strength of the economic recovery considerations in that sentence.",88
-fomc-corpus,1983,"I think we have discovered historically that we can't take care of every permutation and combination in these sentences, but--",22
-fomc-corpus,1983,"Well, we do mention the strength of the economy.",11
-fomc-corpus,1983,"The beginning clause ""Depending on the evidence about the strength of economic recovery and""--",16
-fomc-corpus,1983,"Yes, I understand that. I just felt [we needed] a little more emphasis there rather than on the aggregates.",24
-fomc-corpus,1983,"Well, instead of ""would"" we could say ""might."" It seems to me that that's a slightly weaker word.",24
-fomc-corpus,1983,I don't think that would be--,7
-fomc-corpus,1983,"If we leave it the way the Chairman has expressed it and we understand that he's thinking of taking into account particularly the business news as well as the aggregates, that seems to me to be reasonable. We can't express all the different--",46
-fomc-corpus,1983,"If we do it this way, the first half of the sentence seems to be simple enough. If you want to put in a balancing thing on the other side--. But it's weighed somewhat differently, I guess. ""Depending on evidence about the strength of economic recovery and other factors bearing on the business and inflation outlook, somewhat greater restraint would be acceptable should the aggregates expand more rapidly.""",77
-fomc-corpus,1983,"You could achieve what I want simply by putting in one adjective: ""Depending on evidence about the increasing strength of economic recovery.""",25
-fomc-corpus,1983,But the rate of increase is decreasing.,8
-fomc-corpus,1983,"Well, it's a question of whether it really is increasing. The rate of expansion [may be] decelerating at some point and if you get that and continue to do so--",37
-fomc-corpus,1983,We just received the production number today and that is a half point less than last month.,18
-fomc-corpus,1983,Okay. What I'm trying here may be quite technical--,11
-fomc-corpus,1983,"How about ""continued""?",5
-fomc-corpus,1983,"Yes, ""continued"" would do it.",9
-fomc-corpus,1983,"Right, or ""continuing."" If we do that, it gives a flavor of the Committee's concern that there may be something further down the road.",31
-fomc-corpus,1983,Some of the Committee's concern.,7
-fomc-corpus,1983,"Yes, that's acceptable to me.",7
-fomc-corpus,1983,"And then make the change you suggested, Paul.",10
-fomc-corpus,1983,What change that I suggested?,6
-fomc-corpus,1983,Reversing the clauses.,6
-fomc-corpus,1983,Reversing.,4
-fomc-corpus,1983,The market might notice that.,6
-fomc-corpus,1983,"I don't quite see how to word this second thought. We could just put in a semicolon and say ""lesser restraint would be acceptable in the context of a significant shortfall in the growth of the aggregates from current expectations."" I'm not sure we're saying that; I don't know what significant is if business looked even stronger and the aggregates had a shortfall. That's the main problem. Then what would we do?",83
-fomc-corpus,1983,Call a meeting.,4
-fomc-corpus,1983,Have a telephone call.,5
-fomc-corpus,1983,"Well, we could do it that way. We could just put a semicolon and say ""lesser restraint would be acceptable...""",26
-fomc-corpus,1983,"How about ""might be acceptable""?",7
-fomc-corpus,1983,"Well, that's all right.",6
-fomc-corpus,1983,"Now, what number do you want to put in there?",12
-fomc-corpus,1983,Shouldn't we put 7-1/2 percent?,12
-fomc-corpus,1983,We had 7 percent before?,7
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"I think if we leave 7 percent, we have to put 7 percent or less.",19
-fomc-corpus,1983,"""Or somewhat more."" It's 7-1/2 percent.",14
-fomc-corpus,1983,It's 5-1/2 percent.,9
-fomc-corpus,1983,But we could change it to read October through December. Then we could put 7 percent.,19
-fomc-corpus,1983,"Well, we could do that but it's fine-tuning. I think we can either put in 5 to 6 percent percent or 7 percent or less. Or we can change it to October through December and leave it at 7 percent.",50
-fomc-corpus,1983,"I think I prefer September to December, Paul. We [generally] follow this policy and I'd keep it. And I think 5 to 6 percent sounds like a quite respectful growth rate.",40
-fomc-corpus,1983,Put 5 to 6 percent?,8
-fomc-corpus,1983,For September-to-December 5 to 6 percent gets you almost up to the top of alternative A.,22
-fomc-corpus,1983,"Or almost down to ""C.""",7
-fomc-corpus,1983,"Somewhere between ""A"" and ""C.""",10
-fomc-corpus,1983,It's just an indicator. We're not even running on this.,12
-fomc-corpus,1983,"I don't mind putting in ""7 percent or less,"" as a matter of fact. I'd just put in the ""or less"" to take account of the fact that we've had some [slowing]. But 5 to 6 percent is all right with me.",53
-fomc-corpus,1983,5 to 6 percent or less.,8
-fomc-corpus,1983,7 percent or less.,5
-fomc-corpus,1983,"That ""7 percent or less"" sounds so blooming high that it leaves the whole thing wide open.",20
-fomc-corpus,1983,"Well, isn't ""7 percent or less"" saying that we're staying on the track that we were on but weren't accomplishing? Isn't that all it's saying? And that implies a higher growth rate from now until year-end, which is in line with ""B.""",51
-fomc-corpus,1983,For September-to-December 7 percent growth for M1 is higher than 9 percent--,19
-fomc-corpus,1983,"He said ""7 percent or less,"" I thought.",11
-fomc-corpus,1983,"Zero is a lot less than ""C.""",9
-fomc-corpus,1983,"We could say ""zero or more""!",8
-fomc-corpus,1983,I don't think we ought to imply that 5-1/2 percent is the desired path from here forward.,23
-fomc-corpus,1983,Do you think it's too low or too high?,10
-fomc-corpus,1983,I think it's too low.,6
-fomc-corpus,1983,"We did rebase. You were critical to rebasing, I presume, so haven't we--",19
-fomc-corpus,1983,Monthly rates aren't affected by rebasing.,8
-fomc-corpus,1983,No. But I don't see the reasons for pushing hard to get above the bottom of the rebased range.,22
-fomc-corpus,1983,"I'm not thinking about the base or the range. I'm thinking about a very restrictive 3-month pattern that is likely to extend into at least another month, and I would like to see a pattern of expansion in the money supply from here forward so that we're getting back more on the track that we set out to be on when we said we wanted a 7 percent rate of growth.",77
-fomc-corpus,1983,"Well, 5 to 6 percent, Ted would give you what you would require--quite a lot of expansion.",24
-fomc-corpus,1983,"Yes, I understand. I could go either way: with 7 percent or less or 5 to 6 percent. I just said I don't see anything wrong with 7 percent or less.",40
-fomc-corpus,1983,"Well, I can certainly go either way. I don't think it's a terribly sensitive decision given our ability to--",22
-fomc-corpus,1983,I think 5 to 6 percent gives a little more information to the market.,17
-fomc-corpus,1983,"I'm worried about the open-end nature of the ""or less."" If we say ""or somewhat less,"" that perhaps is sending it too high, so I prefer 5 to 6 percent.",39
-fomc-corpus,1983,Do we want 5 to 6 percent?,10
-fomc-corpus,1983,"Yes, 5 to 6 percent.",9
-fomc-corpus,1983,"That should imply tightening, while in actuality we're loosening if we accomplish this. A 5 to 6 percent growth gives you 7-1/2 percent October to December, and we've been saying 7 percent from another period. Now if we say 5 to 6 percent, it sounds like less but it's really more.",68
-fomc-corpus,1983,"Do you want to put in a phrase at the beginning of the sentence such as ""Given the relatively slow growth in October, the Committee anticipated...""?",30
-fomc-corpus,1983,That would do it.,5
-fomc-corpus,1983,"Well, are we putting the 6 to 10 percent [funds rate range] down at the bottom?",23
-fomc-corpus,1983,Are we looking at the long-term aggregates or the credit numbers?,13
-fomc-corpus,1983,We don't put credit numbers in here.,8
-fomc-corpus,1983,It's in there somewhere--that they are within the [long-term] range or something.,18
-fomc-corpus,1983,It's right after that part of the sentence.,9
-fomc-corpus,1983,"Well, the figures aren't right up-to-date but we have had a quite rapid increase in the liquidity figure through the period for which we last had figures and the debt figure was within the range but not low.",42
-fomc-corpus,1983,They include Treasury borrowing.,5
-fomc-corpus,1983,"They include the Treasury bills. Those have been going up, commercial paper has been going up, and bankers acceptances have been going up. Over the summer liquidity was rising at an annual rate of around 8 to 12 percent. Anyhow, I guess this is where we are. If nobody has any comments, we can vote.",68
-fomc-corpus,1983,"Mr. Chairman, do we have 8-1/2 percent for M2 and M3 growth?",22
-fomc-corpus,1983,"Yes, 8-1/2 percent for M2 and M3. I think that's what ""B"" shows.",25
-fomc-corpus,1983,"Before we vote, Mr. Chairman, what does this imply about borrowing?",15
-fomc-corpus,1983,$650 million.,4
-fomc-corpus,1983,"May I ask a question of the staff? Steve, is the $650 million intended to be consistent with your November and December [projections of] 6 and 9 percent growth in Ml?",40
-fomc-corpus,1983,"That's what we are projecting but with regard to 2-month projections for Ml, as the Committee knows, the results can be highly variable.",28
-fomc-corpus,1983,You don't see anything in the level of borrowing you've been assuming that is associated with these constrictive growth rates up to now?,25
-fomc-corpus,1983,"Well, we assume that the market conditions associated with this level of borrowing--I'm not sure I'm answering your question--would result in roughly a 7-1/2 percent growth in Ml. Now, the market conditions can be a little variable with this level of borrowing, depending on other things, and the demand for money can be a little variable. But that is our best estimate at this time.",81
-fomc-corpus,1983,That's what I wanted to know.,7
-fomc-corpus,1983,"It's the best estimate, which might be called a big fat guess.",14
-fomc-corpus,1983,"No, it's a careful study of various models with judgment applied!",13
-fomc-corpus,1983,Plus or minus 300!,6
-fomc-corpus,1983,"What they are saying is that, with this rate of business activity, they think it's going to pull up M1 even at the current levels of interest rates and borrowings. But that is a judgment about this unwinding being over or possibly over. But who knows?",54
-fomc-corpus,1983,"And I might add, Mr. Chairman, just in the context of what was said before about business activity being strong, that it's not clear to me from the recent performance that that necessarily means stronger Ml. It could be that people are just writing checks on their NOW accounts, which is sort of stored up savings, and we could get lower Ml with strengthening business activity.",74
-fomc-corpus,1983,"Well, I haven't looked at the figures in the last couple of weeks, but I think one can argue that the money market deposit accounts, which are not in Ml, remain very low, don't they?",41
-fomc-corpus,1983,"They are edging up, but essentially--",8
-fomc-corpus,1983,"Well, maybe it's beginning to go up again. But it looks suspiciously like there was this great attraction into that account when it was first offered. There was a lot of publicity and very high interest rates. People put more money in there than they wanted to hold in there permanently, and as things settle down they are taking advantage of other slightly higher rates in 6-month certificates or 3-month certificates or something else. And we may get some of the same phenomenon perhaps on NOW accounts.",99
-fomc-corpus,1983,"It really isn't worth making a federal case, but with respect to the alleged pickup in activity in September and October, if that occurred, the component of M1 that showed the strength was currency, where growth picked up to 10 percent. It's probably a coincidence, but right in that same period the NOW account growth virtually stopped.",66
-fomc-corpus,1983,"Well, the thing that has looked best over the past year or the past two years is not Ml but old M1A. What has that been doing recently?",33
-fomc-corpus,1983,"I'll get the figure here in a minute. That grew very little. In September and October it picked up to around a 2 percent annual rate of growth, which is slow, and it declined slightly in August.",43
-fomc-corpus,1983,"So, you have an increase in currency offset by a decrease in demand deposits?",16
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,"Wasn't there a reason for that--namely that the interest-bearing checkable deposits went up? So, you can't look at M1A in isolation anymore.",33
-fomc-corpus,1983,"Except old Ml was just as weak, apparently, in that time period.",15
-fomc-corpus,1983,"Well, during this very recent period apparently. But last year when Ml was going up so rapidly and velocity was declining, old M1A was not going up so rapidly and the velocity looked more normal. That may have been a pure coincidence, but I--",52
-fomc-corpus,1983,"Well, we've had for three months this sort of unwinding of the build-up in demand deposits, which we were somewhat at a loss to explain. We really expected that to start coming down earlier in the summer. We've had that in August, September, and October. And now we're anticipating that that will stop and will start going back up.",69
-fomc-corpus,1983,"Well, what we have is: ""maintain the existing degree of reserve restraint."" We have 8-1/2 percent in those blanks and then ""Depending on evidence about the continued strength of economic recovery and other factors bearing on the business and inflation outlook, somewhat greater restraint would be acceptable should the aggregates expand more rapidly; lesser restraint might be acceptable in the context of a significant shortfall in the growth of the aggregates from current expectations. Given the relatively slow growth in October, the Committee anticipates that M1 growth at an annual rate of around 5 to 6 percent from September to December will be consistent with its fourth-quarter objectives for the broader aggregates..."" All the rest would remain the same with 6 to 10 percent [for the funds rate range].",155
-fomc-corpus,1983,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey Yes President Keehn Yes Governor Martin Yes President Morris Yes Governor Partee Yes Governor Rice Yes President Roberts Yes Governor Teeters Yes Governor Wallich Yes,46
-fomc-corpus,1983,"I guess we are finished aren't we, Mr. Secretary?",12
-fomc-corpus,1983,"We have an addendum to the minutes from the last meeting, which has been distributed to you. I'm going to ask for approval of the minutes as amended. We do need a motion.",38
-fomc-corpus,1983,So move.,3
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,"Approved, with no objection. You have seen the Report of Examination, I assume. Is somebody here to talk about it or to answer questions?",29
-fomc-corpus,1983,That's as clean as a whistle.,7
-fomc-corpus,1983,Do we have any questions about it?,8
-fomc-corpus,1983,"Mr. Chairman, I thought I would just ask about that foreign exchange loss. Is that due to intervention or swap agreements or what?",27
-fomc-corpus,1983,Not intervention.,3
-fomc-corpus,1983,"It's mark-to-market, isn't it?",8
-fomc-corpus,1983,It's due to the change in the value of the dollar relative to these other currencies.,17
-fomc-corpus,1983,What policy do we follow now? Do we update these every month? Do we mark-to-market every month?,22
-fomc-corpus,1983,"We have to update, that's right. So, when the dollar rises relative to the other currencies, in terms of dollars our currency holdings show up as bookkeeping losses not as realized [losses].",39
-fomc-corpus,1983,"We're not permitted to ask questions before we [unintelligible], I suppose.",17
-fomc-corpus,1983,I beg your pardon?,5
-fomc-corpus,1983,That's a bad omen!,5
-fomc-corpus,1983,Are there any other questions on it?,8
-fomc-corpus,1983,"Mr. Chairman, with such a clean letter as this, it makes me wonder about the auditors!",20
-fomc-corpus,1983,It's our own examination people [unintelligible] looking embarrassed.,14
-fomc-corpus,1983,"It seemed to be absolutely clean, though. Would you say that's right, Clyde?",17
-fomc-corpus,1983,"Yes, they were quite clean.",7
-fomc-corpus,1983,No reservations whatsoever?,4
-fomc-corpus,1983,Very straight[forward].,5
-fomc-corpus,1983,Move to accept the report.,6
-fomc-corpus,1983,It doesn't imply anything about the policy?,8
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,Do we have a second?,6
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,"In the absence of any objections, it's approved. [The next item on the agenda is] a preliminary report on contemporaneous reserve accounting. Who is introducing this subject? Mr. Axilrod?",40
-fomc-corpus,1983,"I'll say a few words and Mr. Sternlight might also. We really have very little to add, Mr. Chairman, to our eight-page note. The memorandum takes the opportunity to explain how, under present procedures, one would construct paths under contemporaneous reserve accounting and review the paths in the course of the two-week reserve period. The memorandum then goes on to suggest possible additional procedures or alternatives the Committee may wish to consider, which introduce [various] degrees of automaticity to take advantage, so to speak, of the contemporaneous reserve requirements. These, in effect, would let misses in deposits, strong or weak relative to the path, be reflected. In the case of strong deposits we would have somewhat higher borrowings, and in the case of weak deposits somewhat lower borrowings within the reserve period--to some degree automatically, depending on the limits the Committee may wish to set, if indeed it wants to go in that direction. We suggested a couple of rather arbitrary procedures, that the Committee may want to consider, in a somewhat limited effort to get at this under current conditions, where there's some uncertainty about the meaning and the use the Committee may wish to make of Ml, the variable to which contemporaneous requirements are tied. I don't know if Mr. Sternlight would like to add a word or two.",265
-fomc-corpus,1983,"Well, I think Steve summarized the note that came from us. But the little that I would add at this point is that we still would have, I assume, nonborrowed reserve targets for each reserve period. I would see those as remaining the central focus of Desk activity. With a two-week rather than a one-week period, our perspective would change somewhat, but I think the main focus would still be on the full reserve period. With a longer settlement period, we would probably give more attention to the profile of excesses or deficiencies within the full period. To some extent, we still would look at weekly reserve levels, but there wouldn't be the same need as now to strive to meet those individual weekly targets. But we probably would want to avoid sizable accumulations of excesses or deficiencies within the two-week span. I don't see any need for different operational techniques from what we work with now.",181
-fomc-corpus,1983,Do you have some sense as to how much more variability there might be in the funds rate?,19
-fomc-corpus,1983,I think it might depend on how one responds to the point that Steve was outlining about the degree of automaticity the Committee may want to permit to occur.,31
-fomc-corpus,1983,"We have two problems to look at. We have a longer reserve period by one week; we have a two-week period. Right now within the reserve period we have some variability, particularly on the last day of the week or before the weekend on special holidays or something like that. What we can't tell is--and we've surveyed a number of banks--[how banks may change] their reserve management procedures under contemporaneous reserve accounting. The answer generally is that they don't plan to change anything they have been doing, and they were doing different things. They're going to estimate their required reserves; I think they're going to be off to a degree. And then they're going to continue doing what they have been doing. Those who tried to play the funds rate within a one-week period are going to continue that and try to play it within a two-week period. And those who wanted to stay in balance day-by-day are going to try to stay in balance day-by-day. With a two-week period there is a greater opportunity to run bigger deficiencies or surpluses in the course of the period. That means there's more they have to make up later. So, it seems to me there is some possibility of a lot more variability in the funds rate within a period if banks happen to allow big deficiencies to pile up and then wait until the 14th day, so to speak, and have to make up twice as much as they previously did. That's one factor. On the average, in a two-week reserve period, our research suggested we missed on our required reserves estimate by $100 million or so, after some revision in the course of the period. And that would have almost an unnoticeable effect, I would suspect, on the average funds rate variability. Of course, if the Committee were to permit a more deliberate miss, that might add a little to it and there could be some more effect. I'm not able to quantify it to any great degree, but I would suspect we would have somewhat more variability within the period and from period to period.",411
-fomc-corpus,1983,"[With regard to] the miss in required reserves that is discovered at the end of the period, to what degree is that related to a change in Ml and to what degree is it related to other factors?",42
-fomc-corpus,1983,"Well, I was thinking of a miss in general when I gave that $100 million figure--$100 to $200 million is what I think I have in here as the [average] miss. I don't have it refined at the moment between what might be so-called multiplier misses on government deposits and interbank deposits and what might be just Ml itself.",71
-fomc-corpus,1983,Can you say anything sensible about that with further looking?,11
-fomc-corpus,1983,I think probably with some detailed looking we might be able to break it [down].,17
-fomc-corpus,1983,That might be worthwhile. Governor Partee.,9
-fomc-corpus,1983,"Am I right, Steve, that this doesn't begin until the first of February?",16
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,The date it begins is the first of February?,10
-fomc-corpus,1983,"The reserve maintenance period begins Thursday, the 4th and for deposits it's Tuesday, the 2nd of February.",24
-fomc-corpus,1983,"So, we're talking about something that could receive attention again at the next meeting, I think.",19
-fomc-corpus,1983,"Well, we have a little problem here, it seems to me. It occurs to me that we better tell the market what we're doing; we should have a little statement. I don't know how we're going to come up with a statement before the next meeting.",52
-fomc-corpus,1983,"One problem I had with the analysis is that it seems to imply that we're looking at Ml as our principal target. What I'm wondering is: What do we do in a world of CRR if we're continuing to target primarily on M2? It seems to me that we ought to have an analysis of that. If we [use Ml], we would be changing our operating techniques in that event.",79
-fomc-corpus,1983,"That was going to be my comment, too. This gives us the opportunity for paying more attention to nonborrowed reserves and letting shortfalls and excesses show through. But that does seem to me to require some determination by the Committee as to the amount of emphasis it wants to put on M1. That's why I asked about the timing. It could be deferred somewhat. Also, the figures may be suspect for a while, given the [new] procedures and all that. Peter said we will be setting nonborrowed reserves just as we do now, but my impression is that what we set now is borrowings, not nonborrowed reserves. And if we really did set nonborrowed reserves again, and then contemporaneously it ran off, that would put pressure on the discount window, as was our typical mode of operation when we voted to put in contemporaneous reserves. So, I think it all needs to be considered in that context. I guess I'm doing this as much as anything to remind the Committee that one of the decisions we need to make is the attention to be paid to Ml.",222
-fomc-corpus,1983,"That's a good point, Chuck. I would ask the question: If we went back to the approximately equal [weight] scenario that we had some years ago, that would not take care of all of the problems we're raising, would it? It might take care of what--half?",57
-fomc-corpus,1983,"I think the proposal, if I understood it from the staff, was that we might start off letting 25 percent of the overshoots and undershoots show through automatically and that might not be too inconsistent with something like equal attention to the set of the aggregates. But perhaps Steve ought to answer that.",62
-fomc-corpus,1983,"In sum, the problem we had in analyzing M2 is that if you are thinking of an automaticity in response, there is none on M2 except to the degree that its Ml component moves. The only required reserves that move contemporaneously, after adjusting for multipliers, are those on Ml. So, anything the Committee wants to do with M2--that is if M2 were weak and the Committee wanted to move borrowing or whatever--could be done quite independently of contemporaneous reserve accounting. You wouldn't need contemporaneous reserve accounting to do that. We were trying to think of things that were in some sense uniquely related to contemporaneous reserve accounting. And with a lag we could observe M2 and make whatever adjustments in response to changes in M2 the Committee wished to see made. But the question that arises with contemporaneous reserves is automaticity--letting it happen if we aim at a nonborrowed or total reserve figure. What happens is pretty much purely Ml, if we make the proper multiplier adjustments in a contemporaneous way. M2, to the extent it is affected, is only [affected] by Ml.",227
-fomc-corpus,1983,"Well, I guess I was reading between the lines.",11
-fomc-corpus,1983,In a particular week we could make an adjustment for M2.,13
-fomc-corpus,1983,Sure you can. There's no question about it. My only point was that that wasn't uniquely related to the contemporaneous reserve accounting. That could be done either way.,33
-fomc-corpus,1983,That's why I thought you suggested 25 percent--to give some weight but not overwhelming weight to Ml behavior.,22
-fomc-corpus,1983,That's right. And we did have in there at one point a paragraph that I took out about the various things to do if the Committee wanted to put some weight on M2. But that didn't strike me as uniquely related to the contemporaneous reserve accounting. We always have done that.,57
-fomc-corpus,1983,Mr. Black.,4
-fomc-corpus,1983,"Mr. Chairman, if we don't make any more changes in our procedures than Steve and Peter have suggested, I think we're missing a mighty good opportunity on our control mechanism. At least some of us supported this [change to CRR] primarily in the hope that eventually we'd be able to control total reserves better than we could under the lagged system. It's rather painful to me since I had something to do with the lagged system and I hate to see the one contribution I thought I had made go down the drain and turn out not to be a contribution! But in any event, I became persuaded that we could control total reserves better under this system than we could under the lagged system. I recognize, of course, that the two-day lag imposes some of the same problems that we had with the full lag, but not quite as much. And if we deemphasize Ml, then certainly we pretty well have to stick to the procedures that Peter and Steve were talking about. But I hope that this is just an initial step toward moving eventually to emphasizing Ml. If we assume that the present nonborrowed reserve target procedures are going to be continued under this new regime then, as I think Steve has indicated, with this greater variability in federal funds we ought to be prepared to let that much show through to the extent that [the variability] results from unexpected changes in required reserves stemming from demand-induced changes in Ml. That would be a self-correcting brake on whatever might be happening [to Ml]. I also think we ought to install as much automaticity in this as we possibly can. Right now, under our present procedures, the Committee is really out of it once it chooses its initial borrowing target unless we have another meeting. And this puts a tremendous burden on you, Mr. Chairman, in deciding the extent to which the borrowing target will be altered. I would greatly favor a more automatic procedure because it would probably operate better. The only alternative is an ad hoc procedure. So, I think the 25 percent is unduly low. Finally, it seems to me that if the system is going to work very well at all, we have to force the banks to adjust during that part of the reserve maintenance period that overlaps the other period. This would mean that in the last two days of that reserve maintenance period we ought not to let federal funds be subject to overly strict control or else the banks and other depository institutions are not going to adjust during this two-week period at the beginning. If we don't do some of these things, or move in that direction, we really have put the banking system and now the thrift industry through a tremendous amount of pain and suffering for something that's really not going to make us that much better off. We are not only going to have a lot of trouble computing these things but, in my judgment, we're apt to get a lot of errors because it's frightfully complicated. We have to make use of these potential improvements in the mechanism, it seems to me, or else it's all for naught.",613
-fomc-corpus,1983,Mr. Roberts.,4
-fomc-corpus,1983,"It has been my assumption that the purpose of contemporaneous reserves, which have involved an enormous effort to put in place, is to improve control over the aggregates, particularly Ml. I don't want to repeat what President Black said; I'd like to associate myself entirely with his views. I concur with him. I was going to ask the question, Steve: If the purpose is better control of the money supply, wouldn't we be better off targeting on total reserves? I think we should [exercise] reduced flexibility rather than the other way around. The only problem that I can see from that is increased volatility of interest rates, which I think the market would adjust to readily.",133
-fomc-corpus,1983,"Well, if we had every multiplier adjustment right, that would probably be the case. We don't normally get the mix even in money supply type deposits--those at small banks and those at large banks--exactly right. So, that tends to throw us off.",53
-fomc-corpus,1983,"The multiplier differences are generally very short term, though, aren't they?",14
-fomc-corpus,1983,"Yes, that's right; they might average through. But on the technical side, the study we did a couple of years ago--before we had contemporaneous reserves, but even after we tried to allow for it--seemed to suggest, surprisingly, that nonborrowed reserves were probably better in controlling Ml on a month-by-month basis than total reserves so long as we didn't have exactly the same reserve requirement on all types of demand deposits. We have reduced those variabilities. We only have three classes now: zero, a small one, and a large one. Still, I would suggest that you would be surprised that total reserves would [not] do quite as well as you think it would.",140
-fomc-corpus,1983,I'm thinking about our target in recent months and our actual experience and wondering about our control.,18
-fomc-corpus,1983,"Steve, this gets closely at the point that Chairman Volcker was raising a while ago. Two kinds of demand deposits are in there that are [not] normally in Ml: government deposits and interbank deposits. I would think one could pretty well estimate what they are going to do over an extended period of time; at least what little work I've done on it suggests that. Insofar as shifts between large banks and small banks [are concerned], yes, in the short run that is important; but over the long run I wouldn't think that really messes us up very much. The whole thing has been designed--at least I've perceived it this way and I'm sure others have also or it wouldn't have [been adopted]--to control Ml because, as you mentioned, that's the only aggregate that is subject to contemporaneous reserve requirements. All the rest, M2 and M3, are subject to lagged reserves. So, we go into a reserve period and supply what reserves are needed against those liabilities that have been lagged. Then we put in an additional amount to take care of the interbank and government deposits plus what we think is necessary to achieve the right expansion in Ml. I believe that's manageable, although, of course, we have to agree that we want to control Ml before we can do that.",265
-fomc-corpus,1983,Mr. Boehne.,6
-fomc-corpus,1983,"Well, it seems to me that we ought not to use the existence of CRR as a reason to go to M1 or not to go to Ml. We ought to give more or less weight to Ml depending on our judgment as to how good an intermediate target it is. CRR is a means to an end; it seems to me that we have the argument backwards when we say we ought to put [more weight on] Ml because we now have CRR. There is probably a case to treat Ml on the same footing as M2 and M3--not that Ml is particularly good, but it's not a whole lot worse than the other two. So, I think there is a case to give it equal weight. If we give it nearly equal weight or equal weight, there is a case for some degree of automaticity, and it strikes me that something like 25 percent is not a bad way to start. It's a reasonable blend with which to begin to experiment. But the main point is that we ought to judge Ml on its merits; I don't think whether we have CRR or not is a reason pro or con to give additional weight to Ml.",236
-fomc-corpus,1983,"If you thought that was my [predilection], Ed, I misled you.",18
-fomc-corpus,1983,Mr. Guffey.,6
-fomc-corpus,1983,"It seems to me, as has already been said around the table, that if we really are going to implement CRR and make it meaningful, we have to elevate Ml to the essential, intermediate target we follow. I have two comments about that: First, I do not believe the informational content in Ml relative to income is sufficient that I would be prepared to do that; and secondly, we're moving into a period where the commercial banks are learning how to operate under contemporaneous reserves and that uncertainty would suggest that at least for some period of time--maybe as much as six months--we would want to continue to operate very much as we have in the past. We may want to run an experiment along the side to see what would happen if we adjusted 25 or 50 percent. But I would not run policy in the upcoming period--at least until July--given the uncertainty that falls out of CRR and the uncertainty that falls out of the relationship of Ml to the real economy. As a result, I would propose that we not change operating procedures until we get a good deal more experience than what we will have on February 2.",230
-fomc-corpus,1983,Governor Gramley.,4
-fomc-corpus,1983,"Well, I was not terribly sympathetic with the procedures we followed from October '79 to October '82 in the first place and I haven't looked back on that period with any different view. I'm even more reluctant to see us go in that direction now by elevating Ml even partially toward an intermediate target or by increasing automaticity. That's not just a matter of week-to-week or day-to-day or even month-to-month variability in the funds rate that we would be looking at, but it's the fact that we're looking at relationships between Ml and GNP since the fourth quarter of 1981 that simply have no parallel in prior history. To make it very simple, let me take the past several months. The staff has been anticipating a substantial increase in the growth rate of Ml, as I have, because we have such a strong economy. It hasn't happened. If we had had the kind of operating techniques that we did earlier and they were augmented by CRR, we would have experienced in the past couple of months a very substantial decline in interest rates. And from my reading of the economy, we need a decline in interest rates and a stimulus to economy activity to go with the fiscal stimulus like we need holes in our heads. In my judgment, we're looking at a very strong economy--an economy in which the risks are too much expansion, rather than too little, and more inflationary pressures. I recognize that not everybody agrees with that, but that's my view. And that's why I would be very, very reluctant to see us go back to an automatic response pattern and the use of Ml as an intermediate target now.",324
-fomc-corpus,1983,Governor Wallich.,4
-fomc-corpus,1983,"There has been some change, at least in my thinking, and I think in the broader perception, of the desirability of very tight money control since we adopted CRR. We went to CRR, I think, in order to achieve this tighter control of the aggregates; we've seen that it can miscarry. I have become more concerned about wide fluctuations in interest rates and, therefore, more concerned about the possible consequences of a rigorous application of contemporaneous reserve requirements on an M1 basis and on a fully automatic basis. We made this decision and I think we have to move somewhat in that direction. Also, I don't think we can be quite as relaxed about Ml as we had a right to be while it was misbehaving. I think it is beginning to establish somewhat greater credibility but it's certainly still under some degree of suspicion. So, since CRR does point toward Ml, with the relevant reserves that are contemporaneous being for the most part against Ml, I think we can't avoid giving more weight, though perhaps not full weight, to Ml. I think some automaticity is desirable because that's the nature of the whole operation. If we didn't have automaticity, why have any form of contemporaneous or lagged reserve control? But I would not make it total; something in the range that has been suggested by the staff strikes me as a reasonable compromise.",274
-fomc-corpus,1983,Mr. Corrigan.,5
-fomc-corpus,1983,"Well, as almost everybody knows, I was never persuaded by the case for CRR to begin with and I'm still not. I never thought it would make that much difference in terms of how well we could control Ml even if we decided that we wanted to control M1 and nothing else. I do agree with Mr. Boehne's point, however, that the logically prior decision here is what we want to do with Ml. But quite apart from that, I must say that my hunch is that we're going to end up with more [interest rate] variability than Steve and Peter seem to expect. That's just my hunch; I can't prove it either, but I think that's the way things are going to go--that we're going to have more noise and little or no improvement in the control of Ml. So, if I really had my druthers, I'd drop the whole thing. But I don't think we can do that. I think it does argue, though, for what I would call a ""go slow approach,"" particularly for the first few months. I have always liked a degree of automaticity but I would be willing to compromise that in the interest of trying to get this in place in an orderly way. I suspect that the full impact on data flows and on the operations of cash managers of big banks and small banks has not been fully digested in spite of the enormous amount of work that has been going on around the Federal Reserve in trying to get people up to speed on this. In short, I don't think the operational impact either on us or on the banks has been fully digested up to this point. That again would argue, in my way of thinking, for a go slow approach. As far as our own operations are concerned, I must say that I did not walk away from reading the memo with a great deal of confidence that we know what we should do ourselves, much less that we know how the banks will respond to what we do. Maybe I missed something but the bottom line is that I'm distinctly uneasy about the whole thing.",417
-fomc-corpus,1983,"We were pained, Mr. Corrigan, to leave options for the Committee and not make a recommendation that would sound as if we were certain about how we're going to approach it.",37
-fomc-corpus,1983,"Well, I'm not thinking so much of your 25 percent [suggestion] in there. I'm just thinking of what lies behind all that. This question of whether we have a miss because of what you call multipliers as opposed to a shift in money demand is a profoundly important question. Which side of that coin one is on [is important] even on a week-to-week basis. It seems to me that it's going to have very, very sizable implications for the amount of noise in the money market.",102
-fomc-corpus,1983,"Mr. Chairman, there is one thing--",9
-fomc-corpus,1983,Are you going to give us a little analysis of it?,12
-fomc-corpus,1983,"Yes, but I thought in the context of this discussion that there is one thing that perhaps is not clear enough [about] the automaticity in response to Ml. For example, if M1 were weak by an amount that said borrowing would drop, say, $50 million in that week, we did not necessarily concede that the next week we would start off at a lower level of borrowing. That would be a matter of decision for the Committee. So, for example, if M1 were weak and M2 were on track or strong, with any automaticity in there, borrowing might be $50 million [lower one] week but the next week we could start off with borrowing where it was earlier.",142
-fomc-corpus,1983,We always come within $50 million anyway!,9
-fomc-corpus,1983,"That's right! And the next week if Ml were strong, borrowing would be up $50 million and it could fluctuate; we wouldn't make judgmental adjustments of borrowing unless the whole bunch of the aggregates seemed weak or strong relative to the Committee's anticipation or whatever rule the Committee might want to use.",59
-fomc-corpus,1983,"When you say $50 million, where do you start off--where you were before? I don't quite understand.",23
-fomc-corpus,1983,"Well, suppose we started off a week at $650 million, as we have been doing, and we got all the multipliers correct and all that and by the time we were through the two-week period, Ml in fact was weak to the extent that borrowing dropped $50 million and ended up at $600 million. Then the question comes up: What level of borrowing do we start the next week with? I'm saying, unless the Committee says otherwise, we would start at $650 million again and then if Ml is strong that makes up for that and we would be up to $700 million of borrowing.",122
-fomc-corpus,1983,"To put it in perspective: $50 million would imply a $500 million dollar weakness in Ml from where we were, roughly.",26
-fomc-corpus,1983,"I guess I would have thought if we had let borrowing drift down from $650 to $600 million because of a weakness in Ml one week, that if Ml were then strong the next week, thus offsetting the [previous weakness], we'd drift back to $650 million from $600 million. It seems we might get a progressive movement if we always went back to where we thought we should have been.",81
-fomc-corpus,1983,"Well, that's [an issue] we are raising. The Committee can decide whether it wants to cumulate, which would be to go up to $650 million [in this example] or stay at the $600 million as the way to take account of M2 and M3 and everything else.",60
-fomc-corpus,1983,"If we had a week in which Ml, according to our perfect seasonal, went up by $5 billion--if you could imagine a week of that sort--when we were thinking it was going to go up $1 billion, borrowing would go up by $400 million, all that being perfectly arranged.",61
-fomc-corpus,1983,If we took the full 100 percent; at 25 percent we'd be better off.,18
-fomc-corpus,1983,I don't quite understand this taking a 100 percent or 50 percent. You're not going to know what the figure is; you don't know what to take 50 percent of.,36
-fomc-corpus,1983,We have our estimates. You're right that there is always going to be the noise from the errors in the estimate.,23
-fomc-corpus,1983,"Well, Mr. Chairman, I agree with the statements of Governor Gramley. I opposed moving to contemporaneous reserve accounting on the grounds that it didn't make sense unless one believed that Ml was a sensible target for policy. But now that we've made this investment, I think we ought to look upon it as a sunk cost and as something that we will have in place in the event we ever seriously want to go to pursuing Ml again. I don't think the fact that we've made this investment should automatically push us into changing the way we're currently running monetary policy. I agree with Lyle: I think it would have been a big mistake if we had had this in place 6 months ago and had pursued a much more aggressively easy policy, which we would have had to do. I don't think we can substitute this new system, in this context, for the good judgment we have been using.",178
-fomc-corpus,1983,"Well, I think it is analytically correct that we went out and bought a potato digger but we don't have to plant the potatoes.",28
-fomc-corpus,1983,We can plant them; we don't have to water them.,12
-fomc-corpus,1983,Mr. Keehn.,5
-fomc-corpus,1983,"Well, it seems to me that CRR more than implies a higher level of control of the aggregates and, whether we like it or not, it's going to be with us on February 1st. There has been an enormous effort expended by us and by the commercial banks. And I would hope that for all of this trial and tribulation and money we'd be able to deliver something. It seems to me that all this does imply a much greater emphasis on Ml than we have been giving it recently. We have been through a period of significant adjustment; I think we would be making a mistake if we did not use this as an opportunity to move to reemphasize Ml. I would in no way suggest that we ought to put the system on automatic but I wouldn't lose the opportunity. I'd begin to reemphasize Ml as our principal aggregate. I would plant the potato.",179
-fomc-corpus,1983,You're going to plant a small field! Mrs. Teeters.,13
-fomc-corpus,1983,"As you well know, I objected to CRR all the way along and I associate myself with reservations about Ml as a major target in policy and about its relevance to GNP. But I'm more concerned that if we go to any degree of automaticity, we're going to get increasing volatility in the interest rates. Can you give us some estimates, Steve? If we go to 10, 20, 25, or 50 percent automaticity, what degree of volatility will we reintroduce into the interest rate structure?",107
-fomc-corpus,1983,"Well, Governor Teeters, our best guess has always been, that we get 20 to 25 basis points per 100. It seems a little less.",33
-fomc-corpus,1983,Per 100 of what?,6
-fomc-corpus,1983,"A hundred million dollars of borrowing. We thought [a change of] something like $400 to $500 million in borrowing would result in a one percentage point [change in interest rates]. Now, we've gone through $400 to $500 million of borrowing with virtually no movement in the funds rate in the process of which we've declared that there were shifts in the demand for borrowing, shifts in the demand for excess reserves. And making those judgments has tended in some sense to moderate these movements, or the banks have just not cared. We haven't gotten those kinds of movements. So, I would not really want to swear on a stack of Bibles that a $500 million borrowing change will give you 1 percentage point. But I would say that with a $50 million change in borrowing within a week one is not going to discern the effects relative to the noise. It has to accumulate to begin to move the funds rate in some sort of trend way.",190
-fomc-corpus,1983,"Well, what are you referring to as ""noise""? I was interpreting that as being volatility in the interest rates.",23
-fomc-corpus,1983,"I meant the variation [at the end of a statement period.] Mr. Sternlight aims at a nonborrowed reserve path constructed from some borrowing assumption and some knowledge of the demand for excess reserves. The noise that I meant was what happens to it on the last day of the statement week when the factors affecting reserves other than his actions vary by $2 billion, say, or when required reserves relative to expectations change by a lot.",87
-fomc-corpus,1983,For reasons other than a change in Ml.,9
-fomc-corpus,1983,"Yes, and changes that we hadn't allowed for; we were estimating but we missed. And that will either add to that $2 billion or subtract from it; they could be offsetting. To the degree that it adds, there is going to be a result in the relation in free reserves or nonborrowed--they are the same--that is different from what we were aiming at. That's a kind of noise in the system, I would say. The additional noise is how banks decide to manage their reserves over a two-week period. If they suddenly get it into their heads that the funds rate is going down when it isn't, they are going to get themselves into a deep hole and at the end of the statement week they are going to have to borrow a lot. Over a 14-day period they might have to borrow, instead of $3 billion on the [last] day, $6 or $7 billion. That will put a lot more pressure on the funds rate than they have been used to. So, over a two-week period there is a little more capacity for noise, depending on how banks manage their reserves and what [rate] expectations they have for one reason or another.",241
-fomc-corpus,1983,Even banks learn!,4
-fomc-corpus,1983,Over time.,3
-fomc-corpus,1983,More slowly than most other people!,7
-fomc-corpus,1983,"Well, I think one of the great costs of the period from '79 to '82 was the high volatility of rates--not only the short-term rates but the long-term rates. What I'm really concerned about is that I simply don't want to get back into a situation in which that sort of volatility reoccurs.",64
-fomc-corpus,1983,"I didn't mean that as ""noise"". I meant what seems to me to be the product of the controls of--",23
-fomc-corpus,1983,"But the more automaticity we build into the system, the greater the volatility is going to be.",20
-fomc-corpus,1983,"We're almost bound to get more volatility in the very short run, whatever we build into this. I think--we'll see--that just [the nature of] this system is going to give us more very short-run volatility.",46
-fomc-corpus,1983,Probably.,2
-fomc-corpus,1983,But one of the things that was most damaging was that the short-term volatility got translated into the long-term market.,23
-fomc-corpus,1983,"It probably happened over a longer period of time--volatility over a month, two months. I'm not sure. That's an open question. But I think within a two-week period we're going to get more.",42
-fomc-corpus,1983,Unless we offset it.,5
-fomc-corpus,1983,Unless we offset it.,5
-fomc-corpus,1983,"We should get more variation in the federal funds rate concomitant with that. If we hit our target on a more regular basis, I wonder if we'd really have that much volatility in other short-term rates. I can see very easily that we would in the federal funds rate. And I'm not sure it follows in longer-term rates.",66
-fomc-corpus,1983,"That was the argument that was used in October '79: You don't have to worry much because most of the variation would be in the funds rate, a little in the short-term market rates, but the long rates would hardly react--particularly after the markets have an opportunity to adjust. And that just didn't happen at all.",65
-fomc-corpus,1983,But we didn't hit our targets as regularly as I am talking about.,14
-fomc-corpus,1983,Mr. Forrestal.,5
-fomc-corpus,1983,"Well, Mr. Chairman, I'm one of those who never really understood completely how CRR was going to give us more precision with respect to the monetary aggregates. But that's water over the dam, as other people have said, and I think we have to go forward with the program. But I think there's going to be an awful lot of confusion out there right up until February 1st, particularly among the smaller and medium-size banks. That confusion is going to reign supreme for some weeks after we introduce this system. So, I don't think we ought to go in any way to any automaticity at this point. I would much prefer to see us go slowly. Automaticity has a certain amount of logical appeal, but I think the timing is wrong in terms of the implementation of CRR. The other point that I really would like to make--and perhaps this also has been said--is that I don't think we ought to be looking at the question of CRR's relationship to Ml. The question ought to be asked the other way around. The threshold question it seems to me is: What target does the Committee really want to focus on? We ought not to be pushed into one or the other because of a technical accounting system. And I happen to think at this point in my membership on this Committee that M1 is a pretty good target and one that has a pretty good relationship to GNP. Others have argued that around the table before. But it's a question that we now have an opportunity to look at in great depth and I think we ought to seize the opportunity before CRR becomes effective to zero in on what we really want to target on.",334
-fomc-corpus,1983,Mr. Balles.,5
-fomc-corpus,1983,"I guess I'll resist the temptation of asking, Mr. Chairman, why we decided to go back to CRR in view of all of this. But passing beyond that, first I'd like to associate myself with the view that Ed Boehne expressed so well: Just because we have CRR doesn't mean we necessarily should revert to Ml as the primary intermediate target. However, I consider it personally a rather fortunate piece of timing in that I'm convinced--as some others are around the table, though many are not--that we are in the process of witnessing a new behavior of Ml where it's going to be more reliable. We're beyond that stage where velocity dropped in that unprecedented manner in '82 or early '83 and, therefore, we now can begin to rely more on Ml, as we used to do. If that's the case, and it happens that it has come along just at a time when we could have some automaticity in Ml--not complete in my view--then some automaticity would not be damaging; it probably would be desirable. I wouldn't want, as Si Keehn said--I think it was you, Si--to go fully automatic. But I think it's time we went partly that way. I come out, bottom line, in much the same way as Si Keehn and Ted Roberts and Bob Black did.",267
-fomc-corpus,1983,Governor Martin.,3
-fomc-corpus,1983,"Mr. Chairman, I join those of our colleagues who have been accepting the hypothesis that we will have more volatility in short-term rates, perhaps spilling over into long-term rates, by a closer adherence to M1 targeting, or by CRR. And if indeed there is to be some degree of increased volatility as a result of our moving in that direction, it seems to me that the risks in 1984 and in 1985 should be kept in mind and would mitigate against our moving in that direction. I'm thinking, of course, of the international debt situation, of the efficacy of business fixed investment as a sustaining force in the expansion, of housing, and obviously of commercial construction, which I think is going to be the next REIT disaster and which is susceptible to the influence of [interest] rates. It seems to me that there is some potential reward, but it's rather a paper reward, of controlling M1 better. But how long is it going to take us to learn what velocity is going to be and what trend line is going to emerge--either the old one or a new one? How long is it going to be before we can see what the relationship of this new one is with regard to the economy? I think we may, as a group, have a more favorable look at M1 and at a more automatic procedure later. I am sure that many in the markets will continue to feel, surmise, believe in, or have faith in M1 and its close relationship with economic activity. As long as that belief is out there, it's something we have to deal with. But now with the unknowns with regard to velocity and M1 and the risks to this economy by increasing the volatility of interest rates, I simply think we should wait.",356
-fomc-corpus,1983,"Well, let me draw several conclusions. I think it is logically or otherwise correct that simply because we adopted contemporaneous reserve requirements, for better or for worse, we don't have to arrange our policy from now until eternity to take maximum advantage of that operationally. That's a separate decision and logically comes first. Secondly, I do have the sense that there's enough uncertainty about this [CRR] that we're not going to want to do anything very radical in the very first months of its introduction. There may be very little change. Thirdly, I think we really have to say whether we're going to do anything very different or what we're going to do because there will be [a lot of] confusion around. And if this process begins on February 2nd, inevitably I guess we're going to have to say something before then. As a footnote, I want to be reminded that we may have to advance the next meeting, anyway--which will be convenient for this reason, I suppose--because I might have to testify before the Lincoln Day recess in the Congress. If so, that doesn't give us enough time [between] the meeting as it is now scheduled [and] the testimony. I don't know that for certain at the moment, but we may have to get back with you to see about a date roughly a week earlier [than now scheduled]. If we do that, we can then decide precisely what we want to say, although even then it will be getting kind of late, I suppose. It might be that there will be a lot of questions. I would prepare at least one version or maybe two or three versions of precisely what an announcement might say as to how we're going to handle this at least for some transitional period while we at least make sure that the statistics come in in an orderly and predictable way. Then, finally, I think the question is: What weight do we want to put on the different aggregates, which is the natural subject of the discussion at the next meeting in terms of setting targets; we're going to have to discuss it anyway. People probably have different opinions about whether we will want to make any major changes, but it is a natural focus of the discussion. But even if we put a lot of weight on Ml, I wouldn't be prepared to put full weight on it for at least a brief transitional period to gin up an operating [procedure] just because we have contemporaneous reserves, simply to get the operating bugs out at the extreme.",496
-fomc-corpus,1983,"Mr. Chairman, I agree with you on that entirely, but I think we've left unsaid here one point that is important. And that is: In this interim high-risk period of 6 months we've built very wide latitudes on reserve requirements and we've essentially made the smaller banks immune to the process, which I think reduces the risk. It doesn't eliminate it, but it certainly reduces it.",79
-fomc-corpus,1983,"Well, we'll see how it goes. I don't have a good feel for it. On Ml itself, just to make one substantive point, I have some feeling that it's getting a little better but I don't know why. It has been way off on the low side, and seeing it come back from that I guess makes everybody feel a lot more comfortable. But we have one quarter of an exceptionally large rise in velocity now. So, while I have a feeling that maybe it is going to be reacting a little more normally, we surely can't prove it by any figure we've seen at any particular point in the past quarter anyway.",125
-fomc-corpus,1983,I think Ml is a random walk.,8
-fomc-corpus,1983,"Well, I'm not quite willing to say that.",10
-fomc-corpus,1983,"I'm surprised to hear you say that, Frank!",10
-fomc-corpus,1983,"I'd hate to have to pick out today what the trend is going to be over the next three years, even though I have the feeling that it may be a little more reliable. I'll know more three years from now. Well, is there anything else to be said on this subject? We will see once we set the date of the next meeting, but we may either have to circulate something to you in writing before then or have a telephone call or something because I do have the suspicion that people in the market and everybody else are going to ask what this is going to do and how we are going to conduct ourselves. They will ask whether we are going to do something radically different and we ought to tell them.",143
-fomc-corpus,1983,"Mr. Chairman, could I make one more observation? On this automatic part, suppose we've agreed that Ml deserves a little more emphasis than it now has; if it runs above target and consequently required reserves are higher than the path, we can either adjust the borrowing up automatically or we can do it on an ad hoc basis. Since we've not been emphasizing Ml to any great degree, these adjustments in the borrowed reserve targets have all been on an ad hoc basis. There's no way the Committee can realistically participate in those decisions. That has to be left up to you in consultation with Steve and Peter or however you want to do it. And that is the point: That is the only alternative to some kind of automatic adjustment mechanism, if in fact we're going to pay any attention at all to Ml. I think we ought to focus on that part of it. I'm quite willing to delegate that to you, but I'm not sure whether I'd be that willing to delegate it to your successor, whoever he might be.",201
-fomc-corpus,1983,"On this M1 issue, I don't know what the figures look like, but I was looking at this so-called experimental seasonal, for what it's worth, that we publish figures on. The monthly figures look quite different.",44
-fomc-corpus,1983,"We publish them weekly. Yes, [they look different]. In terms of absolute variations, though, be aware that the average absolute variation of the experimental, both monthly and weekly, is just about equal to the average absolute variation of the regular series.",50
-fomc-corpus,1983,They look erratic in different ways.,8
-fomc-corpus,1983,That's right.,3
-fomc-corpus,1983,That's the way I see it.,7
-fomc-corpus,1983,Very different [timing].,6
-fomc-corpus,1983,We don't get growth in December on this experimental [version].,12
-fomc-corpus,1983,"No, and it shows a sizable growth in November, I think. That brings it to--",19
-fomc-corpus,1983,And the weekly changes in the experimental series are sometimes larger than in the regular series.,17
-fomc-corpus,1983,"The seasonals wouldn't affect the reserve requirements, would they?",12
-fomc-corpus,1983,"Yes, because the target is set forth in seasonally adjusted figures. We live in an eerie world of seasonal adjustment, but when they are converted into--",31
-fomc-corpus,1983,"They're real, but they're converted--",7
-fomc-corpus,1983,"Yes, but they're converted from a target that is seasonally adjusted.",14
-fomc-corpus,1983,"Mr. Chairman, could I ask Steve about that point? Steve, what do you think about the merits of the experimental [seasonal] versus the regular one? We've done some work that suggests that the seasonals are probably bad for the last part [of the year]. Hence, we didn't have as much of a burst in Ml earlier and we haven't had as much of a slowdown since then. What one believes on that makes a lot of difference, I think, in where one comes out.",100
-fomc-corpus,1983,"Well, my memory is that if you look at the two series on a quarterly basis, the pattern doesn't look very different. There are small differences, but not big ones. There is somewhat slower growth, I think, in the experimental [series]. I'm not sure of this in the second half, quarter-over-quarter. But month-to-month, if you look at the second half, the growth rate in the experimental series drops somewhere around July--I may be off by a month--and then with the exception of one negative month where it's -0.5 percent, it fluctuates between 3 and 7 percent. So, it tends to look as if it has dropped down to a new 5 percent or so growth rate.",148
-fomc-corpus,1983,"Yes, it looks much more like a drop to a plateau than--",14
-fomc-corpus,1983,"Whereas the other series looks like it was going along strongly and suddenly it dropped to 2 or 3 percent for four months. It gives a slightly different look to Ml. Up to that point I had been getting prepared to recommend to the Board that we drop the experimental series, mainly because it wasn't showing any less volatility. I had the feeling, therefore, that it was just proving that weekly and monthly seasonals are difficult to get at and that Ml is an inherently volatile series. That's how I would interpret Ml. But now it looks as if the experimental series has made a comeback. It seems to me that it still has some value and I would tend to recommend that it be continued, but certainly only experimentally. It hasn't demonstrated--and we haven't found--a way to make the weekly seasonal variation less.",164
-fomc-corpus,1983,"The only thing I conclude from it is that, as Steve is suggesting, weekly and monthly seasonals are very treacherous and we shouldn't assume too much. But [the results] are quite different, depending on which seasonal one uses.",48
-fomc-corpus,1983,"Well, that argues even more strongly against any large degree of automaticity. If our current data are highly volatile, we don't quite know where we are.",31
-fomc-corpus,1983,"Well, we're back in that old dilemma: If we wait too long, we've waited too long; and if we react too quickly, we've reacted too quickly.",32
-fomc-corpus,1983,It's hard to argue with that one!,8
-fomc-corpus,1983,"As a technical point, Mr. Chairman, a two-week reserve period has the advantage of averaging through a little, in some sense; it has the disadvantage of delaying [us] ever so slightly.",40
-fomc-corpus,1983,Is there anything else to be said on this subject? We will turn to Mr. Kichline.,21
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,"Okay. We can have some Committee discussion, which I would hope would focus as much as possible on what risks, probabilities, or otherwise, people may see looking out 6 to 12 months ahead either on economic activity or on prices. Mr. Boehne.",54
-fomc-corpus,1983,"I think if I were sitting where Jim is sitting, I would probably come up with about the same forecast, but I suspect that the economy is going to turn out to be a good bit stronger next year than the standard forecast. I think that what we have here is a cumulative self-feeding momentum that will deliver a stronger economy so that the total, in effect, is stronger than seemingly the individual parts. I've talked to a lot of people from a lot of different industries in my District in recent weeks and I think terms like euphoric and ebullient and buoyant are very descriptive [of their views]. If I heard these kinds of reports from my good friend Bob Boykin I would say: ""Well, that's Texas."" But when I hear them in Pennsylvania and around the Third District, which has generally been on the slow side, that tells me something about what is happening to this self-feeding momentum and to the psychology. My board, which generally has been on the bearish side--we have some industries that have been hit fairly hard--in its meeting last week was concerned for the first time in memory that perhaps things were moving along too quickly to be sustainable. Now, having said that on that side, I also think the risk of more inflation is greater. I think that's definitely where the risks are and also that we likely will get a stronger economy. Also, I find a great sensitivity to interest rates out there--a view that [higher] interest rates could shut this down fairly promptly. For what it's worth, I have the sense that if interest rates went up 1 percentage point or so, it probably would dash some of these expectations but not a great deal; but if the increase were in the 1 to 2 point range, I feel it really would have a major effect on this psychology. A good many people I talked to think that if we had something in the neighborhood of a 2 percentage point increase in rates, that could reverse things fairly quickly. I'm not saying that that is scientific fact or even that it is true; I'm simply giving you a sense of how people view various kinds of increases in rates.",433
-fomc-corpus,1983,You're not going to tell us whether you agree with that?,12
-fomc-corpus,1983,"Well, getting ahead of ourselves, I think there is room for a little snugging but it ought to be very cautious--just enough to deflate the bubble a little but not all that much.",40
-fomc-corpus,1983,Mr. Corrigan.,5
-fomc-corpus,1983,"I didn't know I had put my hand up, but I'll go ahead anyway. I put my comments in two categories. First, for the past couple of days I have had in the Bank the CEOs--and strictly the CEOs--of a good cross section of major industrial companies in the Ninth District, including some of the really Blue Chip companies up in the Minnesota area. I have been getting from these people almost astonishing reports of very pronounced stretch-outs in deliveries that have materialized just in the past six months. One of the big computer manufacturers, for example, said that six months ago he could pick up the phone and get anything he wanted just like that. Now, six months later, he's looking at delivery delays of six months to a year on things that were simply available with a phone call a few months ago. There were reports of very, very strong final sales. And this seemed to be the case across the board, in everything from wood, construction materials, soft goods, computers--you name it. One of the very substantial food companies indicated that their soft goods operations--not the foods in some cases--were showing unit sales in December up 40 percent from a year ago. There was a--",243
-fomc-corpus,1983,What company was that?,5
-fomc-corpus,1983,It was Some of their soft goods-- and things like that were up 40 percent in unit terms.,21
-fomc-corpus,1983,Their sales to retailers?,5
-fomc-corpus,1983,"They own the retail outlets in some cases, so it's a mix of both their own retail outlets and their supplies to retailers. I think it's fair to say that in one way or another every one of these CEOs reported building price pressures. The good news is that they all at least indicated that they were holding the line on their wage cost [increases] for 1984--other than a bank, which wouldn't surprise you. Other than a bank, every one of these roughly twenty or so firms reported that their plans were for compensation in 1984 [to rise by] 4 to 5 percent or less. They also reported, again almost without exception, very severely depleted inventories either in their raw materials or, in the case of those in retailing, in items on the shelves. Perhaps most disturbing of all to me: There was a truly universal expectation among these people that we would have sharply higher inflation and interest rates by the end of 1984. Believe it or not, some of these people even spoke in terms of a ""buy now"" attitude creeping back into the picture for fear of the outlook toward the end of 1984. That was my rather clear impression, with the exception of the wage side, which would suggest that the risks for both the economy and inflation are very much on the up side. There was deep concern, even among the people in this group whom I know to be very close to the current Administration, that the deficit situation is totally out of control--that there is no prospect whatsoever for being able to deal with it in the near term or the long term. Again, at least among this group, there was a sense that it was just very, very [important] that the Federal Reserve do what it could to hold the line. Abstracting from those comments, I still obviously feel personally that the risks are on the up side in the economy. We know exports are a soft spot and there certainly is, I think, more financial vulnerability out there than meets the eye. I don't think that problem is behind us by any means. But the thing that gives me the greatest cause for concern right now is that I can't quite figure out for myself what really is happening with inflation. In the last six months the rate of increase in the consumer price index has doubled--more than doubled. It is now running at 5 percent or a little better, and I can't see that there is any great influence of special factors in there. Maybe Mr. Kichline knows something that I don't know, but I can't find them. I don't think that the markets in general have quite caught up with the fact that the consumer price index now seems to be rising at a rate of 5 percent or a little more. On the other side, we haven't seen any pickup in the deflator; and certainly wholesale prices continue to look very good. One of the things that I look at myself as a barometer of price pressures is the spread between the rise in the GNP deflator and the behavior of unit labor costs in the economy as a whole. Very seldom does that spread exceed 2 percent and it's unprecedented for it to exceed 2 percent in the early stages of the recovery. But we're looking at a spread of something like 3-1/2 percent, which I would interpret as a great desire on the part of businesses to make themselves whole from the recession or to get themselves whole [before] the recession they think is going to come in 1985. The bottom line, from my perspective, is that we may already be seeing a build-up in price pressures in the economy that if carried forward in 1984 would be very, very disturbing. That's about what I think, Mr. Chairman.",755
-fomc-corpus,1983,Mr. Boykin.,5
-fomc-corpus,1983,"Mr. Chairman, as far as the Board staff's forecast, we would not have a whole lot of difference in views. In terms of the risk: If it's wrong, it's probably a bit wrong on the down side; I think the economy is possibly a little stronger than the staff has indicated. I'm hearing much of what Jerry is hearing; there does seem to be a real concern about the possibility of inflation reaccelerating if the pressures are not already there. Looking at it from our part of the country, it still is a bit of a mixed bag. We are getting strength now from some of the areas that had been slow coming back [from the recession]. Of course, housing has been one of the strong factors [in the expansion] and that is levelling off. And that is a good sign because I think we had gotten ourselves into an overbuilt and risky situation in terms of the land boom. I know this has been commented on before, but it is still is going on. The newspaper has been running a series of articles on what is apparently a real scandal involving condominiums. [Developers] built over 5,000 condominiums in just one little area out by a lake but increased [prices] 600 percent in one day through land clipping. They are selling the condominiums at a rate of 42 units a month, so they have a 6- or 7-year supply. The small savings and loans around the state have been drawn into this. They are very exposed; even the good operators--or those who were supposed to be good--seem to be caught up in it. The president of a title company told me--and he sees a lot of these deals in north Dallas--that he bought a piece of property for $17 million. He was going to close on it a week ago last Friday. Before he closed, he sold it for $34 million and that transaction was closed last Friday. I don't know what somebody sees in it that the seller wasn't seeing! On the energy side, drilling in particular is showing a little strength. In the natural gas area, which has been quite a problem, there is some feeling that the bubble is about to [burst] and that maybe by late '84 that will have leveled out a bit. On the agricultural side, by the time one puts together the pluses and minuses it turns out to be a little better than was anticipated. Again, though, it's pretty uneven if you look at our District as a whole. Northern Louisiana and New Mexico are showing a little improvement; it's still rather tough out there. On the unemployment situation, we're below the national rate, but the state of Texas as a whole has an unemployment rate of 7.4 percent while for Dallas/Fort Worth it's 4-1/2 percent and going down. So, my bottom line would be that there is some strength and that we are seeing some sectors beginning to come back that are taking up the decline. In housing, we are anticipating that the financial side will be a concern; of course, our banks and other major institutions are not reporting very good results for the fourth quarter and they are making rather substantial loan loss provisions for 1984. There is a lot of concern that 1984 is going to be a bit hard, primarily [because of concern] that the turnaround in energy will not occur before the operators, the service companies, and so forth are going to have to [unintelligible].",709
-fomc-corpus,1983,Governor Martin.,3
-fomc-corpus,1983,"Mr. Chairman, you asked for comments with regard to some of the downside risk aspects of the economy. Let me mention two or three, beginning with the projections we have with regard to commercial property development in the fixed investment sector. President Boykin mentioned the speculation in land. I want to take that one step further into the commercial property area where the so-called syndications-- companies and others have sales of $50 million, $100 million, $200 million at a time--have bid up the prices of commercial property and brought on to submarket after submarket a supply of this kind of space, which is having its effect on the existing commercial properties in those submarkets. I believe that the IRS review of so-called tax sheltered investments, if it results in any kind of substantial change in the tax position of these investors in the syndicates, particularly these privately offered limited partnerships, could result in a very substantial contraction of ownership of commercial property and development--the mortgages thereon--in this country. And I think we're headed for a very substantial setback there. As far as housing is concerned, I have never seen in my experience with mortgage portfolios over more years than I would like to admit the poor quality that one sees in mortgage portfolios today--if we subject them to any kind of analysis. The builders who have gotten people into these mortgage arrangements and who now have withdrawn their subsidies--their so-called buydown arrangements--have left a situation in which the value, if I may use that term, of residential property is no longer rising despite what we see in scattered statistics. And, therefore, the position of those households as far as payors are concerned is under severe pressure. So, the losses that the private mortgage insurance companies are taking continue to go [up]; the quality of the residential mortgage portfolio has deteriorated; and there are further losses out there in the future with regard to these situations. In terms of inventory, I had the opportunity recently, as did President Corrigan, to spend some time with business people--retailers in several parts of the country. I take it, Jerry, that you were talking about manufacturers in the big companies. But the information I got at the retail level--here I'm shifting from comments on risk to comments regarding inflation--is that particularly because of the availability of overseas sources for the retailers, so far they have not faced the kind of price pressures that you indicated in other segments of the private sector. Quite the contrary, at this stage of the recovery they find that they can get to sources [of supply] and they don't have to maintain a heavy inventory and have no plans to maintain a heavy inventory. So, once the Christmas selling season is over, they will have some bare shelves. But some of them are willing to trade off at the margin what they consider minor market share losses for the rigid control of their inventory. On the plus side, what I have picked up on these matters has been an emphasis on productivity--the profitability, say, of the auto companies in the Midwest. They are looking toward break-even points at much much lower levels than before, in part because they have taken out of their costs--as they express it--several billions of dollars. So, it seems to me that we have a downside risk in the mortgage market and in the thrift institutions. Savings banks are still very deeply in the red on an operating basis, despite the interesting kinds of ways that their accountants let them ""report"" and ""disclose"" to the public. The savings and loan industry--maybe 40 percent of it--is still in the red on an operating basis. To add to President Boehne's comments with regard to interest rates: If interest rates go up 100 to 150 basis points, that would move the proportion of the thrift industry that is having operating losses to something like 75 or 80 percent. Housing doesn't stabilize--all generalizations are false including that one--it either goes up or goes down. And my guess is that it's going to go down because of the quality of mortgage paper and because we have now used up that backlog in demand for housing that resulted from low levels of housing starts previously. So, I think there are several downside areas in the economy.",856
-fomc-corpus,1983,Mr. Forrestal.,5
-fomc-corpus,1983,"Well, Mr. Chairman, Mr. Boehne detects some optimism in his District. I would say that in our District there is euphoric ebullience everywhere. I'm not sure that that actually reflects the reality of the situation but confidence levels are very, very high, not only among business people generally but among our directors at both the branch level and at the head office level. Virtually every sector continues to strengthen; we're certainly in an expansion phase of the business cycle in our part of the country and apparently in the nation as a whole. In all of our important industries employment and orders are up substantially. The retailers had very, very vigorous sales over the Thanksgiving holiday and that gave rise to great optimism regarding the Christmas season. And that seems to be borne out by the tremendous traffic in and out of the shopping malls in all of our major cities. Interestingly, it's not just people parking in the parking lots this year and going around and looking; they are actually buying. My retail contacts tell me that sales at this point are very, very good. Housing is quite good. Business lending by the major banks in our area has improved substantially; consumer lending has been good for some time and that's remaining quite healthy. There are a few trouble spots that we've mentioned before, particularly in the agricultural sector and in the export sector. There are parts of the District that are not doing as well as others; but even representatives of those areas are very encouraged by the improvements that they see. The only places about which I have real concern are the rural areas where unemployment continues to be very high, and I don't know that that is going to improve very much. The great concerns among people that I talk to are twofold: basically, interest rates and the deficit. And they go together. Coming to your question about what the concerns are looking out six months, I would differ from Jim's forecast only in degree. I would think that growth in 1984, particularly in the first half, is going to be somewhat stronger than the staff forecast. And going along with that, I think inflation continues to be a risk that is out there for the next 6 to 12 months, and my projection of interest rates and of inflation would be somewhat higher than the staff's. Let me say one other thing in terms of inflation: I think that higher corporate profits are going to be translated at some stage over the next few months into wage pressure. Certainly some of the give-backs from the unions are going to decrease and there probably will be some pressure for actual increases in wages as a result of the good performance of corporations over the next several months. On the other side of the inflation picture, we have had relatively slow monetary growth and the wage picture and commodity prices are not all that bad at the moment. So, I guess those factors temper my concern somewhat. But I come out on the bottom line feeling that we're going to have a stronger economy in '84 than is projected by the staff and that we're going to run the risk of higher inflation than is being projected.",616
-fomc-corpus,1983,Governor Wallich.,4
-fomc-corpus,1983,"Mr. Chairman, since you asked us to address ourselves to uncertainties, I see some very critical ones in the wage area, the dollar area, oil, and developing countries. But even though most of these happen to be risks that fall on the down side, they are not of a kind that one can guard against by leaning toward the up side. So, I think that the principal risk is really of more inflation than we anticipate. I agree with Bob Forrestal that these profits are almost bound to convert themselves into wage increases, particularly later in the year--September, I think--when we get to the UAW contract. With productivity gains diminishing quite abruptly early this year, capacity utilization diminishing at a surprising rate, and unemployment diminishing at a surprising and a very gratifying rate, all that points in the direction of upward pressure. Now, the other side is what may or may not happen to the dollar. If the dollar should go down abruptly, our exports will rise with a considerable lag. Our interest rates will rise very rapidly--not necessarily because the Fed does something about it but because capital imports can be seen in advance to be diminishing and the benefit of keeping interest rates down will disappear--and that could produce a considerable downward bias [in the dollar]. The LDC situation, [though] much improved, is still with us. It is still a major uncertainty. The oil situation I mentioned because people who watch what is happening in the Persian Gulf seem to think that the danger of a closing of the straits [unintelligible] is greater than it has been in the past. That would [result in] an increase in prices and a reduction in economic activity--the same [sort of effect] as [that from] the other oil shocks. That [potential] situation has a very [low] probability but very high risk if it were to occur. On balance, if you add these up, we have a number of risks on the dollar side; we can't really guard against them by leaning in the other direction. And the danger of wage increases and price increases is one that we can take into account and should guard against now.",432
-fomc-corpus,1983,Mr. Keehn.,5
-fomc-corpus,1983,"Well, as I've reported for the last year or so, the Middle West has been very slow to join this particular party. But I do think there has been a significant improvement over the last few weeks or months, and at this point we really are on board. On the consumer side, all the current reports we get for retail sales are very, very strong, and double-digit increases are fairly common. Just wandering around stores, as I have done the last week or so, one can see that the traffic is very, very high. Even in the industrial sector there is an improvement; most of the basic sectors in the Middle West are doing better. They still are at comparatively low levels; compared to, say, 1978 or 1979, they are operating at 40 to 50 percent of what they used to think was a good level. But still, that is an improvement from what they were experiencing just a year ago. So, I think on the industrial side, there is improvement also. With regard to the risks, I think they are the same ones that have been pointed out. Interest rates are high. I think people are amazed that we've had as good a recovery as we have had so far at this particular rate level. That suggests in their minds, and mine as well, that if there were any significant increase in rates, it would have the impact of shutting this [recovery] down somewhat. On the inflation side, I think there is a high level of suspicion that the stated rate of inflation somewhat understates what people think is a more practical rate of inflation. On the price side, most of the people I've talked with are sitting on the price button ready to go as soon as they can get increases across. The operating ratios are low enough that they can't pull it off; but as these ratios begin to creep up, I think they are going to try to push price increases forward as fast as they can. On the wage side, most of the people I've talked to suggest that they are still able to get 6 percent settlements by and large but they are having to work very hard to accomplish that. And as has been pointed out, there is an expectation that as profits begin to improve in a very significant way, that will form a pretty difficult environment in which to continue to pull off these very tough settlements. But as I add up these risks, I still think the fundamentals are in place for a continuation of recovery. The risks, [as] we look at them, are not significant enough to have a major impact on what I think is going to be a pretty good 1984--not very different from what the staff forecast suggests.",540
-fomc-corpus,1983,Governor Rice.,3
-fomc-corpus,1983,"Mr. Chairman, most of what I wanted to say has already been said in one way or another--especially by Governor Wallich. However, my assessment of the downside risks is not quite the same as his. I'm not quite as guarded in my outlook. It seems to me that activity is likely to continue strong over the next year, particularly in the first half of the year, and to decelerate somewhat in the second half but still expand at an acceptable rate with unemployment continuing to fall. So, I don't see business activity falling off to unacceptable levels over the period of the next year. I'm a little more optimistic on the inflation outlook than I think most people have expressed. I don't share the same worry with respect to the wage outlook. I think the wage picture is probably still one of moderation. It's hard to see that profits are going to continue to expand at such a rate as to weaken the resistance to higher wages and improve really significantly the bargaining position of labor. So, I would expect continued moderation in wage increases. The energy picture looks pretty good and the outlook is for moderate--not runaway--increases in food prices. So, if there are going to be any strong inflationary pressures, it's hard for me to see where they are going to come from. So, I see the inflation outlook as reasonably favorable--pretty much as the staff has forecast. Along with the vulnerabilities listed by Governor Wallich, I would simply emphasize, as others have pointed out, that the major vulnerability is higher interest rates than we now expect--that is, higher than in the forecast. A number of people have pointed to that, and I think there is possibly a real danger of interest rates being substantially higher than they are now forecast. The reasons for that, obviously, are the deficit, the increase in private credit demands, and the falling off of capital inflows. All of these possibilities would operate toward putting upward pressure on interest rates. And if that happens, I think the economy will be very vulnerable and possibly in danger of some damage from that development. I don't, however, expect rates to increase substantially, although I recognize that as a possibility that could affect the forecast, as I pointed out. On balance, I would say that the probability is about 50 percent on being able to maintain current levels of interest rates; and if we're able to do that, I think [the economy] will be in good shape.",488
-fomc-corpus,1983,"I might ask Mr. Kichline to comment on the point Mr. Corrigan made earlier, which is the inverse of this profits point. Is it true that labor costs are going up much less--or historically very little--compared to prices at this stage? You don't have to address it now unless you want to. We'll turn to Governor Partee.",73
-fomc-corpus,1983,"Well, you asked for a different hypothesis on what is going on. A surprise this afternoon is the amount of ebullience reported in Minnesota, which I would think would be in a cold deep freeze, and in Pennsylvania, which has not been a boisterous state over the years. My only comment in response to that would be that businessmen are inclined to look at their performance compared with a year ago; that still is the way that 90 percent of the businessmen look at their activity. We have now completed a year of recovery and, therefore, the November-to-November increases are as large as any they've seen--in fact the largest they've seen for the whole period of the recovery. And they probably are the largest they are going to see anytime in the expansion; [the increases] will go down from here rather than up. So, I'm wondering whether we're not picking up a degree of false optimism in the business community and whether in fact it doesn't lay us open to the possibility that high expectations will be frustrated in the months to come. I see that at least as a possibility. Now, as I look at the projection, the greatest problem I have with it--I've had it before--is that the saving rate is too low. I think it ought to be higher; I would expect it to be higher given income performance, given incentives to save that we have in the economy now, and given the general notion of maintaining some kind of reasonable ratio of financial saving stocks to total income. The way we would get the saving rate higher is either by having higher income or lower expenditures than are being forecast by the staff.",327
-fomc-corpus,1983,Or use the Federal Reserve numbers?,7
-fomc-corpus,1983,"Well, I can't even understand what is involved in that argument since we haven't been briefed on it, so I can't do that. We could have higher income to the extent that there is more demand in the economy outside the consumer sector, principally perhaps inventory demand. That's a possibility; we could have more inventory demand and more income generation as a result of that and, therefore, higher savings can result from higher income than is being projected. On the other hand, we could have lower income if productivity gains in the short run are going to be considerably stronger than the staff has projected, which certainly seems possible, or if the wage rate environment stays placid. There are a lot of indications that it is pretty placid and, therefore, it seems to me that is possible. Now, if we have a reduction in consumer spending relative to income in the months ahead and if businessmen are expecting very good gains--gains that are too large for them really to anticipate getting--they will be disappointed in the months ahead. That would provide a basis for an even smaller rise in business activity than is being forecast by the staff and that's consistent with the Ml numbers. Therefore, slow growth in Ml--to bring in the monetarists in the crowd--is consistent with this last hypothesis.",257
-fomc-corpus,1983,"Do you believe it, Chuck?",7
-fomc-corpus,1983,I don't know.,4
-fomc-corpus,1983,Isn't that what you want?,7
-fomc-corpus,1983,"No. I think that the staff projection would be an almost ideal outcome, if we could get the staff projection.",23
-fomc-corpus,1983,What about 1 percent less growth?,8
-fomc-corpus,1983,"I don't think so. I wouldn't want 3.3 percent rather than 4.3 percent growth for the next year. I think something on the order of 4 percent is fine. I would like to have maybe a little more real growth and a little less inflation than in the staff projection, but I think it's a very good projection. I think we probably would find that we can't live with a number a good deal lower than that for very long, particularly in the environment we'll have next year. But I think it is a very good [outcome]. If I were asked to state what my objective is for the economy in the next year, I would not be far off the staff projection. Anyway, I was trying to make a case for a smaller rise [in business activity]. You asked for something far out; there is a far-out scenario.",174
-fomc-corpus,1983,But is your assessment of the situation that growth would be lower than the staff projection?,17
-fomc-corpus,1983,"Yes, that it would be lower because a rise in the saving rate would cut consumption, and consumption would have a feedback effect on business attitudes--considering that they're overly optimistic now.",37
-fomc-corpus,1983,"The staff already has factored in a much smaller rise in consumption--by $33 billion dollars, I think.",23
-fomc-corpus,1983,"I know, but their saving rate continues very low.",11
-fomc-corpus,1983,Governor Gramley.,4
-fomc-corpus,1983,"Well, I'm on the opposite side of Chuck. I think there are a couple of areas in which the staff forecast is likely to be a bit low on the real side next year. One of them is business fixed investment. I can't demonstrate any evidence of this other than a gut feeling, I guess. The staff forecast is well above what the surveys of intentions to spend are indicating, but those surveys have been practically useless in terms of the trend of business fixed investment in recent years. Given the kind of confidence we hear about and given cash flows, I think we're going to see more investment next year than the staff has forecast. The second area is inventories. I have heard over and over again the story that Jerry Corrigan is telling us--that inventory/sales ratios are so blooming low now that delivery times are lengthening--and I think we're going to see some price reaction to that early on in 1984. The staff forecast, incidentally, has a build-up of inventories and inventory investment to what might be called a normative relationship with GNP of around 1 percent of GNP. That means, in effect, however, that the inventory/sales ratio shows no improvement whatsoever; it stays at its third-quarter 1983 level, which I think is the lowest inventory/sales ratio ever in terms of GNP. My guess is that if final sales continue to be fairly strong--and I think they are likely to be --that we're going to see some efforts to build up inventory more than the staff has indicated. Secondarily, I worry about--",315
-fomc-corpus,1983,Let me just make sure that's correct; I just want to have it confirmed. You have $35 billion a quarter--or more than that--on average. That would be no increase in the inventory/sales ratio?,44
-fomc-corpus,1983,"In 1972 dollars the inventory/sales ratio was around 3.03 or 3.04 and it stays flat throughout 1984. So, in real terms it is unchanged.",39
-fomc-corpus,1983,What am I looking at--unreal inventories?,10
-fomc-corpus,1983,You're looking at book [values].,7
-fomc-corpus,1983,"The other area I worry about is that the labor force may well continue to show the kind of very slow growth we've seen during the course of 1983. In the staff forecast, growth of the labor force doubles in 1984 so we get less progress in reducing unemployment than I think may take place. If it turns out that we get more real growth and a greater drop in unemployment relative to the growth rate, then I think the prospects are for a worsening of price inflation as the year progresses--more than what the staff is forecasting. I don't think the risks are for huge overruns on either side; one percent more in real growth and maybe 1-1/2 percent or so on the price side is the most I can see. But if we were to get that kind of situation, then by the last half of the year we would be looking at a rate of price inflation between 6 and 7 percent and we would be going into 1985 with a much higher level of resource utilization and with the near certainty that, unless something slows it down, the rate of inflation would worsen. And that's what I think we need to focus on.",235
-fomc-corpus,1983,Governor Teeters.,4
-fomc-corpus,1983,"Well, as I listen to the discussion around the table, I come to the conclusion that how 1984 turns out is right smack in our laps, [given] the sensitivity of the economy to interest rates --the current levels and changes in interest rates. If they begin moving upward and if that gets translated to the mortgage markets, we may as well shut that one down. So, our decisions about where interest rates should be and their movements during the year are going to be the crucial factor in determining whether we achieve this forecast or not. I agree with Chuck that this forecast would be the ideal outcome. And if we could achieve it, we could say that we actually were conducting monetary policy in a way that created a situation [that maximized the prospects] of a return to relatively full employment. But I do emphasize that I think the economy is now so sensitive to interest rates--particularly starting from the level that they are--that a move of 100 basis points would completely turn around the forecast in practically every sector. There is also built into the forecast a 10 percent decline in the international value of the dollar, which does have direct price implications for next year also. So, the whole combination of this, I think, turns on the decisions that are made by the FOMC over the next three months.",266
-fomc-corpus,1983,I'm out of names. Mr. Roberts.,9
-fomc-corpus,1983,"Just a very brief comment, Mr. Chairman: In my experience with businessmen, they always extrapolate the present and [unintelligible]; for example, it causes them to underestimate inventory/sales ratios because they always assume that sales are going to continue as [they see] them now. I'll talk tomorrow about lead effects that we ought to be considering here. I'm not that optimistic about the economy.",81
-fomc-corpus,1983,Maybe you ought to tell us more.,8
-fomc-corpus,1983,Why aren't you optimistic?,5
-fomc-corpus,1983,"Well, I just wanted to introduce the idea that the liquidity flows through the economy, as I'm sure everybody around this table knows, operate with differential lags. I've been concerned all year about inflation later this year and in 1985, which I think is going to happen. I was not concerned about the fragility of the economy and that is because of the flow of liquidity through the economy. We've had a real constraint for some time on Ml, whether you look at it as 13 percent in the first half and 5 percent in the second half, or whether you look at it as 4 or 5 months with no growth. I think that by the second or third quarter of next year we're going to see some restraint in the economy, with an output effect flowing through on a near-term basis and then an inflation effect late next year. It's the worst of all possible worlds. I would anticipate that we will have real growth in the 3-1/2 percent area next year and that we still will have troublesome inflation late in the year.",214
-fomc-corpus,1983,"Well, I guess we come out somewhat differently. The New York Fed staff's forecast is for stronger growth than in Mr. Kichline's forecast. So much of this is ""iffy"" that I won't bother going into the components and how they arrive at their forecast; they arrive at it, incidentally, with a much higher productivity guess. I'm particularly impressed, unfortunately, by the increased talk I hear in the financial markets about rising inflationary expectations. And I hear a lot of it. So, from that point of view, there's a fairly clear implication for some snugging up, possibly. On the other hand, though, the thing that bothers me is that the exchange rate is getting to be a looming menace in a difference sense. The higher it keeps going the more precipitously it's going to drop when expectations regarding the exchange rate turn around. It's going to drop at a time when we're nearer capacity utilization and it will have a much bigger inflationary impact. I'm not even talking about the developing countries burden. I think it's a real time bomb. So, I am in a quandary as to where these conflicting analyses would lead one. If one were looking just at the domestic scene, I think it would be important to affect the psychology and curb somewhat these rising inflationary expectations. I don't think that a quarter or a half percentage point is going to bring that much of a change in housing and the real economy that it is going to slow down the momentum that much, but I think it would have a very salutary psychological effect. However, I don't know whether it would push the exchange rate up even further. It would be my guess that it would and I just don't know if we can afford to be that asymmetric in our monetary policy in regard to exchange rates. When they are falling precipitously, we are all willing to tighten monetary policy; when they are rising into the stratosphere, we're not prepared to liberalize monetary policy--for reasons I understand, of course, and with which I sympathize to a large degree. I don't know how to cut this dilemma. The easy way out would be to say: Let's wait a few more weeks until what is happening becomes clear. But Ted Robert's scenario--even though we don't believe that it's the most likely one--certainly is still in the realm of possibility. I don't think there would be any chance of a recession, but there could be some slackening of growth. At the present time we think there is enough momentum that growth probably will be coming in higher than the 4.3 percent; we're thinking more in terms of 5 percent.",529
-fomc-corpus,1983,Mr. Guffey.,6
-fomc-corpus,1983,"With regard to economic activity in the Tenth District, I think we've joined the national recovery certainly, with the exception of two major sectors: agriculture and energy. And both of those will take much longer to work out. The agricultural situation will depend largely, I think, upon some drop of the dollar--if and when that ever occurs--to encourage exports; and energy everybody knows about. But by and large I think the view of businessmen and market makers in our part of the country is not euphoric but it is very strong as to the outlook six months or so hence. In talking to those individuals, they are almost consumed with the federal budget deficit problem and the fact that the Federal Reserve is really the only player on the field and that inflationary expectations are just under the surface--whether they come from corporations and businesses taking the opportunity to try to increase their prices and hopefully make them stick or from wage pressures. [The view is] that inflationary expectations could take hold and be a reality, particularly in the markets, unless the Federal Reserve is very visible. In general terms, we would expect the staff forecast to be the best of all worlds if it could be achieved. But our best expectations are that growth will be somewhat faster in the first half of the year and then slow down toward the latter part of the year. With regard to inflation, our projection would be higher than the staff's and as a result--this may be ahead of the discussion--I probably would join those who say a little snugging up now would serve us well in the future.",316
-fomc-corpus,1983,Mr. Kichline.,6
-fomc-corpus,1983,"On Mr. Corrigan's point, we don't have a chart here. We have all sorts of numbers but he has the chart. We do have very clearly, though, a situation where we assume that unit labor costs in 1983 are rising about 1 percent and our deflator forecast is something like a 4-1/4 percent increase. So, it's a very wide spread. It shows up in corporate profits, and corporate profits in this cycle --for the first four quarters of the recovery, assuming our fourth-quarter forecast is correct--have risen more than in any other postwar cycle. They are close to the increase in 1975, but are substantially above the cyclical performance for the first year of a recovery. Two comments with regard to that spread--",157
-fomc-corpus,1983,If I may just interrupt you: The increase in profits is stronger?,14
-fomc-corpus,1983,Correct.,2
-fomc-corpus,1983,How about the relationship of profits to GNP or corporate product?,13
-fomc-corpus,1983,"Well, it's up because the profit share and notional margins have been rising. We think it will be at the highest level at the end of this year since 1977-78--a six-year high. So, it has done very well as a share or absolutely. Two particular comments: First, going back to the staff's inflation presentation, we believe that corporations essentially price off some notion of unit labor cost and a markup over that. In effect, what they're doing is looking at some notion of trend growth in productivity; and trend growth in productivity, we think, is better than they may be using. So, it is showing up here in terms of attempts to price fairly aggressively and they're getting more profits than they might otherwise think. My second point is a technical comment: In measuring the GNP deflator, as you know, import prices are subtracted out in the short run. In the first half of this year import prices actually declined and were about unchanged in the third quarter, so that for much of this year we think that substraction process has artificially raised the GNP deflator because the benefits of those import prices measured in consumption, investment, or whatever, come along with a lag. So, our story is that this has been an unusual year.",257
-fomc-corpus,1983,But then the consumer price index should be lower but it's not; it's higher.,16
-fomc-corpus,1983,"Well, it's higher than the deflator but there are different weights and other things going on. Obviously, service prices, for example, are very important. We suspect that 1984 will be a year that returns much more to normal in the sense that our forecast has unit labor costs and the deflator rising about the same amount, so that the gap we're seeing now we think will evaporate.",80
-fomc-corpus,1983,"Jim, a technical question about this large increase in profits we are talking about and the increase in the share and the probable effects that this could have on wage demands over the course of the year: If corporations end up with higher profits, doesn't that take some of the pressure off price increases also?",59
-fomc-corpus,1983,"Well, if we go back to the notion that some sense of normalcy is restored, which I think is happening here--profits have been very weak for the last 3 or 4 years--and if indeed productivity is improving, I think it all depends ultimately on the context of the market situation that we have. In our forecast, markets generally will not be so tight as to allow corporations to pass aggressively through whatever price increases they might want. There is restraint both domestically and from the import side. So, I think on profits you're right. Ultimately, how it works out will depend in part on how this economy evolves in 1984.",131
-fomc-corpus,1983,How are profits in the manufacturing sector alone? You can cover that tomorrow.,15
-fomc-corpus,1983,"Okay, in detail.",5
-fomc-corpus,1983,"Well, when you consider the automobile industry alone, it's going to make $5 billion this year. I suspect the profits in manufacturing are up too--just as sharply, in terms of increases in profits, as the rest of the economy.",48
-fomc-corpus,1983,"They probably are up pretty sharply, but I don't know where they are in absolute levels. Well, I think we might as well quit for the evening, if nobody else has anything to say on this subject, and turn [tomorrow] to a preliminary discussion of the 1984 ranges. I don't find myself as excited about this forecast and its idealized aspects as some other people do here. My ideal forecast always has a declining inflation rate. Thinking back to our discussion last month, we didn't draw much of a conclusion. This is the time to come to a conclusion, I suppose, in terms of inflation strategies as well as other objectives of our long-term forecast. We'll put that on the table bright and early tomorrow. Nine o'clock is bright and early.",154
-fomc-corpus,1983,"We can begin with a discussion of the 1984 ranges. There was some discussion in the Congress about requiring ranges for 1985, or two years ahead, and we might want to consider what we might say about 1985, at least in a qualitative way, when we present the 1984 ranges. Obviously, we don't have to decide this now or even be that precise about 1984 now. But if anybody has strikingly different feelings than are encompassed in the preliminary ones--or a radically different way of looking at things--this would be the appropriate time to bring it up. I think the Bluebook paragraph or two about this was a good discussion of the various considerations that have to be brought to bear. It does fit in with our inflation discussion last time about what we think our responsibilities are and what the practical possibilities are for dealing with inflation over a longer time-frame because these kinds of things are reflected in the long-term targets. I don't know whether you have anything to add, Mr. Axilrod, to your comments in the Bluebook.",217
-fomc-corpus,1983,"I don't have much, Mr. Chairman. I could very briefly point out what we were trying to do there. As you mentioned, in the first instance we were trying to discuss the tentative ranges in terms of their consistency with regard to inflation objectives. Obviously, the 1984 tentative ranges are consistent with further progress in reducing inflation assuming, as is clear there, that the Committee is looking toward lower rates of inflation than the 5 percent that is currently projected for 1984. And that, of course, would have particular relevance for anything the Committee might want to say, qualitatively or not, for 1985. On some more technical points with regard to the ranges: For 1984, the Ml range of 4 to 8 percent is a reduction, of course, from the range for the second half of 1983 and we think it implies, given the 9 percent nominal GNP, a velocity increase on the order of 2 percent without any interest rate rise--somewhat lower than the trend for the postwar period years, which is around 3 percent or so but it has occurred in a period of rising short-term rates. Now, the velocity of Ml, as everyone knows, is going to be very uncertain and probably will be very different if there are significant interest rate movements up or down from the levels projected. But given this projection of very little interest rate change, we think an Ml increase around the middle--or more likely in the upper part--of the 4 to 8 percent would be the likely outcome, consistent with the projected nominal GNP. I ought to point out two other things: As noted in the Bluebook, the [tentative 1984] M3 range was decreased to 6 to 9 percent. The problem may be that it would squeeze M3 down pretty much if a considerable part of the credit flows continue to go through financial institutions. We had two reasons for thinking it would be possible to get M3 growth at 9 percent or below. One had to do with the continuing efforts by banks to raise funds abroad through Eurodollars and not domestically through CDs, which would tend to hold down M3 growth, particularly if foreigners put their money in dollars abroad. With regard to M2, I would also point out that a 1/2 point reduction in the range from 7 to 10 percent to 6-1/2 to 9-1/2 percent might not be considered an effective reduction since the 7 to 10 percent range included 1/2 to 1 percentage point of further shifts related to the money market deposit accounts. And so far as we could judge, the amount of shifting in that 7 to 10 percent probably was on the order of 1/2 to 1 percent, but those estimates are always very difficult to make. Thus, a reduction of 1/2 point to 6-1/2 to 9-1/2 percent is not, in a sense, an effective reduction. Counterbalancing that, of course, is what we observe to be a normal reduction in velocity growth of M2 in the second year of a recovery, which would for any given nominal GNP require somewhat higher M2 than might otherwise occur. I think those are all the preliminary comments I would have.",678
-fomc-corpus,1983,"Could I ask you a question, Steve? When we set these targets tentatively in July, I think all of the aggregates were at the tops of their ranges. That is still the case for M2 and M3, more or less, but Ml has dropped to almost the bottom of its range. So, in effect, we've had a base drift of about 3 percentage points, haven't we? If we took this not just as a monitoring range but as a target, and if we wanted to arrive at the same level of Ml at the end of the target period, the end of the fourth quarter of 1984, we would really have to go not to 4 to 8 percent but 7 to 11 percent. I say that not because I intend to propose this, but just to indicate how base drift seems to change, if I'm not mistaken, what one thinks is the right thing to do.",186
-fomc-corpus,1983,Yes. I have not made that calculation; I was planning to make it for the Committee at the February meeting when we knew the actual outcome.,29
-fomc-corpus,1983,"But something of that kind is the case, isn't it?",12
-fomc-corpus,1983,"Yes. If the center of the 5 to 9 percent range were where you wanted to start from, I'm not sure what the rate of growth would be. We can calculate it while we're waiting here, but it would be a higher rate of growth than from where you are now.",58
-fomc-corpus,1983,I think we've been fairly consistent in ignoring those kinds of considerations.,13
-fomc-corpus,1983,That's been done and they did [unintelligible].,12
-fomc-corpus,1983,"Yes, then we drifted up; we're drifting down. I think the down is money in the bank, so to speak. And we shouldn't let go--",32
-fomc-corpus,1983,"Yes, but that would only be if you attributed some special importance to 7 percent or whatever it is. I think what we said at the time was that we would be perfectly happy with low growth if velocity were high and we'd be perfectly happy with high growth if velocity were low.",57
-fomc-corpus,1983,"Well, it doesn't change the calculations, does it, because velocity may still change? We can't expect that the--",23
-fomc-corpus,1983,"It changes the arithmetic, but I don't think there's any great significance to 7 percent. Mr. Morris.",22
-fomc-corpus,1983,"Mr. Chairman, I have a lot of problems with this, as you might surmise. It seems to me that the only range that we can have much confidence is going to be predictably related to a 9 percent nominal GNP growth is the range for credit. I've been arguing for a couple of years now that the changed character of M1 means that its relationship to the nominal GNP is not predictable. And it seems to me that I have two years of pretty good evidence on my side. To assume, as apparently is being done here, that we will get a more or less normal return to historical Ml velocity--I hope that turns out to be the case if that range is adopted--is an act of faith rather than an assumption with any scientific basis. I think the ranges for M2 and M3 are even worse, because the history of the last 25 years shows that in the second year of expansion on the average M2 and M3 velocity declined by 2-1/2 percent. Therefore, if one wanted to have the range wide enough to finance a 9 percent nominal GNP growth, the upper limit ought to be 11-1/2 percent. I'm not persuaded that the staff has made a very strong case to the effect that M2 and M3 velocity are going to be so much different in '84 than in the past. Also, this year being an election year, I would hope that we could adopt targets that we wouldn't have to be changing just before the election. We abandoned the M1 target in mid-1982 and we rebased our Ml target in mid-1983. To do it in mid-1984 might generate the implication that the Federal Reserve was changing course for political reasons. So, I think it's more important this year than in most years that we have some reasonable degree of confidence that the targets we're setting are compatible with our nominal GNP objective. I don't think we can have that confidence for these ranges for Ml, M2, and M3.",411
-fomc-corpus,1983,You'd like to see them all higher?,9
-fomc-corpus,1983,"I don't know. I don't know where to set a range for Ml or what base [period] to use for it. I would rather eliminate Ml as a target. As for taking the position to call it something else --say, a monitoring range--to my observation the market doesn't seem to notice the difference between a monitoring range and a target. I think the Ml numbers there are probably sounder than the numbers for M2 and M3. I just am not persuaded that the performance of M2 and M3 is going to be that dramatically different from all previous second years of expansion in the last 25 years.",125
-fomc-corpus,1983,"Do you have evidence on the second year of expansion for the previous 25 years, Mr. Axilrod?",23
-fomc-corpus,1983,"I don't have the rates of growth at hand; I have the velocities at hand. They are almost impossible to analyze, of course, because of ceiling rates and all that. In the second year of expansion velocities of M2 were negative. That is, there were drops in velocity on the order of 3 percent after the first quarter of '61 in the second year of that expansion, 1 percent in the early '70s, and about 3-1/4 percent after the '75 trough. And 1980 is irrelevant, of course. Before the '60s, in the '50s, there were increases in velocity of about 1 percent. And those were all decelerations so to speak from the first year; some of the decelerations turned into negative velocity. We have assumed also a deceleration in velocity of M2. So, it's not inconsistent with this kind of cyclical experience. But we have the velocity continuing to be positive, which I think is probably also reasonable given the changed institutional circumstances. It also happens to be generally consistent with what we can make out of our models; both the Ml and M2 changes are generally consistent with our new Ml demand equation and the estimates that come out of our model for time and savings deposits.",259
-fomc-corpus,1983,Mr. Solomon.,4
-fomc-corpus,1983,"I want to respond to your comment that we might want to say something qualitative about 1985. Even though I know that we don't want to imply an automatic quid pro quo, which would be a tighter fiscal policy and easier monetary policy, it does seem to me that we have an obligation to spell out the overall terms [unintelligible] of the economic profile of 1985--if we decide to go that far--and that we ought to do it by starting out with different assumptions: meaningful action to reduce the budget deficit and the absence of that. It seems to me that we have an obligation not simply to preach this but to show our best view of what differences there would be in the economy, even though I know it's not clear beyond 1985.",156
-fomc-corpus,1983,"Tony, could you speak up a little louder please? Some of us can't hear you down here.",20
-fomc-corpus,1983,"I'm sorry. I was just saying that if the Chairman is going to spell out qualitative views in regard to 1985, we ought to describe the scenario in general terms if there is meaningful action to reduce the budget deficit and if there is not. With regard to the monetary aggregates, it seems to me that at the very minimum we should raise the M3 range 1/2 point to make it equal to the M2 range. I think it's a little restrictive for the same reasons that Steve has described. And it looks strange; I don't think it makes any sense to have it lower than the M2 range. In general, even though I'm sympathetic to what Frank says, I don't see that tactically at this point we can afford to drop everything but the credit target. I think that would be interpreted in some quarters as being politically motivated. I'm [not] quite as cynical as I was a few months ago as to the markets reacting differently to a monitoring range as against a target range for Ml. I have the sense that the markets are being somewhat less knee-jerk in their reaction to the weekly Ml figure. So, it seems to me it would be appropriate to continue with our present structure of the three target ranges--for credit, M2, and M3--and a monitoring range for Ml. That's all I have at the moment.",274
-fomc-corpus,1983,Mrs. Horn.,4
-fomc-corpus,1983,"With regard to saying something about 1985, I think that is a good context in which to talk about our views on the reduction of total spending over a period of years. I'd at least start out with Frank on that, but I think nominal GNP has to be reduced over a period of some years. And if we're talking in the context of 1985, then I think one can distinguish it from being an annual target. And that really is our strategy: a gradual reduction of total spending in the economy. Then, from that I would go on and diverge from Frank and say that money is important because it gets us there and that the rate of growth of money would be gradually reduced over time in order to accomplish this total spending strategy. In that respect, I think what is in the Bluebook is reasonable. I would go much along the line that already has been put forth, and that is that reducing the money supply is important over time and where we come within the target ranges depends on what happens to velocity. We have some ideas about that but we don't know ahead of time. In some sense that kind of communication deals with what we need to say to the markets, which is how we're going to react next year to surprises. We should be very open to saying that there are these uncertainties and that when we get surprises this is the basic structure within which we will look at those surprises.",284
-fomc-corpus,1983,Mr. Black.,4
-fomc-corpus,1983,"Mr. Chairman, I think we really have two questions that we have to address today. The first, of course, is which aggregate or aggregates we're going to emphasize. And the second is what the numerical ranges for those targets ought to be over the coming year. As I suspect most of you would think, I strongly favor returning to Ml or increasing the emphasis on it. I'd make it the primary target. It seems reasonable to me to suppose that, given the sharp increase in the velocity of Ml in the fourth quarter, the probability is much greater that the traditional relationship between Ml and GNP may be resuming. In addition, I think one has to judge Ml against the alternatives. And it seems to me that the case for M2 and M3 and almost anything else I can think of is really not as good as it is for Ml, despite the imperfections that Ml obviously has had in the past. If the Committee does agree to increase the emphasis on Ml, then I think we ought to consider lowering the 8 percent top that we tentatively set for next year. If we approach the target from the standpoint that the Bluebook does in paragraph 12--the paragraph Steve was mentioning a while ago--an 8 percent growth at the top, given the projection of nominal GNP of 9.1 percent from the fourth quarter of this year to the fourth quarter of next year, would imply a rise in velocity of only 1 percent. That is not a figure to which I would attach a very high degree of probability given the recent resumption in velocity [growth] of Ml and also the probable absence of any further major changes in the regulatory area. More fundamentally, 8 percent seems to me just not really consistent for any long period of time with our stated objective of dealing over the long run with inflationary problems. So, what I'd really like to do is to knock a couple of points off that. That's probably not going to be acceptable to this group, in which case I would argue that we ought to put the top maybe at 7 percent, or if we want to be a little devious say 4 to 8 percent but that we're just going to use the [lower] half of the range. But I don't like that [latter] approach, really. So far as M2 and M3 are concerned, I could accept keeping the preliminary ranges where they were set in July, although as Steve pointed out a minute ago and as the Bluebook mentioned, that doesn't really represent any reduction in the rate of growth in M2 for 1984. So, I think 6 to 9 percent would be a preferable figure and would give a stronger signal to the market of our anti-inflationary resolve. They will look at that and will be aware that if we stick to our tentative 6-1/2 to 9-1/2 percent range, we really haven't made any effort because of the way the base was set. So far as M3 is concerned, if there are these technical reasons for raising that range, which seem plausible to me, then I wouldn't mind having it at 6-1/2 to 9-1/2 percent. For 1985, clearly, the purpose ought to be to cut whatever ranges we adopt still further, in keeping with our often stated objective of working down the rate of growth in the aggregates over the long run. So far as figures are concerned, I think we have to wait until we decide what we want for 1984 before we try to put any [specific] numbers on that.",729
-fomc-corpus,1983,Governor Wallich.,4
-fomc-corpus,1983,"As for the 1984 targets, I see no reason to change what we did in July. As far as the Ml target is concerned, we already have an implied reduction of 3 percent in those targets through the base drift, as I said before. I see 4 to 8 percent as meaning 6 percent on average; that implies a velocity gain of 3 percent and nominal GNP of 9 percent, and that seems to me about right. I would like to restore Ml partly but not fully yet and I would like to maintain the wider range, given the uncertainty. I have nothing to say on M2, M3, and credit. As regards 1985 and the possibility of some sort of reciprocity between fiscal and monetary policy, I think there's an element of realism here, as Tony says. Analytically, if we raise the rate of growth of money it would just lead to higher prices in the long run. But it's also true that if the budget is tightened and money remains on course, the drop in interest rates is not going to be sufficient to overcome the reduction in demand. So, what we ought to have is a temporary acceleration, if one could do that, of the aggregates. I am quite skeptical of that degree of fine-tuning. And I really would prefer, tactically and strategically, to say that our collaboration comes from allowing this interest rate drop to take place that a reduction in the budget deficit is bringing about, recognizing that there's some risk on the down side that the interest rate drop may not be enough to keep GNP on track. Looking further, [beyond] 1985, I think we should aim at ultimate price stability. I think we're all aware that there are high costs. It's not very likely that we will achieve that on a steady trend. It's much more likely to happen as a result of another recession before which there will be some acceleration of inflation that will then lead to a sharper drop in prices, hopefully to the neighborhood of stability. But we can't plan on that, so we have to plan on some kind of downward trend in the aggregates to achieve reasonable price stability.",434
-fomc-corpus,1983,Mr. Corrigan.,5
-fomc-corpus,1983,"Well, Mr. Chairman, I would agree that in some ways the key question before us now is 1985 rather than 1984. We could get lucky and get through 1984 in reasonably good shape, but I think the prospects of being able to keep the economy growing on a noninflationary--whatever that means--way in 1985 at this juncture will be very, very [low] for all the reasons that have been mentioned before: the deficit, the likely build-up in business external financing certainly by that time, and at least in my judgment a clear risk that the inflation rate itself will have broken through the 5 percent or higher threshold by the end of 1984. In that setting I do think that if we were lucky, we could squeeze through 1984 with something that might look like the Greenbook forecast. But unlike others, I would not be particularly sanguine about that result. I certainly don't consider it optimal by any stretch of the imagination; indeed, I guess I would argue that if we really want to try to insure the continuation of a pattern of a growing economy in 1985, the best thing we could do to produce that result might be to introduce a little more restraint in 1984. I'm under no illusions about the extent to which any of this can be done, or fine-tuned, but that would be the direction of my thinking. More specifically, in the context of the tentative 1984 targets, I am inclined to the view that the upper end of the Ml range is too high. As best I can understand the credit aggregate, I think the upper end of that is too high as well. I don't have any particular views on M2 or M3, although I certainly would not be allergic to the symmetry in M2 and M3 that I think Mr. Solomon suggested. There is another question that is laced in and out of all of these, and that's whether we want to do anything in terms of moving in the direction of suggesting through your oratory at least--perhaps a little more directly than we have in the past--that our primary, though by no means exclusive, objectives are more in the areas of price and financial stability. I don't know if you're game for that right now but if we can begin to nudge ourselves in that direction without going overboard, I think it could serve the purpose of this Committee and the economy very well.",494
-fomc-corpus,1983,Governor Martin.,3
-fomc-corpus,1983,"Mr. Chairman, we did have a good discussion at the last FOMC meeting about certain relationships and certain theories of inflation and inflation's forces and factors. It seems to me that that discussion is relevant to an outreaching for 1985 and to some extent to our considerations for 1984. There is some validity to the notion that by 1985 the changes in Ml [will be behind us], however uncertain its velocity and however difficult it is to anticipate the results of contemporaneous reserve requirement accounting, and that what we do in the balance of this year and in 1984 will have a bearing on the conditions and activity in 1985. I would, therefore, not forget Ml regardless of the uncertainties that I mentioned, but I believe they are such that we should not yet move Ml up in importance in the exposition of our policies and how we are going about [implementing] them. It seems to me that the market is focusing somewhat more on free reserves and on borrowing levels than previously and that the almost obsession with Ml has diminished somewhat; I think that's probably salutary. Perhaps that means the market has a better understanding of what we're really trying to do. So, I wouldn't forget Ml; I would keep it among the targets, certainly, but I believe the uncertainties are such that we need a wide range for 1984 and, therefore, the 4 to 8 percent is acceptable. With regard to your question on 1985, I would join those who support your presentation of perhaps a bit stronger language regarding our reluctance to fund total expenditures, a part of which is the 40 percent that is [spending by] the federal government. But I'd like to pick up those additional tens of billions that are off-budget financing and look at the situation as one in which the financing is much more than 40 percent and getting up to the 50 percent or better level. So, I would caution that our 1985 targeting of the aggregates and our policies, framed in view of Ml changes and credit changes, are not likely to be such as to fund the levels of spending that private demand and public demand unreined would imply. It seems to me that we are in a position of increasing that warning. I would also support some language indicating that, when we know what the actual growth in the aggregates was in 1984, our policy would most likely be to reduce the targets for 1985 from the actuals of 1984.",500
-fomc-corpus,1983,Do you mean lock ourselves in on that one?,10
-fomc-corpus,1983,"I would have language indicating that, given the total spending that seems likely to occur in the absence of remedial action on fiscal policy, we would find it difficult in the public interest to fund all of that spending and that our targets would most likely take the form of [lower figures than the actuals in 1984]. I wouldn't use any numbers, Tony. How do we know what the actual 1984 performance is going to be? I was reviewing last year's Bluebook--no offense intended--and I don't know how in the world we can set numbers for 1985 when the 1984 actual is likely to be way off the expected.",132
-fomc-corpus,1983,Mr. Forrestal.,5
-fomc-corpus,1983,"Mr. Chairman, I too think that 1985 is going to be a critical period, and I think it is important that we give the markets some qualitative description of our intentions for 1985. That means that 1984 targeting is going to be all the more important because of the carryover from that year into 1985. But I hope, as I think Governor Martin was just saying, that we will resist any Congressional or other pressures to quantify the targets for 1985. Our strategy for both years should be, as has been stated before, an objective of having a steady and gradual reduction of the rate of money growth over time. The long-term plan, it seems to me, is to keep inflation in check and to achieve price stability in the long run, and that objective is equally applicable to 1985 as to 1984. With respect to the 1984 targets themselves, I guess it depends on whether we look at the rate of growth in money that we have had from 1982 until recently or whether we look at business expansion. Either way, as I said yesterday, I believe the rate of growth in the economy is going to be stronger than many people think and, therefore, the danger of recession in the latter part of '84 is perhaps not as strong in my mind as in others. I also remember the discussion of inflation at the last meeting, and I'm concerned about that. The other thing that I would say in a general sense is that I believe the markets are going to be looking at what we do for both years--certainly for '84--and our credibility is going to be very much looked at over the next several months as we announce these targets for '84. Specifically, on the numbers themselves, I would agree that M1 should be elevated to a more prominent position in our thinking. I don't get very hung up on whether it's a monitoring range or a target but I think we ought to look at it more carefully than we have. I would drop that top number, as others have said; 7-1/2 percent seems to be an appropriate number. The other two aggregate ranges seem okay to me. And I agree with Mr. Solomon that having some symmetry between M2 and M3 makes some sense, so I would agree with the tentative '84 numbers [for the M2 range] in the Bluebook--6-1/2 to 9-1/2 percent--but I'd use the same numbers for M3. But, again, I would move that top of the M1 range down from 8 percent to something in the 7 to 7-1/2 percent area.",542
-fomc-corpus,1983,Governor Teeters.,4
-fomc-corpus,1983,"Well, I agree with [Governor Martin]. Let me take the 1985 issue. First of all, I really don't think we can forecast. As I look back over the past 5 years, we've missed turning points and almost everything that has happened--well, not everything that has happened because I think that we have to forecast and the staff has done a good job. But to lock ourselves into something that is as far off as two years, with all the variety that can go on, I think is a mistake. This year we have changed targets and we've accommodated to changes in the economy as they have occurred, as changes in the various aggregates have come along, and as our forecast has changed. I must say that from my point of view the markets responded [well] to what was a very reasonable shift in policy. We've kept them informed about what we were doing. And rigidly setting targets, particularly out two years, when we have a changing economy doesn't make much sense to me at all. If you remember the exercises of 4 or 5 years ago when we ran the econometric model [to evaluate] probabilities, we found that we are pretty good at forecasting the next quarter or the next two quarters. We begin to lose that and become less certain three quarters out and even more uncertain four quarters out; and by the time we get to a year-and-a-half or two years out, the econometric models give us almost random numbers. We might as well do what the Administration does for their 5-year projections, which is to take an annual rate of growth, just string it out, and put in a hopeful inflation number, because those forecasts for 2, 3, 4, and 5 years out don't have any reality to them. So, to lock ourselves in now to something for 1985 doesn't make any sense. I think we can talk about it. We can talk a great deal about the fiscal policy problem and what that implies for monetary policy, but I don't think we have to lock ourselves in. As for the 1984 targets, [many of] you seem to assume that we're going to be all right in 1984. I think there are a lot of hazards out there. We still don't know what Ml is doing. I think we need a wide range on it; I'm not terribly satisfied with 4 to 8 percent, but I certainly wouldn't lower it and I wouldn't narrow it. As for M3, that aggregate always grows at a rate close to 9-1/2 percent, so it is ridiculous to try to do something else with it. It seems to me that we might as well face the reality and put those numbers up to 6-1/2 to 9-1/2 percent and know that it's going to be at the top of the range and may be a bit over it. I think we have troubles ahead. I hope that they will be met with as much flexibility and as much openness as we've done this past year. I would stay with these targets but raise the M3 numbers.",626
-fomc-corpus,1983,Governor Gramley.,4
-fomc-corpus,1983,"I would join with those who see trouble ahead, but I don't think 1985 is going to be the critical year; I think 1984 is. If we were to get through 1984 with an outcome on the price side no worse than what the staff is forecasting, then we would be in reasonably good shape going into 1985. But, as I said yesterday, I think the risks are all on the up side. I think we're probably going to see somewhat stronger growth and more pickup in the inflation rate. And if we let that genie get out of the bottle in 1984, it is going to be awfully hard to put the cork back on in 1985. I can live with these targets or I could live with a somewhat lower range for both Ml and M2. But I want to remind the Committee how far these are from the kinds of ranges one would have to adopt ultimately if one were going to get price stability. If, for example, we interpret price stability as being something like 1 to 2 percent--the rate of increase we saw in the early 1960s--that allows 2-1/2 to 3 percent for potential growth of real GNP. Hack off 1-1/2 percent for a trend increase in velocity not related to interest rates and we are talking about 2-1/2 to 3-1/2 percent for growth of Ml and maybe 1 percentage point more or so for growth of M2. So, we're a long, long way from where we're going to have to be if we're really serious about getting the inflation rate down. And if we're not serious about getting the inflation rate down, we ought to decide that and adopt a course of policy in accordance with that view--for next year, I think.",370
-fomc-corpus,1983,Are you serious?,4
-fomc-corpus,1983,"Over the long run, yes.",7
-fomc-corpus,1983,For 1984?,5
-fomc-corpus,1983,"Oh no, not for 1984. I think we have to be pragmatic. We have an inherited inflation rate so what we have to strive for is to do no worse than see a tiny bit of acceleration of inflation along the lines the staff is forecasting, and then see if we can do a little better in 1985. But if we let inflation get considerably worse in 1984, then in 1985 it's going to get worse still. For reasons I talked about yesterday, I think that M2 ought to be our principal target. The relationship between Ml and GNP may tend to reestablish itself on a more stable basis than we've seen recently, but I'd like to wait for that to happen. As far as targets for '85 are concerned, I would not be inclined to put out any numbers. I would like to see us make qualitative statements to the effect that we will attempt over time to bring down the rate of growth of money for reasons having to do with bringing down the rate of inflation, not as an end product in itself. But I think we ought to put out some warnings that we're serious about this business. And if we're not, we ought to tell the public that also.",245
-fomc-corpus,1983,What would you expect to happen in the real economy in '85 if we made a significant cut in the money target for '85 and the Congress had not or was not taking any action on the fiscal side? I'm not necessarily disagreeing with you. It's not a provocative question; I'm just asking what your honest guess is. Would we have a recession in '85?,74
-fomc-corpus,1983,"Well, I have never believed that one can find macroeconomic reasons for thinking that fiscal stimulus and monetary restraint are enough to push the economy into recession. Fiscal stimulus unleashes economic expansion; monetary restraint holds it back. And it's the balance between the two that determines whether or not the economy grows and whether we have more inflation or less. I think the main problems are on the micro side. They have to do with the damage high real interest rates create in the international area, to the thrifts, to the rate of business investment, and that sort of thing. I wouldn't be inclined necessarily to say that a continuation of current fiscal policy--that is, the current services projection of the growing deficit--together with more monetary restraint would push us off the cliff into recession. It sure as heck would create a lot damage.",165
-fomc-corpus,1983,Mr. Boehne.,6
-fomc-corpus,1983,"Well, I think we are having a lot of discussion about a world that we would like to see rather than the world that we're actually in. The idea of gradual reductions in money [growth] over time that will bring down inflation neatly and avoid recession is a world we wish we were in. In reality we bring inflation down through recessions. That's where progress has come in the past and I suspect that's where it will come in the future. If we're talking about further reductions in inflation over the next several years, then I think we're talking about a recession. It's not that we like recession, but it seems to me that the two go hand in hand. Having said that, I think we still have to be somewhat idealistic and put out the message of lower growth in the aggregates, but I don't think we really ought to kid ourselves. As far as the strategy in 1984 is concerned, I think we ought to continue to look at a number of variables and be cautious of any particular one. I think Ml is still largely unpredictable and has an unpredictable link with GNP. Some case can be made that it may not be as unpredictable as it was in 1983, but I don't see any evidence that would [warrant] elevating it to the premier status it once had. I think there is some case for giving it somewhat more equal status but I would prefer to keep it in a monitoring status, largely for tactical reasons. There has been some weaning of the market from this variable. I don't think it's as much of a shrine as it once was and that is helpful in this judgmental world that we have for monetary policy. So, I would keep M2 and M3 as the targets and M1 as a monitoring range. As far as the specific numbers, I don't have a real quarrel with the specifications that we set in July, although I think Nancy is quite right that M3 grows at 9-1/2 percent whether we like it or not and we simply ought to realize that and at least have 9-1/2 percent be within the range. As far as Ml goes, I think a real issue is how much M1 is like the old M2. To the extent that it is more like the old M2, then I think higher growth rates are more acceptable, so that a range of 4 to 8 percent does not disturb me. I think we do have an M1 today that looks more like the old M2 with its implications for velocity. Now, I like the idea that has been put forth by several people for 1985--that we ought not talk about just one kind of outlook--because I don't think a [forecast] for 1985 by this group or any other group is worth very much. I think it would be a very good vehicle for underscoring the importance of doing something about the deficit or not doing something about the deficit and I would take that as its main objective. To have at least a couple of outcomes--one in which we get some help from the fiscal side and one in which we don't--I think could serve a positive purpose.",638
-fomc-corpus,1983,Mr. Roberts.,4
-fomc-corpus,1983,"Well, Mr. Chairman, with respect to 1985 or any longer-term period, I would be very cautious about expressing specific mathematical ranges unless we were required to do that by the Congress. I would rather see us have a qualitative objective, which is to reduce inflation steadily until we've eliminated it eventually over whatever period that might encompass. As for 1984, I think the 4 to 8 percent range, in view of what is developing on Ml, is probably too wide. I would be inclined to say 4 to 7 percent, except that for whatever reasons our directed growth of Ml has tended to be to the lower end of the range rather than otherwise. So, because of that tendency, I would be inclined to say 5 to 8 percent, raising the bottom figure. My reason is that I'm concerned about the recent slowdown that we've had in Ml, as I said yesterday, whether measured as 13 percent in the first half and 5 percent in the second half or measured as 4 to 5 months, essentially, of no growth. In terms of the leads here, I think we have a probable slowdown in the economy in the second and third quarters already built in; and because of the surge in money late last year and earlier this year, I think we have an increase in inflation built in late next year or early in 1985. And I don't want us to be like the businessmen I refer to who extrapolate the present and fight the ebullience of the economy right now. I would rather see us get Ml growing again at a moderate pace. Alternative B, which essentially suggests about a 6 percent [MI growth] pattern, is acceptable to me; it may be slightly on the high side, but I think unless we get that going we will have a cost in terms of real output in 1984 and we should not be sanguine about 1984. I would like to see us accept the fact that the aberration in velocity caused by a recession, lower inflation, and lower interest rates on these new deposit accounts may now be ending. We see a sharp rise in velocity here in the fourth quarter. I think we should get onto a trend line assumption of velocity, since it clearly can't be predicted in the short run, and build our money growth rates around that. If you accept that as on the order of 3 percent, then the 6 percent accommodates the 9 percent nominal GNP. So, I would like to see us remove Ml from the so-called monitoring range [status] since it really is the one variable that we can control most directly. I'd place it at least equal with the other aggregates and preferably give it primary status. More importantly, I'd like to see us do something to get it growing again. We have a forecast of 8 percent in December but we've had forecasts of increases for month after month that haven't materialized. I note that we have been decreasing reserves in November and December and it seems to me that's an expected result of that type of policy.",615
-fomc-corpus,1983,Mr. Keehn.,5
-fomc-corpus,1983,"I can't remember the exact words we used when we announced the preliminary targets for 1984 but I have a hunch that the words we used suggested that the reduction in the ranges was consistent with our long-term program to reduce the level of price inflation, and at this point I really don't see that we have a basis for changing them [again]. To make a significant downward reduction in the ranges would imply a higher level of restraint than we would want to have in mind. To increase them by any magnitude would indicate a very fundamental shift in policy, which I think would be a big mistake. So, I would be inclined to go with the ranges as we have announced them. For the reasons that Steve has suggested and that Governor Teeters has suggested, I would be inclined perhaps to reverse the ranges for M2 and M3. But I would at this point place a much higher reliance on Ml. I think we should put more emphasis on Ml and that particularly relates to the conversation we had with regard to CRR yesterday. In light of the timing involved, we are getting to a point where CRR is going to come into place pretty rapidly, and perhaps we should begin to [increase the focus on Ml] as soon as today when we talk about the intermeeting targets. Regarding 1985, I think it's far too early to be specific about what we would suggest by way of ranges for the year but I think we want to continue to emphasize the long-range program we have in mind. I certainly wouldn't give Congress any reason not to deal with the fiscal problem and I would not in any way suggest that if they don't deal with it, we will have to back off on our objective for 1985. I would say that we have every intention of continuing the program and that we will continue to reduce the ranges, but I wouldn't be specific with regard to amounts this far in advance of the year.",384
-fomc-corpus,1983,Mr. Guffey.,6
-fomc-corpus,1983,"Thank you, Mr. Chairman. I join those who would not want to make quantitative announcements as to 1985. But I also would like to see us maybe quantify the time that we're looking forward to moving toward price stability; I'm talking about a 5- or 6-year program with a gradual reduction over that period of time, yet accommodating what may be happening in the real economy. It seems to me that we have since 1971 or 1972 continued to say that we are moving toward price stability by reducing the money supply gradually over time. But there has never been a program set forth by this group that I know of in which people could look and find a result at the end or light at the end of the tunnel. If we were talking in terms of a rather specific program in the sense of an horizon over which to reach price stability--whatever that may be, whether it's 1 or 2 percent or zero--then it seems to me that we could work into that kind of public discussion what the likely outcome would be if nothing is done about the budget deficit. At this point to quantify targets for money growth for 1985 seems to me to be far in advance of anything we could predict. But in a longer-term picture it's [quite] reasonable to assume that there will be less money growth in '85 than '84 by some amount. With regard to the 1984 ranges proposed in the Bluebook that were set tentatively in July, I have no problem with the Ml range of 4 to 8 percent. As a matter of fact, I take a little comfort from that 4 percentage point spread in the range. As for M2 and M3, I would probably opt to drop M2 to the same range of 6 to 9 percent [shown for M3] in the Bluebook. My reason for that, as has been stated around the table before, is that it is inconsistent to have an M2 range that's greater than the M3 range. And it's very difficult to explain that M3 is lower than M2 simply because we hope to fund some of the credit needs through Eurodollars, which also implies a continuing strength in the dollar and assumes further that European countries and other developed nations would continue to be operating at a very low rate of economic growth. That is a picture that I think we can avoid, whether it be true or not, simply by making the M2 and M3 ranges consistent with each other. And I would opt to have them at 6 to 9 percent.",518
-fomc-corpus,1983,Governor Partee.,4
-fomc-corpus,1983,"I'm fairly optimistic. As I said yesterday, I think 1984 will be okay as a year. I don't really think that it's going to be as vigorous as Lyle, for example, has suggested. I also don't think it's going to be as weak as I suggested it could be yesterday--",60
-fomc-corpus,1983,Christmas is over already?,5
-fomc-corpus,1983,"--in the particular configuration that I was working out. I'm not greatly concerned about 9 percent as a nominal GNP number fourth quarter-to-fourth quarter. I think it's one we can key on. So far as I can see, the figures that the staff has given us are pretty consistent with about a 9 percent GNP number. So, I think the target growth rates as specified for 1984 are in the ballpark. But we ought to do this in terms of what we think would produce or would be consistent with about a 9 percent GNP growth. Regardless of what happens next year, though, I really do think 1985 is going to be more of a problem. It will be the third year of a recovery--if the recovery lasts all year. And that's a recovery that is getting pretty old; it's getting to the time when the inflationary pressures get greater. It certainly is going to be a time when pressures in credit markets ought to grow because of the increasing private demand. And I would agree with Lyle that the role of the deficit in that really is to affect credit market conditions more than it is to affect the economy as a whole, which has pluses and minuses from fiscal policy but may in the short run at least be about offsetting. So, if we see the year of 1985 developing as one in which we may have credit-crunch type conditions--and that is generally now being forecast in the market--do we want to say that we're going to reduce our growth rates for the aggregates because we have some concept of a long-run non-inflationary environment, and thus ensure that there will be a credit crunch in 1985? I doubt that we want to say that. So, I would avoid a specific number for 1985 for that reason, because we do want to give as much encouragement as possible to the hope that there might be some fiscal action before 1985 is over. Again, it seems extremely unlikely that there will be any big fiscal move taking effect in the first part of '85; it might take effect in the spring or the summer of '85. When we don't know what the timing would be, even if there is any fiscal policy action--except that it seems unlikely that it would be at the very beginning of the year--that makes it extremely difficult to state any kind of policy tradeoff. So, I wouldn't specify anything for '85. I think Ml has done quite a lot better than some people around the table give it credit for. But in this period it's certainly true that it doesn't look [consistent with] the GNP number, but that's because it doesn't have the stability characteristics that M2 or M3 or total credit have and that make them glide along at a more normative number that isn't too far, usually, from the GNP number. But I think that the performance of Ml has not been that bad and has been more indicative of what is going to happen in the economy than anything that M2 has shown over the last couple of years. I was going to say, Nancy, that M2 is 9 percent every year, good or bad, but you already said M3 is 9-1/2 percent regardless. So, I can't say that except that it seems to me also true. M2, by the way, I think shouldn't show the decline in velocity characteristic of earlier periods when we've had disintermediation because, after all, 80 to 90 percent of the total is now interest sensitive. And I think the [depository] institutions will be very competitive in the rates they offer as credit demands increase. They certainly will try to keep the flows coming in and, therefore, I think we could expect that M2 will show even more stability than it has shown in the past as the institutions operate on M2 as they have operated on M3 in the past--and that is to be a source of funding. So, I would give more status to Ml. I would adopt the staff's proposals, which I guess are pretty much the same as we had set in a preliminary way last July. And I would be quiet about specific numbers for 1985. One other point: I want to agree with Ed Boehne in that I don't think we can expect to make progress every year on the rate of inflation anyhow. I think we have to look at it as a full cycle process. And if we can keep the inflation rate from accelerating much beyond 5 percent, or certainly keep it from accelerating beyond 6 percent in the course of this cycle, then we can go down to zero in the next recession. And we'll have a much better posture for having a much less inflationary cycle the next time around. But I don't think it's reasonable to say we have a 4-1/2 percent inflation forecast for next year and in 1985 we'll bring it down to 4 percent and in 1986 to 3-1/2 percent and in 1987 to 3 percent. We just can't do that. The dynamics of the economy won't permit it.",1039
-fomc-corpus,1983,Mr. Boykin.,5
-fomc-corpus,1983,"Mr. Chairman, I think the concept of price stability should be the overriding objective. And having said that, I think whatever words we use for 1985 obviously should reflect that. I also would not want to use specific numbers. But it does seem to me that the targeting for 1984 comes at a very critical juncture, certainly in terms of credibility. We have said that we will bring inflation down through a gradual reduction in the growth rate of money. In order to solidify that position and make it believable, I would be inclined to bring the Ml range down more in line with what Bob Black was suggesting, possibly to 3 to 7 percent. I think that would be a very clear signal that we do remain committed. I happen to be willing to put more emphasis on Ml, and I think it is more believable, and thus that it would be positive to do that. I think that [range] would also be consistent with enough [Ml growth] for the 9 percent nominal GNP growth. On the M2 range, I would be inclined to shade it down to 6 to 9 percent since the 6-1/2 and 9-1/2 percent doesn't represent any real reduction. And on M3, I would probably go back to the 6-1/2 to 9-1/2 percent because its growth just always is 9-1/2 percent. It seems to me that would give a better picture. But I would argue very strongly for shading down the Ml target for 1984.",318
-fomc-corpus,1983,Governor Rice.,3
-fomc-corpus,1983,"Mr. Chairman, I agree with almost everything Governor Teeters said. I'm just not able to look much beyond 1984 and, therefore, I'm unable to say anything specific about 1985. I would just like to be able to say in general terms that we hope that things develop in 1984 in such a way that we can continue to move in the direction of price stability in 1985. As for 1984, I think that our tentative target ranges are realistic--that is, they are consistent with the staff forecast and with what I expect to happen, with the exception mentioned by Nancy that the M3 range could and should be raised in order to avoid the possibility of squeezing. So, with the exception of that minor change of raising the M3 range by 1/2 percentage point, I think these ranges are good, satisfactory, and realistic. I think we should reiterate in very strong terms our commitment to long-run price stability. And I think it's important that we demonstrate that commitment by the targets that we select, which we've done in this case. We've reduced the ranges for 2 out of 3 and if we can continue to do that, the inflationary expectations will be affected in a manner that would be positive from my point of view. So, I'm satisfied with the target ranges presented except for M3. And incidentally, I'm also encouraged by the recent behavior of M1 velocity. But I'm not yet ready to resurrect M1 to full target status. I would like to watch it for a while longer. Perhaps in July we might consider that restoration.",323
-fomc-corpus,1983,Mr. Balles.,5
-fomc-corpus,1983,"Sometimes, Mr. Chairman, it helps to get outside of one's own group and kick around these kinds of problems with a few knowledgeable outsiders, which we did at our Bank earlier this month at a conference on monetary targeting and velocity. That was held in view of the major, unprecedented decline in velocity in '82. I'm just going to give a few highlights that I think may be of interest to this group. A number of people who are in the room were at that conference or participated in it, including Steve, who was our lead-off speaker, and Frank, who chaired the panel. I made some remarks and we had some professors making remarks and so forth. One of the things that I found particularly interesting about that meeting was a comment by an official of the Bank of Japan who looked at what was happening in monetary targeting across a number of countries in different parts of the world. Very briefly, he concluded that in those countries where regulations--especially on deposit interest rates--have been binding, the financial innovations [aimed at] getting around those regulations had a really major distorting effect on the various monetary aggregates used in those countries. On the other hand, he set forth a class of countries that had deregulated in the face of rising inflation and interest rates and found that there had been much less distortion in the monetary aggregates in those countries. I found that cross-country analysis really quite interesting because it seemed to me to be consistent with the U.S. experience. In particular, in our own country we look back at 1974 and 1975 when there was a great deal of financial innovation, if you remember, [to get] around the regulatory ceilings on interest rates. Ml was badly distorted. There is no doubt that that was about the time that I became a proponent of M2, but of the M2 of that day. But in this more recent period of 1982 and 1983 when, as you know, we had considerable deregulation and it was proceeding quite rapidly, it's our view in San Francisco at least that Ml was quite little distorted on balance. The big distortions, to our surprise in a way because we expected the opposite, came in M2 and in M3. Another thing, as far as I'm concerned, that came out of that conference was something of a compromise point of view, I guess, on what did happen to Ml during that period in 1982 when its velocity was dropping by an unprecedented amount. When everything is said and done there really have been two basic explanations here and among the academics as to what was going on. Perhaps this is a bit oversimplified, but one explanation is that it was a business cycle phenomenon--the build-up of precautionary balances and that sort thing, which in turn caused velocity to decline. The alternative view, which we lean toward in San Francisco, is that the big drop in velocity was a direct response to the major decline in the rate of inflation and hence the major decline that occurred in market interest rates in the latter half of 1982--that that in effect caused the opportunity cost of holding money to drop sharply and led to not a shift in the demand for money but an increase along a given demand function in the amount of money that people wanted to hold in relation to income. Well, whichever one of those explanations might eventually win men's minds or whichever of those explanations is true, the real point, as I thought about the conference and its aftermath, is that the phenomena to which they were referring are over. That is, the recession is over; we're coming out of it. We don't expect another big drop in inflation and interest rates, as much as I would like to see that--something that could cause velocity to drop. I don't see a decrease in the amount of money demanded on the horizon either. But that reinforces my belief that we're well on the way toward [returning to] the more normal behavior of Ml that we had historically. In view of that background, I come out bottom line in much the same way that Messrs. Black, Roberts, Keehn, and Partee have here. I would restore Ml to more importance, perhaps even primary importance. I have to say that I'm getting a little nervous about our credibility being undermined in the academic community and among serious students of money and monetary policy by our continuing officially to set M2 and M3 targets because they know as well as we do what some have already mentioned around the table here: that M2 and M3 go on like Old Man River at about the same rates of growth almost irrespective of whether the economy is in a strong upswing or whether it is in fact in the middle of a recession. I'm not against having some extra targets we're almost bound to hit. The best thing I can say about M2 and M3 in terms of keeping them as targets is that they're almost impossible to miss. I guess that's not without some merit compared to a target that jumps around. But, frankly, I wouldn't give very much weight to them. I think the more we continue to do so the more we're going to undermine our credibility out there where it counts, or at least in some areas where it counts. Specifically, I would go in the direction that was implied in the Bluebook that perhaps it's time to reduce the spread of the M1 range from the 4 points that we now have. You all recall that many years ago a spread of 2 points was par for the course. I don't think we need to jump down that far that fast, but I would urge consideration of reducing that spread to 3 points. At this time I don't believe we're trying to make final decisions, Mr. Chairman, but certainly I would not at this moment want to see that 3-point spread centered any higher than 6 percent and might even favor aiming at a 5 percent midpoint. If we're going to have a 6 percent midpoint, which is about the most I would go for, we could consider a range of 4-1/2 to 7-1/2 percent, if we were willing to adopt only a 3-point range rather than a 4-point range. It's not without precedent that we have ranges that have a fraction of a half. We did that just a couple of years back, so that wouldn't be a particularly troublesome innovation. In terms of M2 and M3, I guess I really don't care. I could take what is in the Bluebook or some of the modifications that [have been suggested] here because I don't think they mean much. They don't indicate what is going to happen in the economy; we have very little control over them. So, for all the reasons that I've talked about today and that others have talked about, and in light of the paper I circulated to you a couple of months back, I think the time has come to restore M1 to at least equal weight, if not more.",1399
-fomc-corpus,1983,Nobody has suggested we go on the gold standard!,10
-fomc-corpus,1983,Not yet.,3
-fomc-corpus,1983,[Unintelligible] not happy with all these Ms.,13
-fomc-corpus,1983,We might consider targeting the exchange rate.,8
-fomc-corpus,1983,"Yes, but in practice we don't vote that way. What would you do right now? Would you ease monetary policy?",24
-fomc-corpus,1983,"One would have to ease, and that is why it's not a good idea.",16
-fomc-corpus,1983,"On the gold standard we would have to ease, Henry.",12
-fomc-corpus,1983,You don't want to defend this proposition?,8
-fomc-corpus,1983,"No, the theoretical point is that the exchange rate should carry some weight along with total credit. I'm not saying that we should do what the Canadians do now.",32
-fomc-corpus,1983,"It's working pretty well, isn't it?",8
-fomc-corpus,1983,It works pretty well. It would at the present exchange rates; we wouldn't want to stabilize those.,20
-fomc-corpus,1983,Why don't we turn to Mr. Cross?,9
-fomc-corpus,1983,[Statement--see Appendix.],6
-fomc-corpus,1983,Any comments or questions?,5
-fomc-corpus,1983,"This isn't just addressed to Sam, but maybe also to Henry or Tony. Do we know of other experiences, say in the post World War II period, where a major currency has gone in the opposite direction that the current account would say it ought to go for such a prolonged period and by such a large amount?",63
-fomc-corpus,1983,"No. I don't know of any this large. But there certainly are lags; these things don't correspond exactly. And it's really the reversal in direction that is usually most picked up by the markets when they are looking at some [unintelligible]. In 1978 when the dollar was sinking one reason we felt that we could probably undertake a major intervention that would stick--and we did it in November '78--was because the current account deficit was no longer increasing and indeed was beginning to shrink in response to the more competitive dollar that we had in the year-and-a-half before that. So, I don't know of any such situation; in fact, there's no question about it. These numbers are so huge now that there's nothing comparable. The largest current account deficit that we ran in the late '70s was in the neighborhood of $15 billion. We're looking next year at a deficit of probably $80 billion. And there is no other industrialized country that has run a deficit of more than $15 to $18 billion.",209
-fomc-corpus,1983,It's as if we're skating on a frozen lake and we just keep skating and we know we're going to get to the point where the ice isn't very thick out there.,33
-fomc-corpus,1983,"I don't think it's a sustainable situation in the long run. One can make an argument that it's not a time bomb--that when the dollar comes off it will come off gradually and moderately. I don't believe that. I believe that the longer it goes up and stays up, the faster it will come down when expectations change. What I don't have any feeling for is the comment that I frequently hear--and I think Henry said this--that when the inflow of dollars stops because of the change in expectations about the exchange rate, that is going to have a very major upward effect on our interest rates. I'm not sure that that's so. I don't know what the interest rate effect of that will be because it is sometimes argued that the banks can bring enough back in the Eurodollar market that we wouldn't get that much of a movement in interest rates. I don't know whether Paul has a view on that. We may end up with just a very big impact on the exchange rate and a very minor impact on interest rates from the cessation of the inflow of foreign funds. What do you think, Paul?",222
-fomc-corpus,1983,I think it's a danger.,6
-fomc-corpus,1983,The interest rates?,4
-fomc-corpus,1983,On both sides.,4
-fomc-corpus,1983,"Is the result the cessation of capital imports? Capital imports can't cease overnight, of course, because our exports aren't going to go up overnight and imports aren't going to go down.",35
-fomc-corpus,1983,No.,2
-fomc-corpus,1983,So in that sense while we unwind this $80 to $100 billion current account deficit we will have upward pressure on interest rates all the time but not the full pressures at the beginning of the process.,40
-fomc-corpus,1983,I might also add that the Europeans have the attitude that the dollar is going to drop sharply at some point. They are as much confused as we are as to why it hasn't dropped [already]. But their real concern is that they perceive that [drop] as a sharp appreciation of the D-mark. They are very upset about the implications of a sharply appreciating D-mark in the European Monetary System because there is no way to foretell what the relationships of the other currencies to an appreciated D-mark would be.,101
-fomc-corpus,1983,"At a minimum it probably will force much more rapid devaluations of the weaker currencies in the EMS. And it might even make it almost intolerable, depending on the Italian and French policies. It certainly will mean much more strain on the EMS.",50
-fomc-corpus,1983,"The answer to President Boehne's original question is that there certainly are other examples. We have the Japanese at the moment. They have had a very strong current account and a relatively weak [currency]--at least relative to the dollar experience. We've had the British experience. I'm not sure exactly which way the British current account [is going now], but certainly in the early Thatcher days sterling was very strong and the current account was pretty good because of oil. But it was a period when the currency was moving in an unsustainable direction in the absence of [unintelligible] of the current account. It subsequently has reversed.",128
-fomc-corpus,1983,It was fascinating to read in the paper this morning that the OPEC countries have a $31 billion deficit.,22
-fomc-corpus,1983,Everybody has deficits.,4
-fomc-corpus,1983,"But the OPEC world, remember, was going to end with a $100 billion surplus.",19
-fomc-corpus,1983,The sum of the deficits is $100 billion in excess of the sum of the surpluses.,20
-fomc-corpus,1983,Any other questions or comments?,6
-fomc-corpus,1983,"I have one other question about intervention. What makes you decide when to intervene? What is the trigger? Is it a certain degree of movement in the rates, or what, that triggers this?",39
-fomc-corpus,1983,"No. We keep getting asked this question over and over. What happens actually is that, of course, we are monitoring [the market] all the time. When we see a situation where it looks as if rates could be moving too rapidly or are very volatile--kind of gaping, with one transaction here and then the next buy or sell order moving out of the range entirely--or just generally unsettled conditions in the market, then we talk to our colleagues at the Board and our colleagues at the Treasury. And usually at very, very high levels in the Treasury Department there's a decision as to whether they feel that it is or is not a disorderly market. Certainly, one of the factors that goes into their thinking is the attitude of some of the other monetary authorities. On the occasion when we intervened in December [our action] followed some intervention by the Bundesbank--indeed some intervention where the Bundesbank had come in at the end of their day and intervened in a way that was going to affect the DM in our market. They had called us up to tell us about it and to see if we had any concerns about it and we decided, again after consultations, that it would be appropriate for us to go in. But we intervened in a modest way. These have all been very modest transactions; $50 million worth of DM, at a time when the market is as big and as active as it is, is not going to reshape the world.",298
-fomc-corpus,1983,"In fact, there is a Machiavellian theory which, of course, nobody here subscribes to: You can argue that intervention in this penny ante amount is simply a way of discrediting intervention as a policy.",45
-fomc-corpus,1983,It shows some evidence of being willing to participate but in a very modest way. And I don't think anybody thinks that these amounts have any great impact. It can temporarily settle a situation if we do enough of it.,43
-fomc-corpus,1983,How often did the Bundesbank operate in New York directly?,12
-fomc-corpus,1983,"On one occasion. This was a very unusual situation in which the dollar was moving at a very, very rapid rate just at the time our market was opening, and they did intervene on that occasion in the amount of about $500 million. Subsequently, they have intervened in the market through the New York Fed, with us acting as agent.",69
-fomc-corpus,1983,"How often did they do that, more or less?",11
-fomc-corpus,1983,Once or twice--not often.,7
-fomc-corpus,1983,Do we have any problem with their coming into the New York market and operating there?,17
-fomc-corpus,1983,"Well, we like to know what other central banks are doing in our market.",16
-fomc-corpus,1983,So long as we know.,6
-fomc-corpus,1983,"For a number of the central banks--the Japanese, the Swiss--when they do, which is very rare, we act on their behalf. And that to me is the best way to handle it. Then we can do the operation for them and know what is happening and handle it. And the Germans did operate that way subsequent to this one occasion when they acted directly; they were trying to make a big splash and to show the world that they were out there selling all these dollars.",98
-fomc-corpus,1983,We prefer to have them do it through us?,10
-fomc-corpus,1983,I do.,3
-fomc-corpus,1983,"Peter, could I ask you: Is it right to say that that $50 million peanuts was sterilized automatically the same day or the next day?",30
-fomc-corpus,1983,Probably for the reserve effect it would be a couple of days later; it was folded into all the other reserve factors that we take account of.,29
-fomc-corpus,1983,"But you wouldn't have done anything on that day, I suppose, if you hadn't been planning to do something anyway?",23
-fomc-corpus,1983,No. There wouldn't have been an immediate reserve impact anyway. But we would have acted as soon as we had the information and folded it into all the other reserve factors.,34
-fomc-corpus,1983,We settled two days later anyhow.,7
-fomc-corpus,1983,"I'm told that the Russians have been very active in foreign exchange markets, acquiring dollars. I'd just like to ask Sam how much of the rise in the dollar value vis-a-vis the mark, for example, can be attributed to those apparently rather substantial activities by the Russians?",54
-fomc-corpus,1983,"Well, it's very hard to say. Certainly, they have been active, particularly in the past couple of weeks, in buying dollars. For what reason, I don't know. We have been trying to keep a log of what we hear and find out about their activities to see if we can figure out what their approach is. But in the past couple of weeks they have been buying very heavily in the dollar. And, as I mentioned, the Bundesbank has done really quite a large amount of dollar sales--over $1-1/2 billion. The Russians have been buying a very large chunk of this on the other side, we think. One thought is that they have some big year-end dollar needs, just as many others have big year-end dollar needs. But I don't really have a good explanation as to why they're doing it. They seem to be buying a lot of dollars and selling some sterling, for example. Earlier this year they were operating on different sides of the market. We're trying to get a better assessment of their approach, but right now we really don't know what their purpose is in buying dollars. But they have been buying them heavily in Europe, in New York, and in the Far East.",245
-fomc-corpus,1983,"Paul, are you going to cover later the current status of the various external financing packages of Brazil, etc.?",22
-fomc-corpus,1983,"I thought maybe we could do that after the meeting [at lunch]. Meanwhile, we have to ratify these transactions.",24
-fomc-corpus,1983,I move that we ratify the transactions.,9
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,Without objection. Mr. Sternlight.,8
-fomc-corpus,1983,"[Statement--see Appendix.] That concludes my report on operations, Mr. Chairman. I do have a recommendation about leeway for the next period. Specifically, I think it would be advisable to retain the $5 billion intermeeting leeway for changes in outright holdings that was adopted at the last meeting. The difference is that this time the enlargement would be needed to cope with seasonal declines in currency and deposit levels. Also, if the intermeeting period extends into early February, we would come up to that final phase-down step of reserve requirement ratios for member banks coming out of the Monetary Control Act. That's all I have, Mr. Chairman.",129
-fomc-corpus,1983,"Comments or questions? In view of great silence, we can ratify the transactions.",17
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,Without objection. The leeway question?,8
-fomc-corpus,1983,So moved.,3
-fomc-corpus,1983,Second.,2
-fomc-corpus,1983,Without objection. Mr. Axilrod.,9
-fomc-corpus,1983,"Mr. Chairman, my briefing will focus on M1--not because I want to overstress it, but because Ml is the aggregate recently showing the most variable behavior relative to norms, so to speak. That's what is perhaps most in need of analysis, particularly since in the recent past its variations over a period of months have often provided good signals to follow. [Statement--see Appendix.]",78
-fomc-corpus,1983,"Could I ask just one brief question, Mr. Chairman? On your experimental weekly Ml seasonal, Steve, do you have a figure for December? I gather it would be not too far off from--",40
-fomc-corpus,1983,"Yes, for December [in] the regular series we have 2.3 percent, a drop from 6.7 percent in November. That compares with our projection of 8.1 percent. So, there is a big difference in seasonals in November and December.",56
-fomc-corpus,1983,Only 2.3 percent in December?,9
-fomc-corpus,1983,"Yes, it's about a 5-1/2 or 6 point difference. There's a very big seasonal. The seasonals, month-to-month, are very different, as you can see in the series.",43
-fomc-corpus,1983,"Well, we might as well have a doughnut.",11
-fomc-corpus,1983,I don't know if anybody else wants to direct any questions to Mr. Axilrod.,18
-fomc-corpus,1983,"I just have one, Steve. Is it a reasonable proposition to you and Peter to say that where you think you are now in the borrowings is $650 million?",34
-fomc-corpus,1983,"That's the objective, yes. Some weeks come in above and some weeks below.",16
-fomc-corpus,1983,"That was a pretty erratic intermeeting period in terms of where the borrowing and the net borrowed reserves came out. The average is not too bad over six weeks or so; it is not too good [in relation to the intended level] in between. We have already had quite a lot of discussion--by implication but not in precise terms--of where we should go in the short run. I might say: The housing starts figures came out this morning. Just to get that on the table, Mr. Kichline, can you describe those?",111
-fomc-corpus,1983,"Yes. In November, housing starts rose 100,000 to 1-3/4 quarter million units, annual rate, from an upward revised level in October. Both single-family and multifamily starts rose in all regions in the country, mostly in the West. Permits also rose a little and the permits for October were revised up a little as well.",73
-fomc-corpus,1983,"Yes, permits did not rise very much. I do not know if this is terribly significant, but the flash GNP will be coming out this afternoon--no, it won't be out until tomorrow. I do not know what it is, but there is a suspicion in other places that it may be a little higher than our staff has projected. But I do not know for sure.",77
-fomc-corpus,1983,It's not a very good number.,7
-fomc-corpus,1983,"It's not even a very good number in my opinion after it is no longer the flash. Unfortunately, it can be inaccurate in both directions. But it will be a pretty strong memory. I suspect we are getting a little seasonal pressure in the markets. I think [whether or not] the reserve positions change, one would expect seasonal pressures from the middle of December probably through the end of the year. We [typically] have a very erratic--or maybe [simply] erratic--money number early in December; nobody knows quite what is going to happen through the first week or two of January when we have often had very erratic numbers. This is well reflected in the quite different signals that our two seasonal adjustment techniques provide. In trying to sort all of this out, and just to give you something to aim at: Given the strength of economic activity--until there's a little more evidence that it is going the other way, if we ever get it--given the nervousness of the inflationary expectations, and given that the latest money supply figures look a little higher anyway, I don't find myself in any mood to ease. I am talking about a very short time perspective of several weeks. Whether one would want to tighten up slightly is debatable, I suppose. Part of my problem with tightening is that in announcing it, as we inevitably would have to do sooner or later, [the announcement] may exaggerate whatever one's intention was, unless one had a pretty strong intention. I find myself in a position where I think that maybe what we can say is that we will maintain the existing degree of restraint at least for the time being and if things turn out to be on the ebullient side, economically and with the aggregates, we could make a small tightening move in coming weeks or wait for a little more evidence. That is the way I would tend to write the directive--in a sort of one-sided way.",388
-fomc-corpus,1983,"Well, the end of the year is going to place some upward pressure in the market area anyway, isn't it?",23
-fomc-corpus,1983,"Well, I don't know whether it will be more than what we have, but I would think that if we maintain this for the next week or 10-day period maybe, it might remain under some pressure both because of seasonal pressures and because the Treasury is doing a lot of financing between Christmas and New Year's Day. Then I think that seasonal [pressure] would be over.",75
-fomc-corpus,1983,I think the pressures may linger a day or two [longer].,14
-fomc-corpus,1983,"Well, maybe into the first couple days in January--so, maybe [for the next] two weeks.",22
-fomc-corpus,1983,"Paul, when you say you wouldn't ease, do you mean in terms of our current borrowing standard? You're not talking in terms, say, of looking at 2 percent money growth in the fourth quarter?",41
-fomc-corpus,1983,"I am talking about the borrowing assumption. And I am talking about, I presume, without being absolutely precise--we can discuss it--measuring the prospects for any tightening subsequently so far as the aggregates are concerned against the standard of something like ""B.""",51
-fomc-corpus,1983,This is halfway between existing policy and snugging up.,11
-fomc-corpus,1983,"I think ""B"" is a liberalization of major magnitude, if we can get it done, as against what we have been doing.",28
-fomc-corpus,1983,"I haven't focused closely on those figures. I was thinking of something in that area, but we may want to lower or round some of those to whole percents. These figures for M2 and M3 are pretty close, I guess, to the staff's December projection; they don't involve any particular change in trend from what we have been having for M2 or M3. M1 would obviously be a little higher, but probably lower than--well, who knows what the December figure will be!",101
-fomc-corpus,1983,"For purposes of this discussion, I would agree to adopting the ""B"" alternative as it appears in the Bluebook. In view of the discussion and the feeling about the potential for some reemergence of price pressures, I would opt to snug up marginally or have some nuance or whatever it may be of [snugging]. Rather than take a $650 million borrowing level, I'd go maybe to $750 million, which implies about 1/4 percent more [on the funds rate] than what we have been shooting at in the past. If I understand what has been said around the table, particularly from Peter, the pressures that are coming on because of technical matters at year-end might move us to a funds rate of 9-1/2 percent or a bit above. I am really suggesting that with a $750 million borrowing level we essentially would validate that level after the technical pressures subside and end up with something over 9-1/2 percent and certainly not greater than 9-3/4 percent. It would, in my view, present a picture that the Federal Reserve has some concerns about the strength of the economy and the potential for a reemergence of price pressures.",246
-fomc-corpus,1983,I have just one comment on that. I don't think we can aim at the federal funds rate as closely as one quarter of 1 percentage point. We take our chances on that a bit.,39
-fomc-corpus,1983,"I came into the meeting feeling pretty strongly that any easing of policy would be a mistake. I have not heard anything in the last two days to change my mind on that score. By the same token, I don't think that any substantial tightening of policy is appropriate. The decision in my mind is whether we have a slight tightening of policy, something implied by ""B"" or ""B-,"" I suppose one could say. What those numbers are, I am not quite sure. A $700 or $750 million borrowing level probably would be a degree of snugging rather than a tightening. I think there is a lot of merit in what you said about waiting to see what develops in the next week or so. So, I am happy with ""B"" or something slightly less than ""B,"" moving a bit toward ""C.""",167
-fomc-corpus,1983,"Mr. Chairman, if we did not have these Ml numbers and were looking just at the real economy and what is going on, I think we would have moved long ago toward a posture of more restraint than we have now. I can understand people's concern about Ml, but I think we have to recall that what we are looking at is a stock, not a supply; it is an intersection of demand and supply. We have to try to figure out where the weakness is coming from. One could well argue that it was coming from restraint on supply if we were seeing either a significant slowdown in the growth of nominal GNP or a rise in interest rates or both. None of those things is happening. Indeed, when the staff runs its model and tries to figure what money growth is taking place in the fourth quarter, consistent with the old relationships that we used to have between Ml and GNP based on the old standard Ml demand function and the econometric model, the answer is 8.3 percent. And I dare say that if we were looking at 8.3 percent growth of Ml in this quarter, given the history of very large growth for the last two years and the continuing tendency for the economy to far outrun our expectations, we would be moving toward restraint. I don't see any strong reason for waiting. I think we ought to begin moving now toward a tighter posture. I would opt, therefore, for something between ""B"" and ""C."" I might go even a little further than Roger--up to an $850 million borrowing level. I wouldn't want to see the fed funds rate go over 10 percent, but I wouldn't mind at all if it stayed in the 9-1/2 to 10 percent range.",351
-fomc-corpus,1983,"For the reasons that you outlined at the outset, I would be very much in favor of alternative B. Having said that, I would be in favor of modifying the directive, as I have suggested a couple of times so far, to indicate greater emphasis on Ml. Also, it does occur to me that this [directive] will be coming out probably in late January or early February after we have embarked on a major operating change, and I think we ought to reflect that now. So, again, I'd change the directive. I'd leave the borrowing level at about $650 million, but I would change the fed funds range to 7 to 11 percent--not to indicate any policy change but simply to give us more room in which to operate, because I have a hunch that the funds rate, at least for the next few weeks, will rise pretty close to that 10 percent ceiling.",180
-fomc-corpus,1983,"I would go to $750 million on borrowing and I'd be quite satisfied with 8 percent growth of M2 and M3. And if that leads to 6 percent on M1, that would seem to me in line with the ranges that we are about to set, possibly. On the funds rate, I do not particularly want to see it higher, except marginally. But I think we have to have a little more room on the up side, if it's not going to be totally confining. So, I would say 6-1/2 to 10-1/2 percent.",122
-fomc-corpus,1983,"Mr. Chairman, I have observed that the unemployment rate, with the most recent data we have and the staff projections through 1984, brings us to a position well above the so-called natural rate of unemployment that we reviewed at the last FOMC meeting. Also, in contrast to some of my colleagues, I observe very, very little evidence of a reigniting of inflation. You cannot find it in commodity prices, in gold, or in the usual indices. If you accept the staff forecast quarter-by-quarter of the real GNP, it comes down nicely. One would wonder, as has been observed here previously, what better configuration of a moderation in economic expansion one would seek in contrast to what has been projected here. It seems to me that alternative B, which is essentially the status quo with a $650 million borrowing level, not $750 million, and with growth of the aggregates as indicated is consonant with an expansion period that is almost textbook. I would join my colleague Governor Rice in the hope that we could restore Ml to the pantheon on Olympus in July, having the ex post expertise that we all will acquire so readily in looking backward over [the intervening] period of time. I don't think this is a time to signal to a nervous market that we see inflation coming back when only the Wall Street gossip would join us in that expectation.",274
-fomc-corpus,1983,"Well, I don't want to overstate what I'm about to say, but it seems to me that we have to rely to some extent on what we think is going to happen down the road, simply because of the lags involved. We can be wrong, however, about the future we see. Therefore, to some extent we have to ask ourselves which mistake is easier to undo if we make it. As I look out into 1984, it seems to me that it would be easier to undo a little too much restraint now. In other words, it would be easier to ease later in the year than it would be to tighten because we waited too long. I think the risks in the domestic economy are on the side of more growth than we expect, more inflation than we expect, and more accommodation on the part of monetary policy. So, for no other reason than just to curb a rather buoyant psychology out there, I think some very modest move toward tightening would be appropriate between now and the next meeting. The order of magnitude I would come down for is something like a ""B-,"" with $750 million or so on borrowing. I think that such a modest move would get lost in the year-end churning that we're going through, so it seems to me that some time in January would be the appropriate time for the tightening to emerge.",273
-fomc-corpus,1983,"I think we need a period of continuous stability. My perception of the economy is that, yes, it has recovered in the typical fashion, but the recovery could be very easily upset with rising interest rates. I think we can afford to wait to see what is going on. I would add to my concerns that any upward movement in the interest rate is going to make the exchange rate worse. I agree with Tony that the more it goes up the harder it's going to fall--it's going to be rather precipitous--and that that would increase our problems of adjustment during 1984. So, I would simply take alternative B, the $650 million on borrowing, and the 6 to 10 percent funds rate range; I'd keep a fairly moderate stance at this point and let the year-end pressure do its thing but then come back out of it in the 9-1/2 percent range [on fed funds]. And we can readjust; the [next] meeting is not that far away. I would also point out to you that if we tighten now, the policy record from this meeting will be released probably on the day that the Chairman testifies.",234
-fomc-corpus,1983,Mr. Morris.,4
-fomc-corpus,1983,"Mr. Chairman, in terms of the strength of the economy, I think one could make an argument for some snugging up at this point in time. I think the evidence in housing is that that sector has adapted pretty well to the current level of rates. I don't think there is room in the economy, given the strength of the capital goods sector, for any substantial revival in the strength of housing. But at the same time I could accept alternative B as written or some snugging up; I don't feel a strong conviction as to which one is right.",112
-fomc-corpus,1983,Governor Partee.,4
-fomc-corpus,1983,"I think it's premature to tighten today. I agree with Pres and Nancy that the economy still has quite a lot of room in it--that we don't really have any signs of inflation except in the hype that the market is putting on the question. And it would be wrong to move in response to that. If we were closer to full utilization, we would have a little less tolerance to a mistake on the up side. I thought Ed Boehne was going to conclude that since our forecast is reasonable we shouldn't change policy. But he surprised me by saying that since the forecast is reasonable we ought to tighten up. I guess I don't agree with that unless unusual strength develops in the period ahead. That is, we can't really stand more surprises on the up side of our expectations; we could stand some surprises on the moderately lower side. So, I think your original proposal is a quite good one. I don't see why we ought to bias the result by starting out with a higher borrowed reserve figure than we have currently. I think we ought to put it in at $650 million or thereabouts and then if, in fact, things strengthen quite a bit in the weeks to come, we ought to let the borrowing run up with the strengthening that occurs. I would feel a good deal more willing to see some snugging if we could get some strength from Ml. We haven't had it--except for last week--and I guess if we did get now a rather meaningful expansion in Ml, that would be another signal that perhaps the economy was stronger and thus we ought to snug. So, I would do just as you suggested in the beginning, Paul, but with $650 million--I don't know that you spoke to the borrowing number--as the beginning borrowing number.",354
-fomc-corpus,1983,Mr. Corrigan.,5
-fomc-corpus,1983,"Let me just add a point that I forgot to mention earlier. In terms of emphasis on the various aggregates, I too would put a little more emphasis on Ml--not restoring it to its former grandeur but nevertheless putting a little more emphasis on it. Having said that, I would also add that I'm not sanguine that the market has learned its lesson. The relatively dispassionate reaction to Ml that we've seen over the past few months is nothing more than a reflection of the fact that Ml isn't anywhere near the top of the target; that is, people are more tolerant of its behavior. As far as policy goes now, I am in the camp that says the bell has rung and recess is over and it's back to school. I've been there for some time. I do, therefore, favor a modest move now. I view something along the lines of what Roger said as satisfactory; but pending developments in the intermeeting period, I probably would be willing to go as far as Governor Gramley suggested. There are risks in that, certainly. I think the most pronounced ones are on the international side, with the exchange rate and the implications for the financing costs of developing countries. That is the single thing that gives me the most pause for concern and caution. As I said yesterday, I think we're by no means out of the woods in terms of domestic financial problems in a context of rising interest rates, which is one of the reasons I'd rather try to do a little something now in hopes of not having to do more later. Certainly, there are some political risks, particularly in a context in which M1 doesn't seem to be growing at a very robust rate based on our own numbers. But, again, I feel rather strongly that the risks on the other side are greater at this juncture; in my view at least, the economy and inflation may be more of a problem than others see it to be. I also agree with the thrust of Ed Boehne's remarks. If we do something of a modest nature now, it's pretty easy to reverse it if indeed events warrant that. On the other hand, if we don't do something now, I believe it becomes harder to do it later and I also believe we run the risk that we will have to do more later rather than less. So, I do my own balancing of these risks and I must say that I come out on the side of moving up now, say, to $750 million or maybe a bit more. And for the intermeeting period as a whole, pending developments, I probably would be willing to go further--certainly not above 10 percent on the federal funds rate, but if we had to go to 10 percent, I'd go to 10 percent.",551
-fomc-corpus,1983,Mr. Balles.,5
-fomc-corpus,1983,"At the risk of being accused of looking at the hole rather than the doughnut, I would quickly like to repeat something I said last month--Chuck is smiling--that these [unintelligible] looking figures on the macroeconomic statistics are not capturing all of reality. My deputy chairman came back from a recent meeting of the Conference of Chairman and Deputies and according to his tabulations there were 6 to 9 Districts that reported distinctly spotty trends in the economy. Yes, indeed, a lot of things are going well. But a lot of things aren't going well, and they're concentrated in areas such as agriculture, export industries, and so on. So, on a broader basis, my own reading of the economy is that there is not really much risk of a major significant reacceleration of inflation. Therefore, I would come out similar to the way that Governors Martin and Teeters and Partee have come out. I think it would be premature to snug. I would be in favor of alternative B and would like to see that borrowing assumption no higher than $650 million. The hoped for turnaround in M1 is still a forecast, not a fact. And if it proved unfortunately not to be an accurate forecast, I would begin to get a little more worried than I was last month.",263
-fomc-corpus,1983,Did you say you would like to see the borrowing above $650 million? MR. BALLES(?). No. I said I would not like to see it any higher than $650 million as the initial figure.,43
-fomc-corpus,1983,Mr. Solomon.,4
-fomc-corpus,1983,"I think there's a difference, even though it's a nuance, between ""B,"" retaining existing policy, and your proposal, Mr. Chairman. Since I indicated yesterday that I was torn between retaining existing policy and a very slight snugging up, I think your approach tries to bridge that. You said you would maintain at least the existing degree of restraint and you would have more restraint depending on the continued strength of economic recovery and you would drop out the section on lesser restraint so that the directive is somewhat asymmetric. Basically, that poises us to do some snugging but it doesn't actually do the snugging. We would stick with the $650 million for the time being but if we see continuing strength in the economic recovery, and particularly if that's reinforced by money numbers, then we would do the snugging up. I don't know--we wouldn't need a conference call then, would we, at that point? Based on that directive, that would permit some snugging up.",194
-fomc-corpus,1983,"We'd need one, I think, if we wanted to go the other way.",17
-fomc-corpus,1983,Right.,2
-fomc-corpus,1983,Mr. Boykin.,5
-fomc-corpus,1983,I would align myself with those--I think Jerry Corrigan said it very well and others--who would start moving against [inflation] now with a $750 million initial borrowing assumption.,38
-fomc-corpus,1983,Governor Rice.,3
-fomc-corpus,1983,"Mr. Chairman, I would support your original proposition whereby we hold our position where we are now and could apply more restraint if it seems necessary. So, I would support alternative B, borrowing at $650 million, and a funds rate roughly where it is now.",53
-fomc-corpus,1983,"Mr. Chairman, although I'm concerned about the fact that we haven't been able to get M1 growing, I would be willing to accept the staff forecast for December and the 6 percent growth in the first quarter implied in alternative B and would accept your proposal of not increasing restraint at this time. Along with Mr. Balles, I would prefer that we make it very clear that if we don't get that expansion in Ml, we will look to lesser restraint promptly because I think another full quarter of this would put us in a dangerous position where we may be looking at a decline in output by midyear.",121
-fomc-corpus,1983,Mrs. Horn.,4
-fomc-corpus,1983,"I also think your proposal is a good one, perhaps coming from my view that forecasting is a very tricky business, compounded by the District I come from. Although we've certainly seen improvement, we're one of those very spotty Districts. And even in the firms where we have seen improvement, I would say the attitude is characterized not as any kind of euphoria but as concern about the future. Perhaps coming from my view that Ml does continue to tell us something, I would not like to see snugging up occur at this time. I guess I feel that the danger of inflation in the future may well be reflected in an early way in some of the collective bargaining agreements, and because we have a very difficult [collective bargaining] calendar next year we need to watch [these developments] very carefully to see if more snugging is required at that point. For all those reasons--the state of recovery and the future of the recovery, what Ml is telling us, and the fact that I think we haven't yet seen the collective bargaining process start leading us into a very dangerous area--I favor the proposal you made, Mr. Chairman.",228
-fomc-corpus,1983,Mr. Black.,4
-fomc-corpus,1983,"Mr. Chairman, I've been waiting in hopes that someone would say all I wanted to say, and Ted Roberts came very close. No economist is going to agree 100 percent with anybody, so I would come out right where he did except I'd rather use 5-1/2 percent than 6 percent on a quarterly average basis [for Ml]. I would stress mainly that if we don't get this growth in Ml in December, we really ought to have a conference call and take a look at it because if that happens, I believe the slowdown might be more real than I now think it is and that maybe we ought to move a little against it. So, I would really go with your original position.",143
-fomc-corpus,1983,"Well, let me try to clarify my original position in the light of all these comments and see whether we can get closer. I am partly influenced by the fact that it's just Ml that is very low and if we write into a directive that we want to increase restraint and have to reverse that very shortly because Ml falls out of bed, it would look peculiar and would be difficult to explain. I must confess that I have that a little in my mind. These seasonal pressures are convenient in the sense that we're getting a little more seasonal restraint for a couple of weeks. I think the split we have in the Committee is between [waiting or not waiting]--not necessarily waiting until we see [the outcome of] collective bargaining agreements or that kind of thing, which would take some months. But if we really get a confirmation of strength in Ml, particularly by early January--let's say December comes out more or less as projected and we get another Ml bulge at the beginning of January, so that January growth is beginning to look high and we aren't getting any economic news to suggest anything less than the ebullience we [currently] see--I'd begin moving in a modest way as early as that. I'm talking [about moving] maybe in the first week or second week in January.",258
-fomc-corpus,1983,"""Bulge"" being growth over 6 percent, say?",13
-fomc-corpus,1983,"That would have to be projected for January, but I mean if Ml got off to a [high] start in January. Right now I would say that we should try to make sure we don't get below the $650 million [in borrowing], which means obviously that we would err on the side of more tightness. Borrowing might be more likely to come out above than below $650 million, but we would not be aiming above that level. Well, let me look at these [specifications]. I would not mind myself knocking the halves off of the alternative B growth rates, or [making them] a little less, if that makes people happier. Let me come back to the federal funds rate later. Specifically, what I would put in the directive is a first sentence that reads: ""The Committee seeks in the short run to maintain at least the existing degree of reserve restraint."" This would be explained more [fully] in the policy record part. We could move up M1 if you want to. On the Ml sentence, [leave out the reference to] the relatively slow growth in October and just move up that whole sentence on Ml and the credit aggregate to follow the sentence on M2 and M3. That's a very subtle change; I don't think anybody will notice it. They haven't even gotten it yet that it has been moved down. Then I'd make the next sentence read something like: ""Somewhat greater restraint would be acceptable should the aggregates expand more rapidly within the context of continuing strength of economic activity."" I'd leave out anything about the down side; if something happened and we really wanted to ease--if Ml came in very low, for instance--we'd have to have a meeting.",343
-fomc-corpus,1983,"Suppose we get the continuing strength or ebullience in the economic recovery but we don't get M1 growth, would you still do a little snugging?",32
-fomc-corpus,1983,And the same lack of any [new] statistical evidence of inflation.,14
-fomc-corpus,1983,I don't know what we're likely to get in the next two or three weeks.,16
-fomc-corpus,1983,We should get the CPI tomorrow as well [as the GNP flash].,15
-fomc-corpus,1983,"And the first Friday in January we get the unemployment rate. That's about it, isn't it?",19
-fomc-corpus,1983,"If you wait until you see it, you've missed it.",12
-fomc-corpus,1983,Do you want to be too soon or too late?,11
-fomc-corpus,1983,"If you exclude food and energy from the PPI, it was still a rate of only 3 percent. And capital goods was, I think, a pretty good figure all around.",37
-fomc-corpus,1983,And OPEC is having a terrible time trying to hold the cartel together.,15
-fomc-corpus,1983,"Of the business news that we will get, part of it we'll get tomorrow. But we're now looking at just the first week of January and obviously I can't answer--",33
-fomc-corpus,1983,"We do get the employment surveys on January 6, which is the first Friday.",17
-fomc-corpus,1983,"Suppose they came in strong. Suppose we got a further decline in unemployment and a sizable increase in Ml; that certainly would be a factor on the snugging side. Now, if the [un]employment rate retreated .2 or .3, which I suppose it could just because it was down so sharply the previous two months, we'd weigh that in the balance a little on the other side. If the consumer price index is high, I don't have to tell you on which side of the balance I'd throw that.",105
-fomc-corpus,1983,"It's rather hard to think that we'll get much news except for unemployment. Obviously, there's going to be continuing strength in the economy. The question is: Is it going to be surprising strength?",38
-fomc-corpus,1983,"We would be in somewhat of a dilemma, I suppose, if the employment numbers came in very strong and Ml came in weak. Then what do we do?",32
-fomc-corpus,1983,"Well, I think what you do is lean in the direction of the way the economy is going. I think all the evidence is pointing in the direction of an economy that continues to outperform our expectations. I don't know what the flash GNP is going to show, but the housing starts figure this morning alone is going to add several tenths to real GNP growth in the fourth quarter.",78
-fomc-corpus,1983,"I wouldn't be surprised if the GNP growth in the fourth quarter came in around 7 percent. That's my favorite statistic. If it comes out 7 percent, it will be the most rapid three quarters of economic growth that we've had in the postwar period.",53
-fomc-corpus,1983,"If it comes out 6-1/4 percent, as forecast, it won't be the most rapid?",22
-fomc-corpus,1983,It will be just in that ballpark. Then you would say it's about as fast as we've ever had.,22
-fomc-corpus,1983,"If it comes out at 7 percent, inflationary expectations will increase another notch, even though the actual hard data won't show [more inflation].",29
-fomc-corpus,1983,"On this point about prices: If you go back and look at the 6-month period ending in April, the rise in the consumer price index with or without food and energy--any way you slice it--is something like 2 percent. In the six months ending in November, any way you slice it, it's 5 percent or more. Now, I admit that the wholesale price index isn't showing the same thing, but the consumer price index is what gets into social security, other pensions, cost of living adjustments, wage expectations, and the whole ball of wax. I find it very, very difficult to accept the notion that there is no evidence that price increases have started to go up. There is a doubling of the rate of increase--",150
-fomc-corpus,1983,I don't think there's any question: Prices have gone up [faster] from the midst of the recession and its aftermath.,25
-fomc-corpus,1983,"But if the consumer price index is giving the right reading, we're already at 5 percent.",19
-fomc-corpus,1983,The question is whether it's giving the right reading.,10
-fomc-corpus,1983,"I don't know if it is, either.",9
-fomc-corpus,1983,"Prices always move with a lag and they always are glacial in their performance unless something spectacular happens on fronts like food or energy. The underlying factor driving inflation is wages, and wages are well known to be very sticky; they move glacially. What we do now is going to affect wage bargaining throughout 1984 and 1985. That is what we have to worry about. And as the economy continues to get stronger--",87
-fomc-corpus,1983,"I think that is worrying about fighting the last war. The inflation that we're going to experience here comes from things that have happened in the past. If we have a very sluggish Ml series, just because contemporaneously the consumer price index is registering a change that reflects past conditions it would be a mistake to react to that, I think.",67
-fomc-corpus,1983,But you're talking only about the last four months of sluggish M1 growth. I don't understand.,19
-fomc-corpus,1983,"No. I'm saying that the prices that will be flowing through the economy are a function of past money growth--say, in the fourth quarter of last year and the first quarter of this year.",39
-fomc-corpus,1983,"If you look at what has happened to Ml over longer periods, I suppose you'd look back at the past four years--I would at least--and say that Federal Reserve policy was heavily responsible for the improvements on the inflation front that we have been experiencing. And yet if you look at the figures, you will find out that growth of money in the past four years was every bit as rapid as it was in the previous four years. You have to explain prices other than just by what has been happening to the money stock.",105
-fomc-corpus,1983,"Well, the trend growth of money is about 8 percent. I don't know what period you would pick, but you would get a pretty closely correlated price change over any longer period of time with the growth of money.",44
-fomc-corpus,1983,I think that is not what the figures have been showing recently.,13
-fomc-corpus,1983,You might pick out a cycle and have a deviation.,11
-fomc-corpus,1983,I'm thinking of the period since the Federal Reserve made its historic decision in the fourth quarter of 1979. The growth rate of Ml since then is almost exactly the same as it was in the previous years. The previous four years were a period of substantial build-up of inflation and in these recent four years there has been a substantial unwinding. You have to explain that on grounds other than just Ml.,81
-fomc-corpus,1983,"Well, one way to explain it is that the pattern has been very erratic, which is continuing this year with 13 percent growth in the first half and 5 percent in the second half.",40
-fomc-corpus,1983,We get inflation down with erratic patterns too.,10
-fomc-corpus,1983,"Well, it creates a different situation than just, say, averaging a year. If you had one [half] at 20 percent and one [half] at 0 and average that out, I don't think it's the same as having a 9 percent year.",54
-fomc-corpus,1983,"I have some figures here that I think support both positions, depending on the period you take. In the four years before 1979, 7 percent is the least squares rate of growth; since then it's 6.8 percent. But the first part of that latter period--that would be from '79 to about mid-'81--it was 5.1 percent. And since then to the fourth quarter, it is 10.5 percent. So, that supports your position. It also supports Lyle's.",107
-fomc-corpus,1983,"None of it sounds to me like it supports why the inflation rate was 12 to 13 percent and now is 4 to 5 percent, but that's beside the point. We need to make a decision here.",44
-fomc-corpus,1983,Maybe the conclusion is that you need an erratic enough policy to eventually bring about a recession that brings down the inflation.,24
-fomc-corpus,1983,"I have described the intentions here about as clearly as I can. What I am proposing, as I understand it, is a pretty quick finger on the trigger if things move in the one direction and no finger on the trigger at all if things move in the other direction. It doesn't mean we can't have a meeting. What we're talking about is that this snugging up, if that is the right term, might well come about early in January. The range of what we're talking about [on borrowings] is $750 to $800 million, depending upon just how the numbers look.",117
-fomc-corpus,1983,"I'd be reluctant, though, to raise the federal funds range for the same reason, even though I know we're getting near the higher end of it. But it seems to me that we're not going to hit the higher end and I think it would give the wrong signal. I think we can continue using the [current] range as long as we retain a money market directive and the markets know it has very little relevance. When we had a more automatic feedback reaction from money supply movements, then it was a reasonable constraint. But why do we bother to continue to put the range in there?",118
-fomc-corpus,1983,"Well, I'll give you three alternatives, none of which I feel strongly about: either 6 to 10 percent or 7 to 11 percent or eliminate it.",34
-fomc-corpus,1983,I'll support Mr. Roberts on that.,8
-fomc-corpus,1983,I think we need a range.,7
-fomc-corpus,1983,I think it could be eliminated if you tell the market we're following a fundamentally different policy.,18
-fomc-corpus,1983,That's the problem in eliminating it right at this point. Who wants to eliminate it? Only two Committee members. We won't eliminate it; that proposal has not attracted sufficient support. A 6-1/2 to 10-1/2 percent range doesn't send me. I think we could hit 10 percent. It wouldn't bother me terribly if we do; I don't think we'll hit 11 percent.,82
-fomc-corpus,1983,Ranges have never been confining.,7
-fomc-corpus,1983,"No. I don't think it's going to confine us all that much either. I think we could hit 10 percent; if we hit it consistently over a period of time we probably would have a consultation. But I don't think that in itself is going to affect anything too much, so I think we're talking about cosmetics here.",66
-fomc-corpus,1983,"It seems to me that raising it could convey the wrong impression. I think the subtleties that we're talking about here are just that--very subtle. And after all these months if it were raised to 7 to 11 percent, I think it would overstate what is likely to happen and it would also be released in February, which might not be the most convenient time for it to be released.",82
-fomc-corpus,1983,"I don't feel strongly about this. There's something to what you say. The only argument I see on the other side is that we're so close to the top of the 6 to 10 percent range, it looks a little funny keeping it there.",50
-fomc-corpus,1983,"If we're going to raise the borrowing, even though that number is not published, the text of the directive will indicate that it is consistent to have some reaction in the funds rate. It is peculiar to leave it unchanged when the rate is so close to the top anyway.",54
-fomc-corpus,1983,"We're not going to raise borrowings--are we?--unless we decide to snug up, which is getting along into the period. Then the funds rate may go up and then we'll change the range. That's the order in which it ought to occur.",51
-fomc-corpus,1983,"I think changing the range would not send the wrong signals; it would send the right signals. I could live with 6 to 10 percent, but I prefer 7 to 11 percent.",40
-fomc-corpus,1983,"How many prefer 7 to 11 percent? Four. [Secretary's note: Messrs. Gramley, Keehn, Morris and Wallich.], How many prefer 6 to 10 percent? Six or seven--an enormous difference. Well, that suggests we leave it at 6 to 10 percent, but it's not a life or death difference as far as I'm concerned.",79
-fomc-corpus,1983,"Just a matter of clarification: When you make the statement--I'm paraphrasing--that if things go in one direction you have the finger on the trigger, are you talking about the aggregates or are you talking about economic activity? Or do you have to combine those two things before you pull the trigger?",61
-fomc-corpus,1983,"Well, to some extent you have to combine them. But we're not going to get all that much news on the economy, as we suggested. I think that if the aggregates, particularly Ml, are running a little high and we haven't in all likelihood gotten adverse economic news, the present sense continues.",60
-fomc-corpus,1983,So we are relying a little more heavily on the aggregates because--,13
-fomc-corpus,1983,Just because of the timing. We could get some very sour economic news. If suddenly everybody stops shopping before Christmas and sales don't look so good--,29
-fomc-corpus,1983,Because they've run out of money?,7
-fomc-corpus,1983,"--and the unemployment rate goes up three tenths of a percent and employment doesn't do much and the industrial production figure for December goes up only two tenths of a percent, all that would give me a little pause. But I don't expect that to happen.",52
-fomc-corpus,1983,It used to be that in Chicago department store sales were negative the week after Christmas; returns exceeded sales.,21
-fomc-corpus,1983,Only in Chicago?,4
-fomc-corpus,1983,If that should be picked up by the newspapers--negative sales--,13
-fomc-corpus,1983,"Mr. Chairman, do you suggest taking out this modifying phrase about lesser restraint in the context of a significant shortfall of growth in the aggregates? It's in there now. If we were to have December flat and January developing flat in money growth, wouldn't you want to have that leeway?",58
-fomc-corpus,1983,"Well, what we would have to do is have a meeting. The proposal is to leave it out simply to indicate that there is still some bias toward a little tightening rather than the reverse.",38
-fomc-corpus,1983,"But if that happens, you would probably have a meeting.",12
-fomc-corpus,1983,"Oh, if they were really flat, I think that's right.",13
-fomc-corpus,1983,"Shouldn't we put in ""Merry Christmas"" or something like that?",15
-fomc-corpus,1983,"By the time they read it, it's too late. We should say ""Happy Valentine's Day""!",19
-fomc-corpus,1983,"The Committee in the short run seeks to have a merry Christmas! Well, what about the specifications for the aggregates? We can take straight alternative B or, as I said, I'd be just as happy to knock off the halves. Or we could have something different.",53
-fomc-corpus,1983,It doesn't make any difference.,6
-fomc-corpus,1983,Very little.,3
-fomc-corpus,1983,"So why spend any time on it? In fact, the advantage of knocking off the halves is that it looks less precise.",25
-fomc-corpus,1983,You get round numbers; that is precisely right.,10
-fomc-corpus,1983,People who know what we're doing--,7
-fomc-corpus,1983,Do you want to knock off the halves?,9
-fomc-corpus,1983,I would.,3
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,"All right, let me reformulate. We have alternative B without the halves and 6 to 10 percent [for the funds rate range]. ""The Committee seeks in the short run to maintain at least the existing degree of reserve restraint."" We move up the sentence on M1 and the aggregates to follow the other sentence.",65
-fomc-corpus,1983,"Ml still goes after M2 and M3, doesn't it?",13
-fomc-corpus,1983,"Yes. We can't make a major change in one meeting! And somewhat greater restraint would be acceptable should the aggregates expand more rapidly within the context of continuing strength of economic recovery. Got that? And I am saying all the other changes that I didn't mention there are as in this crossed out [Bluebook draft version]. This wording ""consistent with the targets"" is crossed out. Got it?",78
-fomc-corpus,1983,"Yes. I still think it's more accurate to say ""should the aggregates expand more rapidly and/or the economic recovery continue at""--I don't know what word you would want to use, Paul.",38
-fomc-corpus,1983,Accelerate.,3
-fomc-corpus,1983,Because the way it reads now we're kind of locked in depending on the aggregates.,16
-fomc-corpus,1983,"Well, I think that is correct technically, but it makes it so fuzzy otherwise. I think that's true of the way it was last time.",29
-fomc-corpus,1983,"It might give a little more weight to the recovery if we left the order of the sentence the way it is now: ""Depending on evidence about the continuing strength of economic recovery...somewhat greater restraint would be acceptable should the aggregates expand more rapidly."" SPEAKER(?) That's correct.",56
-fomc-corpus,1983,I think that's right.,5
-fomc-corpus,1983,That's an acceptable way of getting a bit of flexibility there.,12
-fomc-corpus,1983,"Well, yes. I'm not sure it makes a lot of difference to me. It sounds like quite a few of you are just saying that the whole thing would be the same, but we would just put a period after ""expand more rapidly.""",49
-fomc-corpus,1983,Yes.,2
-fomc-corpus,1983,And leave out the lesser restraint.,7
-fomc-corpus,1983,"That's all right. All we're doing is putting a period after ""more rapidly."" Okay.",18
-fomc-corpus,1983,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey Yes President Keehn Yes Governor Martin No President Morris Yes Governor Partee Yes Governor Rice Yes President Roberts Yes Governor Teeters Yes Governor Wallich Yes One dissent.,49
-fomc-corpus,1983,"Okay. In the boilerplate we'll change the sentence to say that housing starts gained in November, if that's acceptable. I think we'll have to come back to you on the date of the next meeting. I'm not sure about my own calendar at this point, but it will probably be Monday/Tuesday of the previous week, if you don't have problems with that. What we need to know--let Mr. Bernard know--what days you have insurmountable problems on. I suppose we can't go beyond Monday, Tuesday, or Wednesday of that previous week.",112
-fomc-corpus,1983,"January 30, 31 and February 1.",11
-fomc-corpus,1983,"I'm having trouble hearing down here, Mr. Chairman.",11
-fomc-corpus,1983,"Let Mr. Bernard know if you have any insuperable problems on Monday, Tuesday, or Wednesday of that week; that's January 30-31 and February 1. Those seem to be the likely days, if we have to change [the meeting dates]. [We can't do it] the week of the 12th since I'd have to testify on the 9th or the 10th.",82
-fomc-corpus,1983,You put a high probability on it being that last couple of days in January?,16
-fomc-corpus,1983,"Yes, but I'm not sure.",7
-fomc-corpus,1983,Is there some advantage to compressing the period?,10
-fomc-corpus,1983,That's what I'm trying to do.,7
-fomc-corpus,1983,The problem would be--,5
-fomc-corpus,1983,Do you need more than one week?,8
-fomc-corpus,1983,"Probably not, that's why the logical day to do it may be on February 1st if I'm testifying on the 8th. We could do it as late as February 2nd, so consider that date too. Consider January 30th and 31st and February 1st and 2nd.  The sandwiches are not quite there. We [will end this meeting and] take up this question of the foreign lending program and just dispose of that now if you want to.",101
-fomc-corpus,1984,"The meeting can come to order with the approval of the minutes, if somebody would like to move that.",21
-fomc-corpus,1984,So moved.,3
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,"Without objection, we will do that. I want to change the agenda order here a bit and have Mr. Cross and Mr. Sternlight report first, after we discuss this confidentiality item on the agenda. Then we'll go to the long-term ranges with the staff report and the discussion. I would not anticipate that that will come to a conclusion this afternoon, but I would hope that we will be prepared to reach a conclusion, as nearly as one can forecast, when we assemble tomorrow. Given this confidentiality problem--and maybe out of an excess of caution--I think perhaps we could have an executive session first thing tomorrow morning while we complete that discussion and then resume with the short-term targets. Meanwhile, let me discuss this confidentiality issue. Everybody has received a copy of the GAO report, which in general came to no conclusion with regard to who did the leaking. I think the GAO also came to the conclusion that procedures were somewhat more casual on the Hill than in the Federal Reserve. And the unspoken conclusion from that I will leave unspoken. Maybe one should speak in terms of probabilities. But obviously, they did call attention to weaknesses in our own procedures, too. I don't think the key to this lies in procedures but rather in personal integrity and morale. Those are really the key. But I think it is incumbent upon us to review our procedures and satisfy ourselves that they are reasonable and reasonably tight and also that people know what they are. The latter was particularly the criticism that GAO pointed out. [Our rules regarding confidentiality] have been lying around for a long time without review and there was, to say the least, some confusion about them. The way I would like to proceed is to do nothing further at this meeting but to appoint a committee that I would hope--maybe overly optimistically but not necessarily--could report by the next meeting and if not then, by the following meeting. But let's see if they can review the procedures and present some recommendations and proposals to us at the next meeting. In thinking about who might be appropriately on that committee, and taking some account of geography and distribution among the presidents and the Board, it seems to me reasonable, if they all agree and if the Committee doesn't point out any great objections, that Mr. Solomon might chair the committee--and the New York Reserve Bank, of course, has a particular problem--and Mr. Partee might represent the Board and Mr. Black, in effect, the other presidents. I would have the committee work with a staff group. I left the names of staff I had in mind on my desk; I hope I can recall them. I thought Mr. Axilrod might serve as Chairman of the [staff] committee; Mr. Oltman could provide some legal perspective and some practical perspective from New York; Mr. Coyne with his particular responsibilities could also serve on the staff group; and Mr. Bernard could act as Secretary to it. That doesn't mean that anybody else who has an idea--either on the staff or the Committee--should not participate. I would hope that the staff would consult with other staff and that the committee might be [open] to suggestions or comments from any member of the Committee or from other Presidents and that we could proceed on that basis.",657
-fomc-corpus,1984,We'll be deeply honored.,5
-fomc-corpus,1984,"If anything goes wrong, we'll point to the Solomon guidelines in the future. Let me turn to Mr. Cross.",23
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,"Mr. Chairman, I have a feeling that the exchange market for the dollar is exhibiting all the characteristics of the top of a bull market and that when the turn does come it could be precipitous; the market could very well overshoot on the down side. I understand the constraints placed on us by Treasury policy positions, but it seems to me that this would be a good time for us to begin stockpiling currencies to use if and when we get the kind of decline in the dollar that I feel is on the way.",106
-fomc-corpus,1984,"Instead of stockpiling, the Treasury is de-stockpiling. It was a very unusual thing that they did, paying half of the United States' quota--the gold tranche of the quota--in yen and deutschmarks. But they wanted to reduce their war chest.",55
-fomc-corpus,1984,"Your point has been made on a number of occasions. I think we're getting into a very difficult situation here where we're getting totally locked into a big capital inflow from abroad which so far has come very easily--too easily--with the dollar up. But when that mood changes, we will have problems because there is no way we can get out of dependence on our capital inflow from a balance of payments standpoint or from a budgetary deficit standpoint. The capital inflow this year will run to more than 2 percent of the GNP, I guess. So, the total net savings runs to something like 7 or 8 percent in the United States and about 25 percent of that is being supplemented by foreign capital inflows.",148
-fomc-corpus,1984,But for precisely that reason it may take a very sharp decline in the dollar to maintain the inflows.,21
-fomc-corpus,1984,I don't disagree with you.,6
-fomc-corpus,1984,It's hard to say where equilibrium might be.,9
-fomc-corpus,1984,"We have a wonderful specter of the dollar plunging and interest rates rising at the same time! In some sense the crowding out is now crowding in--or rather, drawing in--foreign capital. If it [stops] drawing in, we will have a problem. I think that is at the heart of our budgetary deficit policy problem.",72
-fomc-corpus,1984,"Until the dollar reaches extremely weak levels, we're not likely to get any really meaningful central bank cooperation on major intervention. So, Frank, the only reservation I have to increasing the war chest of foreign currencies, which as you know I have always been in favor of--and we did follow [that approach] until this Administration came in--is that even that war chest is going to be of very limited value unless we get very strong cooperation by other central banks. And we would not get that in the first stages of a--",105
-fomc-corpus,1984,"I'm not sure we would want it in the first stages, but all that remains to be seen. But even then, I wouldn't have too much faith in intervention when we're relying on $80 billion of capital inflows. Intervention of $5 billion or even $10 billion is a small fraction of the total.",62
-fomc-corpus,1984,"Well, there is the fact that interest rates would be going up. That is, foreigners would be [buying] bonds, so there is a sustaining element. Inflation--",35
-fomc-corpus,1984,"Yes, but if the market perceives a 20 percent drop in the dollar, a small movement in interest rates is not going to stop it.",30
-fomc-corpus,1984,"Inflation is low and it's not going to rise very much as a result of this movement; it will rise some. So, I don't think one can take this as a foregone conclusion. It's a risk.",43
-fomc-corpus,1984,"I would have had somewhat similar feelings a year ago, though less strongly, and it hasn't happened yet. It may not happen in 1984. But I think it is not a sustainable long-run position to have the United States borrowing a larger and larger fraction of its GNP from abroad. It's not sustainable on protectionist grounds either, or on industrial grounds. But I find it difficult to predict when the turning point may come.",87
-fomc-corpus,1984,We've been predicting it for a year and a half.,11
-fomc-corpus,1984,"That's right. But the fact is that we started--and we're inclined to forget this--from a very strong, relatively balanced, payments position and we had a current account surplus, or a roughly balanced current account, two years ago. Well, two years ago [the deficit] was $14 billion or so and last year it was $30 billion and three years ago [the current account] was in surplus or in balance. [The deficit] wasn't all that big for the whole of last year by today's standards, but as it gets bigger we have to get more and more capital every quarter.",120
-fomc-corpus,1984,"But everything will work the wrong way when it starts, because as interest rates rise foreigners will get out of the bond market and the stock market, even more so given their expectations on the dollar. We'll get a combined reversal of the inflows. I agree with Frank that [the exchange value of the dollar] has been so high for such a long period of time that when it turns the probability is that there will be a very substantial move downward.",90
-fomc-corpus,1984,"The mere fact that that is now being widely talked about, not just in financial circles but in business circles in general, tends to reinforce the view that when it goes, it could really go.",39
-fomc-corpus,1984,"It has been talked about a lot and it hasn't happened, which suggests that maybe the market is fairly resistant for the moment, but--",27
-fomc-corpus,1984,"The market sees all this as much as we do and for some curious reason doesn't respond. I think they anticipate two possibilities. One is that we will put our [fiscal] house in order. Then the budget deficit would go down and the United States would become a more dependable place to keep one's money. The other possibility is that we won't put our house in order. Then the opposite of these things would happen. Nevertheless, interest rates would be high, so the dollar might not come down very much. I can't believe we are going to continue on with $100 billion in capital imports for very long; that I understand.",126
-fomc-corpus,1984,"And I take it that may very well be why it's going to be a long period of time yet--maybe half a year, a year, or even longer--before this turn comes.",38
-fomc-corpus,1984,"Do you have this in your presentation, Mr. Truman? We'll get off this depressing subject for the moment.",22
-fomc-corpus,1984,Would you explain the Jamaican--?,7
-fomc-corpus,1984,That was an arrangement the ESF made with the Jamaican authorities. It has not been announced and I was just informing the Committee of it. It ties in with a move by which the Jamaicans would have an IMF program and it's a kind of bridge financing looking toward that.,55
-fomc-corpus,1984,Didn't you call it a swap?,7
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,It's not a Federal Reserve [swap]?,8
-fomc-corpus,1984,No. What I said is that we have done this for the Treasury. It's totally an ESF arrangement. I only noted it for your information.,30
-fomc-corpus,1984,"If there are no other comments, we need to ratify the transactions.",15
-fomc-corpus,1984,So moved.,3
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,Without objection.,3
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,"Peter, I noticed that the net change in outright holdings for all of 1983 was about twice as big as in the two previous years. Is there a reason for that?",36
-fomc-corpus,1984,"Currency. The outright change was an increase of about $16 billion, and a big rise in currency in circulation was the main factor. Currency was up something like $14 billion when I last looked. There was some decline in our foreign currency holdings over the course of the year, which would have been another reason for the outright increase. But that currency increase is the chief thing that comes to mind.",80
-fomc-corpus,1984,"No other comments? If not, we have to ratify the transactions.",15
-fomc-corpus,1984,So moved.,3
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,"Without objection, we will turn to Mr. Kichline. MESSRS. KICHLINE, ZEISEL, TRUMAN, and PRELL. [Statements--see Appendix.]",39
-fomc-corpus,1984,Can someone explain to me the chart in the upper left hand corner on households?,16
-fomc-corpus,1984,That indexes the dollar volume of borrowing relative to personal income at 100 in any trough and plots the movements from there. The shaded area shows the range of experience in the earlier--,36
-fomc-corpus,1984,"How does that differ from the chart immediately below it, except that it is indexed?",17
-fomc-corpus,1984,That is the outstanding debt relative to personal income. This is the level of indebtedness. The other is the flow of borrowing scaled by disposable income; one is the flow and one is the stock.,40
-fomc-corpus,1984,"Well, if the top one is changing, the bottom one ought to be changing too, right?",20
-fomc-corpus,1984,"No. If debt is growing at the same pace as income, which is what the bottom panel shows, you would have an upward movement as shown in the top panel.",34
-fomc-corpus,1984,"I'm not sure why, but I won't pursue it anymore.",12
-fomc-corpus,1984,"Well, let me restate it: The volume of borrowing has grown relative to GNP, but the [percent] increase in debt has been the same as the [percent] increase in income.",40
-fomc-corpus,1984,Does anybody else need any enlightenment?,7
-fomc-corpus,1984,Mr. Morris.,4
-fomc-corpus,1984,"I have a question. I don't know whether it's appropriate now or later, but one of the problems that I have with the forecast is that it doesn't seem to be compatible with the M2 assumption. Would you prefer to defer that question until later on?",51
-fomc-corpus,1984,"Mr. Axilrod says yes. We will defer it, meaning that he will effectively answer it in his presentation. But we can have his presentation now if it's more desirable.",36
-fomc-corpus,1984,"Well, I'm not sure my presentation deals directly with it, since I go even in the opposite direction to President Morris' question. But it will certainly come up, either as a question now or as a question after my presentation.",46
-fomc-corpus,1984,"Well, I don't know what people prefer. I think we ought to discuss the economic outlook. Do we want to do that against the background of your presentation? Go ahead and give your presentation.",39
-fomc-corpus,1984,"Before you do that, let me ask a simple question. I see that mortgage loan delinquencies did not really come down in 1983 and are running at very high rates. Why hasn't this big wave of prosperity since 1982 reduced mortgage loan delinquencies?",55
-fomc-corpus,1984,"Well, as you can see, that line has edged off very slightly. If one looks back at 1975, one can see also that it was a while before that rate dropped very substantially. Clearly, there has been, and even now still is, a great deal of unemployment, and that could be a factor holding the rate up. And there may have been some problems among people who had short-term loans that they got earlier at low rates which they have had to renew at higher rates than perhaps they could handle. We don't have any information suggesting that that has been a major problem, but that's a special feature in the current period.",129
-fomc-corpus,1984,May I speak to your question?,7
-fomc-corpus,1984,"Yes, go ahead.",5
-fomc-corpus,1984,"To take the analysis of the housing financial situation out to the margin, I note that data on the losses from foreclosures in residential property last year, including the fourth quarter of last year, indeed [support] Mr. Prell's premise. For example, the mortgage insurance industry, which could be accused of insuring some of the submarginal and certainly a lot of the marginal residential credit, is now experiencing losses from foreclosure at about 3-1/2 times their historical level. That industry historically has had a ratio of losses to premium of about 20 percent and now has a loss ratio to premium of 90 percent. So, at the margin, there is considerable difficulty in the mortgage market.",144
-fomc-corpus,1984,Is this mostly in the industrial states--the heavy smokestack industry?,15
-fomc-corpus,1984,"No. I don't have a map of the United States in my mind, Tony, but it's very widespread. It includes California, with the so-called creative financing, and it includes overcommitting in the Southwest as well as the smokestack states.",51
-fomc-corpus,1984,Baldwin United got in just at the right time!,12
-fomc-corpus,1984,"Let me ask the staff who look at the domestic side of the economy whether they were aware that the implication of the international projection is for the residual rate of price increase to go down as 1984 and 1985 transpire. It seems rather inconsistent with what you have for unit labor costs, which don't go down, and GDBP prices, which don't go down. Yet the working through of this I take it by Ted's people on the international side is that once you take the international effect out, you must have a decline in the rate of inflation. Do you want to comment on that, Jim?",124
-fomc-corpus,1984,"We're talking about the CPI, not the deflator, in our forecast.",15
-fomc-corpus,1984,Is that the CPI?,5
-fomc-corpus,1984,"Yes. The CPI in our forecast runs a good deal above the deflator. So, in part, what we're looking at is the difference between the measures of GNP prices versus the measures of consumer prices. I think that's the bulk of it. Our CPI forecast for 1984, for example, is around 5-1/4 percent, which is .6 to .7 more than the deflator. But you're right: A good deal of the impact of the dollar does show through; it's not a minor feature. We are of the mind that, indeed, 1984 unemployment rates are still high enough to be exerting some degree of downward pressure on wages and compensation domestically. Aside from the dollar problem, we think there is downward pressure, but it erodes over time. And by the end of 1985 the downward pressure on the wage side is virtually nonexistent in the sense that we think an unemployment rate of 7 percent is near the top end of what is ""full employment.""",204
-fomc-corpus,1984,"Part of the point here is that the dollar's earlier rise brings forward some of the price pressures in the wage/price dynamics that we would get later. So, therefore, just the fact that you have those price pressures tends arithmetically to hold down some of the prices in the short run and removal of that gives you somewhat of an uptick. That's why, at least measured off the consumer price index, you get that tilting up.",91
-fomc-corpus,1984,"The other thought I had as I looked at this particular chart is that I don't see much delay in the price effect of the alternative projection--that is, the one where you have the dollar falling to a hundred by the fourth quarter of 1984. It seems as if the maximum first difference price effect appears almost at the same time. I thought there was supposed to be a lag of 6 months or so.",84
-fomc-corpus,1984,There is a lag before you get the total impact. Well over half of the impact is seen as an instantaneous adjustment or in the first four quarters. The total impact would go out further; more than three quarters to 80 percent of it would occur by the end of two years.,57
-fomc-corpus,1984,"So we're looking at the increment, and the increment is at its maximum in the early quarters; then the increment falls off but the total effect continues to accumulate.",32
-fomc-corpus,1984,"That's right. That's partly shown in this lower panel. You can barely see it, but there is a little pushing together and the dollar stays up as the impact wears off.",35
-fomc-corpus,1984,"Ted, I'm a little surprised in your foreign projection that the continued very moderate growth of the industrial countries doesn't do anything for them on prices. Is there some reason that they get very little impact on prices?",41
-fomc-corpus,1984,"There are two factors. First of all we're averaging. For the low inflation countries we have basically the same kind of phenomenon that we have for the United States--that as the economy picks up, you get some upward pressure on prices moderated by the fact that on our full projection their exchange rates are appreciating. So, for the forecast period you get about a 1/2 percent rise in the year-over-year inflation rate for Germany and Japan and Switzerland and countries like that. That is combined with some further downward pressure for Italy and France and Belgium where inflation has been above average and they still are following more austere policies in general.",127
-fomc-corpus,1984,How much of the assumed fall in the exchange value of the dollar over the projection period is correlated with that 1/2 point rise?,28
-fomc-corpus,1984,"The difference is between the level and the rate of change. The 1/2 percent ""bonus"" that I referred to in the middle panel of that chart corresponds to a 1-1/2 percent change in the level, given the 10 percent decline in the dollar over a period of time. The reason you get a fairly constant contribution is that the difference between those two lines in the upper chart is about the same. There is a rather constant process; every year in this three-year period we got about a 10 to 15 percent appreciation of the dollar. So, the first-year effect, the second-year effect, and the third-year effect are all coming in together; once one faded out another one came together. So you get about 1/2 percent a year of the three-year effect.",165
-fomc-corpus,1984,You're crediting me with a more subtle question than I asked.,13
-fomc-corpus,1984,It probably was a good answer. What was the question?,12
-fomc-corpus,1984,"Given the fact that we're moving into a period of much more utilization of capacity, the falling exchange value of the dollar in time will have much more of an inflationary impact than it otherwise would. Now, if I understood you--maybe I didn't catch it earlier--you are projecting that over the 1984-85 period there will be a 1/2 point higher rise in inflation due to the fall in the dollar, ceteris paribus. Is that right?",96
-fomc-corpus,1984,"Yes, about that.",5
-fomc-corpus,1984,And how much of a fall in the trade-weighted value is that?,15
-fomc-corpus,1984,The depreciation is 17 percent over eight quarters--two years.,13
-fomc-corpus,1984,The 1/2 percent is inflation or level of prices?,13
-fomc-corpus,1984,"Inflation. The answer to the question, Governor Wallich--",13
-fomc-corpus,1984,"Somehow this chart of yours on inflation abroad seems somewhat improbable to me too. If we have that kind of decline in the dollar, all these countries are benefitting from a 25 percent [decline] in the price of oil--and you still show no improvement in their consumer price indexes.",60
-fomc-corpus,1984,The dollar price of oil may rise.,8
-fomc-corpus,1984,"Well, he didn't assume that.",7
-fomc-corpus,1984,"That's right. It is true that when we've done these kinds of experiments, for the foreign countries there is a larger impact per unit exchange rate change than in the United States largely because of the dollar oil price effect. That suggests, at least in the forecast, that the pickup in demand is correspondingly higher to hold the prices down.",67
-fomc-corpus,1984,"But you have unemployment rising, I thought you said.",11
-fomc-corpus,1984,"Well, rather stable.",5
-fomc-corpus,1984,Stable. All right.,5
-fomc-corpus,1984,"On an historical basis unemployment would be rising because if you believe, as most people still do, that potential is rising at something like 3 percent abroad and they don't get there it should be rising. On the other hand, they had been growing at less than that rate in 1983 and in some of the faster-growing countries the unemployment rate has come down. That may reflect different changes in work sharing and that kind of thing going on in the labor market. That's why I hedged my projection about what will be happening on unemployment.",108
-fomc-corpus,1984,"For our labor force in 1985, as I remember the chart, you are projecting an increase only a shade more than 1 percent.",29
-fomc-corpus,1984,"That's about right, if I remember correctly. No, it's about 2 percent.",17
-fomc-corpus,1984,You have about a 1 percent increase in the participation rate as I read it.,17
-fomc-corpus,1984,"I'm sorry, that's right. We have a 1 percent increase in participation--about a 1 percent increase in population.",25
-fomc-corpus,1984,That's 2 percent!,5
-fomc-corpus,1984,"I have a question on capital expenditures. Maybe it's a question of the scale, but capacity utilization in the period doesn't go back to the '79 level yet the capital expenditure line appears to be going up fairly steeply. Are you pretty confident about that real business fixed investment [projection]?",57
-fomc-corpus,1984,"Well, we've had a very, very substantial increase in business fixed investment recently. In fact, it has been in the phenomenal range and we don't expect that to continue. We think that some of the increases that have occurred over the last few months are a surge in one-time activity. But there is a very widespread, and we think very fundamental, increase in expenditures. And what we have projected is a fairly strong recovery by historical standards. The assumption is that a number of factors have operated to reduce the relative cost of capital--the stock market rise, tax law changes for accelerated depreciation, and so on--and apparently have laid the basis for a considerable recovery in capital outlays. We have it moderating through 1985.",147
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"I was going to ask a question on the same subject, as a matter of fact, but with a little different slant, Jerry. The anecdotal evidence from some of our directors, which of course isn't definitive, has been pretty constant in recent months. When I quiz them about the capital spending outlook they say that there still are great inhibitions--the high cost of money, in particular--to spending on long-lived assets. I was wondering whether you have any breakdown in the fixed investment data between the equipment side and the plant side. The impression I'm getting, which may or may not be accurate, is that a good deal of this surge in spending has been on computer and business equipment and so forth rather than on basic new capacity, which requires additional buildings and plants. Do you have any breakdown on that series?",165
-fomc-corpus,1984,"Well, we certainly have data on the composition in broad terms. Over the last couple of quarters, the third and fourth quarters of this past year, producers durable equipment rose by annual rates of 22 percent and 28 percent respectively. During the same periods the outlays for structures were [up] about 10 percent, which is fairly strong. The outlays were rather concentrated in public utilities; commercial activities have not been so strong. In terms of further detail, we have some shipments and orders figures that show fairly strong growth in heavy non-electrical machinery, communications equipment and--of all strange things--farming equipment; but the growth is fairly widely distributed.",134
-fomc-corpus,1984,"Plant construction is not a whole lot of dollars in the investment total. We think our forecast is consistent with a rate of increase in that kind of spending of maybe 4 to 5 percent over the forecast horizon, which is not very substantial.",49
-fomc-corpus,1984,"That's very interesting. The bulk of the increase is going to be on the so-called equipment side, then?",22
-fomc-corpus,1984,For producers durable equipment we have projected increases in the 12 to 15 percent range for 1984 and in the 6 to 8 percent range for 1985.,36
-fomc-corpus,1984,Let me ask you a general question. I assume that there is no change in the projection of revenues and expenditures--that there is no new action on the deficit. Is that correct?,37
-fomc-corpus,1984,We have some small changes but nothing of major size.,11
-fomc-corpus,1984,"Now, maybe I should be smarter and understand this, but what conclusions do you come to about the so-called ""crowding out""? What is the impact later in '84 and in '85 on medium- and long-term interest rates? Would you just take that as a given coming out of monetary policy?",62
-fomc-corpus,1984,"No. We think it's there now in a variety of ways, one of which is that interest rates tend to be higher than one might otherwise--",29
-fomc-corpus,1984,"Well, I know that, but that could change from the present situation.",15
-fomc-corpus,1984,"Well, as we go on we do not have in this forecast any growth in housing; it begins to taper off in 1985. Second, we have a slowing in the rate of increase of durable consumer purchases, which we think are credit sensitive. So, that is slowing and business fixed investment itself is slowing over time, and a related factor is the massive current account deficit that we have. So in a variety of ways it's sprinkled throughout the projection.",92
-fomc-corpus,1984,But if I remember correctly you have only a very modest rise in mortgage rates over the remainder of the projection period.,23
-fomc-corpus,1984,That's right.,3
-fomc-corpus,1984,How do you get an assumption that the rise will be that modest? Is that a conclusion arrived at independently or is that taken from Steve [Axilrod] or something?,35
-fomc-corpus,1984,"We think that all of this is integrated; we try to focus on what interest rates are consistent with a given monetary policy. But I must say that I've been humbled over the years in forecasting interest rates--other things as well, but interest rates in particular. So, we think it is consistent but I would not be prepared to live or die by this mortgage rate forecast. One of the issues, of course, is whether the pressures build up sufficiently so that we get far away from the kind of picture we have forecast, which is one of moderating growth, inflation picking up, and interest rates tending to rise, but we don't hit a point where things really take off or the economy collapses because of pressures. That is one of the issues, it seems to me. It's not so much a near-term issue, but as one looks ahead in this forecast there are things that are out of whack--one is the deficit and another is the international side. And one could easily think of an alternative view in which those pressures build much more substantially and are reflected in events, perhaps not in 1984 but in 1985.",229
-fomc-corpus,1984,I detected a bit of a struggle in Mr. Prell's explaining how the government is going to be financed and in Mr. Truman's explaining how the balance of payments is going to be financed. But he has the great advantage of a statistical discrepancy.,51
-fomc-corpus,1984,"Well, Mr. Prell has that too, as a matter of fact. To answer Mr. Solomon's question: These forecasts are more consistent than they ever have been in the past.",38
-fomc-corpus,1984,"Even in 1985 when unemployment gets down to 7 percent, housing is still relatively stable, business investment is strong, the deficit isn't reduced, and you have an extremely modest rise in interest rates.",41
-fomc-corpus,1984,"Well, I think Mr. Axilrod in all likelihood will be saying something, at least implicitly, about velocity behavior in terms of our short-term rates. We think the short-term interest rate picture that we have is consistent with the monetary assumptions and the GNP pattern we have [forecast]. And the long-term rate picture that goes with that we also think is consistent. We believe the pieces fit together in a plausible, rational way.",88
-fomc-corpus,1984,I think Mr. Forrestal is going to explain it to us.,14
-fomc-corpus,1984,"I have no statistical variance. I'm just going to stay with interest rates for a minute and try to relate that to the depreciation of the dollar. If I understood you correctly, you're projecting a roughly 17 percent decline in the value of the dollar from mid-1984 on but at the same time you're projecting a budget deficit of about $184 or $185 billion. If you assume that interest rates are going to stay in relatively the same position as a result of the deficit, do I understand correctly that you're attributing the decline of the dollar almost solely to the trade balance and current account deficit? Is that analysis correct?",125
-fomc-corpus,1984,"Interest rates do go up a bit, as I mentioned and as Jim mentioned in his assumptions. In some sense, in the general equilibrium nature of this whole forecast, that is associated with the decline of the dollar, which helps to push up nominal demand in this period.",54
-fomc-corpus,1984,"Well, if you assume that the dollar is strong principally because of high interest rates and that interest rates are going to remain at a high level because of the deficit, then I'm not sure why you're projecting the decline of the dollar except because of the current account deficit.",53
-fomc-corpus,1984,I think that's a very good question.,8
-fomc-corpus,1984,Wishful thinking.,4
-fomc-corpus,1984,"That is one of the reasons I presented the two alternatives in the bottom part of that chart. One has the dollar continuing to go up; the other one is a scenario in which it is falling out of bed. Our view is that eventually $100 billion current account deficits are going to be generating more in the way of net claims on the United States and [the question is whether] the rest of the world, with safe haven factors and so forth and so on, would willingly want to hold [such claims] at unchanged to say nothing of rising exchange rates; and that would produce an adjustment [in dollar exchange rates]. In fact, a number of foreign countries--I point to Germany as an example--have too long and to their dismay, I think, assumed that their currency was always going to rise and, therefore, built into the price projections a kind of inflation bonus. Eventually some portion of that inflation bonus has to be repaid, and I think that's the essence of the story. Whether it will be of this magnitude--a 17 percent decline--and over this forecast period [is uncertain]. Although we continue to forecast it, I obviously am modest about its probability, given the [experience of] the last 18 months.",251
-fomc-corpus,1984,"Well, the current account implications of that decline in the dollar come mostly in 1985 and after, so the interest rate implications of that--at least as far as the financing of capital needs is concerned--also come at that time, although movements in the security markets of course might make them come at any time.",64
-fomc-corpus,1984,"Everybody has his own technique, but the way I tend to think about it is more to have interest rates coming out of the rise in nominal GNP--higher prices and at least for a while higher GNP coming from more exports and lower imports in real terms. And that pushes up the interest rates rather than the actual foreign sales of securities, which would tend to bring that pressure forward in time more than what you're talking about.",86
-fomc-corpus,1984,"If throughout 1984 the crowding out goes about half against the balance of payments and the other half against domestic investment, that's one reason why interest rates don't seem to have to rise.",38
-fomc-corpus,1984,Is that Wallich's rule--the ratio is one to one?,14
-fomc-corpus,1984,"Well, if you have a current account deficit of $100 billion and a budget deficit of $200 billion--which produces, let's say, $200 billion worth of crowding out--half of it goes against the foreign sector, hurting exports and import-competing industries. The other half goes against investment, hurting housing and so forth.",67
-fomc-corpus,1984,That's assuming that the current account would be zero in the absence of the federal deficit. I'm not so sure.,22
-fomc-corpus,1984,"If you look at the structural deficit, Governor Wallich, the change shown on the first chart is about the same size--at least for the calendar year [or the] fiscal year--as the change in the current account deficit. And in that sense in fact all of it is going into the foreign sector.",63
-fomc-corpus,1984,"Are we supposed to be having our regular go around now or is that going to be later? If we don't talk now, do we forever hold our peace?",32
-fomc-corpus,1984,"The ground rule is that you can talk about the economy now. If people don't want to talk anymore about the economy now, we will have a break.",31
-fomc-corpus,1984,"Well, I have a couple of comments I want to make on the price forecast. I think there is very considerable danger that prices are going to go up more than the staff is forecasting over the next couple of years, and I think so for several reasons. One is that I am more optimistic on growth--or pessimistic, as the case may be. I don't want to chop that one up, but I noted Ted's comment--and [I did so] with approval or otherwise I wouldn't be mentioning it--that when net exports go down as they have recently, one shouldn't regard that as a sign of weakness in the economy but as a sign of strength. It's a consequence of the fact that the domestic economy is growing very rapidly. We have a lot of fiscal stimulus and high interest rates. If you apply that to the fourth quarter and take into account the fact that the rise in inventory investment in the fourth quarter was very small, that more than explains why we had a slowdown in [economic] growth. Indeed, if you take the private domestic final purchases--they went up more in the fourth quarter than they did in the third--my hunch is that we're going to have a stronger economy in the first half than the staff is forecasting. I think the underlying dynamics are stronger than the 4-1/2 to 4-3/4 percent growth rate projected for the first half. And I think that is going to be building up pressures on prices as time goes on. Second, I think we have to reckon with the possibility that the turn-up in the labor force participation rate that the staff is forecasting may or may not happen. And if it doesn't happen and we have somewhat stronger growth to boot, we're going to have a much bigger drop in the unemployment rate in the course of 1984. Third, to go back to what Governor Partee was saying, I don't understand the consistency of the staff forecast in regard to prices. The staff is kind enough to give me all kinds of details when I ask for them and I--",414
-fomc-corpus,1984,They are used to it!,6
-fomc-corpus,1984,"Well, they are very good about that. The fixed weight deflators for private domestic final purchases, excluding food and energy--and that's about the most trouble-free index you can look at--goes up 4.4 percent over the four quarters of '83, 5 percent in '84, and 5.6 percent in '85. But if you take out the half point bonus that Ted has been talking about for the appreciation of the dollar in '83 and take out two-tenths for the depreciation in '84 and eight-tenths in '85--and I think that's the right calculation--you get a deflator that's just flat. It goes nowhere. And it goes nowhere despite the fact that we have both higher food prices and higher compensation per hour. Now, if there have been a few miscalculations on that side that have favored lower prices and if we get more growth and if we get this flat participation rate, the potential is there--I'm not sure it's going to happen, but the potential is there--for a worse inflation outlook. [It could mean] 1-1/2 percentage points or maybe 2 percentage points by 1985 on the inflation rate, and that's something I think we ought to--",255
-fomc-corpus,1984,Let me ask you a question on the business outlook. You say final private domestic demands are high and rising.,22
-fomc-corpus,1984,"Not rising. Well, they rose from the third quarter to the fourth quarter.",16
-fomc-corpus,1984,"Well, let's say they remain high, or however you want to qualify it, and the GNP doesn't rise all that much because imports are going up so rapidly. How long can that last?",39
-fomc-corpus,1984,"Well, not forever, that's for sure. Something is going to happen. But the fact is that a $9 billion drop in net exports in 1972 dollars at an annual rate is most unlikely to continue in the first half of this year. This would be a lot greater deterioration in the trade balance than what the staff is forecasting. And if what happens is that we get a somewhat smaller decline in net exports and a somewhat larger increase in inventories and continuation of fairly strong private domestic financial purchases, we're going to get a growth rate, I think, in the 5 to 6 percent range during the first half of this year. And that is going to be trouble for us, particularly if we continue to get slow growth in the labor force.",151
-fomc-corpus,1984,How big an increase do you have in this concept Mr. Gramley is using for the first half of the year?,24
-fomc-corpus,1984,5 percent in the first quarter and 4-1/2 percent in the second quarter.,19
-fomc-corpus,1984,What was it in the third and fourth quarters of last year?,13
-fomc-corpus,1984,5-1/2 percent in the third and 8 percent in the fourth.,17
-fomc-corpus,1984,"The rates are 5-1/2, 8, 5, and 4-1/2 percent. You still have a big increase in imports in the first half of the year; it's magically going to level out in the second half.",52
-fomc-corpus,1984,"Well, it could be even larger, it seems to me. As I've said, in addition to consumer demand, which is fueling imports now, we have the probability of a speed-up in inventory accumulation. It may well be stronger, as Lyle thinks, and that's going to feed disproportionately into imports. I must say that I sense a certain fragility in the forecast, the same as Lyle does. I'm not so sure I would say the first half will be that much stronger, but I think the odds would favor a gradually accelerating price rise, particularly in 1985. And with a sharp drop in the value of the dollar--say, perhaps 25 percent in the latter part of '84 or early '85--why, we would have more of a price rise. Because of that, we also would have problems financing the deficit, higher interest rates, and reduced domestic demand. So, as I see it, the odds are that 1985 will have more inflation, less real growth, and higher interest rates than the staff is forecasting.",213
-fomc-corpus,1984,"One question we haven't talked about is how much inflation we're likely to get before this cycle is over. If we're ever going to get back to price stability, we have to keep ratcheting down the peaks of inflation from cycle to cycle. As I look at this, all expansions come to an end because of some excesses somewhere. We've pointed out a couple--the [budget] deficit and the trade balance--and there may be others. But it seems to me that the two excesses that we have our telescopes on are the kind that are likely to push up interest rates fairly sharply once they go. And we have a recovery, it seems to me, that is operating near a margin of interest rates that could turn the whole recovery soft fairly easily. We see that in the mortgage market. I think we see it in automobiles and in the consumer sector generally and in business equipment. By the end of 1985 this recovery will be three years old and as we get into 1986 it will be four years old. The question is: Will the excesses trigger a recession before inflation jumps up above the previous peak? And it seems to me that that's not likely to happen--in other words, that inflation in this cycle is not likely to accelerate beyond [its peak in] the previous cycle.",264
-fomc-corpus,1984,Because you have the happy prospect of another recession!,10
-fomc-corpus,1984,"That's right. Speaking realistically, it seems that we have the kind of cycle that will likely run itself out within the context of inflation continuing to ratchet down. You can view that as good or bad. But if you look at inflation in a cyclical context, inflation is not likely to get away from us in this particular cycle.",67
-fomc-corpus,1984,Are there any other general points people want to make now? Mr. Corrigan.,17
-fomc-corpus,1984,"I think the predicament we have has actually gotten worse even though the business statistics at the end of 1983 in some sense look a little better. In the near term, and by that I mean the first half of this year, my forecast is almost identical to the staff's. The problem is that I'm not sure I believe either one of them. The risks continue to be on the side of a stronger economy and more inflation--not by a lot, but I think that's the direction. The irony is that an economy that is better in the short run is likely to be worse in the long run. And what we have been talking about on the international side brings that home very forcefully. On the inflation front, for example--even aside from Governor Partee's point--the staff's forecast basically assumes that profit margins are exactly flat. As I detect things out there, I still see a lot of pressure on the part of businessmen trying to widen those margins in any way they can. And that's one of the reasons why I just wonder whether the kind of assumptions that historically are reasonable about the implications of a declining dollar for the inflation rate are really in the ballpark. It seems to me that we may have a situation right now where the indirect effects of the exchange rate and the import issue on domestic inflation are greater than the direct effects. In other words, it's not just the question of the price level of an imported good coming into this country as much as it is the way in which those imported goods are affecting the behavior of domestic manufacturers, wholesalers, and retailers in terms of what kinds of pricing they think they can get away with. So, I'm inclined to think that if the dollar did in fact come off--whether by 17 or 25 percent or whatever--the impact on the domestic price level could be larger than that contemplated by Mr. Truman's exercise, even though it's a quite reasonable expectation from an historical perspective. On the whole credit flow question, I see the complication at this point growing out of the international side and the deficit in combination. That seems to me problematic and then some. I find it difficult to conceive that we can easily get $45 billion in capital inflows in 1984. I don't know what we would ever do if we had a negative statistical discrepancy. That's another story. More generally, even if we could get those capital inflows, I have a very difficult time squaring the circle as it were in terms of the overall credit flow analysis that Mr. Prell went through in the context of the kind of interest rate outlook that's associated with the staff forecast, absent a reduction in the deficit in 1984. Personally, I don't think the so-called crowding out issue in the context of the current international situation is an '85 problem; I think it's an '84 problem and then some. So, again, while one can feel a little better looking at the very recent statistics--as I do and I think we all do--the overall situation that we face has become a little more problematic, if anything, from my perspective.",622
-fomc-corpus,1984,Governor Martin.,3
-fomc-corpus,1984,"Mr. Chairman, I would like to join those who have been warning that the interest rate projections may be on the low side, even with regard to 1984. Upward pressures on rates may find their way out even by mid-1984--not in the clash between private and public financing, which I think obviously has occurred and will occur, but between financing the international trade deficit and financing the enormous [budget] deficits. Deficits in 1984 of $189 billion or $195 billion--take a number--will give us an interest rate situation, given these other assumptions in the forecast, that may catch us sooner rather than later. I look at the curves depicted in the charts here on the level of housing starts and the line in the diagram depicting business fixed investment. I can't reconcile that to my expectation of interest rates rising sooner than projected here. The housing curve, I believe, is unrealistic. Housing doesn't reach equilibrium; housing is either rising or falling. With increased interest rates, I don't think the level of housing in this projection can be achieved. I'm not even sure it can be sustained with today's interest rates because much of the first-time home buyer segment has been used up and now we do not have the strength in trade-up purchases that has been typical. We have mortgage payers unable to handle their financing in part because the builder points that kept their interest payments down are running out. And, with an increase in interest rates in mid-1984, the adjustable rate mortgages will be adjusting upward. That will increase the foreclosure rate--a depressing element on the housing market. As far as business fixed investment is concerned, I think we see here that the easy kinds of investments have been made. Business firms that did have some cash and could finance themselves to easily modernize the plant or the office building have done that. In a rather remote way it's [comparable] to the first-time home buyer, as these people attempt to match the hurdle rates that their boards of directors are going to require of them with what they have to pay in the stock market. I would suggest to you that the broad [stock price] measures have decreased since midyear. We aren't talking about financing 30 firms whose stocks go into the DOW. We're talking about financing a thousand firms whose stocks are represented by the broad measures of the New York and American [Stock Exchanges] and the NASDAQ; and those broad measures have declined, not increased. Add to that higher interest rates on raising credit and I think you get a flatter curve than the business fixed investment curve here. So, it seems to me that those are two factors that mitigate against what some of our colleagues have indicated here might be a much stronger recovery in 1984. I join those who feel that we certainly will have a cumulative impact of the various imbalances by 1985. It seems to me that we have a considerable downside risk right now in 1984, and it arises from the difficulty of financing the enormous mega deficit and the mega trade balance deficiency.",611
-fomc-corpus,1984,"I would like to piggyback on something that Pres said. I've been talking to thrift people in the Philadelphia area and they have been trying to figure out the best way to market these variable rate mortgages. I don't know how widespread it is, but a fellow was telling me the other day--and I've heard it several times--that the variable rate mortgages will sell with more points up front and a lower variable rate. I have forgotten the numbers precisely but this fellow was telling me that they had something like a 10.9 percent rate with 3 points and that wasn't going, so he changed it to 4 points and dropped the initial rate to 9.9 percent and they're going like hotcakes. Everybody knows that after a year, with no change in interest rates, the variable rate is going to pop back up. And if that also happens to hit the rising--",177
-fomc-corpus,1984,It's a temporary agreement.,5
-fomc-corpus,1984,"Yes, that's a temporary agreement, but it is more marketable.",14
-fomc-corpus,1984,They don't limit the amount of the interest rate movement each year?,13
-fomc-corpus,1984,"Well, [that varies]. But they certainly can accommodate a 1- or 2-point change after one year. This came up in the context of a [discussion with a] large retailer in Philadelphia. That's the same kind of technique that has been used in retailing for years, but it's an interesting development--that people would rather have more points up front knowing that the rate is going to pop up in a year. I don't know how widespread the practice is but these were some fairly conservative thrift bankers I was talking to, and they were nearly gleeful with the discovery that they had found this marketing element. It may very well have a bigger impact than we think. I believe that was your point, Pres, but I was surprised to find this.",154
-fomc-corpus,1984,"I think the fundamental fact in the outlook is that we have a $200 billion deficit. Now, we would take back, so to speak, $100 billion of that by sending the money abroad. That leaves us with $100 billion of net stimulus; and to get a weak economy we really have to argue that that much stimulus is not adequate to keep the economy growing. That seems to me like saying that the economy is inherently very recessionary, that the expansion or impulses for investment incentives and so on are very small. I really don't find that plausible. After all, high interest rates and the high current account deficit are the result of the expansion that we're getting from the deficit; they're not independent factors that are cutting into the expansion.",148
-fomc-corpus,1984,"If I might, I would like to ask Governor Wallich something. You have a declining domestic stimulus, don't you? That is, using your terms of reference, you have $60 billion of financing abroad and $140 billion stimulus [last] year and in 1984 you have $100 billion financing abroad and $100 billion stimulus. Doesn't it decline, and wouldn't that give you a reduced stimulus?",81
-fomc-corpus,1984,"Well, since the structural component of the deficit is rising and the cyclical component is falling and by the time you get to full employment it's all structural, I would think--although I haven't studied this--that in terms of the full employment budget deficit we are increasing the stimulus.",56
-fomc-corpus,1984,You have a bigger full employment trade deficit too.,10
-fomc-corpus,1984,"Yes, it's hard to do the arithmetic.",9
-fomc-corpus,1984,"It sounds to me that in the scenario that most of us tend to think is more likely than not--if not in '84 at least in '85--of rising interest rates combined with a falling dollar and rising inflation, that we won't get a tapering off of the cycle but a very quick turnaround. Then 1986 might be a period of distinctly negative growth or recession rather than a tapering off. That seems to me more likely, given this set of imbalances we're talking about basically coming to a head.",105
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"As I look at these projections, Mr. Chairman, I think that the risk is probably on the up side in terms of higher inflation and growth than projected. I think the staff's projections are very reasonable. The only point of departure I have is on the inflation number, which I think will be higher. Some of the reasons have already been stated, so I'll skip over those but one of the major factors is the effect of the structural deficit plus the projected decline of the dollar. I must say, though, that I have some question about whether that really is going to happen in 1984. But one point that hasn't been mentioned and that I take into account somewhat is the monetary stimulus that we had in late '82 through the spring of '83. I realize those numbers have just been revised downward a little but, as I read the Bluebook, the numbers indicate a revision upward for the last couple of months. So, I think that stimulus is still working its way into the economy. For those reasons I think we might very well get higher growth and higher inflation than the staff projects.",221
-fomc-corpus,1984,I think this is the time to have a cup of coffee.,13
-fomc-corpus,1984,Mr. Axilrod will tell us how to resolve this.,13
-fomc-corpus,1984,"Mr. Chairman, at the end of my prepared remarks, I would like to make a few unprepared comments that relate to the issue President Morris raised. I interpreted him as saying that he thinks M2 ought to be higher for this GNP and, if anything, my prepared comments go somewhat in the opposite direction, although not necessarily for this GNP but for interpreting M2. [Statement--see Appendix.] I would add, Mr. Chairman, partly in response to President Morris' question, that there may be a certain amount of uncertainty with regard to the velocity of M2. In the second year of the expansion following the cyclical troughs of 1961, 1970, and 1975 the M2 velocity declined, which would argue that for a 9 percent GNP growth M2 ought to grow more like 10 or 11 percent. We have an M2 expansion less than the GNP growth [for 1984], though not as much less as shift adjusted M2 grew in 1983. I think that ought to be interpreted against the actual behavior of interest rates and ceiling rates in the earlier recoveries of 1961, 1970, and 1975. In the second year of the expansion after the 1961 trough the ceiling rate was raised from 3 to 3-1/2 percent. So, despite some little rise in [market] interest rates continuing on into the second year, the spread remained favorable to deposits in M2, and money continued to shift into those deposits. In 1970, in the second year of expansion the ceiling rate remained around 4-1/2 percent but interest rates tended to edge off in the early part of that second year and not rise very much thereafter and the spread again remained favorable and in fact became more favorable in the first two quarters of the second year. So, again, I think it was the structural reason affecting that. Following the 1975 trough, the second year was a period when interest rates began declining and by the end of that second year during which the system continued an expansive policy, market rates fell below Regulation Q ceiling rates, which again jazzed up M2 and led to a drop in velocity. So, now, with M2 having very little of ceiling rates in it and a policy of edging down money growth to restrain price increases, we believe that the M2 we have forecast is reasonably consistent with those objectives, with a slight caveat--that to exert additional restraint in a somewhat mechanical sense it ought to be 8-1/2 percent or even a point lower.",531
-fomc-corpus,1984,I see you all have absorbed all that.,9
-fomc-corpus,1984,"If I may comment, since I raised the issue of M2 ranges and the same thing also applies to M3 ranges: Since 1960, in the second year of an expansion the rates of growth of both M2 and M3 averaged 2-1/2 percentage points higher than the nominal GNP, which is to say velocity declined by 2-1/2 percent. We're showing targets here for M2 and M3 that are at or below the nominal GNP. Now, I am not saying that Steve is wrong; he may be right. But if he is right, I'm just saying that these ranges represent a marked departure from the historical [pattern]. This does suggest to me the fundamental issue that the character of both M1 and M2 have so changed that we cannot have any confidence in our ability to forecast the velocity of either one of them. And I would extend that now to M3. I've already seen the First National Bank of Boston at the end of the year make a decision--in a situation where the holding company capital was pretty strong but the lead bank capital was a little submarginal--to move loans out to their subsidiary banks to improve the lead bank capital ratio. I think what is likely to happen, if we get into a tight money market and strong loan demand, is that we're going to see a repetition of what we saw in 1969. The banks are going to start moving the loans off their books entirely. That will mean they will keep the risk but plant the paper in the market someplace, in which case M3 will no longer be a sensible indicator for monetary policy. If we really don't have a good basis for knowing whether M2 velocity should be minus 1/2 or plus 2-1/2 percent--if the range of uncertainty is that big--it raises serious questions in my mind as to whether these aggregates are sensible tools for targeting monetary policy.",391
-fomc-corpus,1984,"I might just interject that if you notice that phenomenon going on in an important way, you might have a little counseling session at those banks about how we might look at their capital ratios.",38
-fomc-corpus,1984,"Frank, those subsidiary banks had to finance that loan purchase didn't they?",14
-fomc-corpus,1984,"Well, they had subsidiary banks whose capital position was okay.",12
-fomc-corpus,1984,But they have to be consolidated.,7
-fomc-corpus,1984,"Well, sure. They have to [unintelligible].",13
-fomc-corpus,1984,They have to take it off the balance sheet.,10
-fomc-corpus,1984,I think Frank's second point was much better: that they will tend to put this out in the market.,22
-fomc-corpus,1984,Yes. Shifting the loans among the subsidiaries doesn't affect M3. I just pointed that out to note that the process has already started. The first stage is that they move it to the subsidiary; the second stage is that they move it out of the bank's balance sheet entirely.,57
-fomc-corpus,1984,And keep the risk. It gives them recourse on the paper.,14
-fomc-corpus,1984,Yes. That's what they did in '69.,10
-fomc-corpus,1984,One vote for no targets.,6
-fomc-corpus,1984,We're starting off well!,5
-fomc-corpus,1984,"Well, that's the same way we started off before.",11
-fomc-corpus,1984,"Could I change that to read no M1, M2, or M3 targets?",18
-fomc-corpus,1984,You want that debt target?,6
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Well, I tell you: That's very strange. Since you raised that subject, the chart [we saw] earlier indicates that past patterns of debt [in relation to GNP] are not being observed, rather strikingly, and I wonder what the implications are. I haven't been able to figure it out but the debt aggregate is off the pattern anyway. Who else would like to [comment]?",79
-fomc-corpus,1984,Just a question to Steve: Did you make any allowance in M3 in particular for those net capital flows at the banks?,25
-fomc-corpus,1984,"Yes. I can't find that piece of paper offhand but there is an assumption of large capital inflows, on the order of $30 billion, at the banks in '84. That's more than in--",42
-fomc-corpus,1984,Basically all in M3?,6
-fomc-corpus,1984,"Well, that's the assumption--that what comes through the branches so to speak that isn't in CDs issued here would [not] get into M3. It comes in as a liability to a branch. If a foreigner invests directly here into a CD, it will get into M3. But if it's invested in a Eurodollar abroad and then it comes in as a liability to a branch, it won't get into M3.",87
-fomc-corpus,1984,A technical question from Mr. Partee.,9
-fomc-corpus,1984,"Let's assume, Steve, that Frank is partly right and the velocity wants to go [down] rather than [up]. So you would have a situation where M2 is 10 percent relative to the same nominal GNP we're expecting and we have a 9 percent limit on our range. How do we go about getting M2 down in the range?",71
-fomc-corpus,1984,You raise interest rates.,5
-fomc-corpus,1984,What if we have elasticity of rate setting by the institutions? Can't they just meet that--,18
-fomc-corpus,1984,"Well, our work suggests that there is some interest elasticity to M2 demand although less than M1 now. Secondly, of course, it comes out of income. At some point income has to adjust.",41
-fomc-corpus,1984,"Well, the GNP will go up less rapidly.",11
-fomc-corpus,1984,But would you really want to raise interest rates if the nominal GNP was coming in at the 9 percent that you forecast?,26
-fomc-corpus,1984,"I don't mean to sound editorial but in many of those periods when we had this negative velocity you are mentioning--such as in '72 and '76 and '70--the M2 growth you had to get was 12 and 13 percent and that was followed by substantial price pressure. Now, whether those upward price pressures came from the M2 with a lag or came from the associated M1 with a lag, we could discuss; but I think that's the problem you get into. It isn't so much what you do this year but what the lagged effects of what you do this year happen to be.",123
-fomc-corpus,1984,Do you find yourself in a somewhat absurd position of controlling GNP to control M2?,18
-fomc-corpus,1984,"Yes, but you end up doing it through interest rates.",12
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"Well, we might as well go from one extreme to another here, from Morris to Balles. I would like to speak to the desirability of restoring M1 as one of the aggregates we target--possibly going back to the old equal weight we used to have for M1 and M2. I'll be brief about this because my reasons for recommending this haven't really changed since last fall when I circulated a paper to all of you comparing the performance of M1 and M2. Very briefly, and perhaps over-simplified, the conclusions I drew were that the demand for M1 has remained surprisingly stable through this recent period of financial deregulation, whereas the demand for M2 as a matter of fact has become progressively more unstable. It's true, of course, with respect to M1 that we had this very sharp and unexpected decline--a very surprising decline--in its velocity in '82 and even early '83. In our analysis that decline was not caused by a shift in the demand function for M1 but was a direct outcome of the decline in inflation and the corresponding and later decline in interest rates. So we have had an increase in money demanded because interest rates were down and the opportunity costs of holding money were lower. I think a significant piece of evidence that this was not a shift in the demand function for money but a move along a curve was that the velocity of the [broader] monetary aggregates also declined in 1982. I don't think that would have happened if the problem had been solely one of instability in the demand function for M1. Another thing that I would like to point out is that the variability of M1 velocity to which Steve referred indirectly is actually a bit less than the variability of M2 velocity. Our staff, using the figures in Steve's excellent memorandum of January 23, compared the standard deviations of one to another and found that the standard deviations of the annual growth rates of M1 were actually a little less than was the case for M2. So it's all well and good and proper to point out, as Steve has done in his usual thorough way, that there are residual problems remaining with M1. A good part of it now consists of Super NOW accounts that may have some interest elasticity. On the other hand, what are the alternatives? Looking at the alternatives, two things clearly stand out to me. One is that M2 really has lost any meaningful relationship to future income. That is to say, M2 in recent years has grown at a steady 8 to 9 percent rate a year whether we had a strong, booming economy or whether we had a deep recession. We never could have anticipated either one of those two from the growth rates of M2 that preceded it. Though I wouldn't put all my bets on M1 by any means, I do think, given the point that Steve made about the velocity of M1 now seeming to have turned in an upward direction even if moderately, that the sharp inflow of funds into Super NOWs has tapered off and we have a fairly stable slow growth rate there. So, I would recommend restoring M1 to about equal weight and I would subscribe further to the point that Steve made that if we are going to restore M1, we probably should consider reducing the width of the range to 3 percentage points. That would mean something like 4-1/2 to 7-1/2 percent, giving it the same midpoint, if you wish, as alternative II.",701
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"Well, if Frank Morris is on one end and John Balles is on the other, perhaps I can think of little old reasonable me as being right in the middle. I'm probably more bullish on the economy than most people here and I'm at least as concerned about the inflationary aspects of what may happen this year and next as others are. But I don't think there is any need to deviate from the alternative II targets, which are consistent with the staff's forecast. If we could get a 9 percent nominal GNP, we would be in reasonably good shape. So if these target ranges are consistent with that--and I have no strong reason for thinking they're not--that's what we ought to start with. In any event, if things work out more along the lines of a stronger economy and somewhat more price pressures, it seems to me that growth ranges that are as low as 4 percent for M1 or 6-1/2 percent for M2 or 6 percent for M3 give us all the room for monetary restraint we could possibly want. So, I like alternative II as it stands. I don't want to put more emphasis on M1 this year. I think that would be a very, very bad idea in a year in which I think we're going to need an awful lot of flexibility for monetary policy. And I think we've had more flexibility since we adopted the broader aggregates as our principal targets in October of 1982. I don't deny that we may be getting back to a situation in which velocity is following historical patterns, but I don't think that in and of itself is sufficient cause for elevating M1 to the principal target. If we get into a situation in which the dollar begins to fall like a stone and interest rates begin to rise and we find ourselves thinking we have to be constrained by an M1 target in the way we were during the period before 1982, I think we're going to be in big trouble.",394
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"I favor giving more weight to M1. I think there is some presumption that it is regaining a stable relationship. Now, with more of it being subject to interest, I think its velocity is likely to rise less than it used to. In other words, instead of having a 3 percent advantage in velocity gains relative to M2 and M3, it might have a 1-1/2 or 2 percent relative advantage. As far as its interest elasticity is concerned, I recognize that it is important. It seems to me that that depends on how market oriented NOW and Super NOW accounts become. If NOWs remain at a fixed rate, then they will be highly interest elastic because the opportunity costs of holding NOWs as compared to the cost of market instruments will be important. If there are market oriented rates on M1 predominantly--they all have different components--then I would think that indeed the interest elasticity will diminish and one ends up controlling the aggregate by controlling GNP. Nevertheless, that is [done] through interest rates. I think M1 is the one aggregate that has some plausibility of having a causal effect with respect to GNP whereas for M2 and M3 and debt it seems to me the causation runs more from GNP to the aggregate. As for the choice among these ranges, it may seem inconsistent having said that I think the velocity of M1 is likely to increase less than in the past, nevertheless, I lean in the direction of alternative I. And I would prefer widening the range there on the down side so that the range would read 3 to 7 percent. I wouldn't be greatly concerned if M1 were running on the high side of that range. Also, I hope that going to contemporaneous reserves does not mean that we are going back to some form of immediate automaticity--doing what Lyle Gramley implied, where as soon as M1 overshoots we immediately rush after it to capture it. I think the kind of approach that other central banks use to control the aggregates--bringing them back on track over a period of a quarter or two--is feasible and less disruptive. With those specifications, I would also say that M2 could possibly be reduced on the lower end; but I feel less strongly about that and would leave it stand the way it is in alternative I. Thank you, Mr. Chairman.",480
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Mr. Chairman, I would like to jump on the Balles bandwagon and make a plea for greater emphasis on M1 for the following reasons, some of which are perhaps repetitious of things that have been said: the revised money numbers imply that M1 velocity has been more stable than we previously believed; the Bluebook suggests that M1 velocity is expected to behave pretty normally throughout 1984; and the Axilrod memorandum that John Balles referred to also suggests that M1 velocity is expected to behave normally not only in 1984 but in the future as well. Also, the research that we've looked at in our bank suggests that M1 demand was not nearly as unstable as perhaps we thought it was and that the relationship to GNP does seem to be pretty well established, whereas on the other side it seems to us that M2's relationship with GNP is not all that secure at the moment. The other factor in my thinking is that we did say in our recent directives that we would place more weight on M1 as soon as velocity assumed a more predictable pattern and, as I have indicated, I think that has happened. Also, given that the implementation of CRR in a couple of days was for the purpose of more efficiently controlling M1, I ask the rhetorical question, I guess: Hasn't the time arrived--now rather than later--to place more weight on M1? Having said that, I turn to the alternatives in the Bluebook and what I would prefer. First, let me say that as I look at setting long-range targets, I think that we are probably looking at objectives of price stability, some credibility for the Federal Reserve--that is, setting targets that are obtainable and not out of reach and that we don't change all the time--and thirdly, I guess, a gradual decline of the monetary targets over time. With those objectives in mind, I come out pretty close to alternative II, although because of what I said about M1 I would be more inclined to reduce the upper end of the M1 range to 7-1/2 percent and raise the lower end to 4-1/2 percent, thus making the range 4-1/2 to 7-1/2 percent. I'm not as concerned about M2 but I would keep it in mind for reasons stated in the Bluebook and I would move the range for M2 to 6 to 9 percent rather than 6-1/2 to 9-1/2 percent. But I think alternative II is consistent with the staff's projections and where we ought to be going as the Committee.",534
-fomc-corpus,1984,"Let me just interject: Beauty may be in the eye of the beholder, but I don't see any normality about the velocity of M1 ex post. We have had some increases--much less than the normal cyclical increases and well delayed in the cycle. Now, this may all be consistent with a presumption that M1 may be getting more normal in the future but you can't prove it by what has happened, I think, through the fourth quarter. Mr. Solomon.",98
-fomc-corpus,1984,"Do those who are saying that M1 should be reinstated as a target mean by that that we should return to the automatic feedback on the nonborrowed reserve path that we had before, with all the volatility in the short-run [interest rate] movements? Or do we get to the Henry Wallich view--and I want to ask Henry what he means by this in practice or whether it is just symbolism. Since you said you're opposed to that kind of automaticity but you want to give more importance to M1, by that do you mean we should target it rather than have it as a monitoring range for the fourth-quarter-over-fourth-quarter period? And if so, what does that really mean then?",143
-fomc-corpus,1984,"I meant to say that if we're driven off path, we shouldn't rush after it by sharp changes in the volume of borrowing and, therefore the funds rate, in order to bring it back on track but we should do it gradually the way we did in a way early last year. Interest rates were allowed to go up 1 percent maybe and that contributed to bringing M1 back on track and not overshooting. I don't know how influential this move in interest rates was, but it seems to me that that was about the right way of managing M1.",111
-fomc-corpus,1984,"So, if I understand you, Henry, you would continue with intermeeting directives that are written in terms of more or less restraint rather than returning to the language of the earlier intermeeting directives?",39
-fomc-corpus,1984,"I would be reconciled to that. Of course, that really means funds rate management. It's what we did before 1979. We would have a little more flexibility and we wouldn't intervene in the securities market in order to peg, or almost peg, the funds rate or hold it between narrow limits. We would intervene in order to supply or drain reserves regardless of whether the rate is at a particular point. And it seems to me that that is a pretty good form of management provided it is guided by looking at M1. And if M1 gets away from us continuously and for a long period of time, then it seems clear that the interest rate and the borrowing level that we established weren't the right ones.",143
-fomc-corpus,1984,"Well, of course, I have much less difficulty with that approach because what you're really saying is that we allow significant movements in M1 to influence our management of the fed funds rate gradually over a period of time.",43
-fomc-corpus,1984,Manage our reserve position.,5
-fomc-corpus,1984,"Well, in managing our reserve position we're guided by the fed funds rate.",15
-fomc-corpus,1984,Who is?,3
-fomc-corpus,1984,"It shows the accuracy of our reserve calculations, right?",11
-fomc-corpus,1984,Seldom.,4
-fomc-corpus,1984,"Anyway, on the alternatives, even though alternative II strikes me as acceptable, I think there is some case for reducing M2 to 6 to 9 percent rather than 6-1/2 to 9-1/2 percent. But that's probably a quibble. At first, I was in favor of moving the M1 monitoring range to 4 to 7 percent, but I think that detracts from the de-emphasis that I, like Lyle Gramley, continue to prefer. So, I would stick with alternative II with the suggestion that M2 be cut 1/2 point both on the top and bottom.",130
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,"In general, I think the case for trying to preserve as much flexibility as we can in 1984 is overwhelming. Therefore, regardless of what we do with the targets themselves, I hope that we as a Committee would be even more willing to look through them to the GNP, the inflation rate, exchange rates, and so on, even though we probably don't want to do that in any more direct way publicly. On the question of M1 as a target or a monitoring range, I'd want to keep it as a monitoring range. Look at the revisions. Forget about velocity, just look at the numbers themselves. Steve, if I read the appendix right, the growth rate for the second half of the year was revised up from 5-1/2 percent by 1-1/2 percentage points. In five of the last six months I think the revisions have raised the monthly growth rate in M1 by 3 percentage points or more. I just have a great deal of trouble hanging my hat on a statistical series with those kinds of properties, particularly since it's my hunch that at least for the first half of 1984, M1 is going to be more noisy because of contemporaneous reserve accounting and the [trickiness] involved, if nothing else, in applying seasonal factors for weeks that end on Monday when they used to end on Wednesday.",276
-fomc-corpus,1984,Is it seasonal or is it revision due to the benchmark mostly?,13
-fomc-corpus,1984,"The ones I'm talking about here are a combination of benchmarks and seasonals, but most of the changes come from seasonals. But when we go into 1984, looking prospectively with CRR, I think it's going to be a noisier series anyway. In addition to that, seasonal factors are going to have to be different in nature because they reflect a week that ends on a different day. So, I would keep M1 as a monitoring range. Generally, I'd be comfortable with the alternative II specifications, although I do have a preference even with M1 as a monitoring range for going to 4 to 7 percent or 3 to 7 percent--it wouldn't matter to me either way--just because I think the lower range might give us a little more flexibility in the event we were faced with a situation in which we thought we had to firm up a bit. So, I could go with alternative II for M2, M3, and debt. And I'd favor alternative I for M1 and would keep M1 in a monitoring status for at least the foreseeable future.",220
-fomc-corpus,1984,Mrs. Horn.,4
-fomc-corpus,1984,"Well, in line with the long-run plan of reducing ranges over time, I could go along with either alternative I or alternative II. If alternative I had the kind of flavor that Henry talked about--or really anything that goes along with more or less a 6 percent path for M1--I would find that satisfactory. I suppose that states my position in one sense on M1: I'd like to raise M1 in importance for reasons that have already been stated. I'd take it seriously and I'd particularly take long-run nominal GNP seriously. But on the way to taking M1 seriously, I'd stop short of any kind of automaticity. That approach has been outlined by several people. My reasons are very much in line with the reasons that Jerry just mentioned and that Lyle mentioned earlier. This is a time when we need a great deal of flexibility in how we interpret [the aggregates] and how we interpret what is happening in the economy. The economic forecast we've just listened to is based on some very strong assumptions. And the economy is very sensitive to those assumptions, not the least of which are the velocity assumption and all the international assumptions and the assumptions on the deficit as well. So, I would argue for alternative I or II, with M1 moved up in importance but, at least within the Committee, for maintaining our flexibility as we might be dealing with any of a wide variety of situations that we haven't yet been able to forecast.",290
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"Thank you, Mr. Chairman. I'd like first of all to ask a question, perhaps directed at Steve. I notice that your seasonal adjustments and benchmark revisions bring the growth rate of M1 for the last 6 months of 1983 to 7.2 percent. But I also note that using the experimental model that you have been tracking over the past year would drop M1 growth from 5.5 percent to 5.3 percent.",91
-fomc-corpus,1984,"We haven't rerun the experimental model yet, so I'm not sure what that will show. It is being checked.",23
-fomc-corpus,1984,"Well, my point is that there's some uncertainty as to the seasonals with respect to our confidence level that M1 grew from the base period at 7.2 percent. Would that be a correct statement?",42
-fomc-corpus,1984,"Yes, except with a caveat: that I don't know what the experimental model will show when that is rerun. We simply haven't had the time.",31
-fomc-corpus,1984,"The experimental model would show a little more rapid growth rate, if the seasonals did not change, because of the benchmark I suppose.",27
-fomc-corpus,1984,"Yes, the benchmark itself does some raising--",9
-fomc-corpus,1984,"Well, it would, certainly.",7
-fomc-corpus,1984,By 1/2 percent or so.,9
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"My only point in asking is that I'm uncertain what the growth rate of M1 has been over the last 6 months, which only adds to the concerns that I have. There are lots of uncertainties, not the least of which is the strength in the economy that we may experience in the first half of 1984 and through the year. And that is coupled with concern about the implementation of CRR and what will come about this week and for the period ahead. I would just note in that regard that the last real big bust that we had in the money supply numbers was at a time when Manufacturers Hanover chose to change its reserve accounting computer program. We missed by a very large amount and it took a while to figure out what caused it. Now we have some 10,000 banks or so that are going to be dealing with CRR. Having said all that, I want to climb on the band wagon or the wagon that Lyle is leading to say that flexibility is perhaps the most important aspect of policy in the next 6 months as far as I'm concerned. As a result, I would not elevate M1 to a target but rather would maintain it as a monitoring range. With regard to the alternatives, I would select alternative II in the Bluebook with the modification of moving the M2 range down another 1/2 point to a 6 to 9 percent range. And if we maintained M1 as a monitoring range rather than a target, I would not object to seeing the M1 range moved down another 1/2 point to 4-1/2 to 7-1/2 percent, which is about half-way between the alternative I and II ranges for that particular aggregate.",346
-fomc-corpus,1984,Mr. Boehne.,6
-fomc-corpus,1984,"I think there's a good bit to what Frank said. I have a lot of doubts about the aggregates. But probably my Midwestern upbringing leads me to where Lyle is, somewhere in the middle. I think we do need the targets, but I would put a great deal of emphasis on the need for judgment in the use of these targets. And I would judge them in the context of what happens to the real sector and credit conditions. I think there is a need for flexibility both because of the lack of dependability of the aggregates and also the uncertainties in the economy. As for M1, I would keep it as a monitoring range. There's probably some case for giving it a little more weight within a monitoring status; there's some evidence that it is beginning at least to move in a direction of behaving itself a little better. But I think the evidence is far from conclusive that it has. I could live either with keeping [its weight] about where it was last year or moving it up a little within a monitoring status, but I don't think there's a case for giving it equal status. Maybe moving it from double probation to single probation might be a good way to [describe it]. I would go with alternative II in the long-range alternatives. The goal for monetary policy [over the] next year ought to be keeping the recovery going. I think the recovery is too young to abort within the context of making cyclical progress against inflation. And, that being my objective, I would not chop off a point or two at the tops of any of these ranges. It seems to me that we may very well need that room at the top and I think we have plenty of room at the bottom. So, I would keep it as it is in alternative II in the Bluebook.",359
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"Well, Mr. Chairman, I'm a little confused by the financial legerdemain of these benchmark and seasonal revisions. But, as I look at them, it appears to me that we have more growth in money than we [thought we] had before but we still have a rather precipitous decline in the second half of last year from the first half--from 12 percent to 7 percent. And that concerns me in terms of the near-term outlook for the economy. I think we have enough momentum to carry us through the first quarter, but we could very likely see some leveling temporarily in the second quarter. Therefore, I would want to see moderate growth in money for the year as a whole. I think the time clearly has come to reinstate the primacy of M1 in our policy directives since it is really the only thing we control and since it has the demonstrated relationship to predicting the economy. I think that CRR coming along gives us a golden opportunity to improve our control over M1. While obviously there's a transitional period to go through, we ought to use this new tool as soon as possible and be willing to see the funds rate fluctuate if that's necessary to control the growth rate of money--which is really the important thing to do. We have made a major move on inflation and it has been at the expense of great pain and misery; and it would be a terrible disaster if we missed the opportunity now to try to continue that improvement. And I think the way to continue that improvement is to tighten the ranges that we apply to the monetary aggregates, particularly M1, and to reduce monetary growth. Therefore, I would be in favor of a 4 to 7 percent range and approximately 6 percent growth in money, which I believe is somewhere between alternative II and alternative III.",362
-fomc-corpus,1984,Alternative II and alternative III?,6
-fomc-corpus,1984,Are you talking about the long run?,8
-fomc-corpus,1984,"Alternatives B and C, I'm sorry.",9
-fomc-corpus,1984,You're talking about the short run.,7
-fomc-corpus,1984,You mean alternatives I and II.,7
-fomc-corpus,1984,"You're looking at the short-run [alternatives], Ted.",12
-fomc-corpus,1984,"I know he is, but he has been talking about the money supply.",15
-fomc-corpus,1984,I think you meant between I and II.,9
-fomc-corpus,1984,Okay.,2
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"Well, I want to agree with Lyle and Henry, if that's possible. In agreement with Lyle, I think that a 9 percent nominal GNP increase for the year would be about right, and I break it down roughly as half price and half real. If it runs substantially above that in either real or price or both, it ought to be stepped on; and if it runs substantially below that, it ought to be given a little care and feeding. So the question is: What aggregates would be consistent with that kind of an economic performance? Now, I want to agree with Henry in the sense that I do believe that M1 has had a pretty reasonable record recently and I can't see anything superior about M2. So, I think M1 should be reestablished as one of our targets but not given primacy. I wouldn't agree with Ted on that, but I'd have it as one of our targets. But we ought to avoid the automaticity that we used from the fourth quarter of '79 to some time in '82. I think that experience indicated that, because of the lags in adjustments in the demand for money and changes in conditions, we really did overshoot on the up side and the down side in that experiment. We need to treat it more gently, along the lines that Tony was talking about [rather than] along the lines that we did in 1979. So, I would put it back very much as it has been done in the alternative directive language the staff proposed. Now, what targets? I don't think we really have a clear view as to what kind of velocity performance to expect in M1 in the coming period. I'm inclined to agree with Henry that it probably will be less of a rise than in the past because of the inclusion of Super NOWs in that category. So I would be reluctant to see us narrow that range of 4 to 8 percent that we have in alternative II. Chances are that growth for the year probably will come in at 6 or 6-1/2 percent, if what I expect to occur in velocity does occur. But there's just too much risk that velocity won't show that much strength as the year goes on. I wouldn't reduce the M2 range from 6-1/2 to 9-1/2 percent because I'm somewhat sensitive to Frank's comment that velocity may not go down for M2 in the year to come. Now, it may be that it was a statistical error that led us to adopt 6-1/2 to 9-1/2 percent before; but having made that statistical error publicly, and having had it accepted, I see no reason not to take the benefit of it and leave it as we did when we talked about ranges for this period initially last July. It gives us just a little more room. For M3 I think 6 to 9 percent is probably okay because in addition to M3 financing there will be borrowing abroad that will give us a little more lift in total institutional credit than the 6 to 9 percent seems to imply. So, I would urge that we reestablish M1 as a co-equal in targeting; that we think in terms of supporting something like a 9 percent nominal GNP increase fourth quarter to fourth quarter; and that we use the ranges specified on page 5 for alternative II as an indication of what we think will be consistent with that.",696
-fomc-corpus,1984,Governor Teeters.,4
-fomc-corpus,1984,"I would agree pretty much with Lyle and Tony, and with some exceptions with Henry and Chuck. We really should give ourselves--as has been said many times--as much flexibility as possible. One of my reasons is that I think the international scene is not going to be like any of the alternative [scenarios] that have been presented. And we will need everything we can have in order to cope with that because I don't think we know what is going to happen out there and what the interrelationships are going to be. I would disagree with Chuck and Henry in that I don't think M1 should be elevated at all. I think M1 is an indication that we have found the wrong interest rates. I feel very strongly that the relationship with monetary policy to gross national product is through the interest rates and not through the Ms and that any change in the rate of growth of the Ms is an indication that we found the wrong interest rate. There are other indications that we found the wrong interest rate as well: whether inflation is going too fast, or business fixed investment is going through the roof, or inventories are out of whack, or a lot of other things. So, I tend to look through the Ms to what is going on in the world out there rather than at the rate of growth. I do not discount them entirely but I give them a fairly low [weight] as they are only one of many indicators of what is happening. I would state that we need to keep [an approach] where we can change interest rates when we think it's necessary. I don't want to go back to pinpointing them. I would follow the procedures that we have used in the last year, moving them gradually in response to changes in economic developments. Given that background, I come down for alternative II. I think that we want to continue the recovery. We need to figure out as we move into the year what the appropriate rates are to do that without choking it off. And this seems to me to give us a lot of flexibility. Also, I would adopt the attitude that if it goes wrong, I'm willing to change the ranges. I just don't think the ranges are all that important that they should restrict us as a corset would to some dictate of policy.",455
-fomc-corpus,1984,Governor Rice.,3
-fomc-corpus,1984,"Mr. Chairman, initially I was inclined to support giving more weight to M1 as a nod to the tendency of its velocity to move toward normality. But I was talked out of it pretty much by Steve and by Lyle. Steve reminded me, although he shouldn't have had to do that, that if interest rates turn out to be significantly different from the outlook for them at the moment, we really don't know what will happen to the NOWs and Super NOWs. Therefore, the behavior of M1 and its velocity are much more unreliable than I think we should accept. Given the need to keep the aggregates within our stated ranges, I would not want to give more weight to M1 in the sense of putting it on an equal plane with M2 and M3. I think we should wait a little longer and have more observations or indications of how it's really going to behave before we rehabilitate it and give it equal weight. So, I would keep M1 as a monitoring variable and monitor its performance rather than rehabilitate it as a target. I also would support alternative II for the reasons that we established those ranges initially. Alternative II does allow for some reduction in the target ranges in the direction of price stability. Also, it seems to me that alternative II provides the best chance of maintaining market conditions pretty much as they are now. Alternatives I and III would risk significant changes in interest rates and I would not like to see that happen over the foreseeable future. I think the best chance for maintaining the recovery and a steady expansion is to maintain steady money market conditions at the present time. I would, however, reduce the range for M2 from the 6-1/2 to 9-1/2 percent [shown under alternative II] to 6 to 9 percent, mainly because it would represent an effective 1/2 point reduction, which it does not now. And that would make it more consistent with the reductions in the ranges of the other aggregates.",399
-fomc-corpus,1984,Governor Martin.,3
-fomc-corpus,1984,"It seems to me that one message that comes rather clearly from our discussion is that we have the usual difficulties of forecasting, projecting, and tracking what are in some cases new relationships between and among variables here and that we have an even wider range of probable outcomes around any kind of forecast assumptions this time than is typical. Add to that the difficulty of looking ahead at the interaction among unknown relationships themselves and we're really in terra incognita here. We really don't know when it comes to the elasticity of some components of M1 what the new market situation will be, given changes in exchange rates and given changes in interest rates. We don't know what sort of impact the money fund competitors and the thrift institution competitors will have. That compounds to me the uncertainties of the elasticities. In such a situation, of course, we are subject to the disequilibrium impact of shocks. The Argentines haven't come to the table yet; the Brazilians can come back with demands for concessions; and some kind of disturbance could arise from international credits having to be written down over some period of time. Translate that into what might be required in terms of domestic lending from write-downs of that sort. I only mention this to indicate that we need the flexibility that the Volcker standard would give us. Therefore, I argue for utilizing the bit of additional knowledge we seem to have with regard to velocities in the Humphrey-Hawkins testimony on a verbal basis rather than restoring M1 to the pantheon. I don't believe the markets have ever given up M1. As far as the markets are concerned, I think they project M1 into our targeting. I'm not sure there has ever been very much of a belief in our monitoring it. If we put it back on Olympus, the market will say that is the Federal Reserve's target; the Federal Reserve has no others.",371
-fomc-corpus,1984,"If it's put on a co-equal basis, it will become primary.",15
-fomc-corpus,1984,"If it's co-equal, I think they will read that as primary, Tony. I would stress it a bit more in testimony and in other presentations to the public and that will in effect make it co-equal. I think one must be extremely careful with regard to the handling of M1 for another reason and that is that we are as an organization, after all, a creature of Congress. The Congressional consideration of the monetary aggregates has been one of a heightened degree of skepticism. Therefore, if we aren't sure, why should we subject ourselves to the possible pressure to go to some other kind of perhaps unreachable target such as the unemployment rate? With regard to the alternatives, I would join the majority here with regard to alternative II. I'd leave [the M1 range at] 4 to 8 percent, where it is. My druthers would be to raise it to 4 to 9 percent, but 4 to 8 percent is a signal to the world that we are still aiming toward longer-range disinflation, whereas 4 to 9 percent might give a different signal. I would leave [the M2 range at] 6-1/2 to 9-1/2 percent, right where it is, for reasons of the Volcker standard. I'd like to have all the flexibility we can get there, particularly when we still have a good many unknowns. As I mentioned before, it is the possibility of shocks and unknowns that troubles me about changing that. So, I vote for alternative II as is.",314
-fomc-corpus,1984,[Unintelligible] 17 good men and 2 [good] women. Mr. Keehn.,23
-fomc-corpus,1984,"Well, if there's any word that's consistent in all of our comments it is the word ""flexibility."" I concur that we are at a point where we need a maximum amount of flexibility and that we ought to preserve our options as long as we can. I might do it a bit differently: I would raise M1 from a monitoring status, and I would rather deemphasize M2 and M3.",82
-fomc-corpus,1984,Make them all monitoring ranges? Where is Mr. Morris?,12
-fomc-corpus,1984,"That is a way of saying that I would prefer the [Bluebook] alternative for the directive that accomplishes that but with softer language. We can change the words to shift the emphasis in a way that I would suggest. It just seems to me that if we're working with three [variables] we have more options and more flexibility than if we're working with two. But having said that, I think we certainly are in a period and will continue to be in a period where we're going to want to look through all of this to the underlying economy and to use the flexibility that I hope we will be able to accomplish by choosing this particular alternative. With regard to the specifics, I'd be in favor of alternative II. I'd prefer the broader range, the 4 to 8 percent range, [for M1]. Again, I think it's consistent with a higher level of flexibility. The 6-1/2 to 9-1/2 percent range for M2 is reasonable, but I would be in favor of using M1 to a higher degree than we have, and I'd be in favor of alternative II.",225
-fomc-corpus,1984,Mr. Black.,4
-fomc-corpus,1984,"Mr. Chairman, a while ago Chuck said that he thought he agreed with Henry and Lyle; I might go even further and say that I think I agree with parts of what even more people than that have said. I started off this morning thinking the staff was pretty nearly right on real GNP and the unemployment rate, but then I joined Lyle and his cohorts when I concluded that inflation probably will be building over the 1984 period as a result of the usual cost/price pressures we get in an upswing and also as a result of the delayed impact of the large growth in the money supply that we had earlier. That gets to the question--if indeed that's right about what is going to happen--as to the best way to finance that. I think we have to be concerned about the risk that Ted Roberts outlined--that we might in fact have slowed the aggregates down too fast. But I don't believe we've captured all the seasonal factors in that yet, Ted. I think money market mutual funds and MMDAs were used to take care of Christmas payments instead of demand deposits, and since the buildup of demand deposits that we ordinarily had before Christmas didn't happen we took it out [in the seasonally adjusted numbers]. I think we probably will find out later that that was still understated, despite the upward revisions. Also, I think we ought to be concerned about what Lyle said about inflationary pressures and the economy looking pretty strong. I think both possibilities are risks for us. So, I would go with alternative I, which I think is broad enough to take care of both of those risks. I like the idea of restoring this balanced proviso in the directive. Since we're not sure which way the aggregates will behave, we ought to be prepared to act if they go one way just as we should be prepared to act if they go another way. And I like Arabic alternative 2 [in the Bluebook] for the long-run portion of the directive, which would restore more emphasis on Ml.",405
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"Mr. Chairman, I would also put more emphasis on M1, particularly if it were used as Governor Wallich described how he would do that. All of the uncertainties that we have in both the foreign and the domestic situations lead me to fall back on at least what I feel fairly certain about, and that's what the long-run objective should be: price stability. In looking at the various alternatives, alternative I as prescribed in the Bluebook is at least to me more consistent with that than the other two. And I find the rationale used in the Bluebook for explaining alternative I very appealing. From the standpoint of flexibility and judgment, I strongly favor that. I'd favor it even more if it were solely mine! But given the fact that it isn't, it does seem to me that history shows that this Committee has exercised flexibility and judgment as circumstances dictate, so I don't have a great deal of concern that we wouldn't. So, in this uncertain world let's stay with what we've said our primary objective is and that is price stability over time. And if things don't work out under alternative I, we'll do something else.",223
-fomc-corpus,1984,"When you say we exercised judgment, are you referring to good judgment or bad judgment?",17
-fomc-corpus,1984,I think it has been pretty darn good.,9
-fomc-corpus,1984,I'm not sure we have ever said clearly as a Committee that our objective is price stability.,18
-fomc-corpus,1984,No.,2
-fomc-corpus,1984,"We split evenly on that and you didn't vote, Mr. Chairman.",14
-fomc-corpus,1984,What I was saying is that as far as I'm concerned it is the objective.,16
-fomc-corpus,1984,We don't want to clash with Humphrey-Hawkins on this.,14
-fomc-corpus,1984,"Well, I think we can say that price stability is becoming the orphan of this expansion. We're having a lovely expansion if nothing sensational happens to the dollar. But inflation continues to mount. And the suspicions around this table are that it is going to go up more than projected. That is why I think we ought to lean a little on the side of price stability, recognizing that we're not going to get there, of course.",86
-fomc-corpus,1984,I don't mind leaning on the side of price stability but I raise my eyebrows a little at your earlier statement when inflation has done better than we projected.,30
-fomc-corpus,1984,"Well, I mean from here on out.",9
-fomc-corpus,1984,"It's a projection. Do you want to add anything to your earlier comments, Mr. Morris?",19
-fomc-corpus,1984,I thought they were quite comprehensive!,7
-fomc-corpus,1984,"In their way they were, but a little confused--",11
-fomc-corpus,1984,"If you had to pick an alternative, which would it be, Frank?",15
-fomc-corpus,1984,None of the above!,5
-fomc-corpus,1984,"When we talk about the objective of the Committee to move toward price stability, I think the concept of how we do that is important. It seems to me that our objective in this phase of the economic expansion should be to keep the inflation rate from going up above the 4 to 5 percent range, not to try to decelerate the inflation during an economic expansion because I just don't think that's a reasonable objective. But if we can keep it within a 4 to 5 percent range during this expansion, when we come out of the next recession it ought to be in the 2 to 3 percent range. I think that's how we're going to get inflation down. We're deluding ourselves if we think that we can so manage monetary policy that we can have both an expanding economy and a decelerating inflation rate. I don't think in history, at least in the American economic history with which I'm familiar, that that has ever happened.",190
-fomc-corpus,1984,1920.,3
-fomc-corpus,1984,Farm prices in the late '20s.,9
-fomc-corpus,1984,"Farm prices, but not--",6
-fomc-corpus,1984,"OPEC is going to have to play that role for us. Well, we have a variety of comments. I haven't noticed anybody coming out for alternative III, so that narrows the options. I think we ought to return in the morning and see whether we can dispose of this after mulling on these comments. We are scheduled to reconvene at 9:00 in the morning?",78
-fomc-corpus,1984,9:00 a.m. (Executive Session),10
-fomc-corpus,1984,"I tried to draft a somewhat different directive, which is being typed. I would judge that the consensus, when we get down to the language, is to give a little more weight to M1 but not full weight. I think everybody is groping for some combination of flexibility and discipline. Those two things are hard to combine. We can combine them in an individual's mind, but it's a little harder to combine them in a directive. But that seems to be the recurrent theme I heard yesterday.",100
-fomc-corpus,1984,Everybody is for flexibility.,5
-fomc-corpus,1984,And everybody is for discipline.,6
-fomc-corpus,1984,"If you get very flexible, somebody will come and push you.",13
-fomc-corpus,1984,Not if you have a chance.,7
-fomc-corpus,1984,Not if you have flexible discipline. They can't push you but so far.,15
-fomc-corpus,1984,"In terms of numbers, there clearly is a lot of support for just staying about where we were tentatively [in July]. If we wanted to make a little gesture, which is all we are talking about in any of these minor deviations that most people are suggesting, nobody suggested anything more liberal than alternative II but some people said generally they would like one way or another to be a little tighter for either M1 or [M2]. There was not any great consensus for either one of those, but if you added together all the people who thought there should be a little reduction in one or the other, there was some sentiment [in that direction]. In my mind it comes down to taking alternative II to start with. Do we want to reduce the range for either M1 or M2 slightly? It might be going too far, judging from what people said, to reduce both of them. I guess we're talking about a 1/2 point reduction for either of them. There is an argument to reduce M2 if you believe in all the technical analysis.",213
-fomc-corpus,1984,"Psychologically, it makes more sense if we're going to cut 1/2 point to do it on M2 and not M1. First of all, M2 still would be getting greater emphasis than M1 even if we [reinstate some] emphasis on M1. Secondly, if we start using ranges like 4 to 7-1/2 percent, that implies a precision that is [unwarranted for] M1. If we do want to make a tightening gesture, it seems to me that the logic is for making it on M2.",116
-fomc-corpus,1984,"I would certainly support that. After all, we are talking about 4 to 8 percent [for M1 for 1984] versus 5 to 9 percent [for 1983]. Though it might be considered a gesture, we've already made a full percentage point [reduction], which may be a gesture and a half, versus 1/2 point in the [M2 range to] 6-1/2 to 9-1/2 percent.",98
-fomc-corpus,1984,"Well, I'd like you to look at chart 3 [in the Bluebook]. It doesn't say so, but in retrospect it was not a happy move, I think, from the earlier 4 to 8 percent range to the 5 to 9 percent. It proved unnecessary. We're in either range now, and--",66
-fomc-corpus,1984,What do you mean that we're in either range?,10
-fomc-corpus,1984,I'm looking at the M1 chart. If you draw a 4 to 8 percent range in there--,22
-fomc-corpus,1984,For the last year?,5
-fomc-corpus,1984,For the last half of last year; I think it's in chart 3.,16
-fomc-corpus,1984,[M1] is in there.,7
-fomc-corpus,1984,I don't know what you mean. That 4 to 8 percent was a tentative range we put down [last July].,25
-fomc-corpus,1984,He's taking it all the way back.,8
-fomc-corpus,1984,"Well, it's also where we came from. We had 4 to 8 percent--",18
-fomc-corpus,1984,"But we never would have been within that 4 to 8 percent range last year, if that's what you mean.",24
-fomc-corpus,1984,I think he meant just for the last half of the year.,13
-fomc-corpus,1984,The 4 to 8 percent was for the whole year last year and we were way above it.,21
-fomc-corpus,1984,Rebased 4 to 8.,8
-fomc-corpus,1984,"A rebased 4 to 8 percent is what he's talking about instead of rebasing to 5 to 9 percent, I believe, Mr. Chairman.",33
-fomc-corpus,1984,We rebased at that time and I took the same base here. But I don't know that it would come out differently if we went back to the fourth quarter of 1982.,37
-fomc-corpus,1984,"If you go back to the fourth quarter, M1 growth was 10 percent.",17
-fomc-corpus,1984,"Yes, well, that's right.",7
-fomc-corpus,1984,"I have a preference for whole numbers. If we just knock off the halves on the M2 range, it looks like we're not being quite so precise. That's much better than saying we're going to get to a half point--",45
-fomc-corpus,1984,One has to concede it's a round number.,9
-fomc-corpus,1984,It looks as if it's a mysterious act or something.,11
-fomc-corpus,1984,"Well, I would prefer to see [any reduction] come out of M2 than M1.",20
-fomc-corpus,1984,"I'd like to see us tighten the range to something like 4 to 7 percent in consideration of the inauguration of CRR. But I could live with 4 to 8 percent because I think a target of 6 percent is in the right direction, and that's in the middle of that [latter range].",64
-fomc-corpus,1984,"Well, do we have somewhat of a consensus to have the ranges at 4 to 8 percent, 6 to 9 percent, 6 to 9 percent, and I guess 8 to 11 percent [for debt]? I might point out that it bothers me analytically, but I don't know what to do about it, that credit has been growing faster than the GNP in recent years and we just say that's fine and we will continue to have ranges that permit it to grow faster than the GNP. I don't know what the significance of all that is, but I just note it.",123
-fomc-corpus,1984,It violates Ben Friedman's law.,7
-fomc-corpus,1984,"Yes, but if you compete--",7
-fomc-corpus,1984,That's only if you're looking upon it as a possible range. If you're looking upon the debt target as the midpoint--,23
-fomc-corpus,1984,It's a weak credit [measure except] for mergers and acquisitions.,13
-fomc-corpus,1984,"Well, perhaps it would come close to the midpoint, but the staff projections show that its growth will go up. They may be right or wrong. They over-estimated last year, but the current projection--",42
-fomc-corpus,1984,"Well, the debt range could be cut because I think 11 percent is too much.",18
-fomc-corpus,1984,"Well, that's what I say. But the staff has a projection of 10-1/2 percent, if I recall correctly, and that [11 percent] is not much above what they have.",41
-fomc-corpus,1984,I wasn't being entirely facetious. Just in this proposed Texaco takeover of Getty there was $8 billion of bank credit.,25
-fomc-corpus,1984,"It's all the repayment of equity, which doesn't appear in the debt figures.",15
-fomc-corpus,1984,"Well, some of that financing is paid back [unintelligible]; if it replaces equity, obviously it isn't.",24
-fomc-corpus,1984,What did debt actually increase by in '83?,10
-fomc-corpus,1984,Debt was up 10-1/2 percent last year.,13
-fomc-corpus,1984,What was the nominal GNP?,7
-fomc-corpus,1984,10.4 percent.,5
-fomc-corpus,1984,10-1/2 percent.,7
-fomc-corpus,1984,They both increased exactly the same.,7
-fomc-corpus,1984,"Well, last year we anticipated--I remember this discussion--that debt would increase faster than GNP. It did not. We also are anticipating that it will increase faster than GNP this year, rightly or wrongly.",44
-fomc-corpus,1984,The normal relationship is that it should increase about 1 percent faster than GNP in the second year of expansion.,23
-fomc-corpus,1984,"Well, if we lower it, we violate the round number.",13
-fomc-corpus,1984,I don't think we gain anything by lowering it. Nobody's expectations are going to be markedly altered if we leave it where it is or lower it. So why not just leave it?,37
-fomc-corpus,1984,The virtue of leaving it is that we would have something to reduce in the future.,17
-fomc-corpus,1984,"Well, does 4 to 8 percent, 6 to 9 percent, 6 to 9 percent, and 8 to 11 percent capture where we want to be? This may or may not be reflected in what we say in the language, but we are thinking very roughly of M1 somewhere around the middle [of its range]. I say all this with a question mark. What the staff assumes for M2 and M3 is 8 percent and I think their projection for credit is about 10 percent or so.",109
-fomc-corpus,1984,"I think we're rather tight on M2, so we will go over on that one.",18
-fomc-corpus,1984,"Well, let me state it this way. In thinking of testimony I don't want to say we expect to be at the top but if asked why the range wasn't higher I'd say we expect probably to be in the upper half of the range.",48
-fomc-corpus,1984,"Yes, for sure.",5
-fomc-corpus,1984,"Someplace between 7-1/2 to 9 percent is what we expect for M2 and M3 and very tentatively around the middle of the range for M1, but subject to its own [unintelligible]. Well, we have to wait until we get some text to look at. Let me see where the typing stands on the text and have it run through a Xerox machine.",82
-fomc-corpus,1984,"On page [15 of the Bluebook], in paragraph (b), is it appropriate to use language that might put a little more weight on M1 at this stage, Mr. Chairman, or would you rather--?",44
-fomc-corpus,1984,I just want to defer that.,7
-fomc-corpus,1984,Until we get the full text?,7
-fomc-corpus,1984,"I don't know that there's anything much the matter with trying to make it a little fuzzier, frankly, as to precisely what weight [we are placing on M1]. It's clearly more; we wouldn't talk about a monitoring range but would express some uncertainty about it.",53
-fomc-corpus,1984,I'd like to take Frank's suggestion and monitor all three.,12
-fomc-corpus,1984,That would be a step in the right direction.,10
-fomc-corpus,1984,[Unintelligible] the movement of the velocity.,12
-fomc-corpus,1984,"Well, let's see whether we have something we can work from. How are we doing?",18
-fomc-corpus,1984,Not a lot.,4
-fomc-corpus,1984,Why?,2
-fomc-corpus,1984,They are having some problems finding a Xerox machine. Here's the original.,14
-fomc-corpus,1984,This isn't what I'm talking about at all. I'm talking about the directive that Catherine was typing. Trouble finding a Xerox machine?,25
-fomc-corpus,1984,There's one right across the hall.,7
-fomc-corpus,1984,She was typing something. The Xerox machine has been--,11
-fomc-corpus,1984,We have a special Xerox machine in [this corridor] that only the Board Members' secretaries can get to.,23
-fomc-corpus,1984,"It's the building of all word processors, and now we can't--",13
-fomc-corpus,1984,"While we are waiting, is there any way of making the phrase [about international transactions] in the opening sentence somewhat less silly?",26
-fomc-corpus,1984,"I gazed at it and had no conclusion, so I left it. We are always trying.",20
-fomc-corpus,1984,Certainly [unintelligible].,7
-fomc-corpus,1984,"I'm sure of it. ""Any less sustainable""--",10
-fomc-corpus,1984,"""Move back toward a more sustainable""?",8
-fomc-corpus,1984,"Or maybe ""improve.""",6
-fomc-corpus,1984,"""Avoid a catastrophe.""",5
-fomc-corpus,1984,It would be nice to change that sentence if anybody has a [suggestion].,16
-fomc-corpus,1984,"That was put in several years ago, Tony, and we've never been able to change it since then.",21
-fomc-corpus,1984,I wasn't able to rewrite the sentence that was given so I just left it. But the assumption is that it's there and it would be--,28
-fomc-corpus,1984,"""Minimize the damage on the international...."" No, I mean it; that's what we're trying to do.",23
-fomc-corpus,1984,"""Accomplish the roll-over of existing debt.""",11
-fomc-corpus,1984,"Well, to the extent necessary--",7
-fomc-corpus,1984,Can you think of a different phrase? I couldn't think of one last night.,16
-fomc-corpus,1984,"Well, we can say ""to improve international debt.""",11
-fomc-corpus,1984,That says specifically once the dollar is down--,9
-fomc-corpus,1984,"Well, we often do.",6
-fomc-corpus,1984,It's not bad at these levels.,7
-fomc-corpus,1984,It says we're going to do all things.,9
-fomc-corpus,1984,"How about ""and contribute to achieving a sustainable""?",10
-fomc-corpus,1984,"""And contribute to a more sustainable""?",7
-fomc-corpus,1984,That implies it's sustainable.,5
-fomc-corpus,1984,"Yes, but it implies it now, just barely.",11
-fomc-corpus,1984,Contribute to an improved pattern? I don't know how we do that.,15